PART I
ITEM l. BUSINESS
GENERAL
Pennsylvania Gas and Water Company ("PG&W"), a subsidiary of Pennsylvania
Enterprises, Inc. ("PEI"), was incorporated in Pennsylvania in 1867 as Dunmore
Gas & Water Company. PG&W is an operating public utility regulated by the
Pennsylvania Public Utility Commission (the "PPUC") and is engaged in gas
utility operations and water utility operations in northeastern Pennsylvania.
As of December 31, 1993, PG&W had approximately 137,200 gas customers and
131,400 water customers.
PG&W has four small wholly-owned subsidiaries: Trucksville Water Company,
Shavertown and Kingston Township Water Company, Hillcrest Water Co. and Homesite
Water Company, which are engaged in the distribution of water, and one wholly-
owned subsidiary, Penn Gas Development Co., which was organized to promote the
use of natural gas primarily by assisting in the financing of the development of
property but which has been inactive in recent years.
During recent years, PG&W's gas utility operations have generated about 75%
of PG&W's operating revenues and slightly more than half its operating income.
PG&W's gas operating revenues are highly seasonal and depend on certain
factors that are beyond its control, such as the price of natural gas and the
availability of markets for natural gas. Other factors include the weather, the
effect of federal and state regulation, the effect of competition from other
forms of energy, including electricity and oil, and the switching of customers
to Pennsylvania produced gas. See "GAS BUSINESS-Transportation and Storage
Service." During 1990 and 1991, PG&W's earnings from its gas utility operations
were adversely affected by unseasonably warm weather. The number of heating
degree days in 1990 and 1991 were 15.7% and 12.4%, respectively, below normal.
However, the number of heating degree days for 1992 and 1993 were only 3.1% and
1.8%, respectively, below normal.
Primarily as a result of the PPUC's approval since January 1, 1991, of rate
increases designed to produce an aggregate of $35.8 million in additional annual
water operating revenues, PG&W expects that its future water operating revenues
and water operating income will represent a greater portion of its total
operating revenues and operating income. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations" in Item 7 of this
Form 10-K and "Industry Segments."
As of December 31, 1993, PG&W employed approximately 975 persons. Certain
of these employees also perform services for PEI and its subsidiaries, since
certain of those companies have no employees other than officers.
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INDUSTRY SEGMENTS
The following tables set forth certain financial information concerning
PG&W's industry segments for the years indicated.
<TABLE>
<CAPTION>
Year Ended December 31,
1991 1992 1993
(Thousands of Dollars)
<S> <C> <C> <C>
GAS UTILITY OPERATIONS
Operating revenues $138,465 $143,227 $153,325
Operating expenses excluding income taxes:
Cost of gas 77,801 77,720 86,557
Depreciation 5,545 6,087 6,388
Other operating expenses 32,760 34,031 34,927
Total 116,106 117,838 127,872
Operating income before income taxes 22,359 25,389 25,453
Income taxes 3,920 6,129 6,307
Operating income $ 18,439 $ 19,260 $ 19,146
Additions to utility plant $ 9,359 $ 12,669 $ 13,325
Identifiable assets at December 31 (a) $229,593 $238,017 $285,596
WATER UTILITY OPERATIONS
Operating revenues $ 44,285 $ 48,651 $ 53,363
Operating expenses excluding income taxes:
Depreciation 4,234 4,769 5,911
Other operating expenses 26,022 27,347 29,292
Deferred treatment plant costs, net (664) (294) (1,532)
Total 29,592 31,822 33,671
Operating income before income taxes 14,693 16,829 19,692
Income taxes 1,439 2,176 2,682
Operating income $ 13,254 $ 14,653 $ 17,010
Additions to utility plant $ 19,155 $ 44,352 $ 32,575
Identifiable assets at December 31 (a) $310,374 $379,989 $426,389
TOTAL OPERATIONS
Operating revenues $182,750 $191,878 $206,688
Operating expenses excluding income taxes:
Cost of gas 77,801 77,720 86,557
Depreciation 9,779 10,856 12,299
Other operating expenses 58,782 61,378 64,219
Deferred treatment plant costs, net (664) (294) (1,532)
Total 145,698 149,660 161,543
Operating income before income taxes 37,052 42,218 45,145
Income taxes 5,359 8,305 8,989
Operating income $ 31,693 $ 33,913 $ 36,156
Additions to utility plant $ 28,514 $ 57,021 $ 45,900
Identifiable assets at December 31 (a) $539,967 $618,006 $711,985
Other assets at December 31 (b) 24,550 11,866 14,323
Total assets $564,517 $629,872 $726,308
(a) Includes allocated common plant and is net of the respective accumulated
depreciation.
(b) Composed primarily of investments, cash and special deposits, a $15.0
million intercompany advance to PEI in 1991, which was repaid in January,
1992, prepayments and unallocated deferred charges.
</TABLE>
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Operating income from gas utility operations increased $821,000 (4.5%) from
$18.4 million in 1991 to $19.3 million in 1992, due primarily to a $4.8 million
increase in gross margin (gas operating revenues less the cost of gas), the
effect of which was largely offset by increases in other operating expenses,
depreciation and income and gross receipts taxes. Operating income from gas
utility operations decreased $113,000 (0.6%) from $19.3 million in 1992 to $19.1
million in 1993, primarily as a result of increases in other operations and
maintenance expenses, depreciation, and income and gross receipts taxes, the
effects of which were largely offset by a $1.3 million increase in the gross
margin. The lower level of additions to gas utility plant in 1991 was
principally the result of variations in the timing of expenditures for mains and
services.
Operating income from water utility operations increased $1.4 million
(10.6%) from $13.3 million in 1991 to $14.7 million in 1992, due primarily to
the rate increases which the PPUC allowed for customers in the Scranton Water
Rate Area effective March 23, 1991, and for customers in the Spring Brook Water
Rate Area served exclusively by the Nesbitt Water Treatment Plant effective
January 30, 1992. These increased revenues were partially offset by increases
in other operating expenses, depreciation, property and income taxes. Operating
income from water utility operations increased $2.4 million (16.1%) from $14.7
million in 1992 to $17.0 million in 1993. This increase was primarily the
result of rate increases effective (i) March 9, 1993, for customers in the
Spring Brook Water Rate Area served exclusively by the Crystal Lake Water
Treatment Plant, (ii) June 23, 1993, for customers in the Scranton Water Rate
Area and (iii) December 16, 1993, for customers in the Spring Brook Water Rate
Area served by the Ceasetown and Watres Water Treatment Plants, the effects of
which were partially offset by increases in other operations and maintenance
expenses, depreciation, and income and property taxes. Additions to water
utility plant increased in 1992, and decreased in 1993, largely as result of the
timing of expenditures with respect to the Crystal Lake, Ceasetown and Watres
Water Treatment Plants in the Spring Brook Water Rate Area.
GAS BUSINESS
PG&W distributes natural gas to an area in northeastern Pennsylvania lying
within the Counties of Lackawanna, Luzerne, Wyoming, Susquehanna, Columbia,
Montour, Northumberland, Lycoming, Union and Snyder, a territory that includes
115 municipalities, in addition to the cities of Scranton, Wilkes-Barre and
Williamsport. The total estimated population of PG&W's natural gas service
area, based on the 1990 U.S. Census, is 561,000.
Number and Type of Customers. At December 31, 1993, PG&W had approximately
137,200 natural gas customers, from which it derived total natural gas revenues
of $153.3 million during 1993. The following chart shows a breakdown of the
types of customers and the percentages of gas revenues generated by each type of
customer in 1993:
[CAPTION]
Type of Customer % of Customers % of Revenues
[S] [C] [C]
Residential 91.7% 60.2%
Commercial 7.9 22.0*
Industrial 0.2 16.2*
Other Users 0.2 1.6
Total 100.0% 100.0%
* Includes the 4.9% of total gas revenues derived from interruptible
customers.
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During 1993, PG&W delivered an estimated total of 43,700,000 thousand cubic
feet ("MCF") of natural gas to its customers, of which 62.8% was sold at normal
tariff rates, 33.7% represented gas transported for customers and 3.5% was sold
under the Alternate Fuel Rate (as described below).
PG&W sells gas to "firm" customers with the understanding that it will not
interrupt their supply except during periods of supply deficiency or emergency
conditions. "Interruptible" gas customers are required to have equipment
installed capable of using an alternate energy form. Interruptible customers,
therefore, do not require a continuous supply of gas and their supply can be
interrupted by PG&W at any time under the conditions set forth in their
contracts for gas service. In 1993, a total of 1,729,000 MCF of natural gas was
sold by PG&W to interruptible customers and 2,888,000 MCF was transported for
such customers, which together represented 10.6% of the total deliveries of
natural gas by PG&W to its customers during 1993.
PG&W's largest natural gas customer accounted for approximately 4.5% of its
total gas operating revenues in 1993. No other customer accounted for as much
as 2.0% of such revenues.
Transportation and Storage Service. Commencing in 1986, PG&W began
providing transportation service to those natural gas customers, or groups of
not more than three customers, who consumed at least 50,000 MCF of natural gas
per year and executed a transportation agreement with PG&W. Pursuant to
regulations adopted by the PPUC, PG&W amended its gas transportation
regulations, effective March 25, 1993, to permit groups of up to ten customers,
with a combined consumption of at least 5,000 MCF per year, to qualify for
transportation service. Transportation service is provided on both a firm and
an interruptible basis and includes provisions regarding over and under
deliveries of gas on behalf of the respective customer. In addition, PG&W
offers transportation customers a "storage service" pursuant to which such
customers may have gas delivered to PG&W during the period from April through
October for storage and redelivery during the winter period. PG&W also offers
firm transportation customers a "standby service" under the terms of which PG&W
will supply the customer with gas in the event the customer's transportation
service is interrupted or curtailed by its broker, supplier or other third
party.
Set forth below is a summary of the gas transported by PG&W and the number
of its customers using transportation service from 1991 to 1993:
[CAPTION]
Number Volume of Gas Transported (MCF)
of Interstate Pennsylvania
Year Customers Gas Gas Total
[S] [C] [C] [C] [C]
1991 352 12,278,000 3,114,000 15,392,000
1992 457 9,084,000 3,843,000 12,927,000
1993 569 10,078,000 4,627,000 14,705,000
During 1994, PG&W expects to transport approximately 17,400,000 MCF of
natural gas, of which it anticipates approximately 5,500,000 MCF will be
Pennsylvania gas.
The rates charged by PG&W for the transportation of interstate gas are
essentially equal to its tariff rates for the sale of gas with all gas costs
removed. As a result, the transportation of interstate gas has had no
significant adverse effect on earnings. However, the rate charged for the
transportation of gas produced in Pennsylvania yields considerably less revenue
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than the gross margin (gas operating revenues less the cost of gas) that would
be realized from sales under normal tariff rates. This lower rate for the
transportation of Pennsylvania gas is the result of regulations adopted by the
PPUC to encourage the production of natural gas within the state, and it caused
net income to decrease by approximately $402,000 or $.11 per share for the year
ended December 31, 1991, by $578,000 or $.15 per share for the year ended
December 31, 1992, and by $553,000 or $.13 per share for the year ended December
31, 1993, compared to the net income that would have been realized had the
customers receiving Pennsylvania transportation gas taken their gas under the
same tariffs as which they were supplied gas in the prior year.
Alternate Fuel Sales. In order to be more competitive in terms of price
with certain alternate fuels, PG&W offers an Alternate Fuel Rate for eligible
customers. This rate applies to large commercial and industrial accounts that
have the capability of using No. 2, 4 or 6 fuel oil or propane as an alternate
source of energy. Whenever the cost of such alternate fuel drops below the cost
of natural gas at PG&W's normal tariff rates, PG&W is permitted by the PPUC to
lower its price to these customers so that PG&W can remain competitive with the
alternate fuel. However, in no instance may PG&W sell gas under this special
arrangement for less than its average commodity cost of gas purchased during the
month. PG&W's revenues under the Alternate Fuel Rate amounted to $2.9 million
in 1991, $3.4 million in 1992 and $4.6 million in 1993. These revenues
reflected the sale of 900,000 MCF, 1,149,000 MCF and 1,541,000 MCF in 1991, 1992
and 1993, respectively. It is anticipated that approximately 1,530,000 MCF will
be sold under the Alternate Fuel Rate in 1994. The change in volumes sold under
the Alternate Fuel Rate reflects the switching by certain customers between
alternate fuel service and transportation service as a result of periodic
changes in the relative cost of natural gas and alternate fuels.
FERC Order 636. On April 8, 1992, the Federal Energy Regulatory Commission
("FERC") issued Order No. 636 ("Order 636"), requiring interstate pipeline
suppliers to restructure their services and operations in an attempt to enhance
competition and maximize the benefits of wellhead price decontrol. The
objectives of Order 636 are to be accomplished primarily by unbundling the
services (i.e., the sale, transportation and storage of gas) provided by the
interstate pipeline suppliers and by making those services available to end
users on the same terms as local gas distribution companies, such as PG&W.
Pursuant to Order 636, the interstate pipelines have been required to: (1)
unbundle transportation service from sales service; (2) allocate sufficient
storage capacity, together with firm transportation, to replicate existing sales
services; (3) provide a no-notice transportation service; (4) provide open
access storage service; (5) reallocate upstream pipeline capacity and upstream
storage for the benefit of downstream interstate pipeline suppliers; and (6)
implement a straight fixed-variable rate design to replace all modified fixed-
variable rate designs. The interstate pipelines have been granted a blanket
sales certificate to make unbundled sales in competition with non-pipeline
merchants and are being permitted recovery of all reasonable and prudent
transition costs incurred in order to comply with Order 636. Such transition
costs include: (1) the cost of renegotiating existing gas supply contracts with
producers ("Gas Supply Realignment Costs"); (2) recovery of gas costs included
in the interstate pipelines' purchased gas adjustment accounts at the time they
adopted market-based pricing for gas sales ("Account 191 Costs"); (3)
unrecovered costs of assets that cannot be assigned to customers of unbundled
services ("Stranded Costs"); and (4) costs of new facilities to physically
implement Order 636 ("New Facility Costs"). Additionally, the interstate
pipelines have been allowed pre-granted abandonment of sales and transportation
services to customers upon expiration of applicable contracts, subject to
customers' rights of first refusal.
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One of PG&W's interstate pipelines, Tennessee Gas Pipeline Company,
commenced operating under the provisions of Order 636 as of September 1, 1993,
and PG&W's two other interstate pipelines, Columbia Gas Transmission Corporation
and Transcontinental Gas Pipe Line Corporation, began operating under the
provisions of Order 636 as of November 1, 1993. PG&W entered into new
transportation and storage agreements with each of its three interstate pipeline
companies as of the respective date they commenced operating under Order 636,
and all prior sales and transportation agreements and the majority of the prior
storage agreements were concurrently terminated. It is currently estimated that
the aggregate transition costs which PG&W will be billed by its three interstate
pipelines pursuant to Order 636 will range between $11.0 million and $14.0
million, of which $1.0 million had been billed as of December 31, 1993. Such
billings will generally be made by the three interstate pipelines over a three-
year period extending through the fourth quarter of 1996.
On October 15, 1993, the PPUC adopted an order (the "Order") regarding
recovery of FERC Order 636 transition costs. The Order states the PPUC believes
that the recovery of Account 191 and New Facility Costs are subject to recovery
through the annual purchased gas cost ("PGC") rate filing made with the PPUC by
PG&W and other similar local gas distribution companies. The Order also
indicates that while Gas Supply Realignment Costs and Stranded Costs are not
natural gas costs eligible for recovery under the PGC rate filing mechanism,
such costs are subject to full recovery by local distribution companies through
the filing of a tariff pursuant to either the existing surcharge or base rate
provisions of the Pennsylvania Public Utility Code (the "Code"). The Order
further states that all such filings will be evaluated on a case-by-case basis.
As of February 1, 1994, PG&W began to recover the Account 191 and New Facility
Costs that are being billed by its interstate pipelines through an increase in
its PGC rate. Additionally, on January 14, 1994, PG&W filed tariffs pursuant to
the surcharge provisions of the Code seeking the full recovery of the Gas Supply
Realignment and Stranded Costs that it estimates it will be billed by its
interstate pipelines. On February 24, 1994, the PPUC suspended the
effectiveness of these proposed tariffs for six months (i.e., until August 28,
1994) in order to institute an investigation into the reasonableness of such
tariffs. Although it cannot be certain, based on the provisions of the Order,
PG&W believes it will be allowed the full recovery of all transition costs
billed to it pursuant to Order 636.
Sources of Supply. PG&W currently purchases natural gas both under the
terms of monthly spot purchases and longer-term (i.e., one to five years) supply
arrangements that provide for an adjustment each month in the price of gas
purchased pursuant thereto (collectively referred to as "spot market
purchases"). During 1993, PG&W also purchased a portion of its natural gas
under long-term supply contracts with its interstate pipelines prior to the
dates those contracts were terminated as a result of Order 636. Of the total
volume of natural gas purchased by PG&W in 1993, 3,700,000 MCF (12.4%) was
acquired from its interstate pipelines (of which 3,400,000 MCF was purchased
under former long-term supply contracts) and 26,200,000 MCF (87.6%) was acquired
from other sources, including marketers, producers, and integrated energy
companies. The largest of these other sources, a Canadian marketer, accounted
for 17.7% of PG&W's total purchases of natural gas in 1993.
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The spot market purchases of natural gas by PG&W during each of the years
1991, 1992 and 1993 are summarized below:
[CAPTION]
Volume Average Percentage of
Year Purchased (MCF) Cost per MCF Total Purchases
[S] [C] [C] [C]
1991 17,762,000 $2.08 73.5%
1992 21,323,000 $2.61 71.0%
1993 26,200,000 $2.98 87.6%
During 1994, PG&W expects to purchase a total of approximately 29,330,000
MCF of natural gas on the spot market under contracts ranging from one month to
five years in duration at a currently projected average cost of $3.27 per MCF.
These spot market purchases will constitute all of the natural gas that PG&W
anticipates purchasing in 1994.
PG&W presently has adequate supplies of natural gas to meet the demands of
existing customers through April, 1994 (i.e., the end of the 1993/94 heating
season), and believes that it will be able to obtain sufficient supplies in the
future to meet the demands of its existing customers and to supply new
customers, of which approximately 3,000 are expected to be added in 1994.
Pipeline Transportation and Storage Entitlements. Pursuant to the terms of
Order 636, PG&W entered into agreements with its former interstate pipeline
suppliers during 1993 providing for the firm transportation by those pipelines
of the following quantities of gas:
[CAPTION]
Daily Percentage of Total
Expiration Transportation Transportation
Pipeline Date (a) Entitlement (MCF) Entitlement
[S] [C] [C] [C]
Transco Various through 2015 74,100 (b) 55.5%
Tennessee 1999 and 2000 48,252 36.2
Columbia 2004 11,016 8.3
133,368 100.0%
(a) Agreements are automatically extended from month-to-month or year-
to-year after their expiration unless notice of termination is given
by one of the parties and PG&W agrees to such termination. In no
event may any of the agreements be unilaterally terminated by the
pipelines without the approval of the FERC.
(b) PG&W can transport an additional 3,300 MCF per day during the period
December through February pursuant to an agreement with Transco that
extends through 2011.
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PG&W has also contracted with its former interstate pipeline suppliers for
the following volumes of gas storage and storage withdrawals:
[CAPTION]
Maximum
Expiration Total Storage Daily Withdrawal
Pipeline Date (a) (MCF) (b) From Storage (MCF)
[S] [C] [C] [C]
Transco Various through 2013 6,500,000 131,044
Tennessee November 1, 2000 3,500,000 23,031
Columbia October 31, 2004 1,100,000 16,036
11,100,000 170,111
(a) Agreements are automatically extended from month-to-month or year-
to-year after their expiration unless notice of termination is given
by one of the parties and PG&W agrees to such termination. In no
event may any of the agreements be unilaterally terminated by the
pipelines without the approval of the FERC.
(b) Storage is utilized in order to meet peak day and seasonal demands.
Based on its present pipeline transportation and storage entitlements, PG&W
is entitled to a maximum daily delivery of the following quantities of gas:
[CAPTION]
Firm Pipeline Withdrawals
Transportation From Storage Percentage
Pipeline (MCF) (MCF) Total (MCF) of Total
[S] [C] [C] [C] [C]
Transco 74,100 (a) 131,044 205,144 67.6%
Tennessee 48,252 23,031 71,283 23.5
Columbia 11,016 16,036 27,052 8.9
133,368 170,111 303,479 100.0%
(a) Includes 3,300 MCF that may be transported during the period
December through February.
In accordance with the provisions of Order 636, PG&W may release to its
customers and other parties the portions of its firm pipeline transportation and
storage entitlements which are in excess of its requirements. Such releases may
be made upon notice in accordance with the provisions of Order 636 and for a
consideration not in excess of PG&W's cost of the respective entitlement.
Releases may be made for periods ranging from one day to the remaining term of
the entitlement.
Since September 1, 1993, PG&W has released portions of its firm pipeline
transportation capacity to certain of its customers and third parties for
varying periods extending up to one year. The maximum capacity so released on
any one day in 1993 was 27,942 MCF. Through March 23, 1994, PG&W had not,
however, released any of its storage capacity.
PG&W believes that it has sufficient firm pipeline transportation and
storage entitlements to meet the demands of its existing customers and to supply
new customers.
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Peak Day Requirements. PG&W plans for peak day demand on the basis of a
daily mean temperature of 0 degrees Fahrenheit. Requirements for such a design
peak day are currently estimated to be 288,396 MCF. Based upon present pipeline
transportation and storage contracts, and assuming no curtailments by its
suppliers, PG&W could meet a peak day requirement of 303,295 MCF. PG&W's
historic maximum daily sendout is 293,683 MCF, which occurred on January 19,
1994. The mean temperature in its gas service area on that day was -8 degrees
Fahrenheit.
Construction Expenditures. PG&W's construction expenditures for gas utility
plant in 1993 totaled $13.3 million and are estimated to be $17.0 million for
1994. The higher level of expenditures estimated for 1994 reflects certain
long-term pipeline improvement programs, as well as an increased emphasis on new
business development.
Valve Maintenance. On November 16, 1993, the PPUC staff issued an Emergency
Order, subsequently ratified by the PPUC (the "Emergency Order"), requiring PG&W
by January 31, 1994, to survey its gas distribution system to verify the
location and spacing of its gas shut off valves, to add or repair valves where
needed and to establish programs for the inspection and maintenance of all such
valves and the verification of all gas service line information. The Emergency
Order was issued following the occurrence of two gas incidents (one concerning
an explosion and the other a fire) in PG&W's service area in June and October,
1993, respectively, involving nearby gas shut off valves that had been paved
over by third parties and could not be readily located due to alleged inaccurate
service line records. The Emergency Order also cited four additional incidents
occurring since January 31, 1991, in which shut off valves had been paved over
or records were inaccurate. In connection with these incidents, the PPUC has
alleged that PG&W has violated certain federal and state regulations related to
gas pipeline valves. The PPUC has the authority to assess fines for such
violations. The PPUC ordered PG&W to develop a plan, including a timetable, by
December 30, 1993, for compliance with the terms of the Emergency Order. PG&W
met the December 30, 1993, deadline for submission of this plan. However, PG&W
included in such plan, a timetable, which, in effect, requested an extension of
the January 31, 1994, deadline contained in the Emergency Order, which PG&W
viewed as unrealistic. On February 2, 1994, the PPUC staff notified PG&W that
it considers the plan submitted by PG&W "only a general plan of action to
address the problem with valving in [PG&W's] system" and that the plan "is
lacking in detail and more information is needed." As a result, the PPUC staff
indicated that it intends to initiate an informal investigation of the matter,
including PG&W's responsibility for the incidents referred to in the Emergency
Order. Although it is not presently possible to determine what action the PPUC
will ultimately take with respect to possible violations of law and the matters
raised by the Emergency Order, PG&W does not believe that compliance with, or
any liability that might result from such violations or the Emergency Order will
have a material adverse effect on its financial position or results of
operations.
Take-or-Pay Liabilities. FERC Order 500 issued in August, 1987, contains
regulations for the sharing by customers of interstate pipeline companies, such
as PG&W, of take-or-pay liabilities and associated contract renegotiation costs
incurred by those pipeline companies. Take-or-pay liabilities represented
amounts owed by pipeline companies to producers under the terms of contracts
which required that the pipeline companies pay for specified quantities of gas,
even though such gas was not actually taken. Order 500 provides that customers
of the pipeline companies may be charged as much as 75% of the take-or-pay
liabilities of the pipeline companies. In December, 1989, a Federal court ruled
that certain provisions of Order 500 relating to the allocation of take-or-pay
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costs were in violation of the Natural Gas Act. As a result, on November 1,
1990, the FERC issued Order 528 which includes guidelines for revised methods of
allocating take-or-pay costs. It is currently estimated that the provisions of
Orders 500 and 528 regarding the sharing of take-or-pay liabilities will result
in PG&W being charged as much as $18.1 million over a six-year period from 1988
through 1994. This figure, however, is subject to change based upon changes in
the take-or-pay obligations of PG&W's interstate pipeline suppliers and PG&W's
levels of transportation services and purchases from its interstate pipelines.
As of December 31, 1993, PG&W had been billed $17.2 million by its pipelines for
take-or-pay liabilities.
On April 27, 1990, PG&W filed an application with the PPUC seeking approval
to recover 90% ($13.9 million based on then current estimates) of its total
take-or-pay liabilities, and $250,000 of related carrying costs, through
billings to customers generally over a four-year period beginning June 1, 1990.
The PPUC approved this application, effective June 1, 1990. The surcharge by
which PG&W bills its customers for take-or-pay costs is to be adjusted annually
as of June 1, to reflect changes in PG&W's total estimated liability for take-
or-pay costs (which is currently projected to be as much as $18.1 million) and
the portion of such costs remaining to be recovered from its customers. In
accordance with the PPUC's Order, PG&W has agreed to absorb a portion of its
take-or-pay liabilities. The amount to be absorbed by PG&W and reflected as
cost of gas is currently estimated to approximate $1.8 million, substantially
all of which had been charged to expense as of December 31, 1993. As of
December 31, 1993, PG&W had billed $14.8 million of take-or-pay costs to its
customers, and as of such date had deferred $1.1 million of such costs,
including related carrying charges, for future billing to customers.
Rates. As required by the Code, PG&W files an annual purchased gas cost
rate with the PPUC. This rate is designed to recover purchased gas costs for
the period it will be in effect. The procedures include a process for the
reconciliation of actual gas costs incurred and actual revenues received and
also provide for the refund of any overcollections, plus interest thereon, or
the recoupment of any undercollections of gas costs. The procedure is limited
to purchased gas costs, to the exclusion of other rate matters, and requires a
formal evidentiary proceeding conducted by the PPUC, the submission of specific
information regarding gas procurement practices and specific findings of fact by
the PPUC regarding the "least cost fuel procurement" policies of the utility.
In accordance with these procedures, PG&W placed a purchased gas cost rate of
$3.74 per MCF in effect on December 1, 1993, and is required to file a proposed
purchased gas cost rate on or before June 1, 1994, to be effective December 1,
1994. It is not presently possible to estimate how this proposed rate will
compare to the current purchased gas cost rate of $3.74 per MCF, which is
scheduled to remain in effect through November 30, 1994. The annual changes in
gas rates on account of purchased gas costs have no effect on PG&W's earnings
since the change in revenue will be offset by a corresponding change in the cost
of gas.
The PPUC has issued proposed regulations that would provide for the
quarterly adjustment of the purchased gas cost rate of larger gas distribution
companies, including PG&W. Except for reducing the amount of any over or
undercollections of gas costs, the adoption of these proposed regulations would
not have any material effect on either PG&W's or PEI's financial position or
results of operations.
Order 636, among other matters, requires that PG&W contract for sufficient
gas supplies, pipeline capacity and storage for its annual needs. These added
responsibilities may result in increased scrutiny by the PPUC as to the prudence
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of PG&W's gas procurement and supply activities. Depending upon how the PPUC
views the cost effectiveness of such activities, PG&W may not be permitted to
recover all of its gas supply costs in the rates charged to customers. However,
although it cannot be certain, PG&W believes that it will be able to demonstrate
to the satisfaction of the PPUC the prudence of its gas supply costs and,
therefore, will be allowed to recover all such costs.
Tax Surcharge Adjustments. The PPUC allows PG&W to apply a state tax
adjustment surcharge tariff to its bills for gas service to recoup any increased
taxes resulting from changes in the law with respect to the Pennsylvania Capital
Stock Tax, Corporate Net Income Tax, Gross Receipts Tax or Public Utility Realty
Tax. In accordance with such procedure, PG&W filed a revised state tax
adjustment surcharge tariff with the PPUC which became effective August 24,
1991, to reflect the effect of tax legislation enacted by the Commonwealth of
Pennsylvania on August 4, 1991, increasing each of the above-referenced state
taxes. Effective October 22, 1993, such state tax adjustment surcharge was
rolled into PG&W's base gas rates, as ordered by the PPUC, and currently no
state tax adjustment surcharge is applied to PG&W's bills for gas service.
Regulation. PG&W's natural gas utility operations are regulated by the
PPUC, particularly as to utility rates, service and facilities, accounts,
issuance of certain securities, the encumbering or disposition of public utility
properties, the design, installation, testing, construction, and maintenance of
PG&W's pipeline facilities and various other matters associated with broad
regulatory authority.
In addition to those regulations promulgated by the PPUC, PG&W must also
comply with federal, state and local regulations relating generally to the
discharge of materials into the environment or otherwise relating to the
protection of the environment. Compliance with such regulations has not had any
material effect upon the capital expenditures, earnings or competitive position
of PG&W's gas business. Although it cannot predict the future impact of these
regulations, PG&W believes that any additional expenditures and costs made
necessary by them would be fully recoverable through rates.
PG&W, like many gas distribution companies, once utilized manufactured gas
plants in connection with providing gas service to its customers. None of these
plants have been in operation since 1960, and several of the plant sites are no
longer owned by PG&W. Pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), PG&W filed notices with the
Environmental Protection Agency (the "EPA") with respect to the former plant
sites. None of the sites is or was formerly on the proposed or final National
Priorities List. The EPA has conducted site inspections and made preliminary
assessments of each site and has concluded that no further remedial action is
planned. While this conclusion does not constitute a legal prohibition against
further regulatory action under CERCLA or other applicable federal or state
laws, PG&W does not believe that additional costs, if any, related to these
manufactured gas plant sites will be material to its financial position or
results of operations.
PG&W is a subsidiary of PEI, which was formed in 1974 when PG&W restructured
its operations by creating a parent company (PEI) with two groups of
subsidiaries: one group, including PG&W and its water subsidiaries, is regulated
by the PPUC; the other group is not so regulated.
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<PAGE>
PEI is a "holding company" within the meaning of the Public Utility Holding
Company Act of 1935, as amended ("PUHCA"), but it is exempt, pursuant to Section
3(a) of the PUHCA, from all the provisions of the PUHCA (except Section 9(a)(2)
thereof) and the rules and regulations promulgated thereunder.
PG&W's gas distribution and transportation activities are not subject to the
Natural Gas Act, as amended.
WATER BUSINESS
PG&W distributes water to an area lying within the Counties of Lackawanna,
Luzerne, Susquehanna and Wayne, which includes the Cities of Scranton and
Wilkes-Barre and 62 other municipalities. The total estimated population of
PG&W's water service area, based on the 1990 U.S. Census, is 398,000.
Number and Type of Customers. At December 31, 1993, PG&W had approximately
131,400 water customers from which it derived total water revenues of $53.4
million during 1993. The following chart shows a breakdown of the types of
customers and the percentages of water revenues they generated in 1993:
[CAPTION]
Type of Customer % of Customers % of Revenues
[S] [C] [C]
Residential 91.6% 63.3%
Commercial 7.1 16.9
Industrial 0.3 9.2
Municipal and Other Users 1.0 10.6
Total 100.0% 100.0%
Sources of Supply and Safe Yield. The water that PG&W distributes is
furnished by a PG&W-owned water supply system, which includes 43 active and
standby reservoirs and stream intakes located on extensive watershed lands. The
water supply can also be augmented, on a short-term basis, by two pump stations
that can pump water from streams outside the watershed into the reservoir
storage system. The combined "safe yield" of PG&W's active and standby sources
of supply is approximately 88 million gallons per day, and the combined storage
capacity of the reservoir system is estimated by PG&W to be approximately 20
billion gallons. ("Safe yield" is the quantity of water, generally expressed in
million gallons per day, that a source of supply can deliver in extreme drought
conditions.) The average daily delivery into PG&W's water distribution system
during 1993 was approximately 65.9 million gallons. As of December 31, 1993,
the quantity of water held in PG&W's reservoirs was approximately 18.1 billion
gallons or 91.6% of their maximum storage capacity.
PG&W has always been able to provide adequate water supplies to meet the
requirements of its service area and has never issued a mandatory water
conservation directive. PG&W believes it can continue to meet fully the water
supply requirements of its service area in the absence of any extended periods
of severe drought.
The Susquehanna River, one of the major rivers in the Commonwealth of
Pennsylvania, flows through PG&W's service area and has always been considered a
possible source of supply for its service area. Although PG&W is not presently
taking any water from the Susquehanna River and does not have facilities
installed that would permit it to do so, it is currently authorized to withdraw,
on an emergency basis, 15 million gallons per day from the river.
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<PAGE>
Filtration of Water Supplies. All of PG&W's water customers are supplied
with filtered water which meets all federal and state drinking water
regulations. The filtration of PG&W's water supplies is performed at ten water
treatment plants, located throughout PG&W's water service area, which have an
aggregate daily capacity of 101.1 million gallons. The goal of providing all of
PG&W's customers with filtered water was achieved on September 30, 1993, when
the Watres Water Treatment Plant was placed into operation. The Watres Water
Treatment Plant was the last of eight water treatment plants to be constructed
and placed into operation by PG&W during the period 1988 through 1993. Until
the construction of these plants, most of PG&W's water customers were supplied
with treated, but nonfiltered water, obtained from various reservoirs and stream
intakes, although a relatively small percentage of its customers received
filtered water from two previously existing water treatment plants.
Main Replacement and Rehabilitation Program and Other Distribution System
Improvements. PG&W distributes water to customers through approximately 1,675
miles of pipe ranging in size from over 48" in diameter to less than 1" in
diameter. The majority of the water mains in PG&W's distribution system
consists of cast iron or ductile iron pipe. The majority of cast iron pipe is
unlined. Approximately 54% (based on linear feet of pipe of all diameters) of
PG&W's water mains were installed prior to 1920 and approximately 30% were
installed prior to 1900.
In 1987, PG&W completed a review of its distribution system designed to
ascertain the general nature and the approximate cost of improvements that would
be required for a complete distribution system main rehabilitation. In
performing the study, PG&W made certain assumptions as to the general structural
condition of its system. It did not request outside engineering assessments of
the entire system. Using the criteria developed in the distribution system
assessment as a guide, PG&W preliminarily estimated the cost of complete
distribution system main replacement and/or rehabilitation to be approximately
$248 million at 1987 price levels.
Based upon this assessment, PG&W determined that embarking on a program to
accomplish total distribution system rehabilitation in a relatively short span
of time would not be a cost effective means of improving water quality. PG&W
determined that the most substantial opportunities for improvement of water
quality lay in the filtration of PG&W's sources of water supply. In view of the
large commitment of capital needed to construct water treatment plants, rapid
implementation of a distribution system rehabilitation program would divert
financial resources from, and cause delays in, the construction of those
facilities. Consequently, PG&W developed a program of rehabilitation to be
implemented on a more modest scale, which PG&W believes will address the
conditions that are most likely to cause degradation of water quality in the
distribution system as hereafter explained. To further assure that all of
PG&W's water customers receive adequate quantities of aesthetically pleasing,
palatable water, which meets all federal and state drinking water regulations,
PG&W has initiated a program for the selective replacement and rehabilitation of
water mains and services and the elimination of dead-end lines. This program
involved the expenditure of $46.2 million during the period 1988 through 1993
and satisfied the terms of the settlement agreement between PG&W and the PPUC
relating to the PPUC's October 23, 1986, Show Cause Order, pursuant to which
PG&W agreed to install an average of 14 miles of mains per year during the
period 1988 through 1992 (which was accomplished) and to remove all lead-lined
services by the end of 1991 (which was accomplished).
PG&W estimates that approximately 30% of the water introduced to its
distribution system is lost through leakage or otherwise cannot be accounted for
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<PAGE>
through identifiable uses. However, PG&W believes that its rate of unaccounted
for water is not uncharacteristic of water systems of similar age, size and
demographics. Unaccounted for water requires PG&W to incur expenses to process
water that is not furnished to customers. While such costs are typically
recoverable in the rates charged to customers, the PPUC has disallowed their
recovery when unaccounted for water reached a level the PPUC determined to be
unreasonable. The PPUC, in a 1989 Policy Statement on water conservation for
water utilities, stated that levels of unaccounted for water should be kept
within reasonable levels. Although the PPUC has considered levels above 20% to
be excessive in certain circumstances, there is no industry standard for
unaccounted for water levels. In a 1990 decision involving another Pennsylvania
water utility, the PPUC recognized that historic unaccounted for water problems
could not be resolved immediately and that a utility would not be penalized if
it were making substantial progress toward achieving the 20% unaccounted for
goal. PG&W believes that it has made substantial progress in identifying
sources of water loss in its system through the implementation of an aggressive
leak detection program in conjunction with an ongoing main replacement program.
For the years 1994 through 1996, PG&W intends to expend an average of $9.8
million per year for water distribution system improvements, primarily the
replacing or cleaning and lining of mains. Such replacement and cleaning and
lining of mains will focus on the areas of highest priority and will be based on
the criteria set forth in the 1987 distribution system assessment, which will be
updated by June, 1994, in accordance with the PPUC's June 23, 1993, Order
allowing PG&W a conditional rate increase for the Scranton Water Rate Area. See
"-Management's Discussion and Analysis of Financial Condition and Results of
Operations-Rate Matters-Water Rate Filings." As part of the settlement
resolving certain disputed issues relating to such Order, PG&W has agreed to
spend a total of $4.9 million annually beginning June 23, 1993 (an additional
$2.5 million over its actual average annual expenditure of $2.4 million during
the three-year period ended June 30, 1993), for distribution system improvements
in the Scranton Water Rate Area until the PPUC is satisfied that PG&W is
providing adequate service. This additional expenditure is included in the $9.8
million that PG&W is planning to spend annually on distribution system
improvements subsequent to 1993.
Federal and State Water Quality Standards. The Federal Safe Drinking Water
Act of 1974 (the "Act") regulates the quality of drinking water provided to the
public. Pursuant to the Act, the EPA has issued regulations relating to, among
other things, water quality standards, maximum contaminant levels and monitoring
requirements and prohibitions against the use of lead in distribution systems.
As permitted by the Act, the Pennsylvania Department of Environmental Resources
(the "DER") has assumed primacy for enforcement of drinking water standards in
Pennsylvania. PG&W has taken action to comply with these regulations and does
not anticipate any impact on its water operations as a result thereof.
Treatment and Testing of Water. All water entering PG&W's distribution
system is filtered, disinfected, and treated with chemicals to minimize
corrosion of the distribution system and customers' piping. Water samples are
taken at each of the intake stations and at selected locations in PG&W's service
area, and turbidity is monitored at each location at which the water enters the
distribution system. PG&W operates a laboratory which is certified by the DER
to perform microbiological, inorganic and organic chemical analyses of the water
in both its reservoirs and distribution system, utilizing a scheduled sampling
program. Such analyses include those tests required by the DER, and the results
of such tests are reported to the DER as required by law.
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<PAGE>
Construction Expenditures. PG&W's construction expenditures for water
utility plant in 1993 totaled $32.6 million, and are estimated to be $29.8
million for 1994. The lower level of capital expenditures estimated for 1994 is
primarily attributable to completion of the Ceasetown and Watres Water Treatment
Plants in 1993.
Rates. The following table summarizes PG&W's requests for water rate
increases and the action taken by the PPUC on those requests from January 1,
1991, to March 23, 1994:
<TABLE>
<CAPTION>
Amount Increase
Date of Requested Effective Granted
Service Area Request (in millions) Date (in millions)
<S> <C> <C> <C> <C>
Scranton (filtered water
customers) June, 1990 $ 25.5 March, 1991 $ 15.0 (1)
(subject to
phase-in)
Spring Brook (customers
served water exclusively
from the Nesbitt Water
Treatment Plant) April, 1991 2.6 January, 1992 1.9 (1)
Spring Brook (customers
served water exclusively
from the Crystal Lake
Water Treatment Plant) June, 1992 4.4 March, 1993 2.0 (1)
(subject to
phase-in)
Scranton (filtered water
customers) September, 1992 9.9 June, 1993 5.0 (1)
Spring Brook (customers
served water exclusively
from the Ceasetown and
Watres Water Treatment
Plants) April, 1993 19.5 December, 1993 11.9 (1)
(subject to
phase-in)
</TABLE>
(1) See "-Management's Discussion and Analysis of Financial Condition and
Results of Operations-Rate Matters-Water Rate Filings."
The rate relief granted in the past to PG&W by the PPUC has been less than
the full amounts requested. Generally, the amounts granted have been determined
through negotiated settlements with certain parties to the proceedings in order
to obtain rate relief earlier than expected and to avoid the substantial
expenses associated with further administrative and possible appellate
proceedings. PG&W believes it will be able to obtain adequate future rate
relief as it makes further improvements to its distribution system and is able
to demonstrate it is providing water that is suitable for all "household
purposes", i.e., meeting federal and state primary (health-related) and
secondary (aesthetics-related, particularly taste, odor and color) drinking
water standards, and that meets all applicable water quality standards.
The magnitude of the projected rate increases that will be required to
enable PG&W to fully recover its capital expenditures associated with the
construction of the water treatment plants will be significant. Prior to the
construction of the plants, the average annual cost of water to PG&W's customers
receiving nonfiltered water was approximately $143. The average annual cost of
water to PG&W's residential customers receiving filtered water as of March,
1994, is approximately $340. PG&W anticipates that this cost will increase to
approximately $475 in the latter part of this decade, at which time PG&W expects
to have been allowed by the PPUC to fully reflect in rates its costs associated
with the filtration of its water supplies. PG&W believes that these levels of
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<PAGE>
increases, in terms of percentages, will not be inconsistent with those that
have been or will be experienced by other water utilities required to make a
similar transition to filtered water; however, the magnitude of future rate
increases is such that the PPUC, to reduce consumer "rate shock," may require
that any such rate increases be phased-in over a period of time. While PG&W
expects that the PPUC will grant it adequate rate relief in a timely manner,
there can be no assurance that the PPUC will take such action.
Tax Surcharge Adjustments. The PPUC allows PG&W to apply a state tax
adjustment surcharge tariff to its bills for water service to recoup any
increased taxes resulting from changes in the law with respect to the
Pennsylvania Capital Stock Tax, Corporate Net Income Tax or Public Utility
Realty Tax. In accordance with such procedure, PG&W filed a revised state tax
adjustment surcharge tariff with the PPUC which became effective August 24,
1991, to reflect the effect of tax legislation enacted by the Commonwealth of
Pennsylvania on August 4, 1991, increasing each of the above-referenced state
taxes. Effective October 22, 1993, such state tax adjustment surcharge was
rolled into PG&W's base water rates, as ordered by the PPUC, and currently no
state tax adjustment surcharge is applied to PG&W's bills for gas service.
Regulation. PG&W's water utility operations are regulated by the PPUC,
particularly as to utility rates, service and facilities, accounts, issuance of
certain securities, the encumbering or disposition of public utility properties
and various other matters associated with broad regulatory authority.
PG&W, in common with most industrial enterprises, is subject to regulation
with respect to the environmental effects of its operations. In addition to the
PPUC, the principal agency having regulatory authority over PG&W's water
operations is the DER, which has jurisdiction, among other matters, concerning
water rights, sources of supply, the design and construction of waterworks, the
quality of drinking water and the safety of dams.
In addition to those regulations promulgated by the PPUC, PG&W must also
comply with federal, interstate compact, state and local regulations relating
generally to the discharge of materials into the environment, or otherwise
relating to the protection of the environment. Compliance with such regulations
has not had any material effect upon the capital expenditures, earnings or
competitive position of PG&W's water business. Although it cannot predict the
future impact of these regulations, PG&W believes that any additional
expenditures and costs made necessary by them will be fully recoverable through
rates.
Interest of Luzerne County in Possible Purchase of Certain of PG&W's Water
Operations. During 1993, Luzerne County, Pennsylvania (the "County"), expressed
interest in the possible formation of an authority for the purpose of purchasing
PG&W's water operations in the County, where approximately 55% of PG&W's water
customers reside, and PG&W provided certain data to the County for a preliminary
feasibility study. On February 4, 1994, the County announced that it was no
longer considering the feasibility of purchasing such water operations and that
it had dissolved the special committee formed for that purpose.
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ITEM 2. PROPERTIES
Gas. PG&W's gas system consists of approximately 2,159 miles of
distribution lines, nine city gate and 67 major regulating stations and
miscellaneous related and additional property. PG&W believes that its gas
utility properties are adequately maintained and in good operating condition in
all material respects. Continued expenditures will, however, be required with
regard to PG&W's on-going valve maintenance program. See "Business-Gas
Business-Valve Maintenance."
Most of PG&W's gas utility properties are subject to mortgage liens securing
certain funded debt. These properties are subject to a first mortgage lien
pursuant to the Indenture of Mortgage and Deed of Trust dated as of March 15,
1946, as supplemented by twenty-eight supplemental indentures (collectively, the
"Indenture") from PG&W to Morgan Guaranty Trust Company of New York, as Trustee,
and a second mortgage lien pursuant to a Subordinate Open End Mortgage, Security
Agreement, Assignment of Leases, Rents and Profits, Financing Statement and
Fixture Filing, dated as of September 10, 1991 (the "Intercreditor Mortgage"),
from PG&W to Swiss Bank Corporation, New York Branch ("SBC"), as Collateral
Agent, which secures PG&W's obligations under the Letter of Credit Agreement
dated as of December 1, 1987, as amended, between PG&W and SBC.
Water. PG&W's water system consists principally of 43 active and standby
reservoirs and stream intakes, ten water treatment plants, various distribution
system storage tanks, approximately 1,675 miles of aqueducts and pipelines, and
miscellaneous related and additional property. In addition, PG&W owns
approximately 53,000 acres of land situated in northeastern Pennsylvania,
approximately 70% of which is used in connection with its water utility
operations.
From time to time, PG&W engages in the sale of non-watershed land and other
physical property. Proposed legislation in Pennsylvania, if enacted, would
require water utilities to obtain the PPUC's prior approval for the transfer of
any watershed land (as defined) and would require the PPUC to credit to
ratepayers 50% of the net proceeds (as defined) of any sale, lease or other
transfer of such land permitted by the PPUC. PG&W currently anticipates that it
will realize average gross profits of approximately $600,000 per year through
1996 from sales of non-watershed land and other physical property. Sales on
non-watershed lands and other physical property would not be subject to the
proposed legislation; however, there can be no assurance that the proceeds
ultimately received will inure exclusively to the benefits of PEI's
shareholders.
In PG&W's opinion, its water utility properties are adequately maintained
and in good operating condition in all material respects. Continued capital
expenditures will nonetheless be required for PG&W's on-going program of water
main replacement and rehabilitation and other improvements to ensure the
integrity of PG&W's distribution system. See "Business-Water Business-Main
Replacement and Rehabilitation Program and Other Distribution System
Improvements."
Most of PG&W's water utility properties are subject to mortgage liens
securing certain funded debt. These water utility properties are subject to a
first mortgage lien pursuant to the Indenture. Additionally, certain of these
properties are subject to a second mortgage lien (the "PENNVEST Mortgage")
pursuant to a loan agreement, dated October 16, 1987, between PG&W and the
Pennsylvania Water Facilities Loan Board and pursuant to loan agreements, dated
March 3, 1989, December 3, 1992, and April 5, 1993, between PG&W and the
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<PAGE>
Pennsylvania Infrastructure Investment Authority, which were primarily used to
finance the construction of certain water facilities. These properties are also
subject to a second or third mortgage lien (depending on whether they are
subject to the PENNVEST Mortgage) pursuant to the Intercreditor Mortgage.
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ITEM 3. LEGAL PROCEEDINGS
Construction Litigation
On April 22, 1992, a complaint was filed in the Court of Common Pleas of
Lackawanna County, Pennsylvania, by the Quandel Group Inc. ("Quandel") against
PG&W in connection with the construction of PG&W's Brownell Water Treatment
Plant. In its complaint, Quandel, the general contractor for the project, made
various allegations and sought approximately $1.3 million in damages, plus
interest. PG&W answered the complaint and also filed a counterclaim against
Quandel seeking approximately $1.6 million in damages and expenses for failure
of Quandel to complete construction of the Brownell Water Treatment Plant in a
timely and proper manner. Also, PG&W joined Gannett-Fleming Water Resources
Engineers, Inc. (Gannett-Fleming), the designer of the project, as an additional
defendant in this action. On January 25, 1994, Quandel and PG&W reached an
agreement settling Quandel's claim against PG&W and PG&W's counterclaim against
Quandel on terms that had no material impact on PG&W's results of operations or
financial position. Additionally, as part of this settlement, Quandel agreed to
indemnify PG&W for any liability arising out of Quandel's claim against
Gannett-Fleming in this action, which is still pending, or otherwise relating to
the construction of the Brownell Water Treatment Plant.
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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1993, there were no matters submitted to a vote
of security holders of the registrant through the solicitation of proxies or
otherwise.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Registrant's common stock is owned entirely by PEI and is not traded.
The dividends per share of common stock paid by PG&W during the years ended
December 31, 1992 and 1993, were as follows:
[CAPTION]
1992 1993
[S] [C] [C]
First quarter $ .705 $ .7100
Second quarter .670 .7100
Third quarter .705 .7100
Fourth quarter .460 .6925
Total $ 2.540 $2.8225
Information relating to restriction on the payment of dividends by PG&W is
set forth in Note 7 to the Financial Statements in Item 8 of this Form 10-K.
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ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS
The following table expresses certain items in PG&W's Statements of Income
contained in Item 8 of this Form 10-K as percentages of total operating revenues
for each of the calendar years ended December 31, 1991, 1992 and 1993.
<TABLE>
<CAPTION>
Percentage of Operating Revenues
Year Ended December 31,
1991 1992 1993
<S> <C> <C> <C>
Operating Revenues:
Gas 75.8% 74.6% 74.2%
Water 24.2 25.4 25.8
Total operating revenues 100.0 100.0 100.0
Operating Expenses:
Cost of gas 42.6 40.5 41.9
Other operation expenses 19.9 19.8 18.8
Maintenance and depreciation 10.6 10.2 10.5
Deferred treatment plant costs, net (0.4) (0.1) (0.7)
Income and other taxes 10.0 12.0 12.1
Total operating expenses 82.7 82.4 82.6
Operating Income 17.3 17.6 17.4
Other Income, Net 0.6 - 0.3
Interest Charges 11.8 10.9 9.9
Dividends on Preferred Stock 2.3 2.6 3.1
Earnings Applicable to Common Stock 3.8% 4.1% 4.7%
</TABLE>
o Year ended December 31, 1993, compared with year ended December 31, 1992
Operating Revenues. Operating revenues of PG&W increased $14.8 million
(7.7%) from $191.9 million for 1992 to $206.7 million for 1993.
Gas operating revenues increased by $10.1 million (7.1%) from $143.2 million
for 1992 to $153.3 million for 1993, primarily as a result of price increases
averaging 6.8% ($9.5 million on an annual basis) effective December 1, 1992, and
19.0% ($28.8 million on an annual basis) effective December 1, 1993, due to
increased costs of purchased gas. Also contributing to the increase in gas
operating revenues in 1993 was an 840 million cubic feet (3.9%) increase in
sales to residential and commercial heating customers. Although heating degree
days* were 1.8% lower than normal during 1993, they were 0.7% higher than in
1992. The effect of the price increases and colder weather on gas operating
revenues were partially offset by the switching of certain commercial and
industrial customers from sales to transportation service.
* A heating degree day ("degree day") represents each degree by which the
average of the high and low temperatures for a given day is below 650
Fahrenheit. Actual degree days represent the sum of the degree days for the
period.
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Water operating revenues increased by $4.7 million (9.7%) from $48.7 million
for 1992 to $53.4 million for 1993. This increase in revenues was largely the
result of rate increases which the Pennsylvania Public Utility Commission (the
"PPUC") allowed PG&W, including a $2.0 million annual rate increase effective
March 9, 1993, for customers in the Spring Brook Water Rate Area served
exclusively by the Crystal Lake Water Treatment Plant, a $5.0 million annual
rate increase effective June 23, 1993, for customers in the Scranton Water Rate
Area, and an $11.9 million annual rate increase effective December 16, 1993, for
customers in the Spring Brook Water Rate Area served by the Ceasetown and Watres
Water Treatment Plants, as more fully explained below under "-Rate Matters-Water
Rate Filings."
Operating Expenses. Operating expenses, including depreciation and income
taxes, increased $12.6 million (8.0%) from $158.0 million for 1992 to $170.5
million for 1993. As a percentage of operating revenues, total operating
expenses increased from 82.4% during 1992 to 82.6% during 1993. Operating
expenses related to PG&W's gas utility operations increased by $10.2 million
(8.2%) from $124.0 million in 1992 to $134.2 million in 1993, primarily as a
result of an $8.8 million increase in the cost of gas. Operating expenses
related to PG&W's water utility operations increased by $2.4 million (6.9%) from
$34.0 million in 1992 to $36.4 million in 1993, primarily as a result of
increased operation and maintenance costs, depreciation and taxes, the effects
of which were partially offset by a $1.2 million increase in deferred treatment
plant costs.
The cost of gas increased $8.8 million (11.4%) from $77.7 million for 1992
to $86.6 million for 1993. The effect of this increase, which was the result of
higher costs for purchased gas, was partially offset by a 2.7% (797 thousand
cubic feet) decrease in the volume of gas sold during 1993 compared to 1992.
This decreased volume was largely attributable to the aforementioned switching
of customers from sales to transportation service. The gross margin on gas
operations (gas operating revenues less the cost of gas) increased $1.3 million
or 2.0% in 1993, primarily as a result of the increased sales to residential and
commercial heating customers due to the colder weather experienced in 1993.
Other than the cost of gas and income taxes, operating expenses increased by
$3.0 million (4.2%) from $71.9 million for 1992 to $75.0 million for 1993. This
increase was largely attributable to a $1.3 million increase in other taxes,
principally as a result of increased gross receipts tax (resulting from the
higher level of gas revenues) and increased property taxes (resulting from the
construction of the Ceasetown and Watres Water Treatment Plants). Also
contributing to this increase was a $1.6 million increase in other operations
and maintenance expenses, primarily as a result of a $1.5 million increase in
payroll costs, as well as a $1.4 million increase in depreciation (primarily as
a result of capital additions and the change in March, 1993, from a 4% compound
interest to a straight-line method of depreciation with respect to water plant
in the Crystal Lake Service Area). The effects of such increases were partially
offset by a $1.2 million increase in net deferred treatment plant costs during
1993, as more fully discussed below.
Income taxes increased by $684,000 (8.2%) from $8.3 million in 1992 to $9.0
million in 1993 due to a higher level of income before income taxes (for this
purpose, operating income net of interest charges) and the change, from 34% to
35%, in the federal corporate income tax rate on taxable income in excess of
$10.0 million. This increase was the result of the enactment of the Omnibus
Budget Reconciliation Act of 1993 (the "1993 Tax Act") on August 10, 1993. The
provisions of the 1993 Tax Act, which are retroactive to January 1, 1993,
increased PG&W's income tax expense by approximately $124,000 for the year 1993.
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The effects of the increased income before income taxes and the higher federal
income tax rate were partially offset by the impact (approximately $668,000) of
the nontaxable equity portions of the allowance for funds used during
construction ("AFUDC") and of the deferred treatment plant carrying charges that
were recorded during 1993. See "-Other Income, Net."
Deferred Treatment Plant Costs and Carrying Charges. Pursuant to an Order
of the PPUC entered September 5, 1990, PG&W deferred all operating expenses,
including depreciation and property taxes, and the carrying charges (equivalent
to the AFUDC) relative to the four new Scranton Area water treatment plants and
related facilities from the dates of commercial operation of the plants until
March 23, 1991, the effective date of the Scranton Area water rate increase
approved by the PPUC on March 22, 1991. By its Order entered June 23, 1993,
relative to the Scranton Water Rate Area, the PPUC granted PG&W's request to
recover the $5.1 million of costs so deferred with respect to the Scranton Area
water treatment plants and related facilities over a ten-year period beginning
June 23, 1993, of which $304,000 had been recovered as of December 31, 1993.
Similarly, as permitted by an Order of the PPUC entered September 24, 1992,
PG&W has deferred all operating expenses, including depreciation and property
taxes, and the carrying charges relative to the Crystal Lake Water Treatment
Plant and related facilities from August 3, 1992 (the date of commercial
operation of that plant), until March 9, 1993, the effective date of the water
rate increase approved by the PPUC on February 25, 1993, for customers in PG&W's
Spring Brook Water Rate Area served exclusively by the Crystal Lake Water
Treatment Plant. Additionally, in accordance with an Order of the PPUC entered
July 28, 1993, PG&W has deferred all expenses and the carrying charges relative
to the Ceasetown and Watres Water Treatment Plants and related facilities
incurred prior to December 16, 1993, the effective date of the water rate
increase approved by the PPUC on December 15, 1993, for customers served by the
Ceasetown and Watres Water Treatment Plants.
As of December 31, 1993, a total of $4.6 million of costs, consisting of
$424,000 of operating expenses and $745,000 of carrying charges relative to the
Crystal Lake Water Treatment Plant and related facilities and $1.7 million of
expenses and $1.7 million of carrying charges relative to the Ceasetown and
Watres Water Treatment Plants and related facilities, had been so deferred
pursuant to the respective PPUC Orders permitting the deferral of such costs.
As contemplated by the PPUC's Orders of September 24, 1992, and July 28,
1993, PG&W will seek recovery of the costs relative to the Crystal Lake,
Ceasetown and Watres Water Treatment Plants and related facilities that have
been deferred pursuant to such Orders in its next rate increase request relating
to the Spring Brook Water Rate Area. Although it cannot be certain, PG&W
believes that the recovery of such costs will be allowed by the PPUC in future
rate increases, particularly in view of the PPUC's action allowing the recovery
of the costs deferred with respect to the Scranton Area water treatment plants
and related facilities.
Operating Income. As a result of the above, total operating income
increased by $2.2 million (6.6%) from $33.9 million for 1992 to $36.2 million
for 1993, but decreased as a percentage of total operating revenues for such
periods from 17.6% in 1992 to 17.4% in 1993. Operating income from gas utility
operations decreased $114,000 (0.6%) from $19.3 million in 1992 to $19.1 million
in 1993, primarily as a result of increases in other operations and maintenance
expenses, depreciation, and income and gross receipts taxes, the effects of
which were partially offset by a $1.3 million increase in the gross margin.
Operating income from water utility operations increased $2.4 million (16.1%)
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from $14.7 million in 1992 to $17.0 million in 1993. This increase was
primarily the result of rate increases effective March 9, 1993, June 23, 1993,
and December 16, 1993, as well as the deferral of costs relative to the Crystal
Lake, Ceasetown and Watres Water Treatment Plants and related facilities, the
effects of which were partially offset by increases in other operations and
maintenance expenses, depreciation, and income and property taxes, as discussed
above.
Other Income, Net. Other income, net increased from $30,000 in 1992, to
$560,000 in 1993, primarily as a result of a $734,000 allowance for equity funds
used during construction and an approximate $821,000 equity component of
deferred treatment plant carrying charges. In prior years, PG&W had calculated
both the AFUDC and deferred treatment plant carrying charges based on the
interest rates of its bank borrowings and other relevant indebtedness. This
increase was partially offset by the net interest expense associated with the
unutilized portion of the proceeds from the issuance on December 22, 1992, of
the Luzerne County Industrial Development Authority (the "Authority") Exempt
Facilities Revenue Bonds, 1992 Series B (Pennsylvania Gas and Water Company
Project) (the "1992 Series B Bonds"). See "-Liquidity and Capital Resources-
Long-Term Debt and Capital Stock Financings." The proceeds from the issuance of
the 1992 Series B Bonds were deposited in a construction fund held by PNC Bank
(formerly Northeastern Bank of Pennsylvania), as trustee for the 1992 Series B
Bonds (the "IDA Trustee"), pending their utilization to finance the construction
of various additions and improvements to PG&W's water facilities for which
construction commenced subsequent to September 23, 1992. Interest expense
relative to the funds so utilized for the benefit of PG&W is reflected as
interest on long-term debt. The interest expense relating to the portion of the
funds held by the IDA Trustee, net of the income earned on the temporary
investment of such funds, is reflected in other income, net.
Interest Charges. Interest charges decreased by $572,000 (2.7%) from $21.0
million for 1992 to $20.4 million for 1993. This decrease was largely
attributable to a higher level of deferred treatment plant carrying charges
associated with the Crystal Lake, Ceasetown and Watres Water Treatment Plants
and related facilities, the effect of which was partially offset by increased
interest on long-term debt.
Although the weighted average interest rate on indebtedness decreased from
8.88% during 1992 to 7.93% during 1993, interest on long-term debt increased by
$1.6 million (8.4%) from $18.9 million during 1992 to $20.5 million during 1993.
This increase was largely attributable to increased indebtedness to finance the
construction of various additions and improvements to PG&W's water utility
plant. The weighted average indebtedness outstanding during 1993 was $288.2
million as compared to $229.7 million during 1992. Largely offsetting the
effect of this increase was a lower level of interest expense incurred during
1993 in connection with overcollections from PG&W's gas customers.
Dividends on Preferred Stock. Dividends on preferred stock increased $1.4
million (27.6%) from $5.1 million in 1992, to $6.5 million in 1993, as a result
of the issuance by PG&W of 250,000 shares of its 9% cumulative preferred stock,
$100 par value, on August 18, 1992.
Earnings Applicable to Common Stock. Earnings applicable to common stock
increased $1.9 million (24.7%) from $7.9 million ($2.02 per share) for the year
ended December 31, 1992, to $9.8 million ($2.36 per share) for the year ended
December 31, 1993. The increased earnings in 1993 were the result of the
matters discussed above, primarily the increases in water operating revenues
resulting from the rate increases which the PPUC allowed PG&W effective March 9,
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1993, June 23, 1993, and December 16, 1993, and the increase in gross margin on
gas operations resulting from higher levels of sales to residential and
commercial heating customers. The effects of these factors were partially
offset by increases in operating expenses and dividends on PG&W's preferred
stock.
The earnings per share for the year ended December 31, 1993, increased
16.8%, compared to the similar period in 1992, as a result of the 24.7% increase
in earnings applicable to common stock and the 6.9% increase in the weighted
average number of shares outstanding during 1993, primarily as a result of
PG&W's sale of 834,000 shares of common stock to Pennsylvania Enterprises, Inc.
("PEI"), the parent company of PG&W, on October 27, 1993.
o Year ended December 31, 1992, compared with year ended December 31, 1991
Operating Revenues. Operating revenues of PG&W increased by $9.1 million
(5.0%) from $182.8 million for 1991 to $191.9 million for 1992.
Gas operating revenues increased by $4.7 million (3.4%) from $138.5 million
for 1991 to $143.2 million for 1992, primarily as a result of increased sales to
residential and commercial heating customers. The effect on revenues of these
increased sales was partially offset by a price decrease averaging 14.8% ($20.8
million on an annual basis) effective December 1, 1991, due to decreased costs
of purchased gas. Although heating degree days were 3.1% lower than normal
during 1992, they were 10.7% higher than in 1991. Largely because of the colder
weather and the addition of approximately 2,800 new customers, total gas
deliveries for the year were 8.0% higher than in 1991.
Water operating revenues increased by $4.4 million (9.9%) from $44.3 million
for 1991 to $48.7 million for 1992. This increase was primarily the result of
an approximate 110.0% rate increase which the PPUC allowed PG&W effective March
23, 1991, for customers in the Scranton Water Rate Area, and an approximate
46.0% rate increase which the PPUC allowed PG&W effective January 30, 1992, for
customers in the Spring Brook Water Rate Area served exclusively by the Nesbitt
Water Treatment Plant. These increases were designed to produce additional
annual revenue of $16.9 million, as more fully explained below under "-Rate
Matters-Water Rate Filings."
Operating Expenses. Operating expenses, including depreciation and income
taxes, increased $6.9 million (4.6%) from $151.1 million for 1991 to $158.0
million for 1992. As a percentage of operating revenues, total operating
expenses decreased from 82.7% during 1991 to 82.4% during 1992. Operating
expenses related to PG&W's gas utility operations increased by $3.9 million
(3.3%) from $120.0 million in 1991 to $124.0 million in 1992, primarily as a
result of increased operating costs, depreciation and income taxes. Operating
expenses related to PG&W's water utility operations increased by $3.0 million
(9.6%) from $31.0 million to $34.0 million in 1992, primarily as a result of
increased operating costs, depreciation and income taxes.
The cost of gas decreased by $81,000 (0.1%) from $77.8 million for 1991 to
$77.7 million for 1992. This slight reduction was the result of significantly
decreased costs for purchased gas, the effect of which was largely offset by a
21.6% increase (5.2 billion cubic feet) in the volume of gas sold during 1992,
compared to 1991. This increased volume was attributable to colder weather, the
switching of certain industrial customers from transportation to sales service
and the addition of new customers. Exclusive of charges related to take-or-pay
costs absorbed by PG&W, which totaled $554,000 in 1991 and $42,000 in 1992, the
gross margin on gas operations increased $4.3 million or 7.1% in 1992. This
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increase was primarily the result of increased sales to residential and
commercial heating customers because of colder weather.
Other than the cost of gas and income taxes, operating expenses increased by
$4.0 million (6.0%) from $67.9 million for 1991 to $71.9 million for 1992. This
increase was largely attributable to a $1.9 million increase in other taxes,
principally as a result of tax rate increases enacted by the Commonwealth of
Pennsylvania in August, 1991, an increase of $586,000 in the provisions for
self-insurance relating to liability to third parties and for workers'
compensation, and a $1.1 million increase in depreciation, primarily as a result
of capital additions and the change in March, 1991, from a 4.0% compound
interest to a straight-line method of depreciation with respect to certain water
plant. Also contributing to the increase was a $370,000 decrease in deferred
treatment plant costs during 1992. See "-Deferred Treatment Plant Costs and
Carrying Charges."
Income taxes increased by $2.9 million (55.0%) from $5.4 million in 1991 to
$8.3 million in 1992 due to a higher level of income before income taxes (for
this purpose, operating income net of interest charges) and an increase in the
state income tax rate enacted by the Commonwealth of Pennsylvania in August,
1991.
Deferred Treatment Plant Costs and Carrying Charges. As discussed above,
PG&W deferred all operating expenses, including depreciation and property taxes,
and the carrying charges relative to the four new Scranton Area water treatment
plants and related facilities and the Crystal Lake Water Treatment Plant and
related facilities. The deferral of such costs resulted in an increase in
earnings for the years ended December 31, 1991 and 1992, of $923,000 and
$437,000, respectively, net of related income taxes. As of December 31, 1992, a
total of $5.9 million of costs, consisting of $2.3 million of operating expenses
and $2.8 million of carrying charges relative to the Scranton Area water
treatment plants and related facilities, and $294,000 of operating expenses and
$461,000 of carrying charges relative to the Crystal Lake Water Treatment Plant
and related facilities, had been so deferred pursuant to the PPUC's Orders
permitting the deferral of these costs.
Operating Income. As a result of the above, total operating income
increased by $2.2 million (7.0%) from $31.7 million for 1991 to $33.9 million
for 1992, and increased as a percentage of total operating revenues from 17.3%
in 1991 to 17.6% in 1992. Operating income from gas utility operations
increased $821,000 (4.5%) from $18.4 million in 1991 to $19.3 million in 1992,
due primarily to a $4.8 million increase in gross margin, the effect of which
was partially offset by increases in other operations expenses, depreciation,
and income and gross receipts taxes. Operating income from water utility
operations increased $1.4 million (10.6%) from $13.2 million in 1991 to $14.7
million in 1992, due primarily to the $15.0 million increase in annual revenue
which the PPUC allowed for customers in PG&W's Scranton Water Rate Area
effective March 23, 1991, and the $1.9 million increase in annual revenue which
it allowed effective January 30, 1992, for customers in the Spring Brook Water
Rate Area served exclusively by the Nesbitt Water Treatment Plant. These
increased revenues were partially offset by increases in other operations
expenses, depreciation, and property and income taxes.
Other Income, Net and Interest Charges. Other income, net decreased from
$1.1 million in 1991 to $30,000 in 1992, primarily because (in each case, net of
the related income taxes if included in other income, net) of a $252,000
reduction in interest income from the temporary investment of funds by PG&W,
$127,000 of interest expense associated with the defeasance on September 15,
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1992, of the Luzerne County Industrial Development Authority (the "Authority")
Exempt Facilities Revenue Bonds, 1987 Series A (Pennsylvania Gas and Water
Company Project) (the "1987 Series A Bonds") that were redeemed on October 1,
1992 (see "-Liquidity and Capital Resources-Long-Term Debt and Capital Stock
Financings"), $151,000 in civil penalties relative to the extended completion
dates of PG&W's Ceasetown and Watres Water Treatment Plants and a $59,000
reduction in income from the sale of non-watershed land and other physical
property.
Interest charges decreased by $710,000 (3.3%) from $21.7 million for 1991 to
$21.0 million for 1992. This decrease was largely attributable to a $1.2
million (226.5%) increase in AFUDC in 1992 to $1.8 million from $543,000 in
1991. The increase in AFUDC was due to a greater amount of construction work-
in-progress, primarily as a result of the Crystal Lake Water Treatment Plant,
which was completed in July, 1992, the Ceasetown Water Treatment Plant which was
completed in late March, 1993, and the Watres Water Treatment Plant, which was
completed in late September, 1993. Partially offsetting the effect of the
increased AFUDC was a lower level of deferred treatment plant interest in 1992.
Dividends on Preferred Stock. Dividends on preferred stock increased
$829,000 (19.6%) from $4.2 million in 1991, to $5.1 million in 1992, as a result
of the issuance by PG&W of its 9% Cumulative Preferred Stock on August 18, 1992.
See "-Liquidity and Capital Resources-Long-Term Debt and Capital Stock
Financings."
Earnings Applicable to Common Stock. Earnings applicable to common stock
increased $1.0 million (14.5%) from $6.9 million ($1.87 per share) for the year
ended December 31, 1991, to $7.9 million ($2.02 per share) for the year ended
December 31, 1992. The increased earnings in 1992 were the result of the
matters discussed above, primarily the increase in gross margin on gas
operations resulting from higher levels of sales to residential and commercial
heating customers, as well as the increase in water operating revenues resulting
from the rate increases which the PPUC allowed PG&W effective March 23, 1991,
and January 30, 1992.
RATE MATTERS
In accordance with the Pennsylvania Public Utility Code (the "Code"), PG&W
files an annual purchased gas cost rate with the PPUC. From time to time, PG&W
also files for adjustments to its gas and water rates to, among other reasons,
recover interest charges and depreciation expenses relating to capital
expenditures, recover increased operating expenses and make adjustments to
existing surcharge rates approved by the PPUC.
The following is a summary of such filings (exclusive of those solely
involving state tax adjustment surcharges) with respect to which the PPUC has
issued an order since the beginning of 1991, or which are currently pending.
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Gas Rate Filings. Pursuant to the provisions of the Code which require that
the tariffs of larger gas distribution companies, such as PG&W, be adjusted on
an annual basis to reflect changes in their purchased gas costs, the PPUC
ordered PG&W to make the following changes during 1991, 1992 and 1993 to the gas
costs contained in its gas tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
December 1, 1991 $3.20 $2.46 $(20,800,000)
December 1, 1992 2.46 2.79 9,500,000
December 1, 1993 2.79 3.74 28,800,000
The annual changes in gas rates on account of purchased gas costs have no
effect on PG&W's earnings since the change in revenue will be offset by a
corresponding change in the cost of gas.
The PPUC has issued proposed regulations that would provide for the
quarterly adjustment of the purchased gas cost rate of larger gas distribution
companies, including PG&W. Except for reducing the amount of any over or
undercollections of gas costs, the adoption of these proposed regulations would
not have any material effect on PG&W's financial position or results of
operations.
On April 27, 1990, PG&W filed an application with the PPUC seeking approval
to recover 90% ($13.9 million based on then current estimates) of its total
take-or-pay liabilities, and $250,000 of related carrying costs, through
billings to customers generally over a four-year period beginning June 1, 1990.
The PPUC approved this application effective June 1, 1990. In connection with
this approval, PG&W agreed to absorb a portion of its take-or-pay liabilities.
The amount to be so absorbed by PG&W is currently estimated to be $1.8 million,
substantially all of which had been charged to expense as of December 31, 1993.
As of December 31, 1993, PG&W had billed $14.8 million of take-or-pay costs to
its customers and had deferred $1.1 million of such costs, including related
carrying charges, for future billing to customers.
Under terms of the PPUC's Order in respect of take-or-pay obligations, the
surcharge by which PG&W bills its customers for take-or-pay costs is adjusted
annually as of June 1 to reflect changes in PG&W's total estimated liability for
take-or-pay costs (which is currently projected to be as much as $18.1 million)
and the portion of such costs remaining to be recovered from its customers. In
accordance therewith, the PPUC approved an adjustment in PG&W's take-or-pay
surcharge effective June 1, 1993, based on the estimated $3.5 million of take-
or-pay costs that remained to be collected from PG&W's customers as of such
date.
On October 15, 1993, the PPUC adopted an annual purchased gas cost order
(the "PGC Order") regarding recovery of FERC Order 636 transition costs. The
PGC Order states the PPUC believes that the recovery of Account 191 and New
Facility Costs are subject to recovery through the annual PGC rate filing made
with the PPUC by PG&W and other similar local gas distribution companies. The
PGC Order also indicates that while Gas Supply Realignment and Stranded Costs
are not natural gas costs eligible for recovery under the PGC rate filing
mechanism, such costs are subject to full recovery by local distribution
companies through the filing of a tariff pursuant to either the existing
surcharge or base rate provisions of the Code. The PGC Order further states
that all such filings will be evaluated on a case-by-case basis. As of February
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1, 1994, PG&W began to recover the Account 191 and New Facility Costs that are
being billed to PG&W by its interstate pipelines through an increase in its PGC
rate. It is currently estimated that these costs, which will be billed to PG&W
over a twelve-month period extending through October 31, 1994, will aggregate
$1.0 million, of which $290,000 had been billed to PG&W as of December 31, 1993.
Additionally, PG&W is currently seeking the full recovery of the Gas Supply
Realignment and Stranded Costs that it estimates it will be billed by its
interstate pipelines through the filing of a tariff pursuant to the surcharge
provisions of the Code. It is currently estimated that these costs, which will
be billed to PG&W generally over a three-year period extending through the
fourth quarter of 1996 will range between $11.0 million and $13.0 million, of
which $730,000 had been billed to PG&W as of December 31, 1993. Based on the
provisions of the PGC Order, PG&W believes it will be allowed the full recovery
of all transition costs billed to it pursuant to Order 636.
Water Rate Filings. As a general rule, public utilities are entitled to
recover their reasonable operating expenses and earn a fair rate of return on
their investment, or rate base. However, a regulated utility's ability to
generate earnings is influenced significantly by the timing and amount of rate
relief that it is granted. As part of the ratemaking process, the PPUC may
reject, in whole or in part, a public utility's request to increase its rates
where the PPUC concludes, after a hearing, that the service rendered by the
public utility is inadequate in that it fails to meet quantity or quality
standards for the type of service provided. Based upon previous rate filings
(referred to below), PG&W expects that the quality of its water service will be
scrutinized by the PPUC in any future water rate filings. In its order of June
23, 1993, relating to the most recent Scranton Water Rate Area rate case, the
PPUC granted PG&W rate relief notwithstanding its finding that PG&W's water
quality did not always meet secondary drinking water standards. Notwithstanding
this decision, PG&W believes that it is providing water service meeting or
exceeding the PPUC's standards for quantity and quality of service to its
customers receiving filtered water based on testing performed by PG&W and an
independent laboratory of water at certain customers' premises which indicates
that the water meets federal and state primary (health-related) drinking water
standards all of the time and secondary (aesthetics-related, particularly taste,
odor and color) drinking water standards nearly all of the time. PG&W also
believes that in the future as it makes further improvements to its distribution
system, it will be able to demonstrate to the PPUC's satisfaction that it is
providing adequate service to its customers.
As discussed below, the rate relief granted in the past to PG&W by the PPUC
has been less than the full amounts requested. Generally, the amounts granted
have been determined through negotiated settlements with certain parties to the
proceedings in order to obtain rate relief earlier than expected and to avoid
the substantial expenses associated with further administrative and possible
appellate proceedings. PG&W believes that it will be able to obtain adequate
future rate relief as it makes further improvements to its distribution system
and is able to demonstrate it is providing water that is suitable for all
"household purposes" and that meets all applicable water quality standards.
The magnitude of the projected rate increases that will be required to
enable PG&W to fully recover its capital expenditures associated with the
construction of the water treatment plants will be significant. Prior to the
construction of the plants, the average annual cost of water to PG&W's customers
receiving nonfiltered water was approximately $143. The average annual cost of
water to PG&W's residential customers receiving filtered water as of March,
1994, is approximately $340. PG&W anticipates that this cost will increase to
approximately $475 in the latter part of this decade, at which time PG&W expects
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to have been allowed by the PPUC to fully reflect in rates its costs associated
with the filtration of its water supplies. PG&W believes that these levels of
increases, in terms of percentages, will not be inconsistent with those that
will be experienced by other water utilities required to make a similar
transition to filtered water; however, the magnitude of future rate increases is
such that the PPUC, to reduce consumer "rate shock," may require that any such
rate increases be phased-in over a period of time. While PG&W expects that the
PPUC will grant adequate rate relief in a timely manner, there can be no
assurance that the PPUC will take such action.
The denial of adequate rate relief in future applications would require PG&W
to take various actions to restrict its capital expenditures and operating
expenses and possibly reduce dividends on its common stock in order to conserve
cash resources and minimize the reduction in earnings that such denial would
otherwise cause. See "-Liquidity and Capital Resources-Failure to Obtain
Adequate Rate Relief" for a discussion of the adverse effects on PG&W and PEI if
adequate rate relief were denied.
Scranton Area. On June 8, 1990, PG&W filed an application with the PPUC
seeking a water rate increase, designed to produce $25.5 million in additional
annual revenue. This rate increase request involved the approximately 54,700
customers at such date who would be furnished water from the one previously
existing and the four new water treatment plants in the Scranton Water Rate
Area. In December, 1990, PG&W and certain parties filing objections to the rate
increase request reached a settlement that provided for an approximate 110% rate
increase designed to produce $15.0 million of additional annual revenue to be
phased-in over a two-year period under the terms of a qualified phase-in plan,
pursuant to Financial Accounting Standards Board ("FASB") Statement 92 entitled
"Regulated Enterprises-Accounting for Phase-in Plans." The settlement provided
that $10.2 million of the increased revenue (an approximate 75% increase in
rates) was to be realized through an immediate rate increase and that the
remaining $4.8 million of the increased revenue (an additional 35% increase in
rates) was to be realized through another rate increase one year later (at the
beginning of year two of the phase-in period). The settlement also specified
that the $4.8 million in revenue that would be deferred during the first year of
the phase-in period was to be collected from customers in the form of a
surcharge in years two through ten of the phase-in period. Finally, PG&W also
agreed that it would not file for another general rate increase for the Scranton
Water Rate Area prior to six months after the effective date of the second phase
of the rate increase. By Order adopted March 22, 1991, the PPUC approved the
settlement.
In accordance with the accounting requirements for a qualified phase-in plan
as prescribed by FASB Statement 92, PG&W recorded a $1.2 million nonrecurring
charge to earnings as of December 31, 1990, representing the estimated net
present value of carrying charges with respect to the $4.8 million of revenue to
be deferred in the first year of the phase-in period. This charge was required
because the settlement did not provide for the billing of any carrying charges
on such deferred revenue. Additionally, in accordance with the provisions of
FASB Statement 92, PG&W commenced recording the entire $15.0 million increase in
annual revenue allowed by the PPUC as additional revenue beginning March 23,
1991. However, pursuant to the terms of the settlement, PG&W deferred the
billing of $4.7 million of the increased revenue recorded during the first year
of the phase-in period (i.e., the period March 23, 1991, through March 22,
1992). The amount so deferred was $100,000 less than the $4.8 million
originally estimated because of slightly lower than anticipated consumption.
Effective March 23, 1992, PG&W began to bill the $4.7 million that had been so
deferred by means of the surcharge that will be in effect in years two through
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ten of the phase-in period, and as of December 31, 1993, $871,000 had been so
billed to its Scranton Water Rate Area customers.
Nesbitt Service Area. On April 30, 1991, PG&W filed an application with the
PPUC seeking a water rate increase, designed to produce $2.6 million in
additional annual revenue. This rate increase request involved the
approximately 14,300 customers in the Spring Brook Water Rate Area at such date
who were served exclusively by the Nesbitt Water Treatment Plant. PG&W and
certain parties filing objections to the rate increase request reached a
settlement that provided for a $1.9 million increase in annual revenue which the
PPUC approved effective January 30, 1992. However, on February 27, 1992, the
PPUC granted a petition of the Office of Consumer Advocate (the "OCA"), a
complainant in the rate proceeding and a signatory to the settlement, for
reconsideration and clarification of the PPUC Order which approved the
settlement. As a result, the $1.9 million rate increase remains subject to
further PPUC and possible appellate review. Although it cannot be certain, PG&W
believes that the $1.9 million increase will not be rescinded in whole or in
part or affected in any other way as a result of the OCA's petition, and as of
March 23, 1994, no further action had been taken by the PPUC with respect to the
OCA's petition.
Crystal Lake Service Area. On June 30, 1992, PG&W filed an application with
the PPUC seeking a water rate increase, designed to produce $4.4 million in
additional annual revenue. This rate increase request involved the
approximately 5,000 customers in the Spring Brook Water Rate Area served
exclusively by the Crystal Lake Water Treatment Plant, which became fully
operational in August, 1992. On December 15, 1992, PG&W and certain parties
filing objections to the rate increase request reached a settlement providing
for an approximate 130% rate increase designed to produce $2.0 million of
additional annual revenue to be phased-in over a two-year period under the terms
of a qualified phase-in plan pursuant to FASB Statement 92. The settlement
further provided that $1.1 million of the increased revenue (an approximate 72%
increase in rates) was to be realized through an immediate rate increase and
that the remaining $900,000 in increased revenue (an additional 58% increase in
rates) was to be realized through another rate increase one year later (i.e., at
the beginning of year two of the phase-in period). The settlement also
specified that the $900,000 in revenue that would be deferred during the first
year of the phase-in period, as well as an approximate $243,000 in related
carrying charges, was to be collected from customers in the form of a surcharge
in years three through five of the phase-in period. By Order adopted February
25, 1993, the PPUC approved the settlement effective March 9, 1993. In
accordance with the provisions of FASB Statement 92, PG&W commenced recording
the entire $2.0 million increase in annual revenue allowed by the PPUC as
additional revenue beginning March 9, 1993, along with the related carrying
charges on the revenue deferred in accordance with the phase-in plan.
Scranton Area. On September 25, 1992, PG&W filed an application with the
PPUC seeking a water rate increase, designed to produce $9.9 million in
additional annual revenue, to be effective November 24, 1992. This rate
increase request involved the approximately 56,000 customers in PG&W's Scranton
Water Rate Area at such date. On November 13, 1992, the PPUC suspended this
rate increase for seven months (until June 24, 1993) in order to investigate the
reasonableness of the proposed rates. By Order entered June 23, 1993, the PPUC
rejected the proposed rate increase in its entirety "due to inadequate service"
(i.e., water quality). However, by the same Order, the PPUC granted PG&W the
alternative of a rate increase designed to produce an additional $5.0 million in
annual revenue, provided that PG&W dedicate the entire increase to augment the
improvements to its water distribution system until "the demonstration by [PG&W]
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to [the PPUC] that it is providing adequate service." PG&W accepted this
alternative and placed such $5.0 million rate increase into effect as of June
23, 1993.
On August 19, 1993, the PPUC approved a settlement agreement (the
"Settlement Agreement") resolving certain disputed issues relating to its June
23, 1993, Order. The Settlement Agreement provided, among other things, for (i)
modification by the PPUC of its June 23, 1993, Order to reduce the amount of the
revenue increase that it ordered be dedicated to distribution system
improvements by the related income taxes and other expenses and the $319,000
additional expense for retiree health care and life insurance benefits that the
PPUC allowed PG&W in its revenues (which resulted in the requirement for an
additional annual expenditure for distribution system improvements by PG&W of
$2.5 million), (ii) the agreement by PG&W to spend a total of $4.9 million
annually (an additional $2.5 million over its actual average annual expenditure
of $2.4 million during the three-year period ended June 30, 1993) for
distribution system improvements in the Scranton Water Rate Area until the PPUC
is satisfied that PG&W is providing adequate service, (iii) the modification by
the PPUC of its June 23, 1993, Order to restore the Hollister Reservoir to
PG&W's rate base, and (iv) the withdrawal by PG&W and the OCA of their appeals
to the Commonwealth Court of Pennsylvania regarding the PPUC's June 23, 1993,
Order.
Ceasetown and Watres Service Areas. On April 29, 1993, PG&W filed an
application with the PPUC seeking a water rate increase, designed to produce
$19.5 million in additional annual revenue, to be effective June 28, 1993. This
rate increase request involved approximately 59,300 customers in PG&W's Spring
Brook Water Rate Area, principally those customers (i) served by the Ceasetown
Water Treatment Plant which was placed in service on March 31, 1993, (ii) served
by the Watres Water Treatment Plant which was placed in service on September 30,
1993, (iii) served jointly by the Ceasetown and Watres Water Treatment Plants,
and (iv) who are served exclusively by the Nesbitt Water Treatment Plant. On
June 3, 1993, the PPUC suspended this rate increase for seven months (until
January 28, 1994) by operation of law in order to institute an investigation
into the reasonableness of the proposed rates. On September 23, 1993, PG&W, the
PPUC Office of Trial Staff, the OCA and the Office of Small Business Advocate
filed a settlement petition (the "Settlement Petition") with the Administrative
Law Judge ("ALJ") assigned to conduct the investigation of the rate increase
request. This Settlement Petition provided for an overall 119% rate increase
involving approximately 44,900 customers, principally those served either
exclusively or jointly by the Ceasetown and Watres Water Treatment Plants, that
was designed to produce $11.9 million of additional annual revenue to be phased-
in over a two-year period under the terms of a qualified phase-in plan, pursuant
to FASB Statement 92. Under the terms of the Settlement Petition, except for
approximately 200 customers who were previously served jointly by the Hillside
and Nesbitt Water Treatment Plants, none of the approximately 14,600 customers
now served exclusively by the Nesbitt Water Treatment Plant would receive an
increase. The Settlement Petition further provided that $6.4 million of the
increased revenue (an approximate 65% increase in rates) was to be realized
through an immediate rate increase and that the remaining $5.5 million of the
increased revenue (an additional 54% increase in rates) was to be realized
through a further rate increase one year later (i.e., at the beginning of year
two of the phase-in period). The Settlement Petition also specified that the
$5.5 million in revenue that was to be deferred during the first year of the
phase-in period, as well as an approximate $1.3 million in related carrying
charges, was to be collected from customers in the form of a surcharge in years
three through five of the phase-in period. By Order adopted December 15, 1993,
the PPUC approved the Settlement Petition effective December 16, 1993. In
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accordance with the provisions of FASB 92, PG&W commenced recording the entire
$11.9 million increase in annual revenue allowed by the PPUC as additional
revenue beginning December 16, 1993, along with the related carrying charges on
revenue deferred in accordance with the phase-in plan.
Effects of Inflation. When utility property reaches the end of its useful
life and must be replaced, PG&W will incur replacement costs in amounts that due
to the effects of inflation would materially exceed either the original cost or
the accrued depreciation of such property as reflected on its books of account.
However, the cost of such replacement property would be includable in PG&W's
rate base, and PG&W would be entitled to recover depreciation expense and earn a
return thereon, to the extent that its investment in such property was prudently
incurred and the property is used and useful in furnishing public utility
service.
LIQUIDITY AND CAPITAL RESOURCES
Liquidity
The liquidity of PG&W is influenced significantly by the capital intensive
nature of its operations and the ratemaking practices of the PPUC, which
together effectively require external financing of a substantial portion of
PG&W's construction expenditures. See "-Construction Expenditures and Related
Financing" and "-Failure to Obtain Adequate Rate Relief." Additionally, because
of the seasonal nature of its gas utility operations and the ratemaking
practices of the PPUC regarding the recovery of purchased gas costs (see "-Rate
Matters-Gas Rate Filings"), it is necessary for PG&W to finance its gas
purchases and increases in its customer accounts receivable with bank borrowings
during certain periods of the year.
PG&W's ability to generate sufficient internal funds and to obtain the
external funds that are required for its operations and construction
expenditures is influenced significantly by the timing and amount of rate relief
it is granted. This is a problem faced by all regulated utilities, and one that
had been particularly acute with respect to PG&W because of the denial by the
PPUC in 1986 and again in 1988, as a result of water quality issues, of water
rate increases requested by PG&W. Nonetheless, PG&W was able to generate and
raise sufficient capital resources despite these denials, and PG&W believes that
it will be granted sufficient rate relief to enable it to meet its future
anticipated capital requirements, particularly in view of the increases in
annual water revenue aggregating $35.8 million which it has been granted by the
PPUC since 1991 with respect to customers being supplied with filtered water.
PG&W also believes that additional rate increases will be allowed by the PPUC
for its approximately 131,400 water customers, all of whom are now receiving
filtered water, because of the relatively low level of earnings that PG&W is
realizing from its water utility operations and its expectation that with
filtration and further distribution system improvements, water quality should be
less of a concern in its requests for water rate increases. See "-Construction
Expenditures and Related Financing" and "-Failure to Obtain Adequate Rate
Relief."
If PG&W is denied future rate relief, it would be necessary, depending upon
the amount so denied, for PEI and PG&W to take various actions to reduce cash
expenditures. For a discussion of the actions PEI and PG&W would take to reduce
cash expenditures, see "-Failure to Obtain Adequate Rate Relief." Such measures
would continue until PG&W was allowed sufficient rate relief to increase its
earnings to a level that would permit it to raise additional debt and equity
capital. Concurrently with taking actions to reduce cash expenditures, PG&W
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would file appropriate appeals with the Commonwealth Court of Pennsylvania,
alleging that, contrary to law, it had been denied an opportunity to earn a fair
rate of return on its prudent investment in used and useful utility property
devoted to public service.
PEI relies on a number of sources, primarily cash dividends from PG&W, to
provide the funds necessary to pay dividends on its common stock, to pay
interest on its outstanding debt, and to meet all of its other obligations
(other than the repayment of debt for which PEI principally relies upon periodic
refinancings or sales of securities). The approximate amount of funds required
for these purposes, net of the amounts provided to PEI by PG&W for use of PEI's
federal income tax credits, are expected to total $14.5 million in 1994, $15.2
million in 1995 and $17.5 million in 1996. During 1994, $3.7 million of the
funds required by PEI for these purposes will be provided through the repayment
by PG&W of its $3.7 million demand loan from PEI.
Because of limitations imposed by the terms of PG&W's Restated Articles of
Incorporation, as amended, PG&W is prohibited, without the consent of the
holders of a majority of the outstanding shares of its preferred stock, from
issuing more than $12.0 million of unsecured debt due on demand or within one
year from issuance. PG&W had $5.7 million of unsecured debt due on demand or
within one year from issuance outstanding as of December 31, 1993, which
included the $3.7 million demand loan from PEI.
In addition, PG&W is prohibited from paying any dividends to PEI in the
event of a default under certain of its debt instruments or failure to make any
required dividend payments due holders of PG&W's preferred stock. Furthermore,
any failure by PG&W to pay preferred stock dividends for four consecutive
quarters would permit the holders of the PG&W preferred stock to elect a
majority of the directors of PG&W.
PG&W presently has sufficient funding for its working capital needs, as well
as its construction program, through at least the third quarter of 1994, and
believes it will be able to raise such funds as are required for construction
expenditures, refinancings and other working capital requirements beyond the
third quarter of 1994.
PG&W believes that based on its current financial projections, it will be
able to achieve sufficient levels of earnings during 1994, as a result of
various cost control measures and water rate increases which have already been
granted, to enable it to meet its interest and fixed charge coverage
requirements and to give it the borrowing and other financing capability
necessary for its working capital needs and planned construction program.
However, if PG&W is not granted additional water rate increases in future years,
it may be necessary for PEI and PG&W to take various actions at such time to
reduce expenditures in order to satisfy PG&W's interest and fixed charge
coverage requirements and to maintain sufficient liquidity, and thereby lessen
the amount of debt and equity capital which must be raised. See "-Failure to
Obtain Adequate Rate Relief."
Interim Financing Practices
It is the practice of PG&W to use bank borrowings to finance certain of its
construction expenditures pending the periodic issuance of stock and long-term
debt. Additionally, because of the seasonal nature of its gas utility
operations and the ratemaking practices of the PPUC regarding the recovery of
purchased gas costs (see "-Rate Matters-Gas Rate Filings"), it is necessary for
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PG&W to finance its gas purchases and increases in its customer accounts
receivable with bank borrowings during certain periods of the year.
In order to so finance construction expenditures and to meet its seasonal
borrowing requirements, PG&W has made arrangements for a total of $67.0 million
of unsecured revolving bank credit. Specifically, on April 19, 1993, PG&W
entered into a revolving bank credit agreement (the "Credit Agreement") with a
group of six banks under the terms of which $60.0 million is available for
borrowing by PG&W. The Credit Agreement terminates on April 30, 1995, at which
time any borrowings outstanding thereunder are due and payable. The interest
rate on borrowings under the Credit Agreement is generally less than prime. The
Credit Agreement also requires the payment of a commitment fee of 3/8 of 1% per
annum on the average daily amount of the unused portion of the available funds.
As of March 23, 1994, $41.0 million of borrowings were outstanding under the
Credit Agreement. PG&W also has three short-term bank lines of credit with an
aggregate borrowing capacity of $7.0 million which provide for borrowings at
interest rates generally less than prime and mature on April 30, 1994. As of
March 23, 1994, PG&W had no borrowings outstanding under the short-term bank
lines of credit.
Prior to their maturity on April 30, 1994, PG&W will seek to renew the $7.0
million short-term bank lines of credit. PG&W believes that based on its
present earnings and financing capabilities, capitalization and banking
arrangements and relationships it will be successful in renewing the $7.0
million short-term bank lines of credit.
Current Maturities of Long-Term Debt and Preferred Stock
As of December 31, 1993, $38.7 million of PG&W preferred stock and long-term
debt was required to be repaid within twelve months. Such amount included a
note in the principal amount of $30.0 million, that is subject to repayment on
December 1, 1994, issued in 1987 to PNC Bank (formerly Northeastern Bank of
Pennsylvania) as trustee (the "IDA Trustee") in connection with the issuance by
the Luzerne County Industrial Development Authority (the "Authority") of $30.0
million of its Exempt Facilities Revenue Bonds, 1987 Series B (Pennsylvania Gas
and Water Company Project) due 2017 (the "1987 Series B Bonds"). Also, such
amount included approximately $7.0 million of high interest rate water facility
loans of PG&W having a weighted annual interest rate of 9.33% which were repaid
by PG&W on January 31, 1994, with bank borrowings.
PG&W believes that it will have sufficient cash flow and borrowing capacity
to repay current maturities of its preferred stock and long-term debt and to
meet its other obligations based on its present earnings and financing
capabilities, capitalization and banking arrangements and relationships.
Long-Term Debt and Capital Stock Financings
PG&W periodically engages in long-term debt and capital stock financings in
order to obtain funds required for construction expenditures, the refinancing of
existing debt and various working capital purposes. Set forth below is a
summary of such financings, exclusive of interim bank borrowings, consummated by
PG&W since the beginning of 1992.
On January 30, 1992, PG&W received a total of $22.0 million from PEI
representing repayment of a $15.0 million intercompany advance made on September
12, 1991, and a $7.0 million contribution which was treated as an intercompany
advance pending approval by the PPUC of the issuance of shares of common stock
relative to such contribution. PG&W utilized such funds to repay a portion of
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its bank borrowings which had been incurred primarily to finance construction
expenditures.
On June 19, 1992, PG&W issued to PEI 137,143 shares of its common stock for
aggregate net proceeds of approximately $5.5 million. On the same date, PG&W
also received $3.7 million from PEI in the form of a demand loan. PG&W utilized
such funds, totaling approximately $9.2 million, to repay bank borrowings which
had been incurred primarily to finance construction expenditures. The interest
rate on this demand loan (which is to be repaid during 1994) is currently 3.41%
(1% less than the interest rate PG&W is required to pay on borrowings under the
Credit Agreement).
On August 18, 1992, PG&W issued 250,000 shares of its 9% Cumulative
Preferred Stock, par value $100 per share, the net proceeds of which
(approximately $23.6 million) were used to repay $16.1 million of bank
borrowings and for working capital purposes.
On September 15, 1992, the Authority issued $50.0 million of its Exempt
Facilities Revenue Refunding Bonds, 1992 Series A (Pennsylvania Gas and Water
Company Project) (the "1992 Series A Bonds") and, in connection therewith, PG&W
issued $50.0 million of its 7.20% First Mortgage Bonds to the IDA Trustee for
the 1992 Series A Bonds as security for the 1992 Series A Bonds. PG&W will make
payments to the IDA Trustee pursuant to the 7.20% First Mortgage Bonds in
amounts sufficient and at the times necessary to pay the debt service
requirements on the 1992 Series A Bonds. The proceeds from the issuance of the
1992 Series A Bonds, along with additional funds provided by PG&W, were
deposited with the IDA Trustee for the Authority's $50.0 million Exempt
Facilities Revenue Bonds, 1987 Series A (Pennsylvania Gas and Water Company
Project) (the "1987 Series A Bonds") on September 15, 1992, for use in redeeming
the 1987 Series A Bonds on October 1, 1992. The deposit of such funds acted to
discharge all of PG&W's obligations with respect to its 8-1/2%, 1987 Series A
Note in the principal amount of $50.0 million which had been issued to the IDA
Trustee in connection with the 1987 Series A Bonds and which was subject to
repayment on October 1, 1992.
On December 14, 1992, PG&W issued $30.0 million of its 8.375% Series First
Mortgage Bonds due 2002. The proceeds from the issuance of these bonds were
used to repay approximately $28.7 million of bank borrowings, thereby providing
PG&W with additional borrowing capacity for future capital expenditures and
other working capital needs.
On December 22, 1992, the Authority issued $30.0 million of its Exempt
Facilities Revenue Bonds, 1992 Series B (Pennsylvania Gas and Water Company
Project) (the "1992 Series B Bonds") and, in connection therewith, PG&W issued
$30.0 million of its 7.125% First Mortgage Bonds to the IDA Trustee for the 1992
Series B Bonds, as security for the 1992 Series B Bonds. PG&W will make
payments to the IDA Trustee pursuant to the 7.125% First Mortgage Bonds in
amounts sufficient and at the times necessary to pay the debt service
requirements on the 1992 Series B Bonds. The proceeds from the issuance of the
1992 Series B Bonds were deposited in a construction fund held by the IDA
Trustee for the Authority's 1992 Series B Bonds, pending their utilization to
finance the construction of various additions and improvements to PG&W's water
facilities for which construction commenced subsequent to September 23, 1992.
During 1992 and 1993, $2.0 million and $15.9 million, respectively, of the
proceeds from the 1992 Series A Bonds were so utilized. As of December 31,
1993, $12.9 million of the proceeds (including investment income of $731,000)
was held by the IDA Trustee and was available to finance the future construction
of qualified water facilities for PG&W.
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During 1993, PG&W assumed $812,000 of indebtedness to the Pennsylvania
Infrastructure Investment Authority (an agency of the Commonwealth of
Pennsylvania known as "PENNVEST") in connection with its acquisition of the
assets and operations of two small water companies and also borrowed $1.6
million under the terms of a water facility loan agreement with PENNVEST dated
December 3, 1992, relative to such acquisition. A total of $2.6 million is
being made available to PG&W pursuant to the PENNVEST loan agreement, of which
$1.0 million remained available as of December 31, 1993, for borrowing by PG&W.
On October 27, 1993, PG&W issued to PEI 834,000 shares of its common stock
for aggregate net proceeds of $31.9 million. PG&W utilized such funds to repay
bank borrowings. These borrowings had been incurred primarily to finance
construction expenditures.
On December 21, 1993, the Authority issued $19.0 million of its Exempt
Facilities Revenue Refunding Bonds, 1993 Series A (Pennsylvania Gas and Water
Company Project) (the "1993 Series A Bonds") and, in connection therewith, PG&W
issued $19.0 million of its 6.05% Series First Mortgage Bonds to the IDA Trustee
for the 1993 Series A Bonds, as security for the 1993 Series A Bonds. PG&W will
make payments to the IDA Trustee pursuant to the 6.05% Series First Mortgage
Bonds in amounts sufficient and at the times necessary to pay the debt service
requirements on the 1993 Series A Bonds. The proceeds from the issuance of the
1993 Series A Bonds, along with additional funds provided by PG&W, were
deposited with the IDA Trustee for the Authority's $19.0 million Exempt
Facilities Revenue Bonds, 1989 Series A (Pennsylvania Gas and Water Company
Project) (the "1989 Series A Bonds") on December 21, 1993, for use in redeeming
the 1989 Series A Bonds on January 1, 1994. The deposit of such funds acted to
discharge all of PG&W's obligations with respect to its 7%, 1989 Series A Note
in the principal amount of $19.0 million which had been issued to the IDA
Trustee in connection with the 1989 Series A Bonds and which was subject to
repayment on January 1, 1994.
PG&W's rated first mortgage bonds are currently rated BBB- (investment
grade) by Standard & Poor's Corporation ("S&P"), Baa3 (investment grade) by
Moody's Investors Services ("Moody's") and Class 2 by the National Association
of Insurance Commissioners ("NAIC"). On November 29, 1993, S&P said PG&W's
outlook was "stable" and that "continued, though slow, improvements in PG&W's
financial profile are expected as the last [water] treatment plant is completed
in 1993 and adequate water rate relief is granted." However, S&P noted that
"significant capital expenditures and an excessive dividend payout...will
continue to challenge management over the short term."
If PG&W's rated first mortgage bonds are downgraded below Class 2 (i.e.,
below investment grade) by the NAIC, this downgrade would cause the stated
interest rate on PG&W's $50.0 million of 9.57% Series First Mortgage Bonds due
1996 to increase to 11.17% per annum (which increase would cost PG&W $800,000
per year in additional interest expense, exclusive of tax benefits). Also, any
downgrading of PG&W's rated first mortgage bonds below investment grade by
either S&P or Moody's would result in the interest rate charged on borrowings
under the Credit Agreement being increased by one half percent per annum (which
increase could cost PG&W as much as $300,000 per year in additional interest
expense, exclusive of tax benefits, depending on the amount of borrowings
outstanding under the Credit Agreement). Additionally, any downgrading of
PG&W's rated first mortgage bonds by S&P, Moody's or the NAIC could have a
material adverse effect on the cost and difficulty of issuing additional debt,
which in turn could significantly impair PEI's and PG&W's ability to refinance
debt and fund future capital expenditures.
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During 1991, 1992 and 1993, PG&W realized $445,000, $385,000 and $465,000,
respectively, from the issuance of common stock to PEI in connection with PEI's
Dividend Reinvestment and Stock Purchase Plan.
Construction Expenditures and Related Financing
Expenditures for the construction of utility plant during the period 1991
through 1993 were as follows:
[CAPTION]
Water Gas
Year Facilities Facilities Total
(Thousands of Dollars)
[S] [C] [C] [C]
1991 $ 19,155 $ 9,359 $ 28,514
1992 44,352 12,669 57,021
1993 32,575 13,325 45,900
$ 96,082 * $ 35,353 $131,435
* Includes $11.7 million, $30.5 million and $20.7 million expended in
1991, 1992 and 1993, respectively, for various water supply and
treatment facilities and associated distribution system improvements
constituting part of the program that PG&W adopted in 1986 for
filtering all of its regularly used water supplies.
The construction of water facilities and gas facilities by PG&W during 1993
was largely financed with internally generated funds and bank borrowings,
pending the periodic issuance of stock and long-term debt.
PG&W estimates that its capital expenditures for 1994 through 1996 will
total $136.3 million, of which $84.3 million will involve the construction of
water facilities and $52.0 million will involve the construction of gas
facilities. PG&W anticipates that a portion of such water facilities will be
financed with the $12.9 million of proceeds from the issuance of the Authority's
1992 Series B Bonds held by the IDA Trustee as of December 31, 1993, for the
benefit of PG&W and that the balance of its expenditures for water facilities,
as well as its expenditures for gas facilities, will be financed with
approximately $51.0 million from the issuance of another series of first
mortgage bonds in 1995 and other loans in 1994, $32.0 million in late 1995 from
the sale of common stock to PEI and $40.4 million of internally generated funds.
Neither PEI nor PG&W has made any formal arrangements for such proposed
future debt or stock financings and there can be no assurance that any
commitments for such proposed future debt or stock financings will be available
on terms acceptable to PEI or PG&W or that such proposed financings will be
consummated. The failure to consummate such proposed financings could have a
material adverse effect on PEI and PG&W.
Failure to Obtain Adequate Rate Relief
If PG&W is unable to obtain adequate rate relief in future rate increase
applications filed with the PPUC, PG&W would be forced to restrict its cash
expenditures by, among other actions, reducing or eliminating dividends on its
common stock, thereby resulting in a reduction or elimination of PEI's common
stock dividends, curtailing or deferring work on various capital projects,
considering the sale of selected assets and reducing its operating expenses, all
of which could negatively impact the quality and reliability of services
rendered to the public by PG&W.
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Notwithstanding the PPUC's decision in its June 23, 1993, Order (see "-Rate
Matters-Water Rate Filings"), PG&W believes it will be able to obtain adequate
future rate relief, although there can be no assurance that such rate relief
will be obtained. However, if PG&W were unable to obtain adequate rate relief
from the PPUC under circumstances where PG&W believed that it is entitled as a
matter of law to such rate relief, PG&W would file appropriate appeals with the
Commonwealth Court of Pennsylvania, claiming that, contrary to law, the PPUC by
its actions had denied PG&W an opportunity to earn a fair rate of return on its
prudent investment in property which is used and useful in providing public
utility service.
Postemployment Benefits
In December, 1992, FASB Statement 112, "Employers' Accounting for
Postemployment Benefits," was issued. The provisions of this statement require
the recording of a liability for postemployment benefits (such as disability
benefits, including workers' compensation, salary continuation and the
continuation of benefits such as health care and life insurance) provided to
former or inactive employees, their beneficiaries and covered dependents. PG&W
presently records a liability for benefits of this nature, and thus the
provisions of FASB Statement 112, which PG&W adopted effective January 1, 1994,
are not expected to have a material impact on its financial position or results
of operations.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements of PG&W and the report of independent public
accountants thereon are presented on pages 42 through 71 of this Form 10-K.
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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Pennsylvania Gas and Water Company:
We have audited the accompanying balance sheets and statements of capitalization
of Pennsylvania Gas and Water Company (the "Company") (a Pennsylvania
corporation and a wholly-owned subsidiary of Pennsylvania Enterprises, Inc.) as
of December 31, 1993 and 1992, and the related statements of income, common
shareholder's investment, and cash flows for each of the three years in the
period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Pennsylvania Gas and Water
Company as of December 31, 1993 and 1992, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1993
in conformity with generally accepted accounting principles.
As discussed in Notes 1 and 9, effective January 1, 1993, the Company changed
its method of accounting for income taxes and postretirement benefits other than
pensions pursuant to standards promulgated by the Financial Accounting Standards
Board.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedules listed in Item 14 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 audits 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 & CO.
New York, N.Y.
March 4, 1994
-42-
<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1991 1992 1993
(Thousands of Dollars)
<S> <C> <C> <C>
OPERATING REVENUES:
Gas $ 138,465 $ 143,227 $ 153,325
Water 44,285 48,651 53,363
Total operating revenues 182,750 191,878 206,688
OPERATING EXPENSES:
Cost of gas 77,801 77,720 86,557
Other operation expenses 36,334 37,971 38,859
Maintenance 9,634 8,677 9,341
Depreciation 9,779 10,856 12,299
Deferred treatment plant costs, net
(Note 2) (664) (294) (1,532)
Income taxes 5,359 8,305 8,989
Other taxes 12,814 14,730 16,019
Total operating expenses 151,057 157,965 170,532
OPERATING INCOME 31,693 33,913 36,156
OTHER INCOME, NET (Note 3) 1,134 30 560
INCOME BEFORE INTEREST CHARGES 32,827 33,943 36,716
INTEREST CHARGES:
Interest on long-term debt 18,536 18,929 20,515
Other interest 4,633 4,292 2,589
Allowance for borrowed funds used
during construction (543) (1,773) (1,482)
Deferred treatment plant carrying
charges (Note 2) (929) (461) (1,207)
Total interest charges 21,697 20,987 20,415
NET INCOME 11,130 12,956 16,301
DIVIDENDS ON PREFERRED STOCK 4,236 5,065 6,462
EARNINGS APPLICABLE TO COMMON STOCK $ 6,894 $ 7,891 $ 9,839
EARNINGS PER SHARE OF COMMON STOCK $ 1.87 $ 2.02 $ 2.36
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 3,687,736 3,908,351 4,176,087
The accompanying notes are an integral part of the financial statements.
</TABLE>
-43-
<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1992 1993
(Thousands of Dollars)
<S> <C> <C>
ASSETS
UTILITY PLANT:
Gas plant, at original cost less
acquisition adjustments of $386,000 $234,708 $245,969
Water plant, at original cost plus
acquisition adjustments of $14,236,000, and
$14,577,000, respectively 329,809 360,996
Common plant, at original cost 24,525 26,212
589,042 633,177
Accumulated depreciation (76,743) (86,287)
512,299 546,890
OTHER PROPERTY AND INVESTMENTS:
Restricted funds held by trustee (Note 6) 28,020 12,853
Other 3,049 3,291
31,069 16,144
CURRENT ASSETS:
Cash and cash equivalents 570 2,714
Accounts receivable -
Customers 22,230 20,533
Others 716 1,258
Reserve for uncollectible accounts (1,475) (1,223)
Accrued utility revenues 12,547 16,123
Materials and supplies, at average cost 3,520 3,549
Gas held by suppliers, at average cost 21,612 26,650
Deferred cost of gas & supplier refunds, net - 12,752
Prepaid expenses and other 1,963 2,026
61,683 84,382
DEFERRED CHARGES:
Deferred taxes collectible - 51,382
Unamortized debt expense 5,580 5,745
Deferred treatment plant costs
and interest (Note 2) 6,569 10,129
Deferred water utility billings (Note 2) 3,795 3,885
Other 8,877 7,751
24,821 78,892
TOTAL ASSETS $629,872 $726,308
The accompanying notes are an integral part of the financial statements.
</TABLE>
-44-
<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1992 1993
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see accompanying statements on
page 47):
Common shareholder's investment (Notes 4 and 7) $158,098 $188,011
Preferred stock (Note 5) -
Not subject to mandatory redemption, net 33,615 33,615
Subject to mandatory redemption 41,920 31,840
Long-term debt (Note 6) 245,877 266,259
479,510 519,725
CURRENT LIABILITIES:
Current portion of long-term debt and
preferred stock subject to mandatory
redemption (Notes 5, 6 and 8) 39,085 38,664
Notes payable -
Bank (Note 8) - 2,000
Parent 3,680 3,680
Accounts payable -
Suppliers 23,944 22,401
Affiliates, net 613 1,888
Deferred cost of gas and supplier refunds, net 555 -
Accrued general business and realty taxes 3,362 3,574
Accrued income taxes 4,007 4,984
Accrued interest 5,200 4,042
Other 1,620 2,440
82,066 83,673
DEFERRED CREDITS:
Deferred income taxes 33,816 87,005
Unamortized investment tax credits 9,439 9,183
Advances for construction 10,747 10,985
Contributions in aid of construction 8,761 9,810
Operating reserves 1,565 1,863
Other 3,968 4,064
68,296 122,910
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
TOTAL CAPITALIZATION AND LIABILITIES $629,872 $726,308
The accompanying notes are an integral part of the financial statements.
</TABLE>
-45-
<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1991 1992 1993
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 11,130 $ 12,956 $ 16,301
Effects of noncash charges (credits) to income -
Depreciation 9,792 10,875 12,324
Deferred income taxes, net 2,693 2,048 1,678
Provisions for self insurance 622 1,196 1,800
Deferred treatment plant costs and carrying
charges, net (1,593) (756) (3,560)
Allowance for equity funds used during
construction - - (734)
Deferred water utility billings (3,706) (969) (582)
Other, net 2,410 2,812 4,540
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues 938 (2,517) (2,159)
Gas held by suppliers (626) (1,586) (5,038)
Accounts payable 1,068 2,377 (515)
Deferred cost of gas and supplier refunds, net 7,027 (11,429) (13,307)
Other current assets and liabilities, net 835 2,794 754
Other operating items, net (1,578) (2,326) (3,251)
Net cash provided by operating activities 29,012 15,475 8,251
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (net of allowance for
equity funds used during construction) (29,144) (58,324) (46,526)
Other, net 1,984 2,030 1,493
Net cash used for investing activities (27,160) (56,294) (45,033)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 445 12,905 32,366
Issuance of preferred stock - 23,615 -
Redemption of preferred stock (80) (80) (10,080)
Dividends on common and preferred stock (13,085) (14,940) (18,398)
Issuance of long-term debt 50,315 110,000 20,634
Repayment of long-term debt (7,929) (57,371) (31,485)
Issuance of note payable to parent - 3,680 -
Intercompany advance (15,000) 15,000 -
Restricted funds held by trustee (Note 6) - (27,994) 15,868
Net increase (decrease) in bank borrowings (16,526) (20,167) 32,247
Other, net (1,347) (3,917) (2,226)
Net cash provided by (used for) financing
activities (3,207) 40,731 38,926
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (1,355) (88) 2,144
CASH AT BEGINNING OF YEAR 2,013 658 570
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 658 $ 570 $ 2,714
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 17,845 $ 16,972 $ 21,092
Income taxes $ 1,475 $ 3,667 $ 6,790
-46-
</TABLE>
<PAGE>
The accompanying notes are an integral part of the financial statements.
-47-
<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31,
1992 1993
(Thousands of Dollars)
<S> <C> <C>
COMMON SHAREHOLDER'S INVESTMENT (Note 7):
Common stock, no par value (Note 4)
(stated value $10 per share)
Authorized - 10,000,000 shares
Outstanding - 4,018,730 shares and
4,868,718 shares, respectively $ 40,187 $ 48,687
Additional paid-in capital 48,776 72,642
Retained earnings 69,135 66,682
Total common shareholder's investment 158,098 33.0% 188,011 36.2%
PREFERRED STOCK, par value $100 per share
Authorized - 997,500 shares (Note 5):
Not subject to mandatory redemption, net -
4.10% cumulative preferred,
100,000 shares issued 10,000 10,000
9% cumulative preferred,
250,000 shares outstanding, net of
issuance costs 23,615 23,615
Total preferred stock not subject to
mandatory redemption, net 33,615 7.0% 33,615 6.5%
Subject to mandatory redemption -
5.75% cumulative preferred, 20,000 and
19,200 shares outstanding, respectively 2,000 1,920
8.90% cumulative preferred, 150,000 shares
outstanding 15,000 15,000
9.50% 1988 series cumulative preferred,
250,000 and 150,000 shares outstanding,
respectively 25,000 15,000
Less current redemption requirements (80) (80)
Total preferred stock subject to
mandatory redemption 41,920 8.7% 31,840 6.1%
LONG-TERM DEBT (Note 6):
First mortgage bonds 200,015 207,745
Notes 67,253 77,845
Other 17,614 19,253
Less current maturities and sinking
fund requirements (39,005) (38,584)
Total long-term debt 245,877 51.3% 266,259 51.2%
TOTAL CAPITALIZATION $479,510 100.0% $519,725 100.0%
The accompanying notes are an integral part of the financial statements.
</TABLE>
-48-
<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
STATEMENTS OF COMMON SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1991, 1992 AND 1993
<TABLE>
<CAPTION>
Additional
Common Paid-In Retained
Stock Capital Earnings Total
(Thousands of Dollars)
<S> <C> <C> <C> <C>
Balance at December 31, 1990 $36,811 $ 39,288 $ 73,089 $149,188
Net income for 1991 - - 11,130 11,130
Issuance of common stock 146 299 - 445
Dividends on:
Preferred stock (Note 5) - - (4,236) (4,236)
Common stock ($2.40 per share) - - (8,849) (8,849)
Balance at December 31, 1991 36,957 39,587 71,134 147,678
Net income for 1992 - - 12,956 12,956
Issuance of common stock 3,230 9,207 - 12,437
Loss on sale of preferred stock
held in treasury - (18) (15) (33)
Dividends on:
Preferred stock (Note 5) - - (5,065) (5,065)
Common stock ($2.54 per share) - - (9,875) (9,875)
Balance at December 31, 1992 40,187 48,776 69,135 158,098
Net income for 1993 - - 16,301 16,301
Issuance of common stock 8,500 23,866 - 32,366
Premium on redemption of
preferred stock - - (356) (356)
Dividends on:
Preferred stock (Note 5) - - (6,462) (6,462)
Common stock ($2.8225 per share) - - (11,936) (11,936)
Balance at December 31, 1993 $48,687 $ 72,642 $ 66,682 $ 188,011
The accompanying notes are an integral part of the financial statements.
</TABLE>
-49-
<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pennsylvania Gas and Water Company ("PG&W"), a wholly-owned subsidiary of
Pennsylvania Enterprises, Inc. ("PEI"), is a regulated public utility subject to
the jurisdiction of the Pennsylvania Public Utility Commission ("PPUC") for rate
and accounting purposes. PG&W has five wholly-owned subsidiaries: Penn Gas
Development Co. and four small water companies, which have not been consolidated
since they are insignificant. The equity method is used to account for PG&W's
investment in these subsidiaries.
Utility Plant and Depreciation. Utility plant is stated at cost, which
represents the original cost of construction, including payroll, administrative
and general costs, an allowance for funds used during construction, and the
plant acquisition adjustments. The plant acquisition adjustments represent the
difference between the cost to PG&W of plant acquired as a system and the cost
of such plant when first devoted to public service, and are primarily
attributable to land, water rights and goodwill. Except for approximately
$340,000 recorded in 1993 with respect to water plant, the plant acquisition
adjustments relate to acquisitions made prior to October 31, 1970, and thus are
not required to be amortized for financial reporting purposes since PG&W
believes there has been no diminution in their value. Also, such plant
acquisition adjustments are not being amortized, consistent with PPUC Orders.
The plant acquisition adjustments of approximately $340,000 recorded in 1993
will be amortized over a ten-year period commencing on January 1, 1994, in
accordance with the PPUC's December 15, 1993, Order regarding the increase in
water rates for customers in the Spring Brook Water Rate Area served by the
Ceasetown and Watres Water Treatment Plants.
The allowance for funds used during construction ("AFUDC") is defined as the
net cost during the period of construction of borrowed funds used and a
reasonable rate upon other funds when so used. Such allowance is charged to
utility plant and reported as either other income, net (with respect to the cost
of equity funds) or as a reduction of interest expense (with respect to the cost
of borrowed funds) in the accompanying statements of income. AFUDC varies
according to changes in the level of construction work in progress and in the
sources and costs of capital. The weighted average rate for such allowance was
approximately 9% in 1991, 7% in 1992 and 8% in 1993.
PG&W provides for depreciation on a straight-line basis for gas plant and
all common plant. As of December 31, 1993, depreciation was provided on a
straight-line basis for approximately 61% of the water plant and on a 4%
compound interest method for the remainder of the water plant. Exclusive of
transportation and work equipment, the annual provision for depreciation, as
related to the average depreciable original cost of utility plant, resulted in
the following percentages:
[CAPTION]
1991 1992 1993
[S] [C] [C] [C]
Gas 2.33% 2.51% 2.49%
Water 1.42 1.57 1.71
Common 7.22 6.76 8.06
-50-
<PAGE>
The increase in the annual rate of depreciation relative to water plant in
both 1992 and 1993 reflects a change from the 4% compound interest method to the
straight-line method of depreciation with respect to certain of that plant, as
ordered by the PPUC. Such change in method of depreciation is generally being
made as PG&W is allowed to initially increase its rates for customers receiving
filtered water service.
Under the terms of the settlement discussed in Note 2 relative to the water
rate increase approved by the PPUC on December 15, 1993, for customers in the
Spring Brook Water Rate Area served by the Ceasetown and Watres Water Treatment
Plants, PG&W will begin depreciating all water facilities located in the areas
served by those plants on a straight-line basis effective January 1, 1994. This
change is expected to increase the annual provision for depreciation by
approximately $1.5 million and to increase the overall annual rate of
depreciation with respect to water plant to approximately 2.21%.
When depreciable property is retired, the original cost of such property is
removed from the utility plant accounts and is charged, together with the cost
of removal less salvage, to accumulated depreciation. No gain or loss is
recognized in connection with retirements of depreciable property, other than in
the case of significant involuntary conversions or extraordinary retirements.
Revenues and Cost of Gas. PG&W bills its customers based on estimated or
actual meter readings on a cycle basis. Gas customers and certain water
customers, primarily large users, are billed monthly on a cycle that extends
throughout the month. Other water customers are billed bi-monthly or quarterly
on cycles that extend over the respective periods. The estimated unbilled
amounts from the most recent meter reading dates through the end of the period
being reported on are recorded as accrued revenues.
PG&W generally passes on to its customers increases or decreases in gas
costs from those reflected in its tariff charges. In accordance with this
procedure, PG&W defers any current under or over-recoveries of gas costs and
collects or refunds such amounts in subsequent periods.
In accordance with an Order adopted by the PPUC on May 31, 1990, PG&W is
recovering 90% of its total take-or-pay liabilities through the billing of a
surcharge to customers generally over a four-year period beginning June 1, 1990.
This surcharge is reflected as operating revenue and is offset by a
corresponding charge to the cost of gas. The take-or-pay liabilities billed to
PG&W, which will be recovered in future periods by means of such surcharge, are
included in deferred cost of gas and supplier refunds, net. The cost of gas
also includes that portion (i.e., 10%) of PG&W's take-or-pay liabilities which
it has agreed to absorb in accordance with the PPUC's Order of May 31, 1990.
Deferred Charges. PG&W generally accounts for and reports its costs in
accordance with the economic effect of rate actions by the PPUC. To this
extent, certain costs are recorded as deferred charges pending their recovery in
rates. Such deferred charges include, among other amounts, deferred treatment
plant costs and carrying charges as discussed in Note 2, certain pre-operating
costs relative to PG&W's water treatment plants, costs associated with the Early
Retirement Plan as discussed in Note 9, and certain preliminary survey and
investigation costs. These amounts either relate to previously-issued orders of
the PPUC or are of a nature which, in the opinion of PG&W, will be recoverable
in future rates, based on past actions of the PPUC or other relevant factors.
-51-
<PAGE>
PG&W records, as deferred charges, the direct financing costs incurred in
connection with the issuance of long-term debt and redeemable preferred stock
and equitably amortizes such amounts over the life of such securities.
Cash and Cash Equivalents. For the purposes of the statements of cash
flows, PG&W considers all highly liquid debt instruments purchased, which
generally have a maturity of three months or less, to be cash equivalents. Such
instruments are carried at cost, which approximates market value.
Income Taxes. The provision for income taxes consists of the following
components:
[CAPTION]
1991 1992 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Included in operating expenses:
Currently payable -
Federal $ 2,328 $ 4,664 $ 5,644
State 570 1,888 1,917
Total currently payable 2,898 6,552 7,561
Deferred, net -
Federal 2,454 2,512 2,535
State 263 (503) (851)
Total deferred, net 2,717 2,009 1,684
Amortization of investment tax credits (256) (256) (256)
Total included in operating expenses 5,359 8,305 8,989
Included in other income, net:
Currently payable -
Federal 104 (29) (44)
State (24) (26) (28)
Total currently payable 80 (55) (72)
Deferred, net -
Federal (31) 39 (6)
State 7 - -
Total deferred, net (24) 39 (6)
Total included in other income, net 56 (16) (78)
Total provision for income taxes $ 5,415 $ 8,289 $ 8,911
-52-
<PAGE>
Deferred income taxes result from timing differences in the recognition of
revenues and expenses for tax and accounting purposes and, with respect to
elements of operating income, are recorded consistent with the treatment allowed
by the PPUC for ratemaking purposes. The source of these timing differences and
the tax effect of each is as follows:
[CAPTION]
1991 1992 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Excess of tax depreciation over
depreciation for accounting purposes $ 2,441 $ 2,502 $ 3,214
Deferred treatment plant costs, net 982 585 1,458
Take-or-pay costs, net (222) (446) (1,126)
Other, net (508) (593) (1,868)
Total deferred taxes, net $ 2,693 $ 2,048 $ 1,678
Included in:
Operating expenses $ 2,717 $ 2,009 $ 1,684
Other income, net (24) 39 (6)
Total deferred taxes, net $ 2,693 $ 2,048 $ 1,678
The total provision for income taxes shown in the accompanying statements of
income differs from the amount which would be computed by applying the statutory
federal income tax rate to income before income taxes. The following table
summarizes the major reasons for this difference:
[CAPTION]
1991 1992 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Income before income taxes $16,545 $21,245 $25,212
Tax expense at statutory federal
income tax rate $ 5,625 $ 7,223 $ 8,824
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 795 1,161 935
Allowance for equity funds used during
construction and equity component of
deferred treatment plant carrying
charges - - (545)
Amortization of investment tax credits (256) (256) (256)
Other, net (749) 161 (47)
Total provision for income taxes $ 5,415 $ 8,289 $ 8,911
Effective January 1, 1993, PG&W adopted the provisions of Financial
Accounting Standards Board ("FASB") Statement 109, "Accounting for Income
Taxes," which superseded previously issued income tax accounting standards. The
adoption of FASB Statement 109 did not have a significant effect on PG&W's
results of operations. In accordance with the provisions of FASB Statement 109,
PG&W recorded as of January 1, 1993, an additional deferred tax liability and an
asset, representing the probable future rate recovery of the previously
unrecorded deferred taxes, primarily relating to certain temporary differences
in the basis of utility plant which had not previously been recorded because of
the regulatory rate practices of the PPUC. As of December 31, 1993, a total of
$87.0 million in deferred income taxes, relating primarily to temporary
differences involving utility plant and consisting of deferred tax liabilities
of $95.6 million and deferred tax assets of $8.6 million, were so reflected in
these financial statements in accordance with the requirements of FASB Statement
109.
-53-
<PAGE>
(2) RATE MATTERS
Gas Utility Operations
Annual Gas Cost Adjustment. Pursuant to the provisions of the Pennsylvania
Public Utility Code, which require that the tariffs of gas distribution
companies, such as PG&W, be adjusted on an annual basis to reflect changes in
their purchased gas costs, the PPUC ordered PG&W to make the following changes
during 1991, 1992 and 1993 to the gas costs contained in its gas tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
December 1, 1991 $3.20 $2.46 $(20,800,000)
December 1, 1992 2.46 2.79 9,500,000
December 1, 1993 2.79 3.74 28,800,000
The annual changes in gas rates on account of purchased gas costs have no
effect on PG&W's earnings since the change in revenue is offset by a
corresponding change in the cost of gas.
Recovery of Take-or-Pay Costs. On April 27, 1990, PG&W filed an application
with the PPUC seeking approval to recover 90% ($13.9 million based on then
current estimates) of its total take-or-pay liabilities, and $250,000 of related
carrying costs, through billings to customers generally over a four-year period
beginning June 1, 1990. The PPUC approved this application, effective June 1,
1990. In connection with this approval, PG&W agreed to absorb a portion of its
take-or-pay liabilities. The amount to be so absorbed by PG&W is currently
estimated to be $1.8 million, substantially all of which had been charged to
expense as of December 31, 1993. As of December 31, 1993, PG&W had billed $14.8
million of take-or-pay costs to its customers and had deferred $1.1 million of
such costs, including related carrying charges, for future billing to customers.
Under terms of the PPUC's Order in respect of take-or-pay obligations, the
surcharge by which PG&W bills its customers for take-or-pay costs is to be
adjusted annually as of June 1 to reflect changes in PG&W's total estimated
liability for take-or-pay costs (which is currently projected to be as much as
$18.1 million) and the portion of such costs remaining to be recovered from its
customers. In accordance therewith, the PPUC approved an adjustment in PG&W's
take-or-pay surcharge effective June 1, 1993, based on the estimated $3.5
million of take-or-pay costs that remained to be collected from its customers as
of such date.
Water Rate Filings
Scranton Area Water Rate Increases. March, 1991, Increase. On June 8,
1990, PG&W filed an application with the PPUC seeking a water rate increase,
designed to produce $25.5 million in additional annual revenue. This rate
increase request involved the approximately 54,700 customers at such date who
would be furnished water from the one previously existing and the four new water
treatment plants in the Scranton Water Rate Area. In December, 1990, PG&W and
certain parties filing objections to the rate increase request reached a
settlement that provided for an approximate 110% rate increase designed to
produce $15.0 million of additional annual revenue to be phased-in over a two-
year period under the terms of a qualified phase-in plan, pursuant to FASB
Statement 92 entitled "Regulated Enterprises-Accounting for Phase-in Plans."
The settlement provided that $10.2 million of the increased revenue (an
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<PAGE>
approximate 75% increase in rates) was to be realized through an immediate rate
increase and that the remaining $4.8 million of the increased revenue (an
additional 35% increase in rates) was to be realized through another rate
increase one year later (at the beginning of year two of the phase-in period).
The settlement also specified that the $4.8 million in revenue that would be
deferred during the first year of the phase-in period was to be collected from
customers in the form of a surcharge in years two through ten of the phase-in
period. By Order adopted March 22, 1991, the PPUC approved the settlement and
permitted PG&W a water rate increase estimated to produce additional annual
revenue of $15.0 million, effective March 23, 1991.
In accordance with the accounting requirements for a qualified phase-in plan
as prescribed by FASB Statement 92, PG&W recorded a $1.2 million nonrecurring
charge to earnings as of December 31, 1990, representing the estimated net
present value of carrying charges on the $4.8 million of revenue to be deferred
in the first year of the phase-in period. This charge was required because the
terms of the settlement did not provide for the billing of any carrying charges
on such deferred revenue. Additionally, in accordance with the provisions of
FASB Statement 92, PG&W commenced recording the entire $15.0 million increase in
annual revenue allowed by the PPUC as additional revenue beginning March 23,
1991. However, pursuant to the terms of the settlement, PG&W deferred the
billing of $4.7 million of the increased revenue recorded during the first year
of the phase-in period (i.e., the period March 23, 1991, through March 22,
1992). The amount so deferred was $100,000 less than the $4.8 million
originally estimated because of slightly lower than anticipated consumption.
Effective March 23, 1992, PG&W began to bill the $4.7 million that had been so
deferred by means of the surcharge that will be in effect in years two through
ten of the phase-in period, and as of December 31, 1993, $871,000 had been so
billed to its Scranton Water Rate Area customers.
June, 1993, Increase. On September 25, 1992, PG&W filed an application with
the PPUC seeking a water rate increase, designed to produce $9.9 million in
additional annual revenue, to be effective November 24, 1992. This rate
increase request involved the approximately 56,000 customers in PG&W's Scranton
Water Rate Area at such date. On November 13, 1992, the PPUC suspended this
rate increase for seven months (until June 24, 1993) in order to investigate the
reasonableness of the proposed rates. By Order entered June 23, 1993, the PPUC
rejected the proposed rate increase in its entirety "due to inadequate service"
(i.e., water quality). However, by the same Order, the PPUC granted PG&W the
alternative of a rate increase designed to produce an additional $5.0 million in
annual revenue, provided that PG&W dedicate the entire increase to augment the
improvements to its water distribution system until "...the demonstration by
[PG&W] to [the PPUC] that it is providing adequate service." PG&W accepted this
alternative and placed such $5.0 million rate increase into effect as of June
23, 1993.
On August 19, 1993, the PPUC approved a settlement agreement resolving
certain disputed issues relating to its June 23, 1993, Order. This settlement
agreement provided, among other things, for (i) modification by the PPUC of its
June 23, 1993, Order to reduce the amount of the revenue increase that it
ordered be dedicated to distribution system improvements by the related income
taxes and other expenses and the $319,000 additional expense for retiree health
care and life insurance benefits that the PPUC allowed PG&W in its revenues
(which resulted in the requirement for an additional annual expenditure for
distribution system improvements by PG&W of $2.5 million), (ii) the agreement by
PG&W to spend a total of $4.9 million annually (an additional $2.5 million over
its actual average annual expenditure of $2.4 million during the three-year
period ended June 30, 1993) for distribution system improvements in the Scranton
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Water Rate Area until the PPUC is satisfied that PG&W is providing adequate
service, (iii) the modification by the PPUC of its June 23, 1993, Order to
restore the Hollister Reservoir to PG&W's rate base, and (iv) the withdrawal by
PG&W and the Office of Consumer Advocate (the "OCA") of their appeals to the
Commonwealth Court of Pennsylvania regarding the PPUC's June 23, 1993, Order.
Spring Brook Water Rate Increases. Nesbitt Service Area. On April 30,
1991, PG&W filed an application with the PPUC seeking a water rate increase,
designed to produce $2.6 million in additional annual revenue. This rate
increase request involved the approximately 14,300 customers in the Spring Brook
Water Rate Area at such date who were served exclusively by the Nesbitt Water
Treatment Plant. PG&W and certain parties filing objections to the rate
increase request reached a settlement that provided for a $1.9 million increase
in annual revenue which the PPUC approved effective January 30, 1992. However,
on February 27, 1992, the PPUC granted a petition of the OCA, a complainant in
the rate proceeding and a signatory to the settlement, for reconsideration and
clarification of the PPUC Order which approved the settlement. As a result, the
$1.9 million rate increase remains subject to further PPUC and possible
appellate review. Although it cannot be certain, PG&W believes that the $1.9
million increase will not be rescinded in whole or in part or affected in any
other way as a result of the OCA's petition and as of March 23, 1994, no further
action had been taken by the PPUC with respect to the OCA's petition.
Crystal Lake Service Area. On June 30, 1992, PG&W filed an application with
the PPUC seeking a water rate increase, designed to produce $4.4 million in
additional annual revenue, to be effective August 29, 1992. This rate increase
request involved the approximately 5,000 customers in the Spring Brook Water
Rate Area served exclusively by the Crystal Lake Water Treatment Plant, which
became fully operational in August, 1992. On December 15, 1992, PG&W and
certain parties filing objections to the rate increase request reached a
settlement providing for an approximate 130% rate increase designed to produce
$2.0 million of additional annual revenue to be phased-in over a two-year period
under the terms of a qualified phase-in plan, pursuant to FASB Statement 92.
The settlement further provided that $1.1 million of the increased revenue (an
approximate 72% increase in rates) was to be realized through an immediate rate
increase and that the remaining $900,000 in increased revenue (an additional 58%
increase in rates) was to be realized through another rate increase one year
later (i.e., at the beginning of year two of the phase-in period). The
settlement also specified that the $900,000 in revenue that would be deferred
during the first year of the phase-in period, as well as an approximate $243,000
in carrying charges, was to be collected from customers in the form of a
surcharge in years three through five of the phase-in period. By Order adopted
February 25, 1993, the PPUC approved the settlement effective March 9, 1993. In
accordance with the provisions of FASB Statement 92, PG&W commenced recording
the entire $2.0 million increase in annual revenue allowed by the PPUC as
additional revenue beginning March 9, 1993, along with the related carrying
charges on revenue deferred in accordance with the phase-in plan.
Ceasetown and Watres Service Areas. On April 29, 1993, PG&W filed an
application with the PPUC seeking a water rate increase, designed to produce
$19.5 million in additional annual revenue, to be effective June 28, 1993. This
rate increase request involved approximately 59,300 customers in PG&W's Spring
Brook Water Rate Area, principally those customers (i) served by the Ceasetown
Water Treatment Plant which was placed in service on March 31, 1993, (ii) served
by the Watres Water Treatment Plant which was placed in service on September 30,
1993, (iii) served jointly by the Ceasetown and Watres Water Treatment Plants,
and (iv) who are served exclusively by the Nesbitt Water Treatment Plant. On
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June 3, 1993, the PPUC suspended this rate increase for seven months (until
January 28, 1994) by operation of law in order to institute an investigation
into the reasonableness of the proposed rates. On September 23, 1993, PG&W and
certain parties filing objections to the rate increase request reached a
settlement providing for an overall 119% rate increase involving approximately
44,900 customers, principally those served either exclusively or jointly by the
Ceasetown and Watres Water Treatment Plants, designed to produce $11.9 million
of additional annual revenue to be phased-in over a two-year period under the
terms of a qualified phase-in plan, pursuant to FASB Statement 92, "Regulated
Enterprises-Accounting for Phase-In Plans." Under the terms of the settlement,
except for approximately 200 customers who were previously served jointly by the
Hillside and Nesbitt Water Treatment Plants, none of the approximately 14,600
customers now served exclusively by the Nesbitt Water Treatment Plant would
receive an increase. The settlement further provided that $6.4 million of the
increased revenue (an approximate 65% increase in rates) was to be realized
through an immediate rate increase and that the remaining $5.5 million of the
increased revenue (an additional 54% increase in rates) was to be realized
through a further rate increase one year later (i.e., at the beginning of year
two of the phase-in period). The settlement also specified that the $5.5
million in revenue to be deferred during the first year of the phase-in period,
as well as an approximate $1.3 million in related carrying charges, is to be
collected from customers in the form of a surcharge in years three through five
of the phase-in period. By Order adopted December 15, 1993, the PPUC approved
the settlement effective December 16, 1993. In accordance with the provisions
of FASB 92, PG&W commenced recording the entire $11.9 million increase in annual
revenue allowed by the PPUC as additional revenue beginning December 16, 1993,
along with the related carrying charges on revenue deferred in accordance with
the phase-in plan.
Deferred Treatment Plant Costs and Carrying Charges. Pursuant to an Order
of the PPUC entered September 5, 1990, PG&W deferred all operating expenses,
including depreciation and property taxes, and the carrying charges (equivalent
to the AFUDC) relative to the four new Scranton Area water treatment plants and
related facilities from the dates of commercial operation of the plants until
March 23, 1991, the effective date of the Scranton Area water rate increase
approved by the PPUC on March 22, 1991. By its Order entered June 23, 1993,
relative to the Scranton Water Rate Area, the PPUC granted PG&W's request to
recover the $5.1 million of costs deferred relative to the Scranton Area water
treatment plants and related facilities over a ten-year period beginning June
23, 1993.
Similarly, as permitted by an Order of the PPUC entered September 24, 1992,
PG&W has deferred all operating expenses, including depreciation and property
taxes, and the carrying charges relative to the Crystal Lake Water Treatment
Plant and related facilities from August 3, 1992 (the date of commercial
operation of that plant), until March 9, 1993, the effective date of the water
rate increase approved by the PPUC on February 25, 1993, for customers in PG&W's
Spring Brook Water Rate Area served exclusively by the Crystal Lake Water
Treatment Plant. Additionally, in accordance with an Order of the PPUC entered
July 28, 1993, PG&W deferred all expenses and the carrying charges relative to
the Ceasetown and Watres Water Treatment Plants and related facilities, until
December 16, 1993, the effective date of the water rate increase for customers
served by the Ceasetown and Watres Water Treatment Plants approved by the PPUC
on December 15, 1993.
As of December 31, 1993, a total of $4.6 million of costs, consisting of
$424,000 of operating expenses and $745,000 of carrying charges relative to the
Crystal Lake Water Treatment Plant and related facilities, and $1.7 million of
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operating expenses and $1.7 million of carrying charges relative to the
Ceasetown and Watres Water Treatment Plants and related facilities, had been so
deferred pursuant to the respective PPUC Orders permitting the deferral of such
costs.
As contemplated by the PPUC's Orders of September 24, 1992, and July 28,
1993, PG&W will seek recovery of the costs relative to the Crystal Lake,
Ceasetown and Watres Water Treatment Plants that have been deferred pursuant to
such Orders in its next rate increase request relative to the Spring Brook Water
Rate Area. Although it cannot be certain, PG&W believes that the recovery of
such costs will be allowed by the PPUC in future rate increases, particularly in
view of the PPUC's action allowing the recovery of the costs deferred with
respect to the Scranton Area water treatment plants and related facilities.
(3) OTHER INCOME, NET
Other income, net was comprised of the following elements:
[CAPTION]
1991 1992 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Equity component of deferred treatment
plant carrying charges $ - $ - $ 821
Allowance for equity funds used during
construction - - 734
Gain on sale of non-watershed land and
other property, net of related income
taxes 182 102 20
Interest income on repurchase agreements,
net of related income taxes 254 2 16
Interest on note to affiliate 437 133 -
Net interest expense on proceeds
remaining in construction fund - (23) (785)
Premium on retirement/defeasance of debt - (127) (81)
Other 261 (57) (165)
Total $ 1,134 $ 30 $ 560
(4) COMMON STOCK
Since January 1, 1991, PG&W has issued the following amounts of common stock
to PEI, its parent company, in addition to shares issued in connection with
PEI's Dividend Reinvestment and Stock Purchase Plan:
[CAPTION]
Purchase Price
Date Purchased Number of Shares Per Share* Aggregate
[S] [C] [C] [C]
March 23, 1992 171,779 $ 40.75 $ 7.0 million
June 19, 1992 137,143 $ 40.25 $ 5.5
October 27, 1993 834,000 $ 38.25 $31.9
Total 1,142,922 $44.4 million
* Approximately equal to the book value of PG&W's common stock at the date of
issuance.
The proceeds from the shares issued on June 19, 1992, and October 27, 1993,
were used to repay bank borrowings which had been incurred primarily to finance
construction expenditures. The shares issued on March 23, 1992, represented
capitalization of the $7.0 million contribution made by PEI to PG&W on January
30, 1992, which had been temporarily treated as an intercompany advance pending
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approval by the PPUC of the issuance of shares of common stock relative to such
contribution. Upon its receipt, the $7.0 million contribution was also utilized
to repay bank borrowings incurred primarily to finance construction
expenditures. These issuances of common stock by PG&W and the related
reductions in its bank borrowings acted to improve PG&W's debt/equity ratio, as
well as its interest and fixed charge coverages.
(5) PREFERRED STOCK
Preferred Stock of PG&W Subject to Mandatory Redemption
On September 16, 1988, PG&W issued 250,000 shares of its 9.50% 1988 series
cumulative preferred stock, $100 par value. On December 23, 1993, PG&W redeemed
100,000 shares of the 9.50% 1988 series cumulative preferred stock at a price of
$103.5625 per share (plus accrued dividends to the redemption date), which
included a voluntary redemption premium of $3.5625 per share ($356,250 in the
aggregate). The remaining 150,000 shares of the 9.50% 1988 series cumulative
preferred stock, which are currently outstanding, are subject to mandatory
redemption on December 15, 1997, at a price of $100 per share, plus unpaid
dividends accrued on such shares.
On December 16, 1988, PG&W issued 150,000 shares of its 8.90% cumulative
preferred stock, $100 par value. The 8.90% cumulative preferred stock is
subject to mandatory redemption of 18,750 shares on each of December 15, 1997,
March 15, 1998, June 15, 1998, and September 15, 1998, and 75,000 shares on
December 15, 1998, in each instance, at a price of $100 per share, plus unpaid
dividends accrued on such shares.
The holders of the 5.75% cumulative preferred stock have a noncumulative
right each year to tender to PG&W and to require it to purchase at a per share
price not exceeding $100, up to (a) that number of shares of the 5.75%
cumulative preferred stock which can be acquired for an aggregate purchase price
of $80,000 less (b) the number of such shares which PG&W may already have
purchased during the year at a per share price of not more than $100. Eight
hundred such shares were acquired and cancelled by PG&W in each of the three
years in the period ended December 31, 1993, for an aggregate purchase price in
each year of $80,000.
As of December 31, 1993, the aggregate annual maturities and sinking fund
requirements of PG&W's cumulative preferred stock subject to mandatory
redemption for each of the next five years ending December 31, were as follows:
[CAPTION]
Year Amount
[S] [C]
1994 $ 80,000
1995 $ 80,000
1996 $ 80,000
1997 $16,955,000 (a)
1998 $13,205,000 (b)
(a) Includes the entire $15.0 million principal amount of the 9.50% 1988 series
cumulative preferred stock currently outstanding and $1,875,000 of the 8.90%
cumulative preferred stock, both of which are subject to redemption on
December 15, 1997.
(b) Includes the entire $13,125,000 principal amount of the 8.90% cumulative
preferred stock that is subject to redemption during 1998.
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At PG&W's option, the following series of cumulative preferred stock subject
to mandatory redemption may currently be redeemed at the prices indicated:
[CAPTION]
Current Redemption Price
Series Per Share Aggregate
[S] [C] [C]
5.75% $ 102.00 $ 1,958,400
8.90% $ 103.96 $15,594,000
9.50% 1988 Series $ 103.56 $15,534,375
Preferred Stock of PG&W Not Subject to Mandatory Redemption
On August 18, 1992, PG&W issued 250,000 shares of its 9% cumulative
preferred stock, par value $100 per share, for aggregate net proceeds of
approximately $23.6 million. The 9% cumulative preferred stock is not
redeemable by PG&W prior to September 15, 1997. Thereafter, it is redeemable at
the option of PG&W, in whole or in part, upon not less than 30 days' notice, at
$100 per share plus accrued dividends to the date of redemption and at a premium
of $8 per share if redeemed from September 15, 1997, to September 14, 1998, and
a premium of $4 per share if redeemed from September 15, 1998, to September 14,
1999.
At PG&W's option, the 4.10% cumulative preferred stock may currently be
redeemed at a redemption price of $105.50 per share or for an aggregate
redemption price of $10,550,000.
Dividend Information
The dividends on the preferred stock of PG&W in each of the three years in
the period ended December 31, 1993, were as follows:
[CAPTION]
Series 1991 1992 1993
(Thousands of Dollars)
[S] [C] [C] [C]
4.10% $ 405 $ 409 $ 410
5.75% 121 117 113
8.90% 1,335 1,335 1,335
9.00% - 829 2,250
9.50% 1988 series 2,375 2,375 2,354
Total $4,236 $5,065 $6,462
Dividends on all series of PG&W's preferred stock are cumulative, and if
dividends in an amount equivalent to four full quarterly dividends on all shares
of preferred stock then outstanding are in default and until all such dividends
have been paid, the holders of the preferred stock, voting separately as one
class, shall be entitled to elect a majority of the Board of Directors of PG&W.
Additionally, PG&W may not declare dividends on its common stock if any
dividends on shares of preferred stock then outstanding are in default.
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(6) LONG-TERM DEBT
Long-term debt consisted of the following components at December 31, 1992
and 1993:
<TABLE>
<CAPTION>
1992 1993
(Thousands of Dollars)
<S> <C> <C>
First mortgage bonds -
6.05 % Series, due 2019 $ - $ 19,000
7.125% Series, due 2022 30,000 30,000
7.20 % Series, due 2017 50,000 50,000
8 % Series, due 1997 3,955 3,745
8.375% Series, due 2002 30,000 30,000
9.23 % Series, due 1999 10,000 10,000
9-1/4% Series, due 1996 5,000 -
9.34 % Series, due 2019 15,000 15,000
9.57 % Series, due 1996 (a) 50,000 50,000
10 % Series, due 1995 6,060 -
200,015 207,745
Notes -
1%, due 1994 (Small Business Administration) 1,253 845
7%, 1989 Series A, due 2019, defeased on
December 21, 1993 19,000 -
8%, 1987 Series B, due 2017, but subject to
repayment in 1994 30,000 30,000
Bank borrowings, at weighted average interest
rates of 6.19% and 4.31% respectively, due in
1995 (Note 8) 17,000 47,000
67,253 77,845
Water facility loans from agencies of the
Commonwealth of Pennsylvania, at interest rates
ranging from 1.76% to 9.36%, repayable in
installments through 2012 17,614 19,253
Less current maturities and sinking
fund requirements (39,005) (38,584)
Total long-term debt $245,877 $266,259
(a) The interest rate on the 9.57% Series First Mortgage Bonds, due 1996, was
increased to 11.17% for the period January 1 through March 31, 1992,
pursuant to the terms of those bonds, because PEI had not consummated the
sale of at least $20.0 million in common stock and had not repaid the $15.0
million intercompany advance from PG&W made on September 12, 1991, by
December 31, 1991.
</TABLE>
8%, 1987 Series B Note. On December 23, 1987, the Luzerne County Industrial
Development Authority (the "Authority") issued $30.0 million of its 8% Exempt
Facilities Revenue Bonds, 1987 Series B (Pennsylvania Gas and Water Company
Project) (the "1987 Series B Bonds") and in connection therewith, PG&W issued a
promissory note in the principal amount of $30.0 million (its 8%, 1987 Series B
Note) to PNC Bank (formerly Northeastern Bank of Pennsylvania), as trustee (the
"IDA Trustee") for the 1987 Series B Bonds, as security for the 1987 Series B
Bonds. The 1987 Series B Bonds mature on December 1, 2017; bear interest at an
initial annual rate of 8% through November 30, 1994; are secured by a letter of
credit issued by Swiss Bank Corporation, New York Branch expiring on December
20, 1994, for which the annual fee is $279,000; and on December 1, 1994, will be
redeemed or, at the option of PG&W, purchased by PG&W for remarketing as of that
date. Under the terms of the 1987 Series B Note, PG&W agreed to pay the debt
service requirements on the 1987 Series B Bonds.
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7.20% Series First Mortgage Bonds. On September 15, 1992, the Authority
issued $50.0 million of its Exempt Facilities Revenue Refunding Bonds, 1992
Series A (Pennsylvania Gas and Water Company Project) (the "1992 Series A
Bonds") and, in connection therewith, PG&W issued $50.0 million of its 7.20%
First Mortgage Bonds to the IDA Trustee for the 1992 Series A Bonds, as security
for the 1992 Series A Bonds. The proceeds from the issuance of the 1992 Series
A Bonds, along with additional funds provided by PG&W, were deposited with the
IDA Trustee for the Authority's $50.0 million of 8-1/2% Exempt Facilities
Revenue Bonds, 1987 Series A (Pennsylvania Gas and Water Company Project) (the
"1987 Series A Bonds") on September 15, 1992, for use in redeeming the 1987
Series A Bonds on October 1, 1992. The deposit of such funds acted to discharge
all of PG&W's obligations with respect to its 8-1/2%, 1987 Series A Note in the
principal amount of $50.0 million which had been issued to the IDA Trustee in
connection with the 1987 Series A Bonds and which was subject to repayment on
October 1, 1992. Under the terms of the 7.20% First Mortgage Bonds, PG&W will
make payments to the IDA Trustee in amounts sufficient and at the times
necessary to pay the debt service requirements on the 1992 Series A Bonds.
8.375% Series First Mortgage Bonds. On December 14, 1992, PG&W issued $30.0
million of its 8.375% Series First Mortgage Bonds due 2002. The proceeds from
the issuance of these bonds were used to repay approximately $28.7 million of
bank borrowings, thereby providing PG&W with additional borrowing capacity for
future capital expenditures and other working capital needs.
7.125% Series First Mortgage Bonds. On December 22, 1992, the Authority
issued $30.0 million of its Exempt Facilities Revenue Bonds, 1992 Series B
(Pennsylvania Gas and Water Company Project) (the "1992 Series B Bonds") and, in
connection therewith, PG&W issued $30.0 million of its 7.125% Series First
Mortgage Bonds to the IDA Trustee for the 1992 Series B Bonds, as security for
the 1992 Series B Bonds. The proceeds from the issuance of the 1992 Series B
Bonds were deposited in a construction fund held by the IDA Trustee for the 1992
Series B Bonds, pending their utilization to finance the construction of various
additions and improvements to PG&W's water facilities for which construction
commenced subsequent to September 23, 1992. As of December 31, 1993, $12.9
million was so held by the IDA Trustee and was available to finance the future
construction of qualified water facilities for PG&W. Under the terms of the
7.125% Series First Mortgage Bonds, PG&W will make payments to the IDA Trustee
in amounts sufficient and at the times necessary to pay the debt service
requirements on the 1992 Series B Bonds.
10% and 9-1/4% Series First Mortgage Bonds. On May 1, 1993, PG&W redeemed
the $5,700,000 of its 10% Series First Mortgage Bonds due 1995 and the
$3,750,000 of its 9-1/4% Series First Mortgage Bonds due 1996 then outstanding,
utilizing funds from bank borrowings. The 10% Series First Mortgage Bonds were
redeemed at a price of 100.42% of principal (plus accrued interest to the
redemption date), which included a voluntary redemption premium aggregating
$23,940. The 9-1/4% Series First Mortgage Bonds were redeemed at a price of
100.98% of principal (plus accrued interest to the redemption date), which
included a voluntary redemption premium aggregating $36,750.
6.05% Series First Mortgage Bonds. On December 21, 1993, the Authority
issued $19.0 million of its Exempt Facilities Revenue Refunding Bonds, 1993
Series A (Pennsylvania Gas and Water Company Project) (the "1993 Series A
Bonds") and, in connection therewith, PG&W issued $19.0 million of its 6.05%
Series First Mortgage Bonds to the IDA Trustee for the 1993 Series A Bonds, as
security for the 1993 Series A Bonds. PG&W will make payments to the IDA
Trustee pursuant to the 6.05% Series First Mortgage Bonds in amounts sufficient
and at the times necessary to pay the debt service requirements on the 1993
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Series A Bonds. The proceeds from the issuance of the 1993 Series A Bonds,
along with additional funds provided by PG&W, were deposited with the IDA
Trustee for the Authority's $19.0 million of 7% Exempt Facilities Revenue Bonds,
1989 Series A (Pennsylvania Gas and Water Company Project) (the "1989 Series A
Bonds") on December 21, 1993, for use in redeeming the 1989 Series A Bonds on
January 1, 1994. The deposit of such funds acted to discharge all of PG&W's
obligations with respect to its 7%, 1989 Series A Note in the principal amount
of $19.0 million which had been issued to the IDA Trustee in connection with the
1989 Series A Bonds and which was subject to repayment on January 1, 1994.
As of December 31, 1993, the aggregate annual maturities and sinking fund
requirements of long-term debt for each of the next five years ending
December 31, were:
[CAPTION]
Year Amount
[S] [C]
1994 $38,584,000 (a)
1995 $47,730,000 (b)
1996 $50,758,000 (c)
1997 $ 3,694,000
1998 $ 611,000
(a) Includes the 8%, 1987 Series B Note in the principal amount of $30.0
million due 2017, but subject to repayment or refinancing on December 1,
1994. Such amount also includes the aggregate principal amount of
approximately $7.0 million relative to six water facility loans of PG&W
having a weighted annual interest rate of 9.33% which were voluntarily
repaid by PG&W on January 31, 1994, with bank borrowings.
(b) Includes $47.0 million of bank borrowings outstanding as of December 31,
1993.
(c) Includes the 9.57% Series First Mortgage Bonds in the principal amount
of $50.0 million due 1996.
Most of PG&W's properties are subject to mortgage liens securing certain
funded debt. Additionally, PG&W's gross revenues and receipts, accounts
receivable and certain of its other rights and interests are subject to liens
securing various water facility loans from agencies established by the
Commonwealth of Pennsylvania for the purpose of providing financial assistance
to public water supply and sewage systems in the state. These liens are limited
to the amount of the related loans outstanding, which aggregated $19.3 million
as of December 31, 1993, and $12.1 million as of March 23, 1994, subsequent to
the prepayment of certain of such loans.
(7) DIVIDEND RESTRICTIONS
Several of PG&W's debt instruments contain restrictions on the payment by
PG&W of dividends to PEI. Under the most restrictive of these provisions, which
is contained in the letter of credit agreement relating to the 1987 Series B
Bonds issued by the Luzerne County Industrial Development Authority with respect
to which PG&W has issued its 1987 Series B Note in the principal amount of $30.0
million, PG&W may not pay dividends to PEI of more than $12.5 million in 1994
and thereafter. In addition, provisions of such agreement and also PG&W's
revolving bank credit agreement (the "Credit Agreement" as defined in Note 8 to
these financial statements) prohibit PG&W from paying any dividends to PEI in
the event of any default under those agreements. These restrictions are not
expected to prohibit PG&W from paying a sufficient amount of dividends to PEI to
permit PEI to pay its current $2.20 per share annual dividend on its common
stock.
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In addition, the preferred stock provisions of PG&W's Restated Articles of
Incorporation and the indenture of mortgage under which PG&W has issued first
mortgage bonds provide for certain dividend restrictions.
(8) BANK NOTES PAYABLE
On April 25, 1991, PG&W entered into an agreement with the various banks
with which it had previously arranged lines of credit. The purpose of the
agreement was to consolidate PG&W's existing bank lines of credit to provide for
uniform terms relative to its bank borrowings and to extend the due dates of
such borrowings. As such, the agreement superseded PG&W's individual bank lines
of credit. The aggregate amount available to PG&W in 1992 under this agreement
was $45.0 million. On March 1, 1993, PG&W elected to reduce the amount so
available to $35.0 million in order to reduce the commitment fee that would
otherwise be payable and since no more than $35.0 million would be required by
PG&W under the agreement prior to its expiration on April 30, 1993. The
interest rate on borrowings under the agreement was prime. The agreement also
required the payment of a commitment fee of 1/2 of 1% per annum on the average
daily amount of the unused portion of the available funds. The commitment fees
paid with respect to this agreement totaled $60,000 in 1991, $152,000 in 1992
and $43,000 in 1993.
On April 19, 1993, PG&W entered into a revolving bank credit agreement (the
"Credit Agreement") with a group of six banks under the terms of which $60.0
million is available for borrowing by PG&W. The Credit Agreement terminates on
April 30, 1995, at which time any borrowings outstanding thereunder are due and
payable. The interest rate on borrowings under the Credit Agreement is
generally less than prime. The Credit Agreement also requires the payment of a
commitment fee of 3/8 of 1% per annum on the average daily amount of the unused
portion of the available funds. As of March 23, 1994, $41.0 million of
borrowings were outstanding under the Credit Agreement. PG&W also has three
short-term bank lines of credit with an aggregate borrowing capacity of $7.0
million which provide for borrowings at interest rates generally less than prime
and mature on April 30, 1994. As of March 23, 1994, PG&W had no borrowings
outstanding under the short-term bank lines of credit. The commitment fees paid
with respect to these agreements totaled $70,000 in 1993.
Because of limitations imposed by the terms of PG&W's preferred stock, PG&W
is prohibited, without the consent of the holders of a majority of the
outstanding shares of its preferred stock, from issuing more than $12.0 million
of unsecured debt due on demand or within one year from issuance. PG&W had $5.7
million of unsecured debt due on demand or within one year from issuance
outstanding as of December 31, 1993, which included a $3.7 million demand loan
from PEI.
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Information relating to PG&W's bank lines of credit and borrowings under
those lines of credit is set forth below:
<TABLE>
<CAPTION>
As of December 31,
1991 1992 1993
(Thousands of Dollars)
<S> <C> <C> <C>
Borrowings under lines of credit
Short-term $ - $ - $ 2,000
Long-term 37,000 17,000 47,000
$ 37,000 $ 17,000 $ 49,000
Unused lines of credit
Short-term $ - $ - $ 5,000
Long-term 8,000 28,000 13,000
$ 8,000 $ 28,000 $ 18,000
Total lines of credit
Prime rate $ 45,000 $ 45,000 $ 2,000
Other than prime rate - - 65,000
$ 45,000 $ 45,000 $ 67,000
Short-term bank borrowings (a)
Maximum amount outstanding $ 12,000 $ - $ 5,666
Daily average amount outstanding $ 8,972 $ - $ 637
Weighted daily average interest
rate 9.280% - 4.046%
Weighted average interest rate at
year-end - - 4.208%
Range of interest rates 9.000- - 3.750-
10.000% - 6.000%
(a) PG&W did not incur any short-term bank borrowings during the year
ended December 31, 1992, and had no short-term bank borrowings
outstanding at December 31, 1991 or 1992.
</TABLE>
(9) POSTRETIREMENT BENEFITS
Substantially all employees of PG&W are covered by PEI's trusteed,
noncontributory, defined benefit pension plan. Pension benefits are based on
years of service and average final salary. PG&W's funding policy is to
contribute an amount necessary to provide for benefits based on service to date,
as well as for benefits expected to be earned in the future by current
participants. To the extent that the present value of these obligations is
fully covered by assets in the trust, a contribution may not be made for a
particular year. Net pension costs, including amounts capitalized, were
$243,000, $333,000 and $443,000 in 1991, 1992 and 1993, respectively.
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The following items were the components of the net pension cost for the
years 1991, 1992 and 1993:
[CAPTION]
1991 1992 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned
during the year $ 637 $ 789 $ 854
Interest cost on projected benefit
obligations 2,120 2,262 2,402
Return on plan assets (3,824) (2,646) (3,127)
Net amortization and deferral 1,310 (72) 314
Net pension cost $ 243 $ 333 $ 443
The discount rate used to determine the actuarial present value of the
projected benefit obligations, the expected long-term rate of return on plan
assets and the projected increase in future compensation levels assumed in
determining the net pension cost for each of the years 1991, 1992 and 1993, were
as follows:
[CAPTION]
[S] [C]
Discount rate 8%
Expected long-term rate of return
on plan assets 9%
Projected increase in future
compensation levels 5-1/2%
The funded status of the plan as of December 31, 1992 and 1993, was as
follows:
[CAPTION]
1992 1993
(Thousands of Dollars)
[S] [C] [C]
Actuarial present value of the projected
benefit obligations:
Accumulated benefit obligations
Vested $ 21,813 $ 24,265
Nonvested 139 125
Total 21,952 24,390
Provision for future salary increases 7,746 9,769
Projected benefit obligations 29,698 34,159
Market value of plan assets, primarily
invested in equities and bonds 30,963 32,471
Plan assets in excess of (less than) projected
benefit obligations 1,265 (1,688)
Unrecognized net transition asset as of
January 1, 1986, being amortized over
20 years (2,988) (2,758)
Unrecognized prior service costs 2,412 2,279
Unrecognized net (gain) loss (704) 1,710
Accrued pension cost at year-end $ (15) $ (457)
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<PAGE>
In March, 1991, as part of a cost reduction program, PG&W offered an Early
Retirement Plan ("ERP") to its employees who would be 60 years of age or older
and have a minimum of five years of service as of April 30, 1991. Of the 79
eligible employees, 73 elected to accept this offer and retired in 1991. In
accordance with FASB Statement 88 "Employers' Accounting for Settlements and
Curtailments of Defined Benefit Pension Plans and for Termination Benefits,"
PG&W recorded, as of April 30, 1991, an additional pension liability of $2.0
million, reflecting the increased costs associated with the ERP. This
liability, which was included in "Other deferred credits" as of December 31,
1992 and 1993, partially offsets an asset included in "Other deferred charges,"
representing the probable future rate recovery of such liability. As a result,
the provisions of FASB Statement 88 did not have a significant effect on PG&W's
results of operations for 1991. During 1992, PG&W began amortizing the portion
of the deferred charges relative to its gas operations over a 20-year period and
will begin amortizing the portion relating to its water operations as such
amounts are approved in rates. In addition, the deferred liability is being
amortized as an offset against pension expense over a 20 year amortization
period approximating the effect of including the additional pension costs
related to the ERP in the present value of benefits earned during the year.
In addition to pension benefits, PG&W provides certain health care and life
insurance benefits for retired employees. Substantially all of PG&W's employees
may become eligible for those benefits if they reach retirement age while
working for PG&W. Prior to January 1, 1993, the cost of retiree health care and
life insurance, which totaled $800,000 in 1991 and $870,000 in 1992, was
expensed as the premiums were paid under insurance contracts.
Effective January 1, 1993, PG&W adopted the provisions of FASB Statement
106, "Employers' Accounting for Postretirement Benefits Other Than Pensions."
The provisions of FASB Statement 106 require that PG&W record the cost of
retiree health care and life insurance benefits as a liability over the
employees' active service periods instead of on a benefits-paid basis as was
PG&W's prior practice.
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<PAGE>
The following items were the components of the net cost of postretirement
benefits other than pensions for the year 1993:
[CAPTION]
(Thousands
of Dollars)
[S] [C]
Present value of benefits earned during the year $ 226
Interest cost on accumulated benefit obligation 967
Return on plan assets (a) -0-
Amortization of transition obligation over 20 years 617
Net cost of postretirement benefits other than pensions 1,810
Less disbursements for benefits (983)
Increase in liability for postretirement benefits
other than pensions $ 827
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of January 1, 1993,
and December 31, 1993, follow:
[CAPTION]
January 1, December 31,
1993 1993
(Thousands of Dollars)
[S] [C] [C]
Accumulated benefit obligation:
Retirees $ 9,878 $ 10,149
Fully eligible active employees 1,649 1,735
Other active employees 815 1,222
12,342 13,106
Plan assets at fair value (a) -0- -0-
Accumulated benefit obligation
in excess of plan assets 12,342 13,106
Unrecognized transition obligation (12,342) (11,725)
Unrecognized net loss -0- (554)
Accrued liability for postretirement
benefits other than pensions $ -0- $ 827
For purposes of calculating the costs to be accrued by PG&W under FASB
Statement 106, an 8% discount rate and a 5.5% projected annual increase in
future compensation levels were assumed. It was also assumed that the per
capita cost of covered health care benefits would increase at an annual rate of
12% in 1993 and that this rate would decrease gradually to 5.5% for the year
2003 and remain at that level thereafter. The health care cost trend rate
assumption had a significant effect on the amounts accrued. To illustrate,
increasing the assumed health care cost trend rate by 1 percentage point in each
year would increase the transition obligation as of January 1, 1993, by
approximately $723,000 and the aggregate of the service and interest cost
components of the net cost of postretirement benefits other than pensions for
the year 1993 by approximately $60,000.
(a) As of December 31, 1993, PG&W had segregated funds totaling $182,000,
pending the establishment of a qualified trust fund for a portion of its
liability for postretirement benefits other than pensions, as discussed in the
paragraph immediately above.
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<PAGE>
The additional costs accrued pursuant to FASB Statement 106 are allocated
between PG&W's gas utility and water utility operations. By Order entered June
23, 1993, relative to the rate increase request that PG&W had filed on September
25, 1992, with respect to the Scranton Water Rate Area, the PPUC allowed PG&W to
recover in revenues the additional costs ($319,000 for the year 1993, based on
then current estimates) that were required to be accrued pursuant to FASB
Statement 106 and which were allocable to the Scranton Water Rate Area.
Similarly, by Order entered December 15, 1993, relative to the rate increase
request that PG&W had filed on April 29, 1993, relative to the Spring Brook
Water Rate Area, the PPUC allowed PG&W to recover in revenues the additional
costs ($322,000 for the year 1993 based on then current estimates) that were
required to be accrued pursuant to FASB Statement 106 and which were allocable
to the Spring Brook Water Rate Area. Since PG&W did not seek an increase in its
base gas rates during 1993, the $407,000 ($232,000 net of related income taxes)
of additional cost incurred with regard to its gas utility operations as a
result of the adoption of the provisions of FASB Statement 106 was expensed.
(10) CONSTRUCTION EXPENDITURES
PG&W estimates the cost of its 1994 construction program will be $46.8
million. Construction of water facilities, estimated to cost $29.8 million,
will be financed with the $12.9 million of proceeds from the issuance of the
1993 Series A Bonds held by the IDA Trustee as of December 31, 1993, for the
benefit of PG&W, internally generated funds and borrowings under PG&W's
revolving bank credit facilities, pending the periodic issuance of stock and
long-term debt. Construction of gas facilities, estimated to cost $17.0
million, will be financed with internally generated funds and borrowings under
PG&W's revolving bank credit facilities, pending the periodic issuance of stock
and long-term debt.
(11) COMMITMENTS AND CONTINGENCIES
Valve Maintenance
On November 16, 1993, the PPUC staff issued an Emergency Order, subsequently
ratified by the PPUC (the "Emergency Order"), requiring PG&W by January 31,
1994, to survey its gas distribution system to verify the location and spacing
of its gas shut off valves, to add or repair valves where needed and to
establish programs for the inspection and maintenance of all such valves and the
verification of all gas service line information. The Emergency Order was
issued following the occurrence of two gas incidents (one concerning an
explosion and the other a fire) in PG&W's service area in June and October,
1993, respectively, involving nearby gas shut off valves that had been paved
over by third parties and could not be readily located due to alleged inaccurate
service line records. The Emergency Order also cited four additional incidents
occurring since January 31, 1991, in which shut off valves had been paved over
or records were inaccurate. In connection with these incidents, the PPUC has
alleged that PG&W has violated certain federal and state regulations related to
gas pipeline valves. The PPUC has the authority to assess fines for such
violations. The PPUC ordered PG&W to develop a plan, including a timetable, by
December 30, 1993, for compliance with the terms of the Emergency Order. PG&W
met the December 30, 1993, deadline for submission of this plan. However, PG&W
included in such plan, a timetable, which, in effect, requested an extension of
the January 31, 1994, deadline contained in the Emergency Order, which PG&W
viewed as unrealistic. On February 2, 1994, the PPUC staff notified PG&W that
it considers the plan submitted by PG&W "only a general plan of action to
address the problem with valving in [PG&W's] system" and that the plan "is
lacking in detail and more information is needed." As a result, the PPUC staff
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<PAGE>
indicated that it intends to initiate an informal investigation of the matter,
including PG&W's responsibility for the incidents referred to in the Emergency
Order. Although it is not presently possible to determine what action the PPUC
will ultimately take with respect to possible violations of law and the matters
raised by the Emergency Order, PG&W does not believe that compliance with, or
any liability that might result from such violations or the Emergency Order will
have a material adverse effect on its financial position or results of
operations.
Environmental Matters
PG&W, like many gas distribution companies, once utilized manufactured gas
plants in connection with providing gas service to its customers. None of these
plants has been in operation since 1960, and several of the plant sites are no
longer owned by PG&W. Pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA"), PG&W filed notices with the
United States Environmental Protection Agency (the "EPA") with respect to the
former plant sites. None of the sites is or was formerly on the proposed or
final National Priorities List. The EPA has conducted site inspections and made
preliminary assessments of each site and has concluded that no further remedial
action is planned. While this conclusion does not constitute a legal
prohibition against further regulatory action under CERCLA or other applicable
federal or state law, PG&W does not believe that additional costs, if any,
related to these manufactured gas plant sites would be material to its financial
position or results of operations since environmental remediation costs
generally are recoverable through rates over a period of time.
On February 4, 1994, PG&W was requested by the Pennsylvania Department of
Environmental Resources to perform an evaluation to determine if a pipeline
owned by PG&W was the source of certain soil contamination discovered by the
Pennsylvania Department of Transportation in late 1993 in an area adjacent to
that pipeline at a road crossing in Jackson Township, Northumberland County,
Pennsylvania. This pipeline was purchased by Scranton-Spring Brook Water
Service Company ("Scranton-Spring Brook"), a predecessor of PG&W, in 1956, but
was never operated by Scranton-Spring Brook or PG&W in the area in question. At
this time, pending further environmental analysis and evaluation, neither the
source nor the extent of the contamination is known. However, if the source of
the contamination is determined to be PG&W's pipeline, PG&W would be required to
perform such remediation work as is necessary and to dispose of the contaminated
soil. While it cannot be certain, PG&W does not presently believe that any
liability it might have with respect to such contamination would have a material
adverse effect on either its financial position or results of operations.
Further, if PG&W were determined to be the responsible party with respect to the
subject contamination, it would seek to recover any liability it were to so
incur from the former owner and operator of the pipeline and/or its successors.
Additionally, to the extent it could not recover its costs from such parties,
PG&W could seek authority of the PPUC to recover those costs in the rates
charged to its natural gas customers.
(12) INDUSTRY SEGMENTS
Financial information with respect to PG&W's industry segments for the years
ended December 31, 1991, 1992 and 1993 is included in Item 1 of this Form 10-K.
Such industry segment information is incorporated herein as part of these
Financial Statements.
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<PAGE>
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
[CAPTION]
QUARTER ENDED
March 31, June 30, September 30, December 31,
1992 1992 1992 1992
(Thousands of Dollars, Except Per Share Amounts)
[S] [C] [C] [C] [C]
Operating revenues $ 70,673 $ 34,000 $ 25,440 $ 61,765
Operating income 12,620 6,270 4,160 10,863
Earnings (loss) applicable
to common stock 5,763 (44) (2,704) 4,876
Earnings (loss) per share
of common stock (a) 1.55 (.01) (.67) 1.21
[CAPTION]
QUARTER ENDED
March 31, June 30, September 30, December 31,
1993 1993 1993 1993
(Thousands of Dollars, Except Per Share Amounts)
[S] [C] [C] [C] [C]
Operating revenues $ 78,318 $ 37,251 $ 27,959 $ 63,160
Operating income 13,315 5,672 4,762 12,407
Earnings (loss) applicable
to common stock 6,827 (1,037) (1,506) 5,555
Earnings (loss) per share
of common stock (a) 1.70 (.26) (.37) 1.20
(a) The total of the earnings per share for the quarters does not equal the
earnings per share for the year, as shown elsewhere in Item 8 of this
Form 10-K, as a result of PG&W's issuance of additional shares of common
stock at various dates during the year.
Because of the seasonal nature of PG&W's gas heating business, there are
substantial variations in operations reported on a quarterly basis.
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
o Restricted funds held by trustee. The fair value of the restricted funds
held by trustee has been based on the current market values of the financial
instruments in which such funds have been invested.
o Long-term debt. The fair value of PG&W's long-term debt has been estimated
based on the current quoted market price for the portion of such debt which
is publicly traded and, with respect to the portion of such debt which is
not publicly traded, on the estimated borrowing rates at December 31, 1993,
for long-term debt of comparable credit quality with similar terms and
maturities.
o Preferred stock subject to mandatory redemption. The fair value of PG&W's
preferred stock subject to mandatory redemption has been estimated based on
the market value as of December 31, 1993, for preferred stock of comparable
credit quality with similar terms and maturities.
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<PAGE>
The carrying amounts and estimated fair values of PG&W's financial
instruments at December 31, 1992 and 1993, were as follows:
[CAPTION]
1992 1993
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
[S] [C] [C] [C] [C]
Restricted funds held by trustee $ 28,020 $ 28,016 $ 12,853 $ 12,857
Long-term debt (including current
portion) 284,882 291,704 306,843 327,436
Preferred stock subject to
mandatory redemption (including
current portion) 42,000 43,929 31,920 33,087
PG&W believes that the regulatory treatment of any excess or deficiency of
fair value relative to the carrying amounts of these items, if such items were
settled at amounts approximating those above, would dictate that these amounts
be used to increase or reduce its rates over a prescribed amortization period.
Accordingly, any settlement would not result in a material impact on PG&W's
financial position or the results of operations of either PEI or PG&W.
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<PAGE>
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements
The following financial statements, notes to financial statements
and report of independent public accountants for PG&W are presented in
Item 8 of this Form 10-K.
Page
Report of Independent Public Accountants . . . . . . . . . . . . 42
Statements of Income for each of the three years in the
period ended December 31, 1993 . . . . . . . . . . . . . . . . 43
Balance Sheets as of December 31, 1992 and 1993. . . . . . . . . 44
Statements of Cash Flows for each of the three years in the
period ended December 31, 1993 . . . . . . . . . . . . . . . . 46
Statements of Capitalization as of December 31, 1992 and 1993. . 47
Statements of Common Shareholder's Investment for each of
the three years in the period ended December 31, 1993. . . . . 48
Notes to Financial Statements. . . . . . . . . . . . . . . . . . 49
2. Financial Statement Schedules
The following financial statement schedules for PG&W are filed as a
part of this Form 10-K. Schedules not included have been omitted
because they are not applicable or the required information is shown in
the financial statements or notes thereto.
Schedule Number Page
V Property, Plant and Equipment for the three-year period
ended December 31, 1993. . . . . . . . . . . . . . . . . 75
VI Accumulated Depreciation of Property, Plant and Equipment
for the three-year period ended December 31, 1993. . . . 76
VIII Valuation and Qualifying Accounts for the three-year
period ended December 31, 1993 . . . . . . . . . . . . . 77
X Supplementary Income Statement Information for the
three-year period ended December 31, 1993. . . . . . . . 78
3. Exhibits
See "Index to Exhibits" located on page 80 for a listing of all
exhibits filed herein or incorporated by reference to a previously
filed registration statement or report with the Securities and Exchange
Commission.
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<PAGE>
<TABLE>
<CAPTION>
<S> <C>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - continued
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1993.
(c) Executive Compensation Plans and Arrangements
The following listing includes PG&W's executive compensation plans and
arrangements in effect as of December 31, 1993.
Exhibit
10-41 Form of Change in Control Agreement between PEI and certain of its
Officers -- filed as Exhibit 10-34 to PG&W's Annual Report on Form
10-K for 1989, File No. 1-3490.
10-42 Agreement by and between PEI, PG&W and Robert L. Jones dated as of
March 15, 1991 -- filed as Exhibit No. 10-38 to PG&W's Annual Report
on Form 10-K for 1990, File No. 1-3490.
10-43 Employment Agreement dated August 30, 1991, between PEI and Dean T.
Casaday -- filed as Exhibit 10-16 to PEI's Common Stock Form S-2,
Registration No. 33-43382.
10-44 Supplemental Retirement Agreement, dated as of December 23, 1991,
between PEI and Dean T. Casaday -- filed as Exhibit 10-17 to
PEI's Common Stock Form S-2, Registration No. 33-43382.
10-45 Pennsylvania Enterprises, Inc. 1992 Stock Option Plan, effective
June 3, 1992 -- filed as Exhibit A to PEI's 1993 definitive Proxy
Statement, File No. 0-7812.
(d) Statements Excluded from Annual Report to Shareholders
Not applicable.
</TABLE>
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<PAGE>
Schedule V
-76-
<PAGE>
Schedule VI
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<PAGE>
Schedule VIII
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PENNSYLVANIA GAS AND WATER COMPANY
SCHEDULE X - SUPPLEMENTARY INCOME STATEMENT INFORMATION
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1993
[CAPTION]
Year ended December 31,
1991 1992 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Taxes other than income taxes were as follows:
State gross receipts tax $ 5,993 $ 6,715 $ 7,212
State capital stock tax 1,773 1,936 1,961
Payroll taxes 2,224 2,276 2,444
Real estate and personal property taxes 2,777 2,951 3,717
Other taxes 710 772 888
$13,477 $14,650 $16,222
Charged to:
Other taxes $12,814 $14,730 $16,019
Other accounts 663 (80) 203
$13,477 $14,650 $16,222
NOTE:
The amounts of maintenance and repairs, depreciation and income taxes, which
are charged to accounts other than those set forth in the statements of
income, are not significant. PG&W did not incur any significant costs for
royalties, rents, advertising or research and development during the three-
year period ended December 31, 1993.
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<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.
[CAPTION]
PENNSYLVANIA GAS AND WATER COMPANY
(Registrant)
[S] [C] [C]
Date: March 23, 1994 By: /s/ Dean T. Casaday
Dean T. Casaday
President and Chief Executive
Officer
(Principal Executive Officer)
Date: March 23, 1994 By: /s/ John F. Kell, Jr.
John F. Kell, Jr.
Vice President, Finance
(Principal Financial Officer
and Principal Accounting Officer)
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.
[CAPTION]
Signature Capacity Date
[S] [C] [C]
/s/ Kenneth L. Pollock Chairman of the Board of March 23, 1994
Kenneth L. Pollock Directors
/s/ William D. Davis Vice Chairman of the Board March 23, 1994
William D. Davis of Directors
/s/ Dean T. Casaday Director, President and March 23, 1994
Dean T. Casaday Chief Executive Officer
/s/ Robert J. Keating Director March 23, 1994
Robert J. Keating
/s/ John D. McCarthy Director March 23, 1994
John D. McCarthy
/s/ Kenneth M. Pollock Director March 23, 1994
/s/ Kenneth M. Pollock
/s/ James A. Ross Director March 23, 1994
James A. Ross
/s/ Ronald W. Simms Director March 23, 1994
Ronald W. Simms
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<PAGE>
INDEX TO EXHIBITS
Exhibit
Number
(3) Articles of Incorporation and By Laws:
3-1 Restated Articles of Incorporation of PG&W, as amended -- filed as
Exhibit 3-1 to PG&W's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1992, File No. 1-3490.
3-2 By-Laws of PG&W, as amended and restated on October 17, 1991 --
filed as Exhibit 3-2 to PG&W's Annual Report on Form 10-K for 1991,
File No. 1-3490.
(4) Instruments Defining the Rights of Security Holders, Including
Debentures:
4-1 Indenture of Mortgage and Deed of Trust, dated as of March 15, 1946,
between Scranton-Spring Brook Water Service Company (now PG&W) and
Guaranty Trust Company, as Trustee (now Morgan Guaranty Trust
Company of New York) -- filed as Exhibit 2(c) to PG&W's Bond Form S-
7, Registration No. 2-55419.
4-2 Fourth Supplemental Indenture, dated as of March 15, 1952 -- filed
as Exhibit 2(d) to PG&W's Bond Form S-7, Registration No. 2-55419.
4-3 Ninth Supplemental Indenture, dated as of March 15, 1957 -- filed as
Exhibit 2(e) to PG&W's Bond Form S-7, Registration No. 2-55419.
4-4 Tenth Supplemental Indenture, dated as of September 1, 1958 -- filed
as Exhibit 2(f) to PG&W's Bond Form S-7, Registration No. 2-55419.
4-5 Twelfth Supplemental Indenture, dated as of July 15, 1960 -- filed
as Exhibit 2(g) to PG&W's Bond Form S-7, Registration No. 2-55419.
4-6 Fourteenth Supplemental Indenture, dated as of December 15, 1961 --
filed as Exhibit 2(h) to PG&W's Bond Form S-7, Registration No. 2-
55419.
4-7 Fifteenth Supplemental Indenture, dated as of December 15, 1963 --
filed as Exhibit 2(i) to PG&W's Bond Form S-7, Registration No. 2-
55419.
4-8 Sixteenth Supplemental Indenture, dated as of June 15, 1966 -- filed
as Exhibit 2(j) to PG&W's Bond Form S-7, Registration No. 2-55419.
4-9 Seventeenth Supplemental Indenture, dated as of October 15, 1967 --
filed as Exhibit 2(k) to PG&W's Bond Form S-7, Registration No. 2-
55419.
4-10 Eighteenth Supplemental Indenture, dated as of May 1, 1970 -- filed
as Exhibit 2(1) to PG&W's Bond Form S-7, Registration No. 2-55419.
4-11 Nineteenth Supplemental Indenture, dated as of June 1, 1972 -- filed
as Exhibit 2(m) to PG&W's Bond Form S-7, Registration No. 2-55419.
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Exhibit
Number
4-12 Twentieth Supplemental Indenture, dated as of March 1, 1976 -- filed
as Exhibit 2(n) to PG&W's Bond Form S-7, Registration No. 2-55419.
4-13 Twenty-first Supplemental Indenture, dated as of December 1, 1976 --
filed as Exhibit 4-16 to PG&W's Annual Report on Form 10-K for 1982,
File No. 1-3490.
4-14 Twenty-second Supplemental Indenture, dated as of August 15, 1989 --
filed as Exhibit 4-22 to PG&W's Annual Report on Form 10-K for 1989,
File No. 0-7812.
4-15 Twenty-third Supplemental Indenture, dated as of August 15, 1989 --
filed as Exhibit 4-23 to PG&W's Annual Report on Form 10-K for 1989,
File No. 0-7812.
4-16 Twenty-fourth Supplemental Indenture, dated as of September 1, 1991,
from PG&W to Morgan Guaranty Trust Company of New York, as Trustee
-- filed as Exhibit 4-3 to PEI's Common Stock Form S-2, Registration
No. 33-43382.
4-17 Twenty-fifth Supplemental Indenture, dated as of September 1, 1992,
from PG&W to Morgan Guaranty Trust Company of New York, as Trustee
-- filed as Exhibit 4-1 to PG&W's Quarterly Report on Form 10-Q for
the quarter ended September 30, 1992, File No. 1-3490.
4-18 Twenty-sixth Supplemental Indenture, dated as of December 1, 1992,
from PG&W to Morgan Guaranty Trust Company of New York, as Trustee
-- filed as Exhibit 4-20 to PG&W's Bond Form S-2, Registration No.
33-54278.
4-19 Twenty-seventh Supplemental Indenture, dated as of December 1, 1992,
from PG&W to Morgan Guaranty Trust Company -- filed as Exhibit 4-19
to PG&W's Annual Report on Form 10-K for 1992, File No. 0-7812.
4-20 Twenty-eighth Supplemental Indenture, dated as of December 1, 1993,
from PG&W to Morgan Guaranty Trust Company of New York, as Trustee
-- filed herewith.
NOTE: The First, Second, Third, Fifth, Sixth, Seventh, Eighth,
Eleventh and Thirteenth Supplemental Indentures merely convey
additional properties to the Trustee.
4-21 Statement Affecting Class or Series of Shares with respect to 9.50%
1988 Series Cumulative Preferred Stock of PG&W -- filed as Exhibit
4-18 to PG&W's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1988, File No. 1-3490.
4-22 Statement Affecting Class or Series of Shares with respect to 8.90%
Cumulative Preferred Stock of PG&W -- filed as Exhibit 4-20 to
PG&W's Annual Report on Form 10-K for 1988, File No. 1-3490.
-82-
<PAGE>
Exhibit
Number
(10) Material Contracts:
10-1 Service Agreement for storage service under Rate Schedule LGA, dated
August 6, 1974, between PG&W and Transcontinental Gas Pipe Line
Corporation -- filed as Exhibit 10-3 to PG&W's Annual Report on Form
10-K for 1984, File No. 1-3490.
10-2 Service Agreement for transportation service under Rate Schedule FT,
dated February 1, 1992, by and between PG&W and Transcontinental Gas
Pipe Line Corporation -- filed as Exhibit 10-4 to PG&W's Annual
Report on Form 10-K for 1991, File No. 1-3490.
10-3 Service Agreement for storage service under Rate Schedule SS-2,
dated April 1, 1990, between PG&W and Transcontinental Gas Pipe Line
Corporation -- filed as Exhibit 10-8 to PEI's Common Stock Form S-2,
Registration No. 33-43382.
10-4 Service Agreement for sales service under Rate Schedule FS, dated
August 1, 1991, between PG&W and Transcontinental Gas Pipe Line
Corporation -- filed as Exhibit 10-6 to PG&W's Annual Report on Form
10-K for 1991, File No. 1-3490.
10-5 Service Agreement for transportation service under Rate Schedule FT,
dated August 1, 1991, between PG&W and Transcontinental Gas Pipe
Line Corporation -- filed as Exhibit 10-10 to PEI's Common Stock
Form S-2, Registration No. 33-43382.
10-6 Service Agreement for transportation service under Rate Schedule IT,
dated January 31, 1992, between PG&W and Transcontinental Gas Pipe
Line Corporation -- filed as Exhibit 10-8 to PG&W's Annual Report on
Form 10-K for 1991, File No. 1-3490.
10-7 Service Agreement for storage service under Rate Schedule LSS, dated
October 1, 1993, by and between PG&W and Transcontinental Gas Pipe
Line Corporation -- filed herewith.
10-8 Service Agreement for storage service under Rate Schedule GSS, dated
October 1, 1993, by and between PG&W and Transcontinental Gas
Pipeline Corporation Company -- filed herewith.
10-9 Service Agreement for transportation service under Rate Schedule
FTS, dated November 1, 1993, by and between PG&W and Columbia Gas
Transmission Corporation -- filed herewith.
10-10 Service Agreement for transportation service under Rate Schedule
SST, dated November 1, 1993, by and between PG&W and Columbia Gas
Transmission Corporation -- filed herewith.
10-11 Service Agreement for storage service under Rate Schedule FSS, dated
November 1, 1993, by and between PG&W and Columbia Gas Transmission
Corporation -- filed herewith.
10-12 Service Agreement for transportation service under Rate Schedule
FTS-1, dated November 1, 1993, by and between PG&W and Columbia Gulf
Transmission Company -- filed herewith.
-83-
<PAGE>
Exhibit
Number
10-13 Service Agreement for transportation service under Rate Schedule
ITS-1, dated November 1, 1993, by and between PG&W and Columbia Gulf
Transmission Company -- filed herewith.
10-14 Service Agreement for transportation service under Rate Schedule
ITS, dated November 1, 1993, by and between PG&W and Columbia Gas
Transmission Corporation -- filed herewith.
10-15 Service Agreement (Contract No. 946) for transportation service
under Rate Schedule FT-A, dated September 1, 1993, by and between
PG&W and Tennessee Gas Pipeline Company -- filed as Exhibit 10-1 to
PG&W's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993, File No. 1-3490.
10-16 Service Agreement (Service Package No. 171) for transportation
service under Rate Schedule FT-A, dated September 1, 1993, by and
between PG&W and Tennessee Gas Pipeline Company -- filed as Exhibit
10-2 to PG&W's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, File No. 1-3490.
10-17 Service Agreement (Service Package No. 187) for transportation
service under Rate Schedule FT-A, dated September 1, 1993, by and
between PG&W and Tennessee Gas Pipeline Company -- filed as Exhibit
10-3 to PG&W's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1993, File No. 1-3490.
10-18 Service Agreement (Service Package No. 190) for transportation
service under Rate Schedule FT-A, dated September 1, 1993, by and
between PG&W and Tennessee Gas Pipeline -- filed as Exhibit 10-4 to
PG&W's Quarterly Report on Form 10-Q for the quarter ended September
30, 1993, File No. 1-3490.
10-19 Service Agreement (Contract No. 2289) for storage service under Rate
Schedule FS dated September 1, 1993, by and between PG&W and
Tennessee Gas Pipeline -- filed as Exhibit 10-5 to PG&W's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1993, File
No. 1-3490.
10-20 Joint Venture Agreement, dated May 1, 1975, between Robert Mosbacher
and Transco Exploration Company, et. al., and Exhibit "B,"
Ratification thereof by PG&W, dated July 11, 1975 -- filed as
Exhibit 5(1) to PG&W's Bond Form S-7, Registration No. 2-55419.
10-21 Project Facilities Agreement, dated December 1, 1987, between
Luzerne County Industrial Development Authority and PG&W -- filed as
Exhibit 10-19 to PG&W's Annual Report on Form 10-K for 1987, File
No. 1-3490.
10-22 Remarketing Agreement, dated December 1, 1987, among PG&W, Butcher &
Singer Inc. and Dean Witter Reynolds Inc. -- filed as Exhibit 10-21
to PG&W's Annual Report on Form 10-K for 1987, File No. 1-3490.
-84-
<PAGE>
Exhibit
Number
10-23 8% Bond Purchase Agreement, dated December 15, 1987, among Luzerne
County Industrial Development Authority, PG&W, Butcher & Singer Inc.
and Dean Witter Reynolds Inc. -- filed as Exhibit 10-22 to PG&W's
Annual Report on Form 10-K for 1987, File No. 1-3490.
10-24 Bond Purchase Agreement, dated September 1, 1989, relating to PG&W's
First Mortgage Bonds 9.23% Series due 1999 and First Mortgage Bonds
9.34% Series due 2019 among Allstate Life Insurance Company,
Allstate Life Insurance Company of New York and PG&W -- filed as
Exhibit 10-33 to PG&W's Annual Report on Form 10-K for 1989, File
No. 1-3490.
10-25 Form of Bond Purchase Agreement, dated as of September 1, 1991, re:
$50.0 million of 9.57% First Mortgage Bonds, due September 1, 1996,
entered into between PG&W and each of the following parties: Pacific
Mutual Life Insurance Company, Principal Mutual Life Insurance
Company, Great West Life & Annuity Insurance Company, The Life
Insurance Company of Virginia, Lutheran Brotherhood, Transamerica
Life Insurance and Annuity Company and The Franklin Life Insurance
Company -- filed as Exhibit 10-7 to PEI's Common Stock Form S-2,
Registration No. 33-43382.
10-26 Amended and Restated Project Facilities Agreement dated as of
September 1, 1992, between PG&W and the Luzerne County Industrial
Development Authority -- filed as Exhibit 10-1 to PG&W's Quarterly
Report on Form 10-Q for the quarter ended September 30, 1992, File
No. 1-3490.
10-27 7.20% Bond Purchase Agreement, dated September 2, 1992, among the
Luzerne County Industrial Development Authority, PG&W and Butcher &
Singer, a division of Wheat First Securities Inc., as representative
on behalf of itself and Legg Mason Wood Walker Incorporated -- filed
as Exhibit 10-2 to PG&W's Quarterly Report on Form 10-Q for the
quarter ended September 30, 1992, File No. 1-3490.
10-28 Project Facilities Agreement, dated December 1, 1992, between
Luzerne County Industrial Development Authority and PG&W -- filed as
Exhibit 10-29 to PG&W's Annual Report on Form 10-K for 1992, File
No. 1-3490.
10-29 7.125% Bond Purchase Agreement, dated December 10, 1992, among the
Luzerne County Industrial Development Authority, PG&W and Butcher &
Singer, a division of Wheat First Securities Inc., as representative
on behalf of itself and Legg Mason Wood Walker Incorporated -- filed
as Exhibit 10-30 to PG&W's Annual Report on Form 10-K for 1992, File
No. 1-3490.
10-30 Second Amended and Restated Project Facilities Agreement dated as of
December 1, 1993, between PG&W and the Luzerne County Industrial
Development Authority -- filed herewith.
-85-
<PAGE>
Exhibit
Number
10-31 6.05% Bond Purchase Agreement, dated December 2, 1993, among the
Luzerne County Industrial Development Authority, PG&W and Butcher &
Singer, a division of Wheat First Securities, Inc., as
representative on behalf of itself and Legg Mason Wood Walker
Incorporated -- filed herewith.
10-32 Letter of Credit Agreement, dated December 1, 1987, between PG&W and
Swiss Bank Corporation, New York Branch -- filed as Exhibit 10-20 to
PG&W's Annual Report on Form 10-K for 1987, File No. 1-3490.
10-33 Amendment No. 1, dated as of September 10, 1991, to December 1987
Reimbursement Agreement between PG&W and Swiss Bank Corporation, New
York Branch -- filed as Exhibit 10-6 to PEI's Common Stock Form S-2,
Registration No. 33-43382.
10-34 Amendment No. 2, dated as of December 13, 1991 to December 1987
Reimbursement Agreement between PG&W and Swiss Bank Corporation, New
York Branch -- filed as Exhibit 10-15 to PEI's Common Stock Form S-
2, Registration No. 33-43382.
10-35 Amendment No. 3, dated as of May 11, 1992, to December 1987
Reimbursement Agreement between PG&W and Swiss Bank Corporation, New
York Branch -- filed as Exhibit 10-2 to PG&W's Quarterly Report on
Form 10-Q for the quarter ended March 31, 1992, File No. 1-3490.
10-36 Subordinate Open End Mortgage, Security Agreement, Assignment of
Leases, Rents and Profits, Financing Statement and Fixture Filing,
dated as of September 10, 1991, made by PG&W, as Mortgagor, to Swiss
Bank Corporation, as Collateral Agent and Mortgagee -- filed as
Exhibit 10-1 to PEI's Common Stock Form S-2, Registration No. 33-
43382.
10-37 Collateral Agency and Intercreditor Agreement, dated as of September
10, 1991, among Manufacturers Hanover Trust Company (now Chemical
Bank), as Bank Agency, Swiss Bank Corporation, New York Branch,
First Eastern Bank, N.A., Hanover Bank, Meridian Bank, Northeastern
Bank of Pennsylvania (now PNC Bank, Northeast PA), Philadelphia
National Bank (now CoreStates Bank, N.A.), United Penn Bank (now
Mellon Bank, N.A.), National Australia Bank, Limited, New York
Branch, Swiss Bank Corporation, New York Branch, as Collateral Agent
and PG&W -- filed as Exhibit 10-2 to PEI's Common Stock Form S-2,
Registration No. 33-43382.
10-38 Credit Agreement, dated as of April 19, 1993, by and among PG&W, the
Banks parties thereto and PNC Bank, Northeast PA, as agent, and
CoreStates Bank, N.A. and NBD Bank, N.A. as Co-Agents -- filed as
Exhibit 10-1 to PG&W's Quarterly Report on Form 10-Q for the
quarter ended March 31, 1993.
10-39 9.50% Cumulative Preferred Stock Purchase Agreement, dated
December 11, 1987, between PG&W and the purchasers named therein --
filed as Exhibit 10-23 to PG&W's Annual Report on Form 10-K for
1987, File No. 1-3490.
-86-
<PAGE>
Exhibit
Number
10-40 Recapitalization Agreement, dated September 16, 1988, between PG&W
and the original purchasers of PG&W's 9.50% Cumulative Preferred
Stock, pursuant to which shares of the 9.50% Cumulative Preferred
Stock were exchanged for shares of PG&W's 9.50% 1988 Series
Cumulative Preferred Stock -- filed as Exhibit 10-24 to PG&W's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1988, File No. 1-3490.
10-41 Form of Change in Control Agreement between PEI and certain of its
Officers -- filed as Exhibit 10-34 to PG&W's Annual Report on Form
10-K for 1989, File No. 1-3490.
10-42 Agreement, dated as of March 15, 1991, by and between PEI, PG&W and
Robert L. Jones -- filed as Exhibit 10-38 to PG&W's Annual Report on
Form 10-K for 1990, File No. 1-3490.
10-43 Employment Agreement, dated August 30, 1991, between PEI and Dean T.
Casaday -- filed as Exhibit 10-16 to PEI's Common Stock Form S-2,
Registration No. 33-43382.
10-44 Supplemental Retirement Agreement, dated as of December 23, 1991,
between PEI and Dean T. Casaday -- filed as Exhibit 10-17 to PEI's
Common Stock Form S-2, Registration No. 33-43382.
10-45 Pennsylvania Enterprises, Inc. 1992 Stock Option Plan, effective
June 3, 1992 -- filed as Exhibit A to PEI's 1993 definitive Proxy
Statement, File No. 0-7812.
-87-
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PART I PAGE
<S> <C> <C>
Item l. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . 17
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 19
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 20
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . 21
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . *
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 22
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . 41
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . 72
PART III
Item 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT . . . . . *
Item 11. EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . *
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT . . . . . . . . . . . . . . . . . . *
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS . . . . . . . *
PART IV
Item 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K . . . . . . . . . . . . . . . . . . . . . . . 73**
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 79
________________________
* These items have been omitted from this Form 10-K as Registrant meets the
conditions set forth in General Instructions J(1)(a) and (b) of Form 10-K
and is therefore filing this form with the reduced disclosure format.
** The "Index to Exhibits" is located on page 80.
</TABLE>
<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.
<TABLE>
<CAPTION>
PENNSYLVANIA GAS AND WATER COMPANY
(Registrant)
<S> <C> <C>
Date: March 23, 1994 By:
Dean T. Casaday
President and Chief Executive
Officer
(Principal Executive Officer)
Date: March 23, 1994 By:
John F. Kell, Jr.
Vice President, Finance
(Principal Financial Officer
and Principal Accounting Officer)
</TABLE>
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.
<TABLE>
<CAPTION>
Signature Capacity Date
<S> <C> <C>
Chairman of the Board of March 23, 1994
Kenneth L. Pollock Directors
Vice Chairman of the Board March 23, 1994
William D. Davis of Directors
Director, President and March 23, 1994
Dean T. Casaday Chief Executive Officer
Director March 23, 1994
Robert J. Keating
Director March 23, 1994
John D. McCarthy
Director March 23, 1994
Kenneth M. Pollock
Director March 23, 1994
James A. Ross
Director March 23, 1994
Ronald W. Simms
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
PENNSYLVANIA GAS AND WATER COMPANY
SCHEDULE V - PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1993
Balance at Additions Adjustments Balance at
beginning at and end
Classification of year cost Retirements transfers (a) of year
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1991
Gas plant (b) $ 213,957 $ 9,073 $ 1,188 $ 56 $ 221,898
Water plant (c) 269,040 6,895 672 85 275,348
Common plant 26,182 244 1,332 (64) 25,030
Total plant in service 509,179 16,212 3,192 77 522,276
Construction work in progress 3,908 12,302(d) - - 16,210(e)
Total $ 513,087 $ 28,514 $ 3,192 $ 77 $ 538,486
Year ended December 31, 1992
Gas plant (b) $ 221,898 $ 12,487 $ 506 $ (3) $ 233,876
Water plant (c) 275,348 20,840 1,693 (1,079) 293,416
Common plant 25,030 2,600 3,077 (107) 24,446
Total plant in service 522,276 35,927 5,276 (1,189) 551,738
Construction work in progress 16,210 21,094(d) - - 37,304(e)
Total $ 538,486 $ 57,021 $ 5,276 $ (1,189) $ 589,042
Year ended December 31, 1993
Gas plant (b) $ 233,876 $ 11,225 $ 793 $ 29 $ 244,337
Water plant (c) 293,416 61,471 988 1,397 355,296
Common plant 24,446 3,000 1,319 (91) 26,036
Total plant in service 551,738 75,696 3,100 1,335 625,669
Construction work in progress 37,304 (29,796)(d) - - 7,508
Total $ 589,042 $ 45,900 $ 3,100 $ 1,335 $ 633,177
NOTES:
(a) Represents transfers to other physical property and transfers between gas, water and common plant.
(b) At original cost less acquisition adjustments of $386,000.
(c) At original cost plus acquisition adjustments of $14,236,000 at December 31, 1991 and 1992, and
$14,577,000 at December 31, 1993.
(d) Net of transfers to utility plant in service.
(e) Includes $6,187,000, $4,856,000 and $628,000, respectively, for the construction of the Ceasetown,
Crystal Lake and Watres Water Treatment Plants at December 31, 1991, and $21,998,000, and $10,119,000,
respectively, for the construction of the Ceasetown and Watres Water Treatment Plants at December 31,
1992.
<PAGE>
<CAPTION>
PENNSYLVANIA GAS AND WATER COMPANY
SCHEDULE VI - ACCUMULATED DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1993
Additions charged to Deductions
Balance at Balance
beginning Other Salvage Removal at end
Classification of year Income accounts(a) recoveries Retirements cost Transfers(b) of year
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Year ended December 31, 1991
Gas plant $ 45,247 $ 5,034 $ 180 $ 43 $ 1,188 $ 166 $ 1 $49,151
Water plant 6,679 3,613 - 7 672 276 64 9,415
Common plant 11,932 1,137 729 33 1,332 25 4 12,478
Total $ 63,858 $ 9,784 $ 909 $ 83 $ 3,192 $ 467 $ 69 $71,044
Year ended December 31, 1992
Gas plant $ 49,151 $ 5,656 $ 111 $ 17 $ 506 $ 344 $ 1 $54,086
Water plant 9,415 4,202 - 8 1,693 312 (31) 11,589
Common plant 12,478 1,006 638 84 3,077 - (61) 11,068
Total $ 71,044 $10,864 $ 749 $ 109 $ 5,276 $ 656 $ (91) $76,743
Year ended December 31, 1993
Gas plant $ 54,086 $ 5,894 $ 121 $ 13 $ 793 $ 312 $ 10 $59,019
Water plant 11,589 5,230 - 52 988 708 158 15,333
Common plant 11,068 1,186 913 95 1,319 8 - 11,935
Total $ 76,743 $12,310 $ 1,034 $ 160 $ 3,100 $ 1,028 $ 168 $86,287
NOTES:
(a) Represents depreciation of transportation and work equipment charged to clearing accounts, together with other
equipment expenses, and apportioned therefrom to various operating, construction and other accounts on the
basis of the use of such equipment.
(b) Represents transfers to other physical property and transfers between gas, water and common plant.
<PAGE>
<CAPTION>
PENNSYLVANIA GAS AND WATER COMPANY
SCHEDULE VIII - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1993
Balance at Charged Charged Balance
beginning to to other at end
Description of year income accounts Deductions of year
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C>
Deducted from the asset to which it applies:
Reserve for uncollectible accounts-
Year ended December 31, 1991 $ 1,626 $ 1,744 $ - $ 1,763(a) $ 1,607
Year ended December 31, 1992 $ 1,607 $ 1,806 $ - $ 1,938(a) $ 1,475
Year ended December 31, 1993 $ 1,475 $ 1,590 $ - $ 1,842(a) $ 1,223
Shown as operating reserves on the balance sheets:
Insurance -
Year ended December 31, 1991 $ 2,178 $ 635 $ - $ 966(b) $ 1,847
Year ended December 31, 1992 $ 1,847 $ 1,216 $ - $ 1,498(b) $ 1,565
Year ended December 31, 1993 $ 1,565 $ 1,823 $ 75 $ 1,600(b) $ 1,863
NOTES:
(a) Deductions represent uncollectible balances of accounts receivable written off, net of recoveries.
(b) Deductions are principally payments made in settlement of claims.
</TABLE>
<PAGE>
<PAGE>
CONFORMED COPY
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Twenty-Eighth Supplemental Indenture
DATED AS OF DECEMBER 1, 1993
(SUPPLEMENTAL TO INDENTURE DATED AS OF MARCH 15, 1946)
------------------
PENNSYLVANIA GAS AND WATER COMPANY
(FORMERLY SCRANTON-SPRING BROOK WATER SERVICE COMPANY)
TO
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK,
TRUSTEE
------------------
FIRST MORTGAGE BONDS 6.05% SERIES DUE 2019
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
1
TWENTY-EIGHTH SUPPLEMENTAL INDENTURE, dated as of the first day of December
1993, made by and between PENNSYLVANIA GAS AND WATER COMPANY (formerly
Scranton-Spring Brook Water Service Company), a corporation organized and
existing under the laws of the Commonwealth of Pennsylvania (hereinafter
sometimes called the 'Company'), and MORGAN GUARANTY TRUST COMPANY OF NEW YORK,
a corporation organized and existing under the laws of the State of New York,
and having its principal place of business at No. 60 Wall Street, in The City of
New York, New York, as Trustee (hereinafter sometimes called the 'Trustee').
WHEREAS, the Company executed and delivered its Indenture (hereinafter
called the 'Original Indenture') dated as of March 15, 1946, to Guaranty Trust
Company of New York, now Morgan Guaranty Trust Company of New York, to secure
its First Mortgage Bonds and has executed and delivered twenty-seven indentures
supplemental thereto dated respectively as of February 15, 1951; as of September
15, 1951; as of January 15, 1952; as of March 15, 1952; as of June 15, 1952; as
of December 1, 1954; as of April 15, 1956; as of November 15, 1956; as of March
15, 1957; as of September 1, 1958; as of April 15, 1959; as of July 15, 1960; as
of October 31, 1961; as of December 15, 1961; as of December 15, 1963; as of
June 15, 1966; as of October 15, 1967; as of May 1, 1970; as of June 1, 1972; as
of March 1, 1976; as of December 1, 1976; as of August 15, 1989; as of August
15, 1989; as of September 1, 1991; as of September 1, 1992; as of December 1,
1992; and as of December 1, 1992 (the Original Indenture as heretofore
supplemented and to be supplemented by this Twenty-Eighth Supplemental
<PAGE>
Indenture, and as the same may be further supplemented by additional indentures
supplemental thereto, being hereinafter collectively called the 'Indenture');
and
WHEREAS, the Company at November 30, 1993 (i) had retired all of the
original issue of $24,500,000 principal amount of bonds of a series designated
First Mortgage Bonds 2 7/8% Series due 1976 (hereinafter called 'bonds of the
First Series'), all of the original issue of $4,000,000 principal amount of
bonds of a series designated First Mortgage Bonds 3 1/2% Series due 1982, all of
the original issue of $1,000,000 principal amount of bonds of a series
designated First Mortgage Bonds 4 7/8% Series due 1987, all of the original
issue of $2,000,000 principal amount of bonds of a series designated First
Mortgage Bonds 4 3/4% Series due 1983, all of the original issue of $3,000,000
principal amount of bonds of a series designated First Mortgage Bonds 5 1/2%
Series due 1985, all of the original issue of $3,000,000 principal amount of
bonds of a series designated First Mortgage Bonds 5% Series due 1986, all of the
original issue of $5,000,000 principal amount of bonds of a series designated
First Mortgage Bonds 4 5/8% Series due 1988, all of the original issue of
$4,000,000 principal amount of bonds of a series designated First Mortgage Bonds
5 7/8% Series due 1991, all of the original issue of $15,000,000 principal
amount of bonds of a series designated First Mortgage Bonds 9% Series due 1991,
all of the original issue of $10,000,000
<PAGE>
2
principal amount of bonds of a series designated First Mortgage Bonds 6 7/8%
Series due 1992, all of the original issue of $12,000,000 principal amount of
bonds of a series designated First Mortgage Bonds 10% Series due 1995, and all
of the original issue of $20,000,000 principal amount of bonds of a series
designated First Mortgage Bonds 9 1/4% Series due 1996 and (ii) had outstanding
and secured by the Original Indenture, as so supplemented to the date hereof,
$3,745,000 (of an original issue of $7,000,000) principal amount of bonds of a
series designated First Mortgage Bonds 8% Series due 1997, $10,000,000 (of an
original issue of $10,000,000) principal amount of bonds of a series designated
First Mortgage Bonds 9.23% Series due 1999, $15,000,000 (of an original issue of
$15,000,000) principal amount of bonds of a series designated First Mortgage
Bonds 9.34% Series due 2019, $50,000,000 (of an original issue of $50,000,000)
principal amount of bonds of a series designated First Mortgage Bonds 9.57%
Series due 1996, $50,000,000 (of an original issue of $50,000,000) principal
amount of bonds of a series designated First Mortgage Bonds 7.20% Series due
2017, $30,000,000 (of an original issue of $30,000,000) principal amount of
bonds of a series designated First Mortgage Bonds 8.375% Series due 2002, and
$30,000,000 (of an original issue of $30,000,000) principal amount of bonds of a
series designated First Mortgage Bonds 7.125% Series due 2022; and
WHEREAS, Article 3 of the Original Indenture provides that additional bonds
of any one or more series may be issued from time to time in accordance with and
subject to the conditions, provisions and limitations set forth in said Article
3; and
WHEREAS, Section 2.02 of the Original Indenture provides that before any
bonds of any series, other than bonds of the First Series, shall be
authenticated and delivered, the Company shall execute and deliver to the
Trustee a supplemental indenture, in recordable form, containing the particulars
of the new series of bonds as required by said Section 2.02 and containing
<PAGE>
appropriate provisions giving to such bonds the protection and security of the
Original Indenture; and
WHEREAS, Section 14.01 of the Original Indenture provides, among other
things, that the Company, when authorized by a resolution of its Board of
Directors, and the Trustee from time to time may enter into an indenture or
indentures supplemental thereto and which thereafter shall form a part thereof
for any one or more of the following purposes, among others, to provide for the
creation of any series of bonds (other than bonds of the First Series),
designating the series to be created and specifying the form and provisions of
bonds of such series; and
WHEREAS, Section 14.02 of the Original Indenture provides that the Trustee
is authorized to join with the Company in the execution of any such supplemental
indenture; and
WHEREAS, the Company in the course of its business has acquired certain
additional properties, which properties are intended by the terms of the
Granting Clauses of the Original Indenture to be subject to the lien thereof;
and
<PAGE>
3
WHEREAS, in accordance with the provisions of Section 4.12 and Section
14.01 of the Original Indenture, the Company desires in and by this
Twenty-Eighth Supplemental Indenture to record the description of and confirm
unto the Trustee such properties, which properties (except such as are reserved
or excepted from the lien and operation of the Indenture by virtue of the
exceptions contained in the Granting Clauses thereof) are now subject to the
lien of the Indenture by virtue of the provisions thereof conveying to the
Trustee property acquired after its execution and delivery; and
WHEREAS, the Company now desires to create a new series of bonds under the
Indenture to be known and designated as its First Mortgage Bonds 6.05% Series
due 2019 (hereinafter sometimes called 'bonds of the Twentieth Series'); and
WHEREAS, the Company proposes to execute and to request the Trustee to
authenticate and deliver up to $19,000,000 principal amount of bonds of the
Twentieth Series pursuant to the provisions of Sections 3.02 to 3.06, both
inclusive, of the Original Indenture; and
WHEREAS, the bonds of the Twentieth Series and the Trustee's certificate to
be endorsed on such bonds are to be substantially in the form following (any of
the provisions of such bonds may be set forth on the reverse side thereof):
[FORM OF BOND OF THE TWENTIETH SERIES]
THE BOND EVIDENCED BY THIS CERTIFICATE HAS BEEN ISSUED IN A PRIVATE
TRANSACTION, HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE AND MAY NOT BE OFFERED, TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THAT ACT, SUCH LAWS AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER.
<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
(Formerly Scranton-Spring Brook Water Service Company)
First Mortgage Bond 6.05% Series due 2019
No.__________________________ $_________________________
PENNSYLVANIA GAS AND WATER COMPANY (formerly Scranton-Spring Brook Water
Service Company), a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (hereinafter sometimes called the 'Company'), for
value received, promises to pay to __________________, or registered assigns, on
January 1, 2019 (unless this bond shall have been called for previous redemption
and provision made for the payment of the redemption price thereof),
__________________ Dollars at the Company's office or agency in the Borough of
Manhattan, The City of New York, and, except as otherwise set forth below,
semi-annually on the first day of July and the first day of January in each year
commencing July 1, 1994, to pay interest thereon, at said office or agency,
<PAGE>
4
at the rate of 6.05% per annum from the interest payment date to which interest
has been paid next preceding the date of authentication of this bond (except
that if the date of authentication of this bond is an interest payment date for
bonds of this series to which interest has been paid it shall bear interest from
the date of authentication of this bond, and except that if this bond be
authenticated prior to the first interest payment date for bonds of this series,
it shall bear interest from December 1, 1993), until the Company's obligation
with respect to such principal sum shall be discharged; provided that, so long
as there is no existing default in the payment of interest, and except for the
payment of defaulted interest, the interest payable on any July 1 or January 1
will be paid to the person in whose name this bond was registered at the close
of business on the fifteenth day of June or the fifteenth day of December next
preceding such interest payment date; and further provided that the interest
payable on the bonds of this series shall be reduced to the extent that other
moneys then on deposit with PNC Bank, National Association, as trustee, or any
successor trustee (the 'IDA Trustee') under the Trust Indenture dated as of
December 1, 1993 (the 'Trust Indenture') from the Luzerne County Industrial
Development Authority (the 'Authority') to the IDA Trustee are available for the
purpose of paying interest on the bonds of this series and a credit in respect
thereof has been granted pursuant to the Trust Indenture. The principal of,
premium if any, and the interest on this bond shall be payable in any coin or
currency of the United States of America which at the time of payment shall be
legal tender for the payment of public and private debts.
This bond is one of an issue of bonds of the Company, known as its First
Mortgage Bonds, issued and to be issued in one or more series under, and equally
and ratably secured (except as any sinking, amortization, improvement or other
fund, established in accordance with the provisions of the indenture hereinafter
mentioned, may afford additional security for the bonds of any particular
series) by, a certain mortgage and deed of trust, dated as of March 15, 1946
(hereinafter called the 'Original Indenture'), and by twenty-eight indentures
supplemental thereto (of which, the Seventeenth Supplemental Indenture, dated as
of October 15, 1967, the Eighteenth Supplemental Indenture, dated as of May 1,
1970, and the Twentieth Supplemental Indenture, dated as of March 1, 1976,
amended certain provisions of the Original Indenture) (said Original Indenture
and all said indentures supplemental thereto being hereinafter collectively
called the 'Indenture'), made by the Company to Guaranty Trust Company of New
<PAGE>
York and, after the change of name of Guaranty Trust Company of New York to
Morgan Guaranty Trust Company of New York, to Morgan Guaranty Trust Company of
New York, as Trustee (hereinafter called the 'Trustee'), to which Indenture (and
to all additional indentures supplemental thereto) reference is hereby made for
a description of the property mortgaged, the nature and extent of the security,
the rights and limitations of rights of the Company, the Trustee, and the
holders of said bonds under the Indenture, and the terms and conditions upon
which said bonds are secured, to all of the provisions
<PAGE>
5
of which Indenture and of all such additional supplemental indentures in respect
of such security, including the provisions of the Indenture permitting the issue
of bonds of any series in respect of property which, under the restrictions and
limitations therein specified, may be subject to liens prior to the lien of the
Indenture, the holder, by accepting this bond, assents. To the extent permitted
by and as provided in the Indenture, the rights and obligations of the Company
and of the holders of said bonds (including those pertaining to any sinking or
other fund) may be changed and modified, with the consent of the Company, by the
holders of at least 75% in aggregate principal amount of the bonds then
outstanding (or, if one or more, but less than all, series of bonds are
affected, by the holders of at least 75% in aggregate principal amount of
outstanding bonds of such one or more series so affected), such percentage being
determined as provided in the Indenture; provided, however, that without the
consent of the holder hereof no such modification or alteration shall be made
which will extend the time of payment of the principal of, premium, if any, or
the interest on this bond or reduce the principal amount hereof, or premium, if
any, or the rate of interest hereon or effect any other modification of the
terms of payment of such principal or interest or will permit the creation of
any lien ranking prior to or on a parity with the lien of the Indenture on any
of the mortgaged property, or will deprive any non-assenting holder of this bond
of a lien upon the mortgaged property for the security of this bond, or will
reduce the percentage of bonds required for the aforesaid action under the
Indenture and provided further that, as provided in Section 4.02 of the
Twentieth Supplemental Indenture, when all bonds of all series issued prior to
January 1, 1976, shall cease to be outstanding, each reference to '75%' in this
sentence shall become '60%.' This bond is one of a series of bonds designated as
the First Mortgage Bonds 6.05% Series due 2019 of the Company.
The bonds of this series are subject to redemption upon not less than
thirty (30) nor more than sixty (60) days' prior notice, in whole or in part,
under the circumstances set forth in paragraphs (A), (B) and (C), below.
(A) The bonds of this series are subject to mandatory redemption, in whole
or in part, upon any redemption of the Luzerne County Industrial Development
Authority Exempt Facilities Revenue Refunding Bonds, 1993 Series A (Pennsylvania
Gas and Water Company Project) due January 1, 2019 (the '1993 Series A Bonds').
The principal amount of bonds of this series to be redeemed upon any redemption
of the 1993 Series A Bonds shall be equal to 100% of the principal amount of
1993 Series A Bonds which are to be redeemed. The redemption price of the bonds
of this series which are redeemed under the circumstances set forth in this
paragraph (A) shall be equal to 100% of the principal amount of the bonds of
this series to be redeemed plus interest accrued to the date fixed for
redemption except (i) in the case of bonds of this series which are redeemed
upon a redemption of the 1993 Series A Bonds at the option
<PAGE>
<PAGE>
6
of the Authority (other than in an 'Extraordinary Optional Redemption,' as
defined in the Trust Indenture) upon the direction of the Company (an 'Optional
IDA Redemption') which occurs between January 1, 2004 and December 31, 2004,
inclusive, the redemption price shall be equal to 102% of the principal amount
of the bonds of this series to be redeemed plus interest accrued to the date
fixed for redemption and (ii) in the case of bonds of this series which are
redeemed upon an Optional IDA Redemption which occurs between January 1, 2005
and December 31, 2005, inclusive, the redemption price shall be equal to 101% of
the principal amount of the bonds of this series to be redeemed plus interest
accrued to the date fixed for redemption.
(B) The bonds of this series are subject to mandatory redemption, in whole,
if the IDA Trustee declares the 1993 Series A Bonds to be immediately due and
payable under Section 9.02 of the Trust Indenture. The redemption price of the
bonds of this series which are redeemed under the circumstances set forth in
this paragraph (B) shall be equal to 100% of the principal amount of the bonds
of this series to be redeemed plus interest accrued to the date fixed for
redemption.
(C) The bonds of this series are subject to mandatory redemption, in whole
or in part (but if in part on a pro rata basis with bonds of all other series
then outstanding under the Indenture), pursuant to the provisions of Section
8.13 of the Indenture. The redemption price of the bonds of this series which
are redeemed under the circumstances set forth in this paragraph (C) shall be
equal to 100% of the principal amount of the bonds of this series to be redeemed
plus interest accrued to the date fixed for redemption.
If this bond shall be called for redemption, and payment of the redemption
price shall be duly provided by the Company as specified in the Indenture,
interest shall cease to accrue hereon from and after the date of redemption
fixed in the notice thereof.
The principal of this bond may be declared or may become due prior to the
maturity date hereinbefore named, on the conditions, in the manner and at the
times set forth in the Indenture, upon the happening of a default as therein
defined.
This bond is transferable by the registered owner hereof in person or by
his duly authorized attorney at the office or agency of the Company in the
Borough of Manhattan, The City of New York, upon surrender and cancellation of
this bond, and thereupon a new bond or bonds of the same series and maturity,
for a like aggregate principal amount, will be issued to the transferee in
exchange therefor, as provided in the Indenture. The Company and the Trustee and
any registrar and any paying agent may deem and treat the person in whose name
this bond is registered as the absolute owner hereof for the purpose of
receiving payment and for all other purposes.
<PAGE>
7
This bond, alone or with other bonds of the same series and maturity, may
in like manner be exchanged at such office or agency for one or more new bonds
of the same series and maturity of the same aggregate principal amount. Upon
<PAGE>
each such transfer or exchange the Company may require the payment of charges as
prescribed in the Indenture.
No recourse under or upon any covenant or obligation of the Indenture, or
of any bonds thereby secured, or for any claim based thereon, or otherwise in
any manner in respect thereof, shall be had against any incorporator, subscriber
to the capital stock, stockholder, officer or director, as such, whether former,
present or future, of the Company or any successor corporation, either directly,
or indirectly through the Company or the Trustee, by the enforcement of any
subscription to capital stock, assessment or otherwise, or by any legal or
equitable proceeding by virtue of any constitution, statute, contract of
subscription or otherwise (including, without limiting the generality of the
foregoing, any proceeding to enforce any claimed liability of stockholders of
the Company based upon any theory of disregarding the corporate entity of the
Company or upon any theory that the Company was acting as the agent or
instrumentality of the stockholders), any and all such liability of
incorporators, stockholders, subscribers, officers and directors, as such, being
released by the holder hereof, by the acceptance of this bond, and being
likewise waived and released by the terms of the Indenture under which this bond
is issued.
This bond shall not be valid or become obligatory for any purpose until the
certificate of authentication endorsed hereon shall have been signed by Morgan
Guaranty Trust Company of New York, or its successor, as Trustee under the
Indenture.
IN WITNESS WHEREOF, PENNSYLVANIA GAS AND WATER COMPANY has caused this bond
to be signed in its name by, or to bear the facsimile signature of, its
President or a Vice President, and its corporate seal to be affixed hereto and
attested by, or to bear the facsimile signature of, its Secretary or an
Assistant Secretary.
Dated:
PENNSYLVANIA GAS AND WATER COMPANY
By:______________________________________
Vice President
Attest:
Secretary
<PAGE>
8
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This bond is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Trustee
By:________________________________
Authorized Officer
[End of Form of Bond]
<PAGE>
WHEREAS, all requirements of law and of the restated articles of
incorporation, as amended, and by-laws of the Company, including all requisite
action on the part of its directors and officers, relating to the execution of
this Twenty-Eighth Supplemental Indenture have been complied with and observed,
and all things necessary to make this Twenty-Eighth Supplemental Indenture a
valid and legally binding instrument in accordance with its terms for the
security of all bonds from time to time issued under the Indenture have
happened, been done and been performed, and the issue of the bonds of the
Twentieth Series, hereinafter referred to, has been in all respects duly
authorized;
NOW, THEREFORE, THIS TWENTY-EIGHTH SUPPLEMENTAL INDENTURE WITNESSETH: That
Pennsylvania Gas and Water Company, intending to be legally bound, in
consideration of the premises and of One Dollar ($1.00) to it duly paid by the
Trustee at or before the ensealing and delivery of these presents, the receipt
whereof is hereby acknowledged, and in order to secure the payment of the
principal of, premium, if any, and interest on all bonds from time to time
outstanding under the Indenture, according to the terms of said bonds and to
secure the performance and observance of all the covenants and conditions
therein and in the Indenture contained, and to declare the terms and conditions
upon and subject to which the bonds of the Twentieth Series are and are to be
issued and secured, hath granted, bargained, sold, warranted, aliened, remised,
released, conveyed, assigned, transferred, mortgaged, created a security
interest in, pledged, set over and confirmed, and by these presents doth grant,
bargain, sell, warrant, alien, remise, release, convey, assign, transfer,
mortgage, create a security interest in, pledge, set over and confirm unto
Morgan Guaranty Trust Company of New York, as Trustee, and its successor or
successors in the trust and its or their assigns forever, the following
described property -- that is to say:
<PAGE>
9
All property, real, personal and mixed, tangible and intangible, of the
Company whether now owned or hereafter acquired by it (except such property as
is expressly excepted from the lien and the operation of the Indenture).
Without limitation of the foregoing, all real estate and interests in or
relating to real estate, plants, properties and equipment, and all pumping and
transmission systems and facilities, together with all franchises, grants,
easements, permits, privileges, appurtenances, tenements and other rights and
property thereunto belonging or appertaining, whether now owned by the Company
or hereafter acquired by it and used in its business of impounding, storing,
transporting and selling water, or in its business of manufacturing, storing,
transporting and selling gas, at wholesale or retail, for domestic, commercial,
industrial and municipal use and consumption.
Also, without limitation of the foregoing, all buildings, improvements,
standpipes, towers, reservoirs, wells, springs, flumes, sluices, canals, basins,
cribs, mains, conduits, hydrants, valves, pipes, pipe lines, service pipes,
tanks, shops, structures, purification systems, pumping stations, pumps, meters,
fixtures, machinery and equipment, used or useful for the impounding, procuring,
transmission or distribution of water; all generators, conveyors, purifiers,
holders, power plants, fixtures, engines, boilers, pumps, meters, transmission
<PAGE>
and distribution mains, machinery and equipment used or useful for the
manufacture, transmission or distribution of gas; and all and every character of
apparatus whatsoever used or useful for procuring, manufacturing, transmitting
or distributing water or gas; whether the same or any thereof are now owned by
the Company or hereafter acquired by it.
Also, without limitation of the foregoing, all real estate and interests in
real estate acquired by sale or by merger of subsidiary or constituent
companies, now owned or as may be subsequently acquired by the Company.
The property covered by the lien of the Indenture shall include
particularly, among other property, without prejudice to the generality of the
language hereinbefore or hereinafter contained, the following described property
(which generally includes property additions through October 31, 1993, except
such property as is expressly excepted from the lien and operation of the
Indenture):
I
The following piece or parcel of land situate in the County of Lackawanna
and Commonwealth of Pennsylvania, to wit:
01. Parcel of land situate in the Township of Greenfield, Lackawanna
County, from John Malinchak and Linda Malinchak, husband and wife, by Deed
dated March 5, 1993 and recorded March 10, 1993 in Lackawanna
<PAGE>
10
County Deed Book 1426 at Page 281. Containing Three (3.0) acres, more or
less.
02. Partial interest in parcel of land situate in Borough of Jessup,
Lackawanna County, from John L. Kemmerer, Jr. and Mary Elizabeth Kemmerer,
his wife, by Deed dated October 8, 1993 and recorded October 22, 1993 in
Lackawanna County Deed Book 1451 at Page 368. Containing Four Hundred
Thirty-Nine (439.0) acres and allowances.
03. Parcel of land situate in the Borough of Archbald, Lackawanna
County, from Pine Line, Inc., by Deed dated October 18, 1993 and recorded
October 19, 1993 in Lackawanna County Deed Book 1450 at Page 764.
Containing Ninety-two One Hundredths (0.92) of an acre.
II
The following piece or parcel of land situate in the County of Luzerne and
Commonwealth of Pennsylvania, to wit:
01. Four (4) parcels of land situate in the Township of Conyngham,
Township of Salem and Borough of Shickshinny, Luzerne County, from
Mocanaqua Water Company and Shickshinny Water Company, by Deed dated April
5, 1993 and recorded April 6, 1993 in Luzerne County Deed Book 2453 at Page
517. Containing One Hundred Ten and Four-hundred Sixteen Thousandths
(110.416) acres, more or less.
III
<PAGE>
The following right-of-way and/or easements situate in the County of
Columbia and Commonwealth of Pennsylvania, to wit:
01. Right-of-way for gas pipeline in the Township of Scott, Columbia
County, from Ira S. Hauck, et ux, by Indenture dated February 9, 1993 and
recorded March 8, 1993 in Columbia County Record Book 528 at Page 399.
02. Right-of-way for gas pipeline in the Township of Scott, Columbia
County, from Harland H. Shoemaker, et ux, by Indenture dated February 9,
1993 and recorded March 8, 1993 in Columbia County Record Book 528 at Page
402.
03. Right-of-way for gas pipeline in the Borough of Berwick, Columbia
County, from Berwick Hospital Center Foundation, by Indenture dated
February 23, 1993 and recorded March 8, 1993 in Columbia County Record Book
528 at Page 405.
<PAGE>
11
04. Right-of-way for gas pipeline in the Township of South Centre,
Columbia County, from Star Kist Foods, Inc., et al, by Indenture dated July
22, 1993 and recorded August 24, 1993 in Columbia County Record Book 544 at
Page 830.
05. Right-of-way for gas pipeline in the Township of South Centre,
Columbia County, from Frank C. Baker, et al, by Indenture dated July 30,
1993 and recorded August 24, 1993 in Columbia County Record Book 544 at
Page 839.
06. Right-of-way for gas pipeline in the Township of South Centre,
Columbia County, from Frank C. Baker, et al, by Indenture dated July 30,
1993 and recorded August 24, 1993 in Columbia County Record Book 544 at
Page 835.
07. Right-of-way for gas pipeline in the Town of Bloomsburg, Columbia
County, from Kawneer Company, Inc., by Indenture dated August 4, 1993 and
recorded August 24, 1993 in Columbia County Record Book 544 at Page 843.
08. Right-of-way for gas pipeline in the Town of Bloomsburg, Columbia
County, from Michael A. Chyko, et ux, by Indenture dated October 25, 1993
and recorded October 29, 1993 in Columbia County Record Book 551 at Page
159.
IV
The following right-of-way and/or easements situate in the County of
Lackawanna and Commonwealth of Pennsylvania, to wit:
01. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from Scranton Mall Associates, by Indenture dated March 27, 1992
and recorded December 14, 1992 in Lackawanna County Deed Book 1417 at Page
461.
<PAGE>
02. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Evelyn Bleiler Hammond, by Indenture dated October 2, 1992 and
recorded December 14, 1992 in Lackawanna County Deed Book 1417 at Page 468.
03. Right-of-way for gas pipeline in the Borough of Olyphant,
Lackawanna County, from WEA Manufacturing, Inc., by Indenture dated October
8, 1992 and recorded December 14, 1992 in Lackawanna County Deed Book 1417
at Page 472.
04. Right-of-way for gas pipeline in the Borough of Jessup, Lackawanna
County, from Fastenal Company, Inc., by Indenture dated
<PAGE>
12
October 13, 1992 and recorded December 14, 1992 in Lackawanna County Deed
Book 1417 at Page 479.
05. Right-of-way for gas pipeline in the Borough of Olyphant,
Lackawanna County, from Thomas C. McGowan, et ux, by Indenture dated
October 27, 1992 and recorded December 14, 1992 in Lackawanna County Deed
Book 1417 at Page 484.
06. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Joseph M. Harvilchuck, et ux, by Indenture dated November 2,
1992 and recorded December 14, 1992 in Lackawanna County Deed Book 1417 at
Page 488.
07. Right-of-way for gas pipeline in the Township of South Abington,
Lackawanna County, from Samuel R. Ventura, et ux, by Indenture dated
December 3, 1992 and recorded December 14, 1992 in Lackawanna County Deed
Book 1417 at Page 492.
08. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from City of Scranton, by Indenture dated December 8, 1992 and
recorded January 13, 1993 in Lackawanna County Deed Book 1420 at Page 448.
09. Right-of-way for water pipeline in the Borough of Jessup,
Lackawanna County, from Martin C. Fischer, et al, by Indenture dated
December 16, 1992 and recorded January 13, 1993 in Lackawanna County Deed
Book 1420 at Page 444.
10. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Sandvik Steel Company, by Indenture dated December 18, 1992
and recorded January 13, 1993 in Lackawanna County Deed Book 1420 at Page
440.
11. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from Lackawanna County Industrial Development Authority, et al, by
Indenture dated December 23, 1992 and recorded August 25, 1993 in
Lackawanna County Deed Book 1444 at Page 364.
12. Right-of-way for gas pipeline in the Borough of Jessup, Lackawanna
County, from Eric M. Spatt, et ux, by Indenture dated December 28, 1992 and
recorded January 13, 1993 in Lackawanna County Deed Book 1420 at Page 435.
<PAGE>
13. Right-of-way for gas pipeline in the Township of South Abington,
Lackawanna County, from Delbert P. Keisling, Jr., et ux, by Indenture dated
December 30, 1992 and recorded January 13, 1993 in Lackawanna County Deed
Book 1420 at Page 430.
<PAGE>
13
14. Right-of-way for gas pipeline in the Borough of Mayfield,
Lackawanna County, from Thomas Greene, et ux, by Indenture dated January 4,
1993 and recorded February 9, 1993 in Lackawanna County Deed Book 1423 at
Page 230.
15. Right-of-way for gas pipeline in the City of Carbondale,
Lackawanna County, from Cottage Hose Ambulance Corps, Inc., by Indenture
dated January 27, 1993 and recorded February 9, 1993 in Lackawanna County
Deed Book 1423 at Page 240.
16. Right-of-way for gas pipeline in the Borough of Blakely,
Lackawanna County, from Edwin A. Abrahamsen, et al, by Indenture dated
February 1, 1993 and recorded February 9, 1993 in Lackawanna County Deed
Book 1423 at Page 235.
17. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from James Gress, et ux, by Indenture dated February 3, 1993 and
recorded February 9, 1993 in Lackawanna County Deed Book 1423 at Page 245.
18. Right-of-way for gas pipeline in the Borough of Throop, Lackawanna
County, from Joseph Quinlan, et ux, by Indenture dated February 11, 1993
and recorded March 8, 1993 in Lackawanna County Deed Book 1426 at Page 55.
19. Right-of-way for gas pipeline in the Borough of Archbald,
Lackawanna County, from Borough of Archbald, by Indenture dated February
17, 1993 and recorded March 8, 1993 in Lackawanna County Deed Book 1426 at
Page 46.
20. Right-of-way for gas pipeline in the Borough of Throop, Lackawanna
County, from Robert J. Karlavige, et ux, by Indenture dated February 18,
1993 and recorded March 8, 1993 in Lackawanna County Deed Book 1426 at Page
51.
21. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from United Neighborhood Housing Corporation, by Indenture dated
February 19, 1993 and recorded March 8, 1993 in Lackawanna County Deed Book
1426 at Page 41.
22. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Richard J. Matthews, et ux, by Indenture dated February 25,
1993 and recorded March 8, 1993 in Lackawanna County Deed Book 1426 at Page
37.
23. Right-of-way for gas pipeline in the Borough of Blakely,
Lackawanna County, from Robert Polidori, et ux, by Indenture dated
<PAGE>
14
<PAGE>
February 25, 1993 and recorded March 8, 1993 in Lackawanna County Deed Book
1426 at Page 32.
24. Right-of-way for water pipeline in the Borough of Blakely,
Lackawanna County, from Robert Polidori, et ux, by Indenture dated February
25, 1993 and recorded March 8, 1993 in Lackawanna County Deed Book 1426 at
Page 27.
25. Right-of-way for gas pipeline in the Township of South Abington,
Lackawanna County, from Corporation of the Presiding Bishop of the Church
of Jesus Christ of Latter Day Saints, by Indenture dated March 8, 1993 and
recorded April 14, 1993 in Lackawanna County Deed Book 1429 at Page 436.
26. Right-of-way for water pipeline in the City of Carbondale,
Lackawanna County, from Dr. Thomas H. Coleman, et al, by Indenture dated
March 23, 1993 and recorded April 14, 1993 in Lackawanna County Deed Book
1429 at Page 441.
27. Right-of-way for gas pipeline in the City of Carbondale,
Lackawanna County, from Dr. Thomas H. Coleman, et al, by Indenture dated
March 23, 1993 and recorded April 14, 1993 in Lackawanna County Deed Book
1429 at Page 447.
28. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from James Granville, Sr., et ux, by Indenture dated March 26, 1993
and recorded April 14, 1993 in Lackawanna County Deed Book 1429 at Page
453.
29. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Gerald M. Borosky, et ux, by Indenture dated March 26, 1993
and recorded April 14, 1993 in Lackawanna County Deed Book 1429 at Page
457.
30. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Walter S. Chesar, et ux, by Indenture dated March 26, 1993 and
recorded April 14, 1993 in Lackawanna County Deed Book 1429 at Page 461.
31. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Bruce Thomas Bevilacqua, et ux, by Indenture dated March 29,
1993 and recorded April 14, 1993 in Lackawanna County Deed Book 1429 at
Page 465.
32. Right-of-way for gas pipeline in the Borough of Old Forge,
Lackawanna County, from Lena Lockett, by Indenture dated April 21, 1993
<PAGE>
15
and recorded May 17, 1993 in Lackawanna County Deed Book 1432 at Page 239.
33. Right-of-way for gas pipeline in the Borough of Archbald,
Lackawanna County, from Charles J. Passeri, et ux, by Indenture dated April
21, 1993 and recorded May 17, 1993 in Lackawanna County Deed Book 1432 at
Page 243.
34. Right-of-way for water pipeline in the Borough of Archbald,
<PAGE>
Lackawanna County, from Charles J. Passeri, et ux, by Indenture dated April
21, 1993 and recorded May 17, 1993 in Lackawanna County Deed Book 1432 at
Page 247.
35. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from James F. Eiden, et ux, by Indenture dated April 22, 1993 and
recorded May 17, 1993 in Lackawanna County Deed Book 1432 at Page 251.
36. Right-of-way for gas pipeline in the City of Carbondale,
Lackawanna County, from Wan Sanderson, by Indenture dated April 27, 1993
and recorded May 17, 1993 in Lackawanna County Deed Book 1432 at Page 255.
37. Right-of-way for gas pipeline in the Borough of Old Forge,
Lackawanna County, from Ann Killino, by Indenture dated April 29, 1993 and
recorded May 17, 1993 in Lackawanna County Deed Book 1432 at Page 259.
38. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from School District of the City of Scranton, by Indenture dated
May 7, 1993 and recorded May 17, 1993 in Lackawanna County Deed Book 1432
at Page 263.
39. Right-of-way for water pipeline in the Borough of Archbald,
Lackawanna County, from Pennsylvania Power & Light Company, by Indenture
dated May 4, 1993 and recorded June 30, 1993 in Lackawanna County Deed Book
1438 at Page 178.
40. Right-of-way for gas pipeline in the Borough of Taylor, Lackawanna
County, from Trustees of the Church of God, Borough of Taylor, County of
Lackawanna, by Indenture dated May 13, 1993 and recorded June 30, 1993 in
Lackawanna County Deed Book 1438 at Page 185.
41. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from Thomas George Bryan, et ux, by Indenture dated May 17,
<PAGE>
16
1993 and recorded June 30, 1993 in Lackawanna County Deed Book 1438 at Page
190.
42. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from Robert B. Brady, et ux, by Indenture dated June 9, 1993 and
recorded June 30, 1993 in Lackawanna County Deed Book 1438 at Page 194.
43. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from Paul Grado, Sr., by Indenture dated June 16, 1993 and recorded
June 30, 1993 in Lackawanna County Deed Book 1438 at Page 198.
44. Right-of-way for gas pipeline in the Township of Carbondale,
Lackawanna County, from Michael C. Figliomeni, by Indenture dated June 17,
1993 and recorded June 30, 1993 in Lackawanna County Deed Book 1438 at Page
202.
45. Right-of-way for water pipeline in the Borough of Archbald,
Lackawanna County, from Northpoint Associates, Inc., by Indenture dated
July 2, 1993 and recorded August 25, 1993 in Lackawanna County Deed Book
<PAGE>
1444 at Page 369.
46. Right-of-way for gas pipeline in the Borough of Archbald,
Lackawanna County, from Northpoint Associates, Inc., by Indenture dated
July 2, 1993 and recorded August 25, 1993 in Lackawanna County Deed Book
1444 at Page 374.
47. Right-of-way for gas pipeline in the Borough of Dickson City,
Lackawanna County, from Zigmund Enterprises, Inc., by Indenture dated July
14, 1993 and recorded August 25, 1993 in Lackawanna County Deed Book 1444
at Page 379.
48. Right-of-way for gas pipeline in the Township of South Abington,
Lackawanna County, from Deerfield Village, by Indenture dated July 14, 1993
and recorded August 25, 1993 in Lackawanna County Deed Book 1444 at Page
384.
49. Right-of-way for water pipeline in the Township of South Abington,
Lackawanna County, from Deerfield Village, by Indenture dated July 14, 1993
and recorded August 25, 1993 in Lackawanna County Deed Book 1444 at Page
388.
50. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Omoo Lamira Chase Shook, et vir, by Indenture dated August 13,
1993 and recorded August 25, 1993 in Lackawanna County Deed Book 1444 at
Page 392.
<PAGE>
17
51. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Neil William Rogers, by Indenture dated August 13, 1993 and
recorded August 25, 1993 in Lackawanna County Deed Book 1444 at Page 396.
52. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Mary Alice Noldy, by Indenture dated August 13, 1993 and
recorded August 25, 1993 in Lackawanna County Deed Book 1444 at Page 400.
53. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from Louise Zacker, by Indenture dated August 16, 1993 and recorded
August 25, 1993 in Lackawanna County Deed Book 1444 at Page 404.
54. Right-of-way for gas pipeline in the Borough of Moosic, Lackawanna
County, from Frank Decker, et ux, by Indenture dated August 31, 1993 and
recorded October 19, 1993 in Lackawanna County Deed Book 1450 at Page 543.
55. Right-of-way for gas pipeline in the Borough of Moosic and City of
Scranton, Lackawanna County, from Hub Management, Inc., by Indenture dated
August 31, 1993 and recorded October 19, 1993 in Lackawanna County Deed
Book 1450 at Page 561.
56. Right-of-way for water pipeline in the Borough of Moosic and City
of Scranton, Lackawanna County, from Hub Management, Inc., by Indenture
dated August 31, 1993 and recorded October 19, 1993 in Lackawanna County
Deed Book 1450 at Page 555.
<PAGE>
57. Right-of-way for gas pipeline in the Township of Fell, Lackawanna
County, from Gerald A. Gravine, by Indenture dated September 3, 1993 and
recorded October 19, 1993 in Lackawanna County Deed Book 1450 at Page 551.
58. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from Charles J. Blazonis, et ux, by Indenture dated September 3,
1993 and recorded October 19, 1993 in Lackawanna County Deed Book 1450 at
Page 547.
59. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from James Baress, by Indenture dated September 3, 1993 and
recorded October 19, 1993 in Lackawanna County Deed Book 1450 at Page 567.
60. Right-of-way for gas pipeline in the Township of Carbondale,
Lackawanna County, from Thomas V. Motts, et ux, by Indenture dated
<PAGE>
18
September 8, 1993 and recorded October 19, 1993 in Lackawanna County Deed
Book 1450 at Page 571.
61. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from William Popovich, et ux, by Indenture dated September 13, 1993
and recorded October 19, 1993 in Lackawanna County Deed Book 1450 at Page
575.
62. Right-of-way for gas pipeline in the City of Scranton, Lackawanna
County, from Keyser Terrace, Inc., by Indenture dated September 15, 1993
and recorded October 19, 1993 in Lackawanna County Deed Book 1450 at Page
584.
63. Right-of-way for water pipeline in the City of Scranton,
Lackawanna County, from Keyser Terrace, Inc., by Indenture dated September
15, 1993 and recorded October 19, 1993 in Lackawanna County Deed Book 1450
at Page 579.
64. Right-of-way for gas pipeline in the Township of South Abington,
Lackawanna County, from James Scantzos, et ux, by Indenture dated September
15, 1993 and recorded October 19, 1993 in Lackawanna County Deed Book 1450
at Page 589.
65. Right-of-way for gas pipeline in the Township of Scott, Lackawanna
County, from Scott Plaza, Ltd., by Indenture dated September 15, 1993 and
recorded October 19, 1993 in Lackawanna County Deed Book 1450 at Page 594.
66. Right-of-way for gas pipeline in the Borough of Blakely,
Lackawanna County, from Magdalene Spegar, Single, by Indenture dated
September 24, 1993 and recorded October 19, 1993 in Lackawanna County Deed
Book 1450 at Page 598.
67. Right-of-way for gas pipeline in the Borough of Throop, Lackawanna
County, from Anthony A. Andrelchik, Single, by Indenture dated October 5,
1993 and recorded October 19, 1993 in Lackawanna County Deed Book 1450 at
Page 602.
<PAGE>
68. Right-of-way for gas pipeline in the Borough of Throop, Lackawanna
County, from John P. Yankowski, by Indenture dated October 5, 1993 and
recorded October 19, 1993 in Lackawanna County Deed Book 1450 at Page 606.
69. Right-of-way for gas pipeline in the Borough of Clarks Green,
Lackawanna County, from Margo Portanova, by Indenture dated October 6, 1993
and recorded October 19, 1993 in Lackawanna County Deed Book 1450 at Page
610.
<PAGE>
19
70. Right-of-way for gas pipeline in the Borough of Clarks Green,
Lackawanna County, from David T. Richards, et ux, by Indenture dated
October 6, 1993 and recorded October 19, 1993 in Lackawanna County Deed
Book 1450 at Page 614.
71. Right-of-way for gas pipeline in the Borough of Old Forge,
Lackawanna County, from Vincent Piccolini, et al, by Indenture dated
October 12, 1993 and recorded October 19, 1993 in Lackawanna County Deed
Book 1450 at Page 618.
72. Right-of-way for access and pipelines in the Borough of Archbald,
Lackawanna County, from Pine Line, Inc., by Indenture dated October 18,
1993 and recorded October 19, 1993 in Lackawanna County Deed Book 1450 at
Page 764.
73. Right-of-way for gas pipeline in the Borough of Dickson City,
Lackawanna County, from Aldi, Inc., by Indenture dated October 18, 1993 and
recorded October 29, 1993 in Lackawanna County Deed Book 1452 at Page 273.
74. Right-of-way for gas pipeline in the Township of South Abington,
Lackawanna County, from Rendon Corporation, by Indenture dated October 19,
1993 and recorded October 29, 1993 in Lackawanna County Deed Book 1452 at
Page 277.
75. Right-of-way for gas pipeline in the Township of South Abington,
Lackawanna County, from Vincent Piazza, et ux, by Indenture dated October
20, 1993 and recorded October 29, 1993 in Lackawanna County Deed Book 1452
at Page 268.
V
The following right-of-way and/or easements situate in the County of
Luzerne and Commonwealth of Pennsylvania, to wit:
01. Right-of-way for ground bed for cathodic protection in the
Township of Plains, Luzerne County, from Elizabeth Kuzemko, by Indenture
dated October 16, 1992 and recorded August 25, 1993 in Luzerne County Deed
Book 2466 at Page 827.
02. Right-of-way for gas pipeline in the Township of Wilkes-Barre,
Luzerne County, from William H. Corgan, et al, by Indenture dated October
29, 1992 and recorded December 9, 1992 in Luzerne County Deed Book 2440 at
<PAGE>
Page 1135.
03. Right-of-way for gas pipeline in the City of Wilkes-Barre, Luzerne
County, from Harry Yale, et ux, by Indenture dated November 11, 1992 and
<PAGE>
20
recorded December 9, 1992 in Luzerne County Deed Book 2440 at Page 1131.
04. Right-of-way for gas pipeline in the Township of Wright, Luzerne
County, from Christ Methodist Church of Mountaintop, by Indenture dated
November 12, 1992 and recorded December 9, 1992 in Luzerne County Deed Book
2440 at Page 1140.
05. Right-of-way for access road in the Township of Jenkins, Luzerne
County, from Coolbaugh Sand and Stone, Inc., by Indenture dated November
25, 1992 and recorded December 9, 1992 in Luzerne County Deed Book 2440 at
Page 1156.
06. Right-of-way for gas pipeline in the Borough of Kingston, Luzerne
County, from Luzerne County Industrial Development Authority, et al, by
Indenture dated November 30, 1992 and recorded December 9, 1992 in Luzerne
County Deed Book 2440 at Page 1161.
07. Right-of-way for gas pipeline in the Township of Jackson, Luzerne
County, from Anthony S. Garbush, et ux, by Indenture dated December 2, 1992
and recorded December 9, 1992 in Luzerne County Deed Book 2440 at Page
1170.
08. Right-of-way for gas pipeline in the Borough of Duryea, Luzerne
County, from Arnold J. Dommes, et ux, by Indenture dated December 8, 1992
and recorded December 9, 1992 in Luzerne County Deed Book 2440 at Page
1166.
09. Right-of-way for gas pipeline in the City of Wilkes-Barre, Luzerne
County, from Edward S. Miscavage, et ux, by Indenture dated December 9,
1992 and recorded January 6, 1993 in Luzerne County Deed Book 2443 at Page
727.
10. Right-of-way for gas pipeline in the Township of Plains, Luzerne
County, from Daniel E. Rozanski, by Indenture dated December 9, 1992 and
recorded January 6, 1993 in Luzerne County Deed Book 2443 at Page 731.
11. Right-of-way for gas pipeline in the Township of Fairview, Luzerne
County, from Deborah S. Gabriel, by Indenture dated December 14, 1992 and
recorded January 6, 1993 in Luzerne County Deed Book 2443 at Page 735.
12. Right-of-way for gas pipeline in the Township of Hanover, Luzerne
County, from Frank J. Ciavarella, et ux, by Indenture dated December 14,
1992 and recorded January 6, 1993 in Luzerne County Deed Book 2443 at Page
739.
<PAGE>
21
13. Right-of-way for gas pipeline in the Township of Kingston, Luzerne
<PAGE>
County, from Crescenzo G. Calise, et ux, by Indenture dated December 15,
1992 and recorded January 6, 1993 in Luzerne County Deed Book 2443 at Page
749.
14. Right-of-way for water pipeline in the Township of Plains, Luzerne
County, from Blue Coal Corporation, by Indenture dated December 16, 1992
and recorded January 6, 1993 in Luzerne County Deed Book 2443 at Page 842.
15. Right-of-way for water pipeline in the Borough of Exeter, Luzerne
County, from JEF Development Associates, Ltd, by Indenture dated December
21, 1992 and recorded January 6, 1993 in Luzerne County Deed Book 2443 at
Page 848.
16. Right-of-way for gas pipeline in the Township of Wilkes-Barre,
Luzerne County, from Henry P. Fricchione, et ux, by Indenture dated
December 21, 1992 and recorded January 6, 1993 in Luzerne County Deed Book
2443 at Page 853.
17. Right-of-way for access in the Township of Jenkins and the
Township of Pittston, Luzerne County, from IRECO, by Indenture dated
December 22, 1992 and recorded March 5, 1993 in Luzerne County Deed Book
2449 at Page 802.
18. Right-of-way for water pipeline in the Borough of Courtdale,
Luzerne County, from John A. Connolly, Jr., et al, by Indenture dated
December 28, 1992 and recorded January 6, 1993 in Luzerne County Deed Book
2443 at Page 6.
19. Right-of-way for gas pipeline in the Township of Dallas, Luzerne
County, from Michael J. Kozich, et ux, by Indenture dated January 7, 1993
and recorded February 8, 1993 in Luzerne County Deed Book 2447 at Page 197.
20. Right-of-way for gas pipeline in the Borough of Luzerne, Luzerne
County, from David J. Blight, et ux, by Indenture dated January 11, 1993
and recorded February 8, 1993 in Luzerne County Deed Book 2447 at Page 193.
21. Right-of-way for gas pipeline in the Township of Lehman, Luzerne
County, from Robert G. Root, et ux, by Indenture dated January 14, 1993 and
recorded February 8, 1993 in Luzerne County Deed Book 2447 at Page 189.
22. Right-of-way for gas pipeline in the Township of Jackson, Luzerne
County, from Ronald L. Hillard, et ux, by Indenture dated January 14, 1993
<PAGE>
22
and recorded February 8, 1993 in Luzerne County Deed Book 2447 at Page 185.
23. Right-of-way for gas pipeline in the Township of Jackson, Luzerne
County, from James Leo Dalkiewicz, et ux, by Indenture dated January 14,
1993 and recorded February 8, 1993 in Luzerne County Deed Book 2447 at Page
181.
24. Right-of-way for gas pipeline in the Borough of Luzerne, Luzerne
County, from Martin Mullen, et ux, by Indenture dated January 14, 1993 and
recorded February 8, 1993 in Luzerne County Deed Book 2447 at Page 177.
<PAGE>
25. Right-of-way for gas pipeline in the Borough of Sugar Notch,
Luzerne County, from Gerald G. Decker, et al, by Indenture dated January
19, 1993 and recorded February 8, 1993 in Luzerne County Deed Book 2447 at
Page 172.
26. Right-of-way for gas pipeline in the Township of Hanover, Luzerne
County, from Mericle Development Corporation, by Indenture dated January
22, 1993 and recorded February 8, 1993 in Luzerne County Deed Book 2447 at
Page 167.
27. Right-of-way for gas pipeline in the Borough of Sugar Notch,
Luzerne County, from Greater Wilkes-Barre Industrial Fund, Inc., by
Indenture dated January 25, 1993 and recorded February 8, 1993 in Luzerne
County Deed Book 2447 at Page 162.
28. Right-of-way for gas pipeline in the Township of Exeter, Luzerne
County, from Nathan Sands, by Indenture dated January 28, 1993 and recorded
February 8, 1993 in Luzerne County Deed Book 2447 at Page 158.
29. Right-of-way for gas pipeline in the Township of Plains, Luzerne
County, from Rockville Fabrics Corporation, by Indenture dated January 28,
1993 and recorded February 8, 1993 in Luzerne County Deed Book 2447 at Page
153.
30. Right-of-way for gas pipeline in the City of Wilkes-Barre, Luzerne
County, from Salim Elmir, et al, by Indenture dated January 28, 1993 and
recorded February 8, 1993 in Luzerne County Deed Book 2447 at Page 149.
31. Right-of-way for gas pipeline in the Township of Plains, Luzerne
County, from County of Luzerne, by Indenture dated February 8, 1993 and
recorded March 5, 1993 in Luzerne County Deed Book 2449 at Page 796.
32. Right-of-way for gas pipeline in the Borough of Wyoming, Luzerne
County, from Anthony Scalzo, et al, by Indenture dated February 18, 1993
<PAGE>
23
and recorded March 5, 1993 in Luzerne County Deed Book 2449 at Page 792.
33. Right-of-way for gas pipeline in the Township of Salem, Luzerne
County, from Berwick Hospital Center Foundation, by Indenture dated
February 23, 1993 and recorded March 5, 1993 in Luzerne County Deed Book
2449 at Page 787.
34. Right-of-way for gas pipeline in the Borough of Sugar Notch,
Luzerne County, from Gerald G. Decker, et al, by Indenture dated February
26, 1993 and recorded March 5, 1993 in Luzerne County Deed Book 2449 at
Page 783.
35. Right-of-way for gas pipeline in the City of Wilkes-Barre, Luzerne
County, from John J. Mutter, et ux, by Indenture dated February 26, 1993
and recorded March 5, 1993 in Luzerne County Deed Book 2449 at Page 779.
36. Right-of-way for gas pipeline in the Borough of Wyoming, Luzerne
<PAGE>
County, from Michael Blandina, by Indenture dated March 9, 1993 and
recorded March 31, 1993 in Luzerne County Deed Book 2452 at Page 916.
37. Right-of-way for gas pipeline in the Township of Plains, Luzerne
County, from Francis J. Marcinko, et ux, by Indenture dated March 11, 1993
and recorded March 31, 1993 in Luzerne County Deed Book 2452 at Page 912.
38. Right-of-way for gas pipeline in the Township of Hanover, Luzerne
County, from Arnold K. Biscontini, by Indenture dated March 12, 1993 and
recorded March 31, 1993 in Luzerne County Deed Book 2452 at Page 907.
39. Right-of-way for gas and water pipelines in the City of Wilkes-
Barre, Luzerne County, from Mercy Hospital of Wilkes-Barre, Pa., by
Indenture dated March 22, 1993 and recorded August 25, 1993 in Luzerne
County Deed Book 2466 at Page 872.
40. Right-of-way for gas pipeline in the City of Nanticoke, Luzerne
County, from Glad Tidings Assembly of God Church, by Indenture dated March
29, 1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at
Page 880.
41. Right-of-way for water pipeline in the Borough of Shickshinny,
Luzerne County, from Shickshinny Water Company and Mocanaqua Water Company,
by Indenture dated April 5, 1993 and recorded April 6, 1993 in Luzerne
County Deed Book 2453 at Page 517.
42. Right-of-way for access in the Borough of Shickshinny, Luzerne
County, from Shickshinny Water Company and Mocanaqua Water
<PAGE>
24
Company, by Indenture dated April 5, 1993 and recorded April 6, 1993 in
Luzerne County Deed Book 2453 at Page 517.
43. Right-of-way for water pipeline in the Township of Salem, Luzerne
County, from Shickshinny Water Company and Mocanaqua Water Company, by
Indenture dated April 5, 1993 and recorded April 6, 1993 in Luzerne County
Deed Book 2453 at Page 517.
44. Right-of-way for water pipeline in the Township of Salem, Luzerne
County, from Shickshinny Water Company and Mocanaqua Water Company, by
Indenture dated April 5, 1993 and recorded April 6, 1993 in Luzerne County
Deed Book 2453 at Page 517.
45. Right-of-way for water pipeline in the Township of Salem, Luzerne
County, from Shickshinny Water Company and Mocanaqua Water Company, by
Indenture dated April 5, 1993 and recorded April 6, 1993 in Luzerne County
Deed Book 2453 at Page 517.
46. Right-of-way for water pipeline in the Township of Salem, Luzerne
County, from Shickshinny Water Company and Mocanaqua Water Company, by
Indenture dated April 5, 1993 and recorded April 6, 1993 in Luzerne County
Deed Book 2453 at Page 517.
47. Right-of-way for water pipeline in the Borough of Shickshinny,
<PAGE>
Luzerne County, from Shickshinny Water Company and Mocanaqua Water Company,
by Indenture dated April 5, 1993 and recorded April 6, 1993 in Luzerne
County Deed Book 2453 at Page 517.
48. Right-of-way for water pipeline in the Borough of Shickshinny,
Luzerne County, from Shickshinny Water Company and Mocanaqua Water Company,
by Indenture dated April 5, 1993 and recorded April 6, 1993 in Luzerne
County Deed Book 2453 at Page 517.
49. Right-of-way for water pipeline in the Township of Salem, Luzerne
County, from Shickshinny Water Company and Mocanaqua Water Company, by
Indenture dated April 5, 1993 and recorded April 6, 1993 in Luzerne County
Deed Book 2453 at Page 517.
50. Right-of-way for water pipeline in the Township of Salem, Luzerne
County, from Shickshinny Water Company and Mocanaqua Water Company, by
Indenture dated April 5, 1993 and recorded April 6, 1993 in Luzerne County
Deed Book 2453 at Page 517.
51. Right-of-way for water pipeline in the Borough of Exeter, Luzerne
County, from Wildflower Village, Inc., by Indenture dated April 9, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 885.
<PAGE>
25
52. Right-of-way for gas pipeline in the Borough of Kingston, Luzerne
County, from Carol E. Barney Cresko, by Indenture dated April 15, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 890.
53. Right-of-way for gas pipeline in the Borough of Wyoming, Luzerne
County, from Charles M. Reilly, et ux, by Indenture dated April 15, 1993
and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 894.
54. Right-of-way for gas pipeline in the Township of Kingston, Luzerne
County, from Thomas M. Jacobs, et ux, by Indenture dated April 19, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 823.
55. Right-of-way for gas pipeline in the Borough of Pringle, Luzerne
County, from Anthony J. Kukosky, et ux, by Indenture dated April 30, 1993
and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 803.
56. Right-of-way for gas pipeline in the Borough of Kingston, Luzerne
County, from Jean R. Hughes, by Indenture dated May 4, 1993 and recorded
August 25, 1993 in Luzerne County Deed Book 2466 at Page 926.
57. Right-of-way for gas pipeline in the Township of Kingston, Luzerne
County, from Terry Cadwalader, by Indenture dated May 19, 1993 and recorded
August 25, 1993 in Luzerne County Deed Book 2466 at Page 982.
58. Right-of-way for gas pipeline in the Borough of Kingston, Luzerne
County, from Dorranceton United Methodist Church of Kingston, by Indenture
dated May 19, 1993 and recorded August 25, 1993 in Luzerne County Deed Book
2466 at Page 930.
<PAGE>
59. Right-of-way for gas pipeline in the Borough of Forty-Fort,
Luzerne County, from Edward S. Kopec, et ux, by Indenture dated May 25,
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
935.
60. Right-of-way for gas pipeline in the Township of Plains, Luzerne
County, from Housing Authority of the County of Luzerne, by Indenture dated
May 25, 1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466
at Page 939.
61. Right-of-way for gas pipeline in the Township of Hanover, Luzerne
County, from Maple Hill Cemetery Association, by Indenture dated May 28,
<PAGE>
26
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
944.
62. Right-of-way for water pipeline in the Township of Hunlock,
Township of Union and Borough of Shickshinny, Luzerne County, from
Pennsylvania Gas and Water Company, Trustee, by Indenture dated June 4,
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
798.
63. Right-of-way for gas pipeline in the Borough of Kingston, Luzerne
County, from Jerome Stone, et ux, by Indenture dated June 17, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 954.
64. Right-of-way for gas pipeline in the Borough of Kingston, Luzerne
County, from Nellie H. Yenshuski, by Indenture dated June 17, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 959.
65. Right-of-way for gas pipeline in the Township of Kingston, Luzerne
County, from Hill Brook Corporation, by Indenture dated June 17, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 963.
66. Right-of-way for water pipeline in the Township of Jenkins,
Luzerne County, from County of Luzerne, by Indenture dated June 17, 1993
and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 968.
67. Right-of-way for gas pipeline in the Township of Fairview, Luzerne
County, from Township of Fairview, by Indenture dated June 17, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 949.
68. Right-of-way for water pipeline in the Townships of Jenkins and
Plains, Luzerne County, from Harry S. Salavantis, by Indenture dated June
18, 1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at
Page 973.
69. Right-of-way for gas pipeline in the Borough of Courtdale, Luzerne
County, from Stephen E. Sincavage, et ux, by Indenture dated June 24, 1993
and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 978.
70. Right-of-way for gas pipeline in the City of Wilkes-Barre, Luzerne
County, from Frederick H. Voelker, et ux, by Indenture dated June 25, 1993
<PAGE>
and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 868.
<PAGE>
27
71. Right-of-way for gas pipeline in the Township of Wilkes-Barre,
Luzerne County, from Wickes Lumber Company, by Indenture dated June 25,
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
793.
72. Right-of-way for gas pipeline in the City of Nanticoke, Luzerne
County, from Henry Litchkofski, et ux, et al, by Indenture dated June 28,
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
858.
73. Right-of-way for gas pipeline in the City of Nanticoke, Luzerne
County, from John E. Wilczynski, by Indenture dated June 28, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 865.
74. Right-of-way for gas pipeline in the West Wyoming Borough, Luzerne
County, from Samuel A. Dimick, et ux, et al, by Indenture dated June 30,
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
844.
75. Right-of-way for gas pipeline in the City of Nanticoke, Luzerne
County, from Joseph Kryzanski, et ux, by Indenture dated June 30, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 850.
76. Right-of-way for gas pipeline in the City of Nanticoke, Luzerne
County, from Joseph Latze, et ux, by Indenture dated June 30, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 854.
77. Right-of-way for ground bed for cathodic protection in the
Township of Plains, Luzerne County, from Frank Dominick, et ux, by
Indenture dated July 1, 1993 and recorded August 25, 1993 in Luzerne County
Deed Book 2466 at Page 789.
78. Right-of-way for gas pipeline in the Borough of Courtdale, Luzerne
County, from UGI Utilities, Inc., et al, by Indenture dated July 7, 1993
and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 839.
79. Right-of-way for water pipeline in the Borough of Sugar Notch,
Luzerne County, from Robert Kinney, et al, by Indenture dated July 26, 1993
and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 835.
80. Right-of-way for water pipeline in the Township of Conyngham,
Luzerne County, from Most Reverend James C. Timlin, Bishop, Trustee for St.
Mary's Polish Roman Catholic Congregation of the Village of Mocanaqua, by
Indenture dated July 27, 1993 and recorded August 25, 1993 in Luzerne
County Deed Book 2466 at Page 898.
<PAGE>
28
81. Right-of-way for water pipeline in the Borough of Sugar Notch,
Luzerne County, from Charles Kinney, et ux, by Indenture dated July 30,
<PAGE>
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
831.
82. Right-of-way for gas pipeline in the Township of Wright, Luzerne
County, from John D. Moran, et al, by Indenture dated August 5, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 905.
83. Right-of-way for gas pipeline in the Borough of Dallas, Luzerne
County, from Nicholas Stredny, by Indenture dated August 13, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 909.
84. Right-of-way for gas pipeline in the City of Wilkes-Barre, Luzerne
County, from United States Postal Service, by Indenture dated August 17,
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
913.
85. Right-of-way for gas pipeline in the Borough of West Wyoming,
Luzerne County, from Bruno Ferretti, et al, by Indenture dated August 18,
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
817.
86. Right-of-way for water pipeline in the Borough of West Wyoming,
Luzerne County, from Bruno Ferretti, et al, by Indenture dated August 18,
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
811.
87. Right-of-way for gas pipeline in the Township of Wilkes-Barre,
Luzerne County, from Joseph Antellocy, et al, by Indenture dated August 19,
1993 and recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page
918.
88. Right-of-way for gas pipeline in the City of Wilkes-Barre, Luzerne
County, from John A. Gulius, et ux, by Indenture dated August 23, 1993 and
recorded August 25, 1993 in Luzerne County Deed Book 2466 at Page 922.
89. Right-of-way for gas pipeline in the Township of Wilkes-Barre,
Luzerne County, from Cleveland Brothers Equipment Company, Inc., by
Indenture dated August 24, 1993 and recorded October 20, 1993 in Luzerne
County Deed Book 2472 at Page 660.
90. Right-of-way for gas pipeline in the Township of Plains, Luzerne
County, from Joseph Coccia, et ux, by Indenture dated August 31, 1993 and
recorded October 20, 1993 in Luzerne County Deed Book 2472 at Page 675.
91. Right-of-way for gas pipeline in the Township of Wilkes-Barre,
Luzerne County, from Raymond Wojtowicz, by Indenture dated September
<PAGE>
29
27, 1993 and recorded October 20, 1993 in Luzerne County Deed Book 2472 at
Page 665.
92. Right-of-way for gas pipeline in the Township of Kingston, Luzerne
County, from Dr. Joseph M. Lombardo, et ux, by Indenture dated October 8,
1993 and recorded October 20, 1993 in Luzerne County Deed Book 2472 at Page
<PAGE>
670.
93. Right-of-way for gas pipeline in the Township of Lehman, Luzerne
County, from Maplemoor, Inc., by Indenture dated October 11, 1993 and
recorded October 20, 1993 in Luzerne County Deed Book 2472 at Page 655.
94. Right-of-way for gas pipeline in the Township of Lehman, Luzerne
County, from Henry M. Evans, et ux, by Indenture dated October 20, 1993 and
recorded October 28, 1993 in Luzerne County Deed Book 2473 at Page 542.
95. Right-of-way for gas pipeline in the Borough of Sugar Notch,
Luzerne County, from Robert L. Jones, et ux, by Indenture dated October 28,
1993 and recorded October 28, 1993 in Luzerne County Deed Book 2473 at Page
538.
VI
The following right-of-way and/or easements situate in the County of
Lycoming and Commonwealth of Pennsylvania, to wit:
01. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from Donald L. Emerick, Sr., by Indenture dated September
1, 1992 and recorded January 20, 1993 in Lycoming County Deed Book 1999 at
Page 195.
02. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from Wal-Mart (Stores), Inc., by Indenture dated September
15, 1992 and recorded January 20, 1993 in Lycoming County Deed Book 1999 at
Page 198.
03. Right-of-way for gas pipeline in the Township of Old Lycoming,
Lycoming County, from West End Christian and Missionary Alliance Church, by
Indenture dated October 31, 1992 and recorded December 11, 1992 in Lycoming
County Deed Book 1980 at Page 179.
04. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Rodney G. Ramin, et ux, by Indenture dated November
12, 1992 and recorded December 11, 1992 in Lycoming County Deed Book 1980
at Page 176.
<PAGE>
30
05. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from Williamsport Area School District, by Indenture dated
November 17, 1992 and recorded December 11, 1992 in Lycoming County Deed
Book 1980 at Page 183.
06. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Warrior Run Development Corporation, by Indenture
dated November 30, 1992 and recorded January 20, 1993 in Lycoming County
Deed Book 1999 at Page 203.
07. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Robert J. Kinley, by Indenture dated December 3, 1992
<PAGE>
and recorded January 20, 1993 in Lycoming County Deed Book 1999 at Page
207.
08. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Ellis L. Wettlaufer, Jr., by Indenture dated December
9, 1992 and recorded January 20, 1993 in Lycoming County Deed Book 1999 at
Page 210.
09. Right-of-way for gas pipeline in the Borough of South
Williamsport, Lycoming County, from John W. Eck, et al, by Indenture dated
December 9, 1992 and recorded January 20, 1993 in Lycoming County Deed Book
1999 at Page 213.
10. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Donald F. Bower, et ux, by Indenture dated December
23, 1992 and recorded January 20, 1993 in Lycoming County Deed Book 1999 at
Page 216.
11. Right-of-way for gas pipeline in the Township of Loyalsock and
City of Williamsport, Lycoming County, from C. A. Reed, Inc., by Indenture
dated February 19, 1993 and recorded March 18, 1993 in Lycoming County Deed
Book 2022 at Page 106.
12. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Industrial Piping Systems, Inc., by Indenture dated
February 26, 1993 and recorded March 18, 1993 in Lycoming County Deed Book
2022 at Page 102.
13. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Barbara D. Schramm, by Indenture dated March 18, 1993
and recorded April 12, 1993 in Lycoming County Deed Book 2032 at Page 157.
14. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from Julius Kaplan, et al, by Indenture dated March 22,
<PAGE>
31
1993 and recorded April 12, 1993 in Lycoming County Deed Book 2032 at Page
160.
15. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from William A. Hodrick, Jr., by Indenture dated March 31,
1993 and recorded April 12, 1993 in Lycoming County Deed Book 2032 at Page
164.
16. Right-of-way for gas pipeline in the Township of Clinton, Lycoming
County, from Laverne E. More, et ux, by Indenture dated April 14, 1993 and
recorded May 14, 1993 in Lycoming County Deed Book 2052 at Page 016.
17. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Robert G. Shearer, et ux, by Indenture dated June 7,
1993 and recorded July 6, 1993 in Lycoming County Deed Book 2081 at Page
241.
18. Right-of-way for gas pipeline in the Borough of Montoursville,
<PAGE>
Lycoming County, from Montoursville Area School District, by Indenture
dated June 8, 1993 and recorded July 6, 1993 in Lycoming County Deed Book
2081 at Page 244.
19. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from Williamsport Municipal Airport Authority, by
Indenture dated June 10, 1993 and recorded July 6, 1993 in Lycoming County
Deed Book 2081 at Page 248.
20. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Warrior Run Development Corporation, by Indenture
dated July 1, 1993 and recorded July 6, 1993 in Lycoming County Deed Book
2081 at Page 184.
21. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Loyalsock Township School District, by Indenture
dated August 5, 1993 and recorded August 24, 1993 in Lycoming County Deed
Book 2112 at Page 101.
22. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from Williamsport Sanitary Authority, by Indenture dated
August 9, 1993 and recorded August 24, 1993 in Lycoming County Deed Book
2112 at Page 105.
23. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from Lee A. Viard, by Indenture dated August 19, 1993 and
recorded August 24, 1993 in Lycoming County Deed Book 2112 at Page 108.
<PAGE>
32
24. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from Industrial Properties Corporation, et al, by
Indenture dated August 19, 1993 and recorded October 19, 1993 in Lycoming
County Deed Book 2146 at Page 337.
25. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from Wendy's Old Fashioned Hamburgers of New York, Inc.,
by Indenture dated August 27, 1993 and recorded October 19, 1993 in
Lycoming County Deed Book 2146 at Page 341.
26. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Cameo Estates, Inc., by Indenture dated September 21,
1993 and recorded October 29, 1993 in Lycoming County Deed Book 2153 at
Page 45.
27. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from Corporate Property Associates 4, by Indenture dated
September 23, 1993 and recorded October 19, 1993 in Lycoming County Deed
Book 2146 at Page 345.
28. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from David J. Eiswerth, et ux, by Indenture dated
September 24, 1993 and recorded October 19, 1993 in Lycoming County Deed
Book 2147 at Page 1.
<PAGE>
29. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from Grampian Boulevard Corporation, by Indenture dated
September 29, 1993 and recorded October 19, 1993 in Lycoming County Deed
Book 2147 at Page 5.
30. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from Ronald D. Thomas, et ux, by Indenture dated September
30, 1993 and recorded October 19, 1993 in Lycoming County Deed Book 2147 at
Page 9.
31. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from William S. Holmes, et ux, by Indenture dated
September 30, 1993 and recorded October 19, 1993 in Lycoming County Deed
Book 2147 at Page 12.
32. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from Borough of Montoursville, by Indenture dated October
4, 1993 and recorded October 19, 1993 in Lycoming County Deed Book 2147 at
Page 19.
33. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from LC Realty, Inc., by Indenture dated October 14,
<PAGE>
33
1993 and recorded October 19, 1993 in Lycoming County Deed Book 2147 at
Page 15.
34. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Richard Caschera, Jr., et ux, by Indenture dated
October 14, 1993 and recorded October 29, 1993 in Lycoming County Deed Book
2153 at Page 50.
VII
The following right-of-way and/or easements situate in the County of
Montour and Commonwealth of Pennsylvania, to wit:
01. Right-of-way for gas pipeline in the Borough of Danville, Montour
County, from John A. Malcolm, Jr., et ux, by Indenture dated December 17,
1992 and recorded January 20, 1993 in Montour County Record Book 167 at
Page 545.
02. Right-of-way for gas pipeline in the Borough of Danville, Montour
County, from Thomas W. Harris, Jr., et ux, by Indenture dated June 29, 1993
and recorded July 6, 1993 in Montour County Record Book 170 at Page 652.
VIII
The following right-of-way and/or easements situate in the County of
Northumberland and Commonwealth of Pennsylvania, to wit:
01. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Stephen G. Fassano, et ux, by Indenture dated
<PAGE>
November 5, 1992 and recorded December 11, 1992 in Northumberland County
Record Book 886 at Page 317.
02. Right-of-way for gas pipeline in the Township of Delaware,
Northumberland County, from Barry L. Ford, et ux, by Indenture dated
November 30, 1992 and recorded January 20, 1993 in Northumberland County
Record Book 891 at Page 556.
03. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Robert F. Roshon, et ux, by Indenture dated
February 11, 1993 and recorded March 8, 1993 in Northumberland County
Record Book 896 at Page 745.
04. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Lee D. Hopewell, et al, by Indenture dated
<PAGE>
34
March 8, 1993 and recorded April 12, 1993 in Northumberland County Record
Book 901 at Page 93.
05. Right-of-way for gas pipeline in the Borough of Turbotville,
Northumberland County, from Clark's AG Center, Inc., by Indenture dated
April 6, 1993 and recorded May 14, 1993 in Northumberland County Record
Book 905 at Page 622.
06. Right-of-way for gas pipeline in the Borough of Turbotville,
Northumberland County, from Clark's AG Center, Inc., by Indenture dated
April 6, 1993 and recorded August 26, 1993 in Northumberland County Record
Book 922 at Page 212.
07. Right-of-way for gas pipeline in the Borough of Turbotville,
Northumberland County, from Turbotville Veterans' Home Association, by
Indenture dated April 14, 1993 and recorded May 14, 1993 in Northumberland
County Record Book 905 at Page 618.
08. Right-of-way for gas pipeline in the City of Sunbury,
Northumberland County, from Sunbury Community Hospital, by Indenture dated
May 5, 1993 and recorded May 14, 1993 in Northumberland County Record Book
905 at Page 626.
09. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Doris T. McDowell, et al, by Indenture dated
May 14, 1993 and recorded July 6, 1993 in Northumberland County Record Book
914 at Page 142.
10. Right-of-way for gas pipeline in the Borough of Turbotville,
Northumberland County, from Consolidated Rail Corporation, by Indenture
dated April 21, 1993 and recorded August 26, 1993 in Northumberland County
Record Book 922 at Page 216.
11. Right-of-way for gas pipeline in the Borough of Turbotville,
Northumberland County, from Allen G. Stamm, et ux, by Indenture dated July
28, 1993 and recorded August 26, 1993 in Northumberland County Record Book
922 at Page 225.
<PAGE>
12. Right-of-way for gas pipeline in the Borough of Milton,
Northumberland County, from Randall D. Kramm, et ux, by Indenture dated
August 4, 1993 and recorded August 26, 1993 in Northumberland County Record
Book 922 at Page 228.
13. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Daniel P. Stuck, et al, by Indenture dated
September 13, 1993 and recorded October 19, 1993 in Northumberland County
Record Book 930 at Page 374.
<PAGE>
35
14. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Arthur J. Stuck, et ux, by Indenture dated
September 13, 1993 and recorded October 19, 1993 in Northumberland County
Record Book 930 at Page 377.
15. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Dennis Tatar, et ux, by Indenture dated
September 13, 1993 and recorded October 19, 1993 in Northumberland County
Record Book 930 at Page 380.
16. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Thomas D. Stuck, et ux, by Indenture dated
September 13, 1993 and recorded October 19, 1993 in Northumberland County
Record Book 930 at Page 383.
17. Right-of-way for gas pipeline in the Township of Delaware,
Northumberland County, from Layman Larve Phillips, et ux, by Indenture
dated September 14, 1993 and recorded October 19, 1993 in Northumberland
County Record Book 930 at Page 386.
18. Right-of-way for gas pipeline in the Township of Upper Augusta,
Northumberland County, from George F. Keller, et ux, by Indenture dated
October 11, 1993 and recorded October 19, 1993 in Northumberland County
Record Book 930 at Page 389.
19. Right-of-way for gas regulator station in the Borough of
Turbotville, Northumberland County, from Clark's AG Center, Inc., by
Indenture dated October 19, 1993 and recorded October 29, 1993 in
Northumberland County Record Book 932 at Page 145.
20. Right-of-way for gas pipeline in the Borough of Turbotville,
Northumberland County, from Turbotville Development Corp., by Indenture
dated October 27, 1993 and recorded October 29, 1993 in Northumberland
County Record Book 932 at Page 141.
21. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Robert E. Weaver, by Indenture dated October
27, 1993 and recorded October 29, 1993 in Northumberland County Record Book
932 at Page 149.
22. Right-of-way for gas pipeline in the Township of Point,
<PAGE>
Northumberland County, from Northumberland Legion Home Association, by
Indenture dated October 27, 1993 and recorded October 29, 1993 in
Northumberland County Record Book 932 at Page 152.
23. Right-of-way for gas pipeline in the Borough of Northumberland,
Northumberland County, from Paul R. Gemberling, et ux, by Indenture
<PAGE>
36
dated October 29, 1993 and recorded October 29, 1993 in Northumberland
County Record Book 932 at Page 156.
IX
The following right-of-way and/or easements situate in the County of Snyder
and Commonwealth of Pennsylvania, to wit:
01. Right-of-way for gas pipeline in the Township of Middle Creek,
Snyder County, from Vince L. Shrawder, et al, by Indenture dated November
30, 1992 and recorded January 20, 1993 in Snyder County Record Book 304 at
Page 805.
02. Right-of-way for gas pipeline in the Township of Monroe, Snyder
County, from Paul C. Stine, by Indenture dated April 7, 1993 and recorded
May 14, 1993 in Snyder County Record Book 310 at Page 560.
03. Right-of-way for gas pipeline in the Township of Monroe, Snyder
County, from Susquehanna Valley Mall Associates, by Indenture dated July
23, 1993 and recorded August 24, 1993 in Snyder County Record Book 318 at
Page 268.
04. Right-of-way for gas pipeline in the Borough of Shamokin Dam,
Snyder County, from Nancy H. Pheasant, by Indenture dated August 4, 1993
and recorded August 24, 1993 in Snyder County Record Book 318 at Page 271.
05. Right-of-way for gas pipeline in the Borough of Shamokin Dam,
Snyder County, from Warren M. Humphrey, et ux, by Indenture dated August 5,
1993 and recorded August 24, 1993 in Snyder County Record Book 318 at Page
274.
06. Right-of-way for gas pipeline in the Township of Penn, Snyder
County, from Selinsgrove Post No. 6631, Veterans' of Foreign Wars of the
United States, Inc., by Indenture dated September 22, 1993 and recorded
October 19, 1993 in Snyder County Record Book 321 at Page 913.
X
The following right-of-way and/or easements situate in the County of Union
and Commonwealth of Pennsylvania, to wit:
01. Right-of-way for gas pipeline in the Township of Buffalo, Union
County, from Noah A. Yoder, et ux, by Indenture dated November 5, 1992 and
recorded December 11, 1992 in Union County Record Book 281 at Page 467.
<PAGE>
37
<PAGE>
02. Right-of-way for gas pipeline in the Township of White Deer, Union
County, from White Deer Township Volunteer Fire Company, by Indenture dated
September 30, 1993 and recorded October 19, 1993 in Union County Record
Book 325 at Page 139.
03. Right-of-way for gas pipeline in the Township of White Deer, Union
County, from Revival Tabernacle, by Indenture dated October 11, 1993 and
recorded October 29, 1993 in Union County Record Book 327 at Page 127.
XI
The following right-of-way and/or easements situate in the County of
Wyoming and Commonwealth of Pennsylvania, to wit:
01. Right-of-way for gas pipeline in the Township of Washington,
Wyoming County, from David R. Evans, et ux, by Indenture dated January 22,
1993 and recorded February 8, 1993 in Wyoming County Record Book 294 at
Page 616.
02. Right-of-way for gas pipeline in the Township of Washington,
Wyoming County, from William S. Miner, et ux, by Indenture dated March 29,
1993 and recorded April 8, 1993 in Wyoming County Record Book 296 at Page
666.
03. Right-of-way for gas pipeline in the Township of Washington,
Wyoming County, from William S. Miner, et ux, by Indenture dated July 29,
1993 and recorded August 27, 1993 in Wyoming County Record Book 303 at Page
463.
SAVING AND EXCEPTING, HOWEVER, FROM THE PROPERTY DESCRIBED OR REFERRED TO
ABOVE, all property which is reserved or excepted from the lien and operation of
the Indenture by virtue of the exceptions contained in the Granting Clauses
thereof.
TO HAVE AND TO HOLD the same, unto the Trustee and its successors and
assigns forever;
SUBJECT, HOWEVER, to permitted encumbrances as defined in the Original
Indenture and to any lien thereon existing, and to any liens for unpaid portions
of the purchase money placed thereon, at the time of acquisition, and also
subject to the provisions of Article 12 of the Original Indenture;
IN TRUST, NEVERTHELESS, upon the terms and trusts set forth in the
Indenture.
PROVIDED, HOWEVER, and these presents are upon the condition that if the
Company, its successors or assigns, shall pay or cause to be paid unto the
holders
<PAGE>
38
of bonds issued and to be issued under the Indenture the principal and interest,
and premium, if any, due or to become due in respect thereof at the times and in
the manner stipulated therein and shall keep, perform and observe all and
<PAGE>
singular the covenants and promises in said bonds and in the Indenture expressed
to be kept, performed and observed by or on the part of the Company, then the
Indenture and the estates and rights hereby granted shall cease, determine and
be void, otherwise to be and remain in full force and effect.
IT IS HEREBY COVENANTED, DECLARED AND AGREED by and between the parties
hereto that the Company will protect and make effective the lien intended to be
created by the Indenture with respect to all of the properties hereinabove
described and that all bonds are to be issued, authenticated, delivered and
held, and that all property subject or to become subject to the Indenture is to
be held, subject to the further covenants, conditions, uses and trusts set forth
in the Original Indenture as heretofore supplemented, and as supplemented by
this Twenty-Eighth Supplemental Indenture, in all respects as if said property
was specifically described in the Granting Clauses of the Original Indenture;
and the Company, for itself and its successors, doth hereby covenant and agree
to and with the Trustee, for the benefit of those who hold said bonds as
follows:
ARTICLE 1.
CREATION OF BONDS OF THE TWENTIETH SERIES.
Section 1.01. There is hereby created a new series of bonds to be issued
under the Original Indenture which shall be designated First Mortgage Bonds
6.05% Series due 2019. Without limiting the rights of the holders of the bonds
under Section 2.11 of the Original Indenture, the aggregate principal amount of
bonds of the Twentieth Series shall be limited to $19,000,000. All bonds of the
Twentieth Series shall mature January 1, 2019, and shall bear interest at the
rate of 6.05% per annum, payable semi-annually on the first day of July and
first day of January in each year, commencing July 1, 1994; provided, however,
that the interest payable on the bonds of the Twentieth Series shall be reduced
to the extent that other moneys then on deposit with PNC Bank, National
Association, as trustee or any successor trustee (the 'IDA Trustee') under the
Trust Indenture dated as of December 1, 1993 (the 'Trust Indenture') from the
Luzerne County Industrial Development Authority (the 'Authority') to the IDA
Trustee are available for the purpose of paying interest on the bonds of the
Twentieth Series and a credit in respect thereof has been granted pursuant to
the Trust Indenture. The Company shall notify the Trustee no later than sixteen
(16) days prior to any interest payment date on which the amount of interest
payable on the bonds of the Twentieth Series shall be reduced pursuant to the
preceding sentence of the amount by which the interest payable on the bonds of
the Twentieth Series shall be reduced on such interest payment date. The
principal of and interest on each
<PAGE>
39
such bond shall be payable at the office or agency of the Company in the Borough
of Manhattan, The City of New York, and both principal and interest shall be
payable in any coin or currency of the United States of America which at the
time of payment shall be legal tender for the payment of public and private
debts.
The bonds of the Twentieth Series shall be dated the date of their
authentication and shall bear interest from the interest payment date next
preceding the date of authentication of the bond (except that if the date of
<PAGE>
authentication of any such bond is an interest payment date for bonds of the
Twentieth Series to which interest has been paid it shall bear interest from the
date of authentication of such bond, and except that if any bond of the
Twentieth Series is authenticated prior to the first interest payment date for
bonds of the Twentieth Series it shall bear interest from December 1, 1993). So
long as there is no existing default in the payment of interest on the bonds of
the Twentieth Series, the person in whose name any bond of the Twentieth Series
is registered at the close of business on the record date with respect to any
interest payment date (the term 'record date' as used with respect to an
interest payment date shall mean the fifteenth day of June or the fifteenth day
of December next preceding the interest payment date whether or not such
fifteenth day is a business day) shall be entitled to receive the interest
payable on such interest payment date notwithstanding any transfer or exchange
of the bond of the Twentieth Series subsequent to the record date and on or
prior to the interest payment date, except if, and to the extent, the Company
shall default in the payment of the interest due on such interest payment date,
the default interest shall be paid to the person in whose name the bond of the
Twentieth Series is registered five (5) days before the date of payment of the
defaulted interest.
Bonds of the Twentieth Series shall be issued as fully registered bonds
without coupons, in such denominations as authorized by the Board of Directors.
Bonds of the Twentieth Series shall be registrable and interchangeable at
the office or agency of the Company in the Borough of Manhattan, The City of New
York, in the manner and upon the terms set forth in Section 2.05 of the Original
Indenture, upon payment of charges as required or permitted by the provisions of
Section 2.08 of the Original Indenture as amended.
The bonds of the Twentieth Series shall be redeemable upon not less than
thirty (30) nor more than sixty (60) days' prior notice, in whole or in part,
pursuant to the requirements of the Indenture, upon the terms and conditions
hereinafter specified in Section 1.02 hereof.
Section 1.02. (i) The bonds of the Twentieth Series are subject to
mandatory redemption, in whole or in part, upon any redemption of the Luzerne
County Industrial Development Authority Exempt Facilities Revenue Refunding
<PAGE>
40
Bonds, 1993 Series A (Pennsylvania Gas and Water Company Project) due January 1,
2019 (the '1993 Series A Bonds'). The principal amount of bonds of the Twentieth
Series to be redeemed upon any redemption of the 1993 Series A Bonds shall be
equal to 100% of the principal amount of 1993 Series A Bonds which are to be
redeemed. The Company shall notify the Trustee of any redemption not less than
forty-five (45) nor more than sixty (60) days prior to the date fixed for
redemption of the bonds of the Twentieth Series of the principal amount of 1993
Series A Bonds which are to be redeemed unless the Company shall give notice of
such redemption pursuant to Section 5.03 of the Original Indenture. The Company
shall provide the Trustee with a copy of any notice of redemption given pursuant
to Section 5.03 of the Original Indenture within two (2) business days of such
notice. The redemption price of the bonds of the Twentieth Series which are
redeemed under the circumstances set forth in this subsection (i) shall be equal
to 100% of the principal amount of the bonds of the Twentieth Series to be
redeemed plus interest accrued to the date fixed for redemption except (a) in
<PAGE>
the case of bonds of the Twentieth Series which are redeemed upon a redemption
of the 1993 Series A Bonds at the option of the Authority (other than in an
'Extraordinary Optional Redemption,' as defined in the Trust Indenture) upon the
direction of the Company (an 'Optional IDA Redemption') which occurs between
January 1, 2004 and December 31, 2004, inclusive, the redemption price shall be
equal to 102% of the principal amount of the bonds of the Twentieth Series to be
redeemed plus interest accrued to the date fixed for redemption and (ii) in the
case of bonds of the Twentieth Series which are redeemed upon an Optional IDA
Redemption which occurs between January 1, 2005 and December 31, 2005,
inclusive, the redemption price shall be equal to 101% of the principal amount
of the bonds of the Twentieth Series to be redeemed plus interest accrued to the
date fixed for redemption.
(ii) The bonds of the Twentieth Series are subject to mandatory redemption,
in whole, if the IDA Trustee declares the 1993 Series A Bonds to be immediately
due and payable under Section 9.02 of the Trust Indenture. The Company shall
notify the Trustee of such redemption not less than forty-five (45) nor more
than sixty (60) days prior to the date fixed for such redemption of the bonds of
the Twentieth Series unless the Company shall give notice of such redemption
pursuant to Section 5.03 of the Original Indenture. The Company shall provide
the Trustee with a copy of any notice of redemption given pursuant to Section
5.03 of the Original Indenture within two (2) business days of such notice. The
redemption price of the bonds of the Twentieth Series which are redeemed under
the circumstances set forth in this subsection (ii) shall be equal to 100% of
the principal amount of the bonds of the Twentieth Series to be redeemed plus
interest accrued to the date fixed for redemption.
(iii) The bonds of the Twentieth Series are subject to mandatory
redemption, in whole or in part (but if in part on a pro-rata basis with bonds
of all other series
<PAGE>
41
then outstanding under the Indenture), pursuant to the provisions of Section
8.13 of the Indenture. The redemption price of the bonds of the Twentieth Series
which are redeemed under the circumstances set forth in this subsection (iii)
shall be equal to 100% of the principal amount of the bonds of the Twentieth
Series to be redeemed plus interest accrued to the date fixed for redemption.
Section 1.03. The holder of each and every bond of the Twentieth Series
hereby agrees to accept payment thereof prior to maturity on the terms and
conditions in Section 1.02 hereof and in Section 8.13 of the Indenture.
ARTICLE 2.
NO SINKING FUND FOR BONDS OF THE TWENTIETH SERIES.
Bonds of the Twentieth Series will not be entitled to the benefit of a
Sinking Fund.
ARTICLE 3.
ISSUANCE OF BONDS OF THE TWENTIETH SERIES.
Bonds of the Twentieth Series may be executed, authenticated and delivered
<PAGE>
from time to time as provided or permitted by the provisions of Article 3 of the
Original Indenture and the provisions of this Twenty-Eighth Supplemental
Indenture.
ARTICLE 4.
MISCELLANEOUS.
Section 4.01. Sections 4.10, 4.11 and 8.13 of the Original Indenture, as
amended by Section 4.01 of Article 4 of the Fourth, Ninth, Tenth, Twelfth,
Fourteenth, Fifteenth, Sixteenth, Seventeenth, Eighteenth, Nineteenth,
Twentieth, Twenty-First, Twenty-Second, Twenty-Third, Twenty-Fourth,
Twenty-Fifth, Twenty-Sixth and Twenty-Seventh Supplemental Indentures, are
hereby further amended by this Twenty-Eighth Supplemental Indenture by inserting
in each such section the words 'or bonds of the 6.05% Series due 2019'
immediately after the words 'bonds of the 2 7/8% Series due 1976 or bonds of the
3 1/2% Series due 1982 or bonds of the 4 7/8% Series due 1987 or bonds of the
4 3/4% Series due 1983 or bonds of the 5 1/2% Series due 1985 or bonds of the 5%
Series due 1986 or bonds of the 4 5/8% Series due 1988 or bonds of the 5 7/8%
Series due 1991 or bonds of the 6 7/8% Series due 1992 or bonds of the 10%
Series due 1995 or bonds of the 8% Series due 1997 or bonds of the 9 1/4% Series
due 1996 or bonds of the 9% Series due 1991 or bonds of the 9.23% Series due
1999 or bonds of the 9.34% Series due 2019 or bonds of the 9.57% Series due 1996
or bonds of the
<PAGE>
42
7.20% Series due 2017 or bonds of the 8.375% Series due 2002 or bonds of the
7.125% Series due 2022' each time such last mentioned words occur therein.
Section 4.02. The Trustee accepts the trusts hereby declared and provided
and agrees to perform the same upon the terms and conditions in the Original
Indenture and in this Twenty-Eighth Supplemental Indenture set forth. The
Trustee shall not be responsible in any manner whatsoever for or in respect of
the validity or sufficiency of this Twenty-Eighth Supplemental Indenture or the
due execution hereof by the Company, or for or in respect of the recitals
contained herein, all of which recitals are made by the Company solely.
The Original Indenture as heretofore supplemented by twenty-seven
supplemental indentures and as supplemented by this Twenty-Eighth Supplemental
Indenture is in all respects ratified and confirmed, and the Original Indenture,
together with the twenty-eight indentures supplemental thereto, shall be read,
taken and construed as one and the same indenture.
Section 4.03. This Twenty-Eighth Supplemental Indenture may be executed in
any number of counterparts, and all said counterparts executed and delivered,
each as an original, shall constitute but one and the same instrument.
Pennsylvania Gas and Water Company does hereby constitute and appoint
Thomas J. Ward to be its attorney for it, and in its name and as and for its
corporate act and deed to acknowledge this Twenty-Eighth Supplemental Indenture
before any person having authority by the laws of the Commonwealth of
Pennsylvania to take such acknowledgment, to the intent that the same may be
duly recorded, and Morgan Guaranty Trust Company of New York does hereby
constitute and appoint Catherine F. Donohue to be its attorney for it, and in
<PAGE>
its name and as and for its corporate act and deed to acknowledge this Twenty-
Eighth Supplemental Indenture before any person having authority by the laws of
the State of New York to take such acknowledgment, to the intent that the same
may be duly recorded.
<PAGE>
44
IN WITNESS WHEREOF, said Pennsylvania Gas and Water Company and said Morgan
Guaranty Trust Company of New York have caused this Supplemental Indenture to be
signed in their respective corporate names, and their respective corporate seals
to be hereunto affixed and attested by their respective officers thereunto duly
authorized, all as of the day and year first above written.
PENNSYLVANIA GAS AND WATER COMPANY
By:________/s/_JOHN F. KELL, JR.________
Name: John F. Kell, Jr.
Title: Vice President, Finance
[CORPORATE SEAL]
Attest:
/s/_THOMAS J. WARD______
Secretary
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, AS TRUSTEE
By:__________/s/_HELEN G. CHIN__________
Name: Helen G. Chin
Title: Vice President
[CORPORATE SEAL]
Attest:
/s/_CATHERINE F. DONOHUE____
Assistant Secretary
COMMONWEALTH OF PENNSYLVANIA
ss.:
COUNTY OF LUZERNE
}
<PAGE>
45
BE IT REMEMBERED that on the 15th day of December, A.D., 1993, before me,
JoAnne McHale, a Notary Public in and for said County and said Commonwealth,
commissioned for and residing in the County of Luzerne, personally came Thomas
J. Ward, who, being duly sworn according to law, doth depose and say that he was
personally present and did see the common or corporate seal of the above-named
PENNSYLVANIA GAS AND WATER COMPANY affixed to the foregoing Supplemental
Indenture; that the seal so affixed is the common or corporate seal of said
PENNSYLVANIA GAS AND WATER COMPANY and was so affixed by authority of said
corporation as the act and deed thereof; that the above-named John F. Kell, Jr.
is the Vice President, Finance of said corporation and did sign the said
Supplemental Indenture as such in the presence of this deponent; that this
<PAGE>
deponent is the Secretary of the said corporation and that the name of this
deponent, above signed in attestation of the due execution of the said
Supplemental Indenture, is in this deponent's own proper handwriting.
/s/_THOMAS J. WARD__________________________________________________
Thomas J. Ward
[NOTARIAL SEAL]
Sworn and subscribed before me
the day and year aforesaid.
/s/_JOANNE MCHALE_______
Notary Public
NOTARIAL SEAL
JOANNE MCHALE, NOTARY PUBLIC
WILKES-BARRE, LUZERNE COUNTY
MY COMMISSION EXPIRES SEPT. 6,
1994
<PAGE>
46
COMMONWEALTH OF PENNSYLVANIA
ss.:
COUNTY OF LUZERNE
}
I HEREBY CERTIFY that on this 15th day of December, A.D., 1993, before me,
JoAnne McHale, a Notary Public in and for said County and said Commonwealth,
commissioned for and residing in the County of Luzerne, personally appeared
Thomas J. Ward, the attorney named in the foregoing Supplemental Indenture, and
he, by virtue and in pursuance of the authority therein conferred upon him,
acknowledged said Supplemental Indenture to be the act and deed of the said
PENNSYLVANIA GAS AND WATER COMPANY.
Witness my hand and notarial seal the day and year aforesaid.
/s/_JOANNE MCHALE___________________________________________________
Notary Public
NOTARIAL SEAL
JOANNE MCHALE, NOTARY PUBLIC
WILKES-BARRE, LUZERNE COUNTY
MY COMMISSION EXPIRES SEPT. 6, 1994
[NOTARIAL SEAL]
<PAGE>
47
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
}
<PAGE>
BE IT REMEMBERED that on the 14th day of December, A.D., 1993, before me,
Alison M. Levchuck, a Notary Public in and for said County and State,
commissioned for the County of New York, personally came Catherine F. Donohue
who, being duly sworn according to law, doth depose and say that she was
personally present and did see the common or corporate seal of the above-named
MORGAN GUARANTY TRUST COMPANY OF NEW YORK affixed to the foregoing Supplemental
Indenture; that the seal so affixed is the common or corporate seal of said
MORGAN GUARANTY TRUST COMPANY OF NEW YORK and was so affixed by authority of
said corporation as the act and deed hereof; that the above-named Helen G. Chin
is a Vice President of said corporation and did sign the said Supplemental
Indenture as such in the presence of this deponent; that this deponent is an
Assistant Secretary of said corporation and that the name of this deponent,
above signed in attestation of the due execution of the said Supplemental
Indenture, is in this deponent's own proper handwriting.
/s/_CATHERINE F. DONOHUE_______________________________________________
Catherine F. Donohue
Sworn and subscribed before me
the day and year aforesaid.
[NOTARIAL SEAL]
/s/_ALISON M. LEVCHUCK_____
Notary Public
ALISON M. LEVCHUCK
Notary Public, State of New York
No. 4997425
Qualified in Nassau County
Commission Expires June 8, 1994
<PAGE>
48
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
}
I HEREBY CERTIFY that on this 14th day of December, A.D., 1993, before me,
Alison M. Levchuck, a Notary Public in and for said County and State,
commissioned for the County of New York, personally appeared Catherine F.
Donohue, the attorney named in the foregoing Supplemental Indenture, and she, by
virtue and in pursuance of the authority therein conferred upon her,
acknowledged said Supplemental Indenture to be the act and deed of the said
MORGAN GUARANTY TRUST COMPANY OF NEW YORK.
Witness my hand and notarial seal the day and year aforesaid.
/s/_ALISON M. LEVCHUCK________________________________________________
Notary Public
<PAGE>
ALISON M. LEVCHUCK
Notary Public, State of New York
No. 4997425
Qualified in Nassau County
Commission Expires June 8, 1994
[NOTARIAL SEAL]
CERTIFICATE OF RESIDENCE
MORGAN GUARANTY TRUST COMPANY OF NEW YORK hereby certifies that its precise
name and address as Trustee hereunder are: MORGAN GUARANTY TRUST COMPANY OF NEW
YORK, 60 Wall Street, New York, New York 10260.
By:__________/s/_HELEN G. CHIN__________
Name: Helen G. Chin
Title: Vice President
<PAGE>
THE BOND EVIDENCED BY THIS CERTIFICATE HAS BEEN ISSUED IN A PRIVATE
TRANSACTION, HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE AND MAY NOT BE OFFERED, TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THAT ACT, SUCH LAWS AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER.
PENNSYLVANIA GAS AND WATER COMPANY
(Formerly Scranton-Spring Brook Water Service Company)
First Mortgage Bond 6.05% Series due 2019
No. 001 $19,000,000
PENNSYLVANIA GAS AND WATER COMPANY (formerly Scranton-Spring Brook Water
Service Company), a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (hereinafter sometimes called the 'Company'), for
value received, promises to pay to PNC Bank, National Association, as trustee
under the Trust Indenture dated as of December 1, 1993 from the Luzerne County
Industrial Development Authority (the 'Authority') to PNC Bank, National
Association, as trustee (the 'Trust Indenture') or registered assigns, on
January 1, 2019 (unless this bond shall have been called for previous redemption
and provision made for the payment of the redemption price thereof), Nineteen
Million Dollars at the Company's office or agency in the Borough of Manhattan,
The City of New York, and, except as otherwise set forth below, semi-annually on
the first day of July and the first day of January in each year commencing July
1, 1994, to pay interest thereon, at said office or agency, at the rate of 6.05%
per annum from the interest payment date to which interest has been paid next
preceding the date of authentication of this bond (except that if the date of
authentication of this bond is an interest payment date for bonds of this series
to which interest has been paid it shall bear interest from the date of
authentication of this bond, and except that if this bond be authenticated prior
to the first interest payment date for bonds of this series, it shall bear
interest from December 1, 1993), until the Company's obligation with respect to
such principal sum shall be discharged; provided that, so long as there is no
existing default in the payment of interest, and except for the payment of
defaulted interest, the interest payable on any July 1 or January 1 will be paid
<PAGE>
to the person in whose name this bond was registered at the close of business on
the fifteenth day of June or the fifteenth day of December next preceding such
interest payment date; and further provided that the interest payable on the
bonds of this series shall be reduced to the extent that other moneys then on
deposit with PNC Bank, National Association, or any successor trustee (the 'IDA
Trustee') are available for the purpose of paying interest on the bonds of this
series and a credit in respect thereof has been granted pursuant to the Trust
Indenture. The principal of, premium if any, and the interest on this bond shall
be payable in any coin or
<PAGE>
2
currency of the United States of America which at the time of payment shall be
legal tender for the payment of public and private debts.
This bond is one of an issue of bonds of the Company, known as its First
Mortgage Bonds, issued and to be issued in one or more series under, and equally
and ratably secured (except as any sinking, amortization, improvement or other
fund, established in accordance with the provisions of the indenture hereinafter
mentioned, may afford additional security for the bonds of any particular
series) by, a certain mortgage and deed of trust, dated as of March 15, 1946
(hereinafter called the 'Original Indenture'), and by twenty-eight indentures
supplemental thereto (of which, the Seventeenth Supplemental Indenture, dated as
of October 15, 1967, the Eighteenth Supplemental Indenture, dated as of May 1,
1970, and the Twentieth Supplemental Indenture, dated as of March 1, 1976,
amended certain provisions of the Original Indenture) (said Original Indenture
and all said indentures supplemental thereto being hereinafter collectively
called the 'Indenture'), made by the Company to Guaranty Trust Company of New
York and, after the change of name of Guaranty Trust Company of New York to
Morgan Guaranty Trust Company of New York, to Morgan Guaranty Trust Company of
New York, as Trustee (hereinafter called the 'Trustee'), to which Indenture (and
to all additional indentures supplemental thereto) reference is hereby made for
a description of the property mortgaged, the nature and extent of the security,
the rights and limitations of rights of the Company, the Trustee, and the
holders of said bonds under the Indenture, and the terms and conditions upon
which said bonds are secured, to all of the provisions of which Indenture and of
all such additional supplemental indentures in respect of such security,
including the provisions of the Indenture permitting the issue of bonds of any
series in respect of property which, under the restrictions and limitations
therein specified, may be subject to liens prior to the lien of the Indenture,
the holder, by accepting this bond, assents. To the extent permitted by and as
provided in the Indenture, the rights and obligations of the Company and of the
holders of said bonds (including those pertaining to any sinking or other fund)
may be changed and modified, with the consent of the Company, by the holders of
at least 75% in aggregate principal amount of the bonds then outstanding (or, if
one or more, but less than all, series of bonds are affected, by the holders of
at least 75% in aggregate principal amount of outstanding bonds of such one or
more series so affected), such percentage being determined as provided in the
Indenture; provided, however, that without the consent of the holder hereof no
such modification or alteration shall be made which will extend the time of
payment of the principal of, premium, if any, or the interest on this bond or
reduce the principal amount hereof, or premium, if any, or the rate of interest
hereon or effect any other modification of the terms of payment of such
principal or interest or will permit the creation of any lien ranking prior to
or on a parity with the lien of the Indenture on any of the mortgaged property,
<PAGE>
or will
<PAGE>
3
deprive any non-assenting holder of this bond of a lien upon the mortgaged
property for the security of this bond, or will reduce the percentage of bonds
required for the aforesaid action under the Indenture and provided further that,
as provided in Section 4.02 of the Twentieth Supplemental Indenture, when all
bonds of all series issued prior to January 1, 1976, shall cease to be
outstanding, each reference to '75%' in this sentence shall become '60%.' This
bond is one of a series of bonds designated as the First Mortgage Bonds 6.05%
Series due 2019 of the Company.
The bonds of this series are subject to redemption upon not less than
thirty (30) nor more than sixty (60) days' prior notice, in whole or in part,
under the circumstances set forth in paragraphs (A), (B) and (C), below.
(A) The bonds of this series are subject to mandatory redemption, in whole
or in part, upon any redemption of the Luzerne County Industrial Development
Authority Exempt Facilities Revenue Refunding Bonds, 1993 Series A (Pennsylvania
Gas and Water Company Project) due January 1, 2019 (the '1993 Series A Bonds').
The principal amount of bonds of this series to be redeemed upon any redemption
of the 1993 Series A Bonds shall be equal to 100% of the principal amount of
1993 Series A Bonds which are to be redeemed. The redemption price of the bonds
of this series which are redeemed under the circumstances set forth in this
paragraph (A) shall be equal to 100% of the principal amount of the bonds of
this series to be redeemed plus interest accrued to the date fixed for
redemption except (i) in the case of bonds of this series which are redeemed
upon a redemption of the 1993 Series A Bonds at the option of the Authority
(other than in an 'Extraordinary Optional Redemption,' as defined in the Trust
Indenture) upon the direction of the Company (an 'Optional IDA Redemption')
which occurs between January 1, 2004 and December 31, 2004, inclusive, the
redemption price shall be equal to 102% of the principal amount of the bonds of
this series to be redeemed plus interest accrued to the date fixed for
redemption and (ii) in the case of bonds of this series which are redeemed upon
an Optional IDA Redemption which occurs between January 1, 2005 and December 31,
2005, inclusive, the redemption price shall be equal to 101% of the principal
amount of the bonds of this series to be redeemed plus interest accrued to the
date fixed for redemption.
(B) The bonds of this series are subject to mandatory redemption, in whole,
if the IDA Trustee declares the 1993 Series A Bonds to be immediately due and
payable under Section 9.02 of the Trust Indenture. The redemption price of the
bonds of this series which are redeemed under the circumstances set forth in
this paragraph (B) shall be equal to 100% of the principal amount of the bonds
of this series to be redeemed plus interest accrued to the date fixed for
redemption.
(C) The bonds of this series are subject to mandatory redemption, in whole
or in part (but if in part on a pro rata basis with bonds of all other series
then
<PAGE>
4
outstanding under the Indenture), pursuant to the provisions of Section 8.13 of
the Indenture. The redemption price of the bonds of this series which are
<PAGE>
redeemed under the circumstances set forth in this paragraph (C) shall be equal
to 100% of the principal amount of the bonds of this series to be redeemed plus
interest accrued to the date fixed for redemption.
If this bond shall be called for redemption, and payment of the redemption
price shall be duly provided by the Company as specified in the Indenture,
interest shall cease to accrue hereon from and after the date of redemption
fixed in the notice thereof.
The principal of this bond may be declared or may become due prior to the
maturity date hereinbefore named, on the conditions, in the manner and at the
times set forth in the Indenture, upon the happening of a default as therein
defined.
This bond is transferable by the registered owner hereof in person or by
his duly authorized attorney at the office or agency of the Company in the
Borough of Manhattan, The City of New York, upon surrender and cancellation of
this bond, and thereupon a new bond or bonds of the same series and maturity,
for a like aggregate principal amount, will be issued to the transferee in
exchange therefor, as provided in the Indenture. The Company and the Trustee and
any registrar and any paying agent may deem and treat the person in whose name
this bond is registered as the absolute owner hereof for the purpose of
receiving payment and for all other purposes.
This bond, alone or with other bonds of the same series and maturity, may
in like manner be exchanged at such office or agency for one or more new bonds
of the same series and maturity of the same aggregate principal amount. Upon
each such transfer or exchange the Company may require the payment of charges as
prescribed in the Indenture.
No recourse under or upon any covenant or obligation of the Indenture, or
of any bonds thereby secured, or for any claim based thereon, or otherwise in
any manner in respect thereof, shall be had against any incorporator, subscriber
to the capital stock, stockholder, officer or director, as such, whether former,
present or future, of the Company or any successor corporation, either directly,
or indirectly through the Company or the Trustee, by the enforcement of any
subscription to capital stock, assessment or otherwise, or by any legal or
equitable proceeding by virtue of any constitution, statute, contract of
subscription or otherwise (including, without limiting the generality of the
foregoing, any proceeding to enforce any claimed liability of stockholders of
the Company based upon any theory of disregarding the corporate entity of the
Company or upon any theory that the Company was acting as the agent or
instrumentality of the stockholders), any and all such liability of
incorporators, stockholders, subscribers, officers and
<PAGE>
2
directors, as such, being released by the holder hereof, by the acceptance of
this bond, and being likewise waived and released by the terms of the Indenture
under which this bond is issued.
This bond shall not be valid or become obligatory for any purpose until the
certificate of authentication endorsed hereon shall have been signed by Morgan
Guaranty Trust Company of New York, or its successor, as Trustee under the
Indenture.
<PAGE>
IN WITNESS WHEREOF, PENNSYLVANIA GAS AND WATER COMPANY has caused this bond
to be signed in its name by, or to bear the facsimile signature of, its
President or a Vice President, and its corporate seal to be affixed hereto and
attested by, or to bear the facsimile signature of, its Secretary or an
Assistant Secretary.
Dated: December , 1993
PENNSYLVANIA GAS AND WATER COMPANY
By:______________________________________
Vice President
Attest:
Secretary
This bond is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Trustee
By:________________________________
Authorized Officer
<PAGE>
3
[FORM OF BOND OF THE TWENTIETH SERIES]
THE BOND EVIDENCED BY THIS CERTIFICATE HAS BEEN ISSUED IN A PRIVATE
TRANSACTION, HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR REGISTERED OR QUALIFIED UNDER THE SECURITIES OR BLUE SKY LAWS OF ANY
STATE AND MAY NOT BE OFFERED, TRANSFERRED, SOLD, PLEDGED, HYPOTHECATED OR
OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH THAT ACT, SUCH LAWS AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER.
PENNSYLVANIA GAS AND WATER COMPANY
(Formerly Scranton-Spring Brook Water Service Company)
First Mortgage Bond 6.05% Series due 2019
No.__________________________ $_________________________
PENNSYLVANIA GAS AND WATER COMPANY (formerly Scranton-Spring Brook Water
Service Company), a corporation organized and existing under the laws of the
Commonwealth of Pennsylvania (hereinafter sometimes called the 'Company'), for
value received, promises to pay to __________________, or registered assigns, on
January 1, 2019 (unless this bond shall have been called for previous redemption
and provision made for the payment of the redemption price thereof),
__________________ Dollars at the Company's office or agency in the Borough of
Manhattan, The City of New York, and, except as otherwise set forth below,
semi-annually on the first day of July and the first day of January in each year
commencing July 1, 1994, to pay interest thereon, at said office or agency, at
the rate of 6.05% per annum from the interest payment date to which interest has
been paid next preceding the date of authentication of this bond (except that if
the date of authentication of this bond is an interest payment date for bonds of
<PAGE>
this series to which interest has been paid it shall bear interest from the date
of authentication of this bond, and except that if this bond be authenticated
prior to the first interest payment date for bonds of this series, it shall bear
interest from December 1, 1993), until the Company's obligation with respect to
such principal sum shall be discharged; provided that, so long as there is no
existing default in the payment of interest, and except for the payment of
defaulted interest, the interest payable on any July 1 or January 1 will be paid
to the person in whose name this bond was registered at the close of business on
the fifteenth day of June or the fifteenth day of December next preceding such
interest payment date; and further provided that the interest payable on the
bonds of this series shall be reduced to the extent that other moneys then on
deposit with PNC Bank, National Association, as trustee, or any successor
trustee (the 'IDA Trustee') under the Trust Indenture dated as of December 1,
1993 (the 'Trust Indenture') from the Luzerne County Industrial Development
Authority (the 'Authority') to the IDA Trustee are available for the purpose of
paying interest on the bonds of this series
<PAGE>
4
and a credit in respect thereof has been granted pursuant to the Trust
Indenture. The principal of, premium if any, and the interest on this bond shall
be payable in any coin or currency of the United States of America which at the
time of payment shall be legal tender for the payment of public and private
debts.
This bond is one of an issue of bonds of the Company, known as its First
Mortgage Bonds, issued and to be issued in one or more series under, and equally
and ratably secured (except as any sinking, amortization, improvement or other
fund, established in accordance with the provisions of the indenture hereinafter
mentioned, may afford additional security for the bonds of any particular
series) by, a certain mortgage and deed of trust, dated as of March 15, 1946
(hereinafter called the 'Original Indenture'), and by twenty-eight indentures
supplemental thereto (of which, the Seventeenth Supplemental Indenture, dated as
of October 15, 1967, the Eighteenth Supplemental Indenture, dated as of May 1,
1970, and the Twentieth Supplemental Indenture, dated as of March 1, 1976,
amended certain provisions of the Original Indenture) (said Original Indenture
and all said indentures supplemental thereto being hereinafter collectively
called the 'Indenture'), made by the Company to Guaranty Trust Company of New
York and, after the change of name of Guaranty Trust Company of New York to
Morgan Guaranty Trust Company of New York, to Morgan Guaranty Trust Company of
New York, as Trustee (hereinafter called the 'Trustee'), to which Indenture (and
to all additional indentures supplemental thereto) reference is hereby made for
a description of the property mortgaged, the nature and extent of the security,
the rights and limitations of rights of the Company, the Trustee, and the
holders of said bonds under the Indenture, and the terms and conditions upon
which said bonds are secured, to all of the provisions of which Indenture and of
all such additional supplemental indentures in respect of such security,
including the provisions of the Indenture permitting the issue of bonds of any
series in respect of property which, under the restrictions and limitations
therein specified, may be subject to liens prior to the lien of the Indenture,
the holder, by accepting this bond, assents. To the extent permitted by and as
provided in the Indenture, the rights and obligations of the Company and of the
holders of said bonds (including those pertaining to any sinking or other fund)
may be changed and modified, with the consent of the Company, by the holders of
at least 75% in aggregate principal amount of the bonds then outstanding (or, if
<PAGE>
one or more, but less than all, series of bonds are affected, by the holders of
at least 75% in aggregate principal amount of outstanding bonds of such one or
more series so affected), such percentage being determined as provided in the
Indenture; provided, however, that without the consent of the holder hereof no
such modification or alteration shall be made which will extend the time of
payment of the principal of, premium, if any, or the interest on this bond or
reduce the principal amount hereof, or premium, if any, or the rate of interest
hereon or effect any other modification of the terms of payment of such
<PAGE>
5
principal or interest or will permit the creation of any lien ranking prior to
or on a parity with the lien of the Indenture on any of the mortgaged property,
or will deprive any non-assenting holder of this bond of a lien upon the
mortgaged property for the security of this bond, or will reduce the percentage
of bonds required for the aforesaid action under the Indenture and provided
further that, as provided in Section 4.02 of the Twentieth Supplemental
Indenture, when all bonds of all series issued prior to January 1, 1976, shall
cease to be outstanding, each reference to '75%' in this sentence shall become
'60%.' This bond is one of a series of bonds designated as the First Mortgage
Bonds 6.05% Series due 2019 of the Company.
The bonds of this series are subject to redemption upon not less than
thirty (30) nor more than sixty (60) days' prior notice, in whole or in part,
under the circumstances set forth in paragraphs (A), (B) and (C), below.
(A) The bonds of this series are subject to mandatory redemption, in whole
or in part, upon any redemption of the Luzerne County Industrial Development
Authority Exempt Facilities Revenue Refunding Bonds, 1993 Series A (Pennsylvania
Gas and Water Company Project) due January 1, 2019 (the '1993 Series A Bonds').
The principal amount of bonds of this series to be redeemed upon any redemption
of the 1993 Series A Bonds shall be equal to 100% of the principal amount of
1993 Series A Bonds which are to be redeemed. The redemption price of the bonds
of this series which are redeemed under the circumstances set forth in this
paragraph (A) shall be equal to 100% of the principal amount of the bonds of
this series to be redeemed plus interest accrued to the date fixed for
redemption except (i) in the case of bonds of this series which are redeemed
upon a redemption of the 1993 Series A Bonds at the option of the Authority
(other than in an 'Extraordinary Optional Redemption,' as defined in the Trust
Indenture) upon the direction of the Company (an 'Optional IDA Redemption')
which occurs between January 1, 2004 and December 31, 2004, inclusive, the
redemption price shall be equal to 102% of the principal amount of the bonds of
this series to be redeemed plus interest accrued to the date fixed for
redemption and (ii) in the case of bonds of this series which are redeemed upon
an Optional IDA Redemption which occurs between January 1, 2005 and December 31,
2005, inclusive, the redemption price shall be equal to 101% of the principal
amount of the bonds of this series to be redeemed plus interest accrued to the
date fixed for redemption.
(B) The bonds of this series are subject to mandatory redemption, in whole,
if the IDA Trustee declares the 1993 Series A Bonds to be immediately due and
payable under Section 9.02 of the Trust Indenture. The redemption price of the
bonds of this series which are redeemed under the circumstances set forth in
this paragraph (B) shall be equal to 100% of the principal amount of the bonds
of this series to be redeemed plus interest accrued to the date fixed for
<PAGE>
redemption.
<PAGE>
6
(C) The bonds of this series are subject to mandatory redemption, in whole
or in part (but if in part on a pro rata basis with bonds of all other series
then outstanding under the Indenture), pursuant to the provisions of Section
8.13 of the Indenture. The redemption price of the bonds of this series which
are redeemed under the circumstances set forth in this paragraph (C) shall be
equal to 100% of the principal amount of the bonds of this series to be redeemed
plus interest accrued to the date fixed for redemption.
If this bond shall be called for redemption, and payment of the redemption
price shall be duly provided by the Company as specified in the Indenture,
interest shall cease to accrue hereon from and after the date of redemption
fixed in the notice thereof.
The principal of this bond may be declared or may become due prior to the
maturity date hereinbefore named, on the conditions, in the manner and at the
times set forth in the Indenture, upon the happening of a default as therein
defined.
This bond is transferable by the registered owner hereof in person or by
his duly authorized attorney at the office or agency of the Company in the
Borough of Manhattan, The City of New York, upon surrender and cancellation of
this bond, and thereupon a new bond or bonds of the same series and maturity,
for a like aggregate principal amount, will be issued to the transferee in
exchange therefor, as provided in the Indenture. The Company and the Trustee and
any registrar and any paying agent may deem and treat the person in whose name
this bond is registered as the absolute owner hereof for the purpose of
receiving payment and for all other purposes.
This bond, alone or with other bonds of the same series and maturity, may
in like manner be exchanged at such office or agency for one or more new bonds
of the same series and maturity of the same aggregate principal amount. Upon
each such transfer or exchange the Company may require the payment of charges as
prescribed in the Indenture.
No recourse under or upon any covenant or obligation of the Indenture, or
of any bonds thereby secured, or for any claim based thereon, or otherwise in
any manner in respect thereof, shall be had against any incorporator, subscriber
to the capital stock, stockholder, officer or director, as such, whether former,
present or future, of the Company or any successor corporation, either directly,
or indirectly through the Company or the Trustee, by the enforcement of any
subscription to capital stock, assessment or otherwise, or by any legal or
equitable proceeding by virtue of any constitution, statute, contract of
subscription or otherwise (including, without limiting the generality of the
foregoing, any proceeding to enforce any claimed liability of stockholders of
the Company based upon any theory of disregarding the corporate entity of the
Company or upon any theory
<PAGE>
7
that the Company was acting as the agent or instrumentality of the
stockholders), any and all such liability of incorporators, stockholders,
<PAGE>
subscribers, officers and directors, as such, being released by the holder
hereof, by the acceptance of this bond, and being likewise waived and released
by the terms of the Indenture under which this bond is issued.
This bond shall not be valid or become obligatory for any purpose until the
certificate of authentication endorsed hereon shall have been signed by Morgan
Guaranty Trust Company of New York, or its successor, as Trustee under the
Indenture.
IN WITNESS WHEREOF, PENNSYLVANIA GAS AND WATER COMPANY has caused this bond
to be signed in its name by, or to bear the facsimile signature of, its
President or a Vice President, and its corporate seal to be affixed hereto and
attested by, or to bear the facsimile signature of, its Secretary or an
Assistant Secretary.
Dated:
PENNSYLVANIA GAS AND WATER COMPANY
By:______________________________________
Vice President
Attest:
Secretary
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This bond is one of the bonds, of the series designated therein, described
in the within-mentioned Indenture.
MORGAN GUARANTY TRUST COMPANY
OF NEW YORK, as Trustee
By:________________________________
Authorized Officer
SERVICE AGREEMENT
between
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
and
PENNSYLVANIA GAS & WATER
<PAGE>
<TABLE>
<CAPTION>
SERVICE AGREEMENT UNDER RATE SCHEDULE LSS
<S> <C>
THIS AGREEMENT entered into this first day of October, 1993, by and between
TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation, hereinafter
referred to as "Seller", first party, and PENNSYLVANIA GAS & WATER, a
Pennsylvania corporation, hereinafter referred to as "Buyer", second party,
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase and Seller desires to sell natural gas
storage service under Seller's Rate Schedule LSS as set forth herein; and
WHEREAS, Seller and Penn York Energy Corporation ("Penn York") entered into
an agreement dated October 3, 1984 providing for underground natural gas storage
service by Penn York for Seller; and
WHEREAS, Seller and Consolidated Natural Gas Transmission Corporation
("CNG") are extending the term of the agreement providing for underground natural
gas storage service by CNG for Seller; and
WHEREAS, pursuant to the terms of the Joint Stipulation approved by the
Commission's Order dated July 16, 1993 in Docket Nos. RS92-86-003, RP92-108-000,
and RP92-137-000 which amended Seller's certificate in Docket No. CP84-335,
Seller and Buyer agree to a twenty year contract term extension;
NOW THEREFORE, Seller and Buyer agree as follows:
ARTICLE I
SERVICE TO BE RENDERED
Subject to the terms and provisions of this agreement and of Seller's Rate
Schedule LSS, Seller agrees to receive from Buyer for storage, inject into
storage for Buyer's account, store, withdraw from storage (or cause to be
injected into storage for Buyer's account, stored, and withdrawn from storage)
and deliver to Buyer, quantities of natural gas (less fuel allowance) as follows:
To withdraw from storage or cause to be withdrawn from storage,
transport and deliver to Buyer at the delivery points set forth below, the
gas stored for Buyer's account up to a maximum quantity in any day of
(a) 7,518 dt, for the period October 1, 1993 through March 31,
1994, and
(b) 5,169 dt, for the period April 1, 1994 through March 31, 2013,
which quantity shall be Buyer's Storage Demand.
To receive and store or cause to be stored up to a total quantity at
any one time of
(a) 827,053 dt, for the period October l, 1993 through March 31,
1994, and
(b) 551,369 dt, for the period April 1, 1994 through March 31,
2013,
which quantity shall be Buyer's Storage Capacity Quantity.
ARTICLE II
POINT OF DELIVERY
The Point or Points of Delivery for all natural gas delivered by Seller to
Buyer under this agreement shall be at or near:
<PAGE>
SERVICE AGREEMENT UNDER RATE SCHEDULE LSS
(Continued)
ARTICLE II
POINT OF DELIVERY
(Continued)
(1) Dallas Meter Station, located at the intersection of State Route #115 and
Leidy Line on south side of road adjacent to Natona Mills--western edge of
Dallas, Luzerne County, Pennsylvania.
(2) Saylor Meter Station, located at junction of Saylor Avenue and Transco
Pipeline, Plains Township, Luzerne County, Pennsylvania.
(3) Wyoming Monument Meter Station, located on Seller's Leidy Line near
Wyoming, Luzerne County, Pennsylvania.
(4) Muncy Meter Station, located at a point of connection of Seller's Leidy
Line and Buyer's facilities near Muncy, Lycoming County, Pennsylvania.
(5) Old Lycoming Meter Station, located at a point of connection of Seller's
Leidy Line and Buyer's facilities near the intersection of Legislative
Route No. 41033 and Route 410 in Lycoming County, Pennsylvania.
(6) Shickshinny Meter Station, located at a point of connection on Seller's
Leidy Line and Buyer's facilities near Salem Township, Luzerne County,
Pennsylvania.
ARTICLE III
DELIVERY PRESSURE
Seller shall deliver natural gas to Buyer at the Point(s) of Delivery at
a pressure(s) of: not less than fifty (50) pounds per square inch gauge, or at
such other pressures as may be agreed upon in the day-to-day operations of Buyer
and Seller.
ARTICLE IV
TERM OF AGREEMENT
This agreement shall be effective October 1, 1993 and shall remain in force
and effect until April 1, 2013.
ARTICLE V
RATE SCHEDULE AND PRICE
Buyer shall pay Seller for natural gas service rendered hereunder in
accordance with Seller's Rate Schedule LSS and the applicable provisions of the
General Terms and Conditions of Seller's FERC Gas Tariff as filed with the
Federal Energy Regulatory Commission, and as the same may be amended or
superseded from time to time at the initiative of either party. Such rate
schedule and General Terms and Conditions are by this reference made a part
hereof.
<PAGE>
SERVICE AGREEMENT UNDER RATE SCHEDULE LSS
(Continued)
ARTICLE VI
MISCELLANEOUS
1. The subject headings of the Articles of this agreement are inserted
for the purpose of convenient reference and are not intended to be a part of this
agreement nor to be considered in any interpretation of the same.
2. This agreement supersedes and cancels as of the effective date hereof
the following contract:
Service Agreement dated October 31, 1984.
3. No waiver by either party of any one or more defaults by the other
in the performance of any provisions of this agreement shall operate or be
construed as a waiver of any future default or defaults, whether of a like or
different character.
4. This agreement shall be interpreted, performed and enforced in
accordance with the laws of the State of Pennsylvania.
5. This agreement shall be binding upon, and inure to the benefit of the
parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed by their respective Presidents or Vice Presidents thereunto duly
authorized and have caused their respective corporate seals to be hereunto
affixed and attested by their respective Secretaries or Assistant Secretaries the
day and year above written.
ATTEST: TRANSCONTINENTAL GAS PIPE LINE
CORPORATION
[SEAL]
/s/ Grace L. Hughes By /s/ Thomas E. Skains (seller)
Asst., Secretary Senior Vice President
Transportation and Customer
Services
ATTEST: PENNSYLVANIA GAS & WATER
/s/ Sandra M. Stefanowicz By /s/ Joseph Perugino (Buyer)
Asst Secretary Vice President
Marketing & Gas Supply
</TABLE>
SERVICE AGREEMENT
between
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
and
PENNSYLVANIA GAS & WATER
<PAGE>
<TABLE>
<CAPTION>
SERVICE AGREEMENT UNDER RATE SCHEDULE GSS
<S> <C>
THIS AGREEMENT entered into this first day of October, 1993, by and between
TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation, hereinafter
referred to as "Seller", first party, and PENNSYLVANIA GAS & WATER, a
Pennsylvania corporation, hereinafter referred to as "Buyer", second party,
W I T N E S S E T H:
WHEREAS, Buyer desires to purchase and Seller desires to sell natural gas
storage service under Seller's Rate Schedule GSS as set forth herein; and
WHEREAS, Seller and Consolidated Natural Gas Transmission Corporation
("CNG") have entered into an agreement providing for underground natural gas
storage service by CNG for Seller; and
WHEREAS, pursuant to the terms of the Joint Stipulation approved by the
Commission's Order dated July 16, 1993 in Docket Nos. RS92-86-003, RP92-108-000,
and RP92-137-000 which amended Seller's certificate in Docket No. CP61-194,
Seller and Buyer agree to a twenty year contract term for the Storage Demand
Quantity and Storage Capacity Quantity set forth in Article I hereof;
NOW THEREFORE, Seller and Buyer agree as follows:
ARTICLE I
SERVICE TO BE RENDERED
Subject to the terms and provisions of this agreement and of Seller's Rate
Schedule GSS, Seller agrees to receive from Buyer for storage, inject into
storage for Buyer's account, store, withdraw from storage (or cause to be
injected into storage for Buyer's account, stored, and withdrawn from storage)
and deliver to Buyer, quantities of natural gas as follows:
To withdraw from storage or cause to be withdrawn from
storage, the gas stored for Buyer's account up to a maximum quantity
in any day of 29,693 Mcf, which quantity shall be Buyer's Storage
Demand.
To receive and store or cause to be stored up to a total
quantity at any one time of 1,511,432 Mcf, which quantity shall be
Buyer's Storage Capacity Quantity.
ARTICLE II
POINT OF DELIVERY
The Point or Points of Delivery for all natural gas delivered by Seller to
Buyer under this agreement shall be at or near:
(1) Dallas Meter Station, located at the intersection of State Route #115 and
Leidy Line on south side of road adjacent to Natona Mills--western edge of
Dallas, Luzerne County, Pennsylvania.
(2) Saylor Meter Station, located at junction of Saylor Avenue and Transco
Pipeline, Plains Township, Luzerne County, Pennsylvania.
<PAGE>
SERVICE AGREEMENT UNDER RATE SCHEDULE GSS
(Continued)
ARTICLE II
POINT OF DELIVERY
(Continued)
(3) Wyoming Monument Meter Station, located on Seller's Leidy Line near
Wyoming, Luzerne County, Pennsylvania.
(4) Muncy Meter Station, located at a point of connection of Seller's Leidy
Line and Buyer's facilities near Muncy, Lycoming County, Pennsylvania.
(5) Old Lycoming Meter Station, located at a point of connection of Seller's
Leidy Line and Buyer's facilities near the intersection of Legislative
Route No. 41033 and Route 410 in Lycoming County, Pennsylvania.
(6) Shickshinny Meter Station, located at a point of connection on Seller's
Leidy Line and Buyer's facilities near Salem Township, Luzerne County,
Pennsylvania.
ARTICLE III
DELIVERY PRESSURE
Seller shall deliver natural gas to Buyer at the Point(s) of Delivery at
a pressure(s) of: not less than fifty (50) pounds per square inch gauge, or at
such other pressures as may be agreed upon in the day-to-day operations of Buyer
and Seller.
ARTICLE IV
TERM OF AGREEMENT
This agreement shall be effective October 1, 1993 and shall remain in force
and effect through March 31, 2013.
ARTICLE V
RATE SCHEDULE AND PRICE
Buyer shall pay Seller for natural gas service rendered hereunder in
accordance with Seller's Rate Schedule GSS and the applicable provisions of the
General Terms and Conditions of Seller's FERC Gas Tariff as filed with the
Federal Energy Regulatory Commission, and as the same may be amended or
superseded from time to time at the initiative of either party. Such rate
schedule and General Terms and Conditions are by this reference made a part
hereof.
ARTICLE VI
MISCELLANEOUS
1. The subject headings of the Articles of this agreement are inserted
for the purpose of convenient reference and are not intended to be a part of this
agreement nor to be considered in any interpretation of the same.
2. This agreement supersedes and cancels as of the effective date hereof
the following contract:
None. Service Agreement dated April 13, 1972 expired on April 1,
1992.
<PAGE>
SERVICE AGREEMENT UNDER RATE SCHEDULE GSS
(Continued)
ARTICLE VI
MISCELLANEOUS
(Continued)
3. No waiver by either party of any one or more defaults by the other
in the performance of any provisions of this agreement shall operate or be
construed as a waiver of any future default or defaults, whether of a like or
different character.
4. This agreement shall be interpreted, performed and enforced in
accordance with the laws of the State of Pennsylvania.
5. This agreement shall be binding upon, and inure to the benefit of the
parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed by their respective Presidents or Vice Presidents thereunto duly
authorized and have caused their respective corporate seals to be hereunto
affixed and attested by their respective Secretaries or Assistant Secretaries the
day and year above written.
ATTEST: TRANSCONTINENTAL GAS PIPE LINE
CORPORATION
[SEAL]
/s/ Grace L. Hughes /s/ Thomas E. Skains (Seller)
Asst. Secretary Senior Vice President
Transportation and Customer
Services
ATTEST: PENNSYLVANIA GAS & WATER
/s/ Sandra M. Stefanowicz By /s/ Joseph Perugino (Buyer)
Asst. Secretary Vice President
Marketing & Gas Supply
</TABLE>
Service Agreement No. 37800
Control No. 930905-134
<TABLE>
<CAPTION>
FTS SERVICE AGREEMENT
<S> <C>
THIS AGREEMENT, made and entered into this 1st day of November, 1993, by
and between COLUMBIA GAS TRANSMISSION CORPORATION ("Seller") and PENNSYLVANIA GAS
& WATER COMPANY ("Buyer")
WITNESSETH: That in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer shall
receive service in accordance with the provisions of the effective FTS Rate
Schedule and applicable General Terms and Conditions of Seller's FERC Gas Tariff,
Second Revised Volume No. 1 (Tariff), on file with the Federal Energy Regulatory
Commission (Commission), as the same may be amended or superseded in accordance
with the rules and regulations of the Commission. The maximum obligation of
Seller to deliver gas hereunder to or for Buyer, the designation of the points
of delivery at which Seller shall deliver or cause gas to be delivered to or for
Buyer, and the points of receipt at which Buyer shall deliver or cause gas to be
delivered, are specified in Appendix A, as the same may be amended from time to
time by agreement between Buyer and Seller, or in accordance with the rules and
regulations of the Commission. Service hereunder shall be provided subject to
the provisions of Part 284.102 of Subpart B of the Commission's regulations.
Buyer warrants that service hereunder is being provided on behalf of PENNSYLVANIA
GAS & WATER COMPANY, a local distribution company.
Section 2. Term. Service under this Agreement shall commence as of
November 1, 1993, and shall continue in full force and effect until October 31,
2004 and from year-to-year thereafter unless terminated by either party upon six
(6) months' written notice to the other prior to the end of the initial term
granted or any anniversary date thereafter. Pre-granted abandonment shall apply
upon termination of this Agreement, subject to any right of first refusal Buyer
may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay Seller the charges and furnish
Retainage as described in the above-referenced Rate Schedule, unless otherwise
agreed to by the parties in writing and specified as an amendment to this Service
Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Director, Transportation and Exchange and notices to Buyer shall
be addressed to it at 39 Public Square, Wilkes-Barre, PA 18711, Attention:
Mr. William H. Eckert, until changed by either party by written notice.
<PAGE>
Service Agreement No. 37800
Control No. 930905-134
FTS SERVICE AGREEMENT (Cont'd)
Section 5. Prior Service Agreements. This Agreement is being entered into
by the parties hereto pursuant to the Commission's Order No. 636 and its order
dated July 14, 1993 and September 29, 1993, with respect to Seller's Order No.
636 compliance filing and relates to the following existing Service Agreements:
FTS Service Agreement No. 34554, effective November 1, 1989, as it may
have been amended, providing for transportation service under the FTS Rate
Schedule.
CDS Service Agreement No. 36077, effective November 1, 1989, as it may
have been amended, providing for a bundled sales, transportation and
storage service under the CDS Rate Schedule.
The terms of Service Agreement No. 37800 shall become effective as of the
effective date hereof, however, the parties agree that neither the execution nor
the performance of Service Agreement 37800 shall prejudice any recoupment or
other rights that Buyer may have under or with respect to the above-referenced
Service Agreements.
PENNSYLVANIA GAS & WATER COMPANY COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ Joseph F. Perugino By /s/ George E. Shriver
Title Vice President Title Dir. of Transp. & Exchange
<PAGE>
Revision No.
Appendix A to Service Agreement No. Control No. 1993-09-~,5 - O1 3 4
Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) PENNSYLVANIA GAS & WATER CO
Transportation Demand 11,346 Dth/day
Primary Receipt Points
F
t
Scheduling Scheduling Measuring Measuring Maximum Daily
Point No. Point Name Point No. Point Name Quantity (Dth/Day)
A05 DELMONT AGG POINT A05 2,043
801 TCO-LEACH 801 9,303
<PAGE>
Revision No.
ControlNo. 1993-09-U6 - 0134
Appendix A to Service Agreement No.
Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) PENNSYLVANIA GAS L WATER CO
Primary Delivery Points
Maximum Daily
Scheduling Scheduling Measuring Measuring Delivery Obligation
Point No. Point Name Point No. Point Name (Dth/Day)
57 PA GAS WTR OP-08 57 5,531
57E PA GAS WTR OP-04 57E 11,346
<PAGE>
Revision No.
Control No. 1993-09-05 - 0134
Appendix A to Service Agreement No.
Under Rate Schedule FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) PENNSYLVANIA GAS & WATER CO
GFNT / ALL GAS SHALL BE DELIVERED AT EXISTING POINTS OF INTERCONNECTION WITHIN
THE MDDO'S IN SELLER'S CURRENTLY EFFECTIVE SST SERVICE AGREEMENT WITH
BUYER, WHICH FOR SUCH POINTS SET FORTH ARE INCORPORATED HEREIN BY
REFERENCE.
<PAGE>
Revision No.
Control No. 1993-09-05 - 0134
Appendix A to Service Agreement No.
Undar Rata Schedula FTS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer PENNSYLVANIA GAS & WATER CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General Terms and Conditions of Sellers Tariff is
incorporated herein by reference for the purposes of listing valid secondary interruptible receipt points and
delivery points.
Service changes pursuant to this Appendix A shall become effective as of NOVEMBER 01, 1993 . This Appendix A shall cancel
and supersede the previous Appendix A effective as of N/A, to the Service Agreement referenced above. With the
exception of this Appendix A, all other terms and conditions of said Service Agreement shall remain in full force
and effect.
PENNSYLVANIA GAS & WATER CO
By /s/ Joseph F. Perugino
Its Vice President
Date November 15, 1993
COLUMBIA GAS TRANSMISSION CORP0RATI0N
By /s/ George E. Shriver
Its Dir. of Transp. & Exchange
Date November 18, 1993
</TABLE>
Service Agreement No. 38047
Contro1 No. 930905-073
<TABLE>
<CAPTION>
SST SERVICE AGREEMENT
<S> <C>
THIS AGREEMENT, made and entered into this 1st day of November, 1993, by
and between COLUMBIA GAS TRANSMISSION CORPORATION ("Seller") and PENNSYLVANIA GAS
& WATER COMPANY ("Buyer").
WITNESSETH: That in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer shall
receive service in accordance with the provisions of the effective SST Rate
Schedule and applicable General Terms and Conditions of Seller's FERC Gas Tariff,
Second Revised Volume No. 1 (Tariff), on file with the Federal Energy Regulatory
Commission (Commission), as the same may be amended or superseded in accordance
with the rules and regulations of the Commission. The maximum obligation of
Seller to deliver gas hereunder to or for Buyer, the designation of the points
of delivery at which Seller shall deliver or cause gas to be delivered to or for
Buyer, and the points of receipt at which Buyer shall deliver or cause gas to be
delivered, are specified in Appendix A, as the same may be amended from time to
time by agreement between Buyer and Seller, or in accordance with the rules and
regulations of the Commission. Service hereunder shall be provided subject to
the provisions of Part 284.223 of Subpart G of the Commission's regulations.
Buyer warrants that service hereunder is being provided on behalf of Buyer.
Section 2. Term. Service under this Agreement shall commence as of
November 1, 1993, and shall continue in full force and effect until October 31,
2004 and from year-to-year thereafter unless terminated by either party upon six
(6) months' written notice to the other prior to the end of the initial term
granted or any anniversary date thereafter. Pre-granted abandonment shall apply
upon termination of this Agreement, subject to any right of first refusal Buyer
may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay Seller the charges and furnish
Retainage as described in the above-referenced Rate Schedule, unless otherwise
agreed to by the parties in writing and specified as an amendment to this Service
Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Director, Transportation and Exchange and notices to Buyer shall
be addressed to it at 39 Public Square, Wilkes-Barre, PA 18711, Attention:
Mr. William H. Eckert, until changed by either party by written notice.
<PAGE>
Service Agreement No. 38047
Control No. 930905-073
SST SERVICE AGREEMENT (Cont'd)
Section 5. Prior Service Agreements. This Agreement is being entered into
by the parties hereto pursuant to the Commission's Order No. 636 and its orders
dated July 14, 1993 and September 29, 1993, with respect to Seller's Order No.
636 compliance filing and relates to the following existing Service Agreements:
FSS Service Agreement No. 34633, effective November 1, 1989, as it may
have been amended, providing for storage and transportation service under
the FSS Rate Schedule.
CDS Service Agreement No. 36077, effective November 1, 1989, as it may
have been amended, providing for a bundled sales, transportation and
storage service under the CDS Rate Schedule.
The terms of Service Agreement No. 38047 shall become effective as of the
effective date hereof, however, the parties agree that neither the execution nor
the performance of Service Agreement 38047 shall prejudice any recoupment or
other rights that Buyer may have under or with respect to the above-referenced
Service Agreements.
PENNSYLVANIA GAS & WATER COMPANY COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ Joseph F. Perugino By /s/ George E. Shriver
Title Vice President Title Direc. of Transp. & Exchange
<PAGE>
Revision No.
Control No. 1993-09-05-0073
Appendix A to Service Agreement No. 38047
Under Rate Schedule SST
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) PENNSYLVANIA GAS & WATER CO
October through March Transportation Demand 16,517 Dth/day
April through September Transportation Demand 8,258 Dth/day
Primary Receipt Points
Scheduling Scheduling Maximum Daily
Point No. Point Name Quantity (Dth/Day)
STOW STORAGE WITHDRAWALS 16,517
<PAGE>
Revision No.
Control No. 1993-09-05-0073
Appendix A to Service Agreement No. 38047
Under Rate Schedule SST
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) PENNSYLVANIA GAS & WATER CO
Primary Delivery Points
Maximum Delivery S1/
Maximum Daily Pressure
Scheduling Scheduling Measuring Measuring Delivery Obligation Obligation
Point No. Point Name Point No. FN Point Name (Dth/Day) (PSIG)
57 PA GAS WTR OP-08 600039 RENOVO COMPRESSOR 7,000 450
57E PA GAS WTR OP-04 600040 01 MUNCY 22,600
600041 01 OLD LYCOMINO 22,600
604500 01 SAYLOR AVENUE 22,600
<PAGE>
Revision No.
Control No. 1993-09-05 - 0073
Appendix A to Service Agreement No. 38047
Under Rate Schedule SST
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and Buyer) PENNSYLVANIA GAS & WATER CO
S1/ IF A MAXIMUM PRESSURE IS NOT SPECIFICALLY STATED, THEN SELLER'S OBLIGATION
SHALL BE AS STATED IN SECTION 13 (DELIVERY PRESSURE) OF THE GENERAL TERMS AND
CONDITIONS.
FN01/ THIS STATION IS IN THE TRANSCO DIRECTS AGGREGATE AREA. SELLER'S
OBLIGATION TO PROVIDE DELIVERIES FOR BUYER'S ACCOUNT AT THESE
STATIONS IS LIMITED TO QUANTITIES UNDER SELLER'S RATE SCHEDULE
X-103 WITH TRANSCO UP TO THE APPLICABLE MDDO AT THE POINT.
UPON THE TERMINATION OF RATE SCHEDULE X-103, SELLER'S OBLIGATION
TO MAKE DELIVERIES AT THESE STATIONS WILL ALSO BE TERMINATED.
GFNT/ UNLESS STATION SPECIFIC MDDOS ARE SPECIFIED IN A SEPARATE FIRM
SERVICE AGREEMENT BETWEEN SELLER AND BUYER, SELLER'S AGGREGATE
MAXIMUM DAILY DELIVERY OBLIGATION, UNDER THIS AND ANY OTHER
SERVICE AGREEMENT BETWEEN SELLER AND BUYER, AT THE STATIDNS
LISTED ABOVE SHALL NOT EXCEED THE MDDD QUANTITIES SET FORTH ABOVE
FOR EACH STATION. IN ADDITION, SELLER SHALL NOT BE OBLIGATED DN
ANY DAY TO DELIVER MORE THAN THE AGGREGATE DAILY QUANTITY
(ADQ) LISTED BELOW IN THE AGGREGATE AREA LISTED BELOW. THE
STATIONS FOOTNOTED ABOVE WITH A 1 ARE IN THE AGGREGATE AREA
SET FORTH IN GREATER DETAIL BELOW. ANY STATION SPECIFIC MDDOS IN
IN A SEPARATE FIRM SERVICE AGREEMENT BETWEEN SELLER AND BUYER
SHALL BE ADDITIVE BOTH TO THE INDIVIDUAL STATION MDDOS SET FORTH
HEREIN AND TO ANY APPLICABLE AGGREGATE DAILY QUANTITY SET FORTH
BELOW.
THE MARKET AREA IN WHICH EACH STATION IS LOCATED IS POSTED ON
SELLER'S EBB AND INCORPORATED BY REFERENCE.
FOOTNOTE AGGREGATE
NUMBER AGGREGATE AREA NAME DAILY QUANTITY
1 TRANSCO DIRECTS AGGREGATE AREA 22,600 DTH/D
DELIVERIES AT STATIONS IN MARKET AREA 36, OLEAN, ARE CONTINGENT
<PAGE>
Revision No.
Control No. 1993-09-05-0073
Appendix A to Service Agreement No. 38047
Under Rate Schedule SST
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) PENNSYLVANIA GAS & WATER CO
UPON BUYER OBTAINING GAS SUPPLIES AND ARRANGING FOR DELIVERY OF
SUCH GAS SUPPLIES TO THIS MARKET AREA. SELLER'S OBLIGATlON TO
DELIVER GAS ON ANY DAY SHALL BE LIMITED TO THE QUANTITIES
ACTUALLY RECEIVED FOR BUYER'S ACCOUNT TO THIS MARKET AREA.
<PAGE>
Revision No.
Control No. 1993-09-05-0073
Appendix A to Service Agreement No. 38047
Under Rate Schedule SST
Between (Seller) COLUUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) PENNSYLVANIA GAS & WATER CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General Terms and Conditions of Seller's Tariff is
incorporated herein by reference for the purposes of listing valid secondary receipt and delivery points.
Service changes pursuant to this Appendix A shall become effective as of NOVEMBER 01, 1993. This Appendix A shall cancel
and supersede the previous Appendix A effective as of N/A, to the Service Agreement referenced above.
With the exception of this Appendix A, all other terms and conditions of said Service Agreement shall remain in
full force and effect.
PENNSYLVANIA GAS & WATER CO
By /s/ Joseph F. Perugino
Its Vice President
Date November 15, 1993
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ George E. Shriver
Its Direc. of Transp. & Exchange
Date November 18, 1993
</TABLE>
Service Agreement No. 38012
Control No. 930905-0135
<TABLE>
<CAPTION>
FSS SERVICE AGREEMENT
<S> <C>
THIS AGREEMENT, made and entered into this 1st day of November, 1993, by
and between COLUMBIA GAS TRANSMISSION CORPORATION ("Seller") and PENNSYLVANIA GAS
& WATER COMPANY ("Buyer").
WITNESSETH: That in consideration of the mutual covenants herein
contained, the parties hereto agree as follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer shall
receive the service in accordance with the provisions of the effective FSS Rate
Schedule and applicable General Terms and Conditions of Seller's FERC Gas Tariff,
Second Revised Volume No. 1 (Tariff), on file with the Federal Energy Regulatory
Commission (Commission), as the same may be amended or superseded in accordance
with the rules and regulations of the Commission. Seller shall store quantities
of gas for Buyer up to but not exceeding Buyer's Storage Contract Quantity as
specified in Appendix A, as the same may be amended from time to time by
agreement between Buyer and Seller, or in accordance with the rules and
regulations of the Commission. Service hereunder shall be provided subject to
the provisions of Part 284.223 of Subpart G of the Commission's regulations.
Buyer warrants that service hereunder is being provided on behalf of Buyer
Section 2. Term. Service under this Agreement shall commence as of
November 1, 1993 and shall continue in full force and effect until October 31,
2004 and from year to year thereafter unless terminated by either party upon six
months written notice to the other party prior to the end of the initial term
granted or any anniversary date thereafter. Pre-granted abandonment shall apply
upon termination of this Agreement, subject to any right of first refusal Buyer
may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay the charges and furnish the Betainage
percentage set forth in the above-referenced Rate Schedule and specified in
Seller's currently effective Tariff, unless otherwise agreed to by the parties
in writing and specified as an amendment to this Service Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be
addressed to it at Post Office Box 1273, Charleston, West Virginia 25325-1273,
Attention: Director, Transportation and Exchange, and notices to Buyer shall be
addressed to it at Director of Gas Supply, 39 Public Square, Wilkes-Barre,
Pennsylvania 18711, Attention: William Eckert, until changed by either party
by written notice.
Section 5. Prior Service Aqreements. This Agreement is being entered into
by the parties hereto pursuan~ to the Commission's Order No. 636 and its orders
dated July 14, 1993 and September 29, 1993, with respect to Seller's Order No.
636 compliance filing and relates to the following existing Service Agreements:
FSS Service Agreement No. 34633, effective November 1, 1989, as it
may have been amended, providing for storage and transportation
service under the FSS Rate Schedule.
<PAGE>
Service Agreement No. 38012
Control No. 930905-0135
CDS Service Agreement No. 36077, effective November 1, 1989, as it
may have been amended, providing for a bundled sales, transportation
and storage service under the CDS Rate Schedule.
The terms of Service Agreement No. 38012 shall become effective as of the
effective date hereof, however, the parties agree that neither the execution nor
the performance of Service Agreement No. 38012 shall prejudice any recoupment or
other rights that Buyer may have under or with respect to the above-referenced
Service Agreements.
PENNSYLVANIA GAS & WATER COMPANY COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ Joseph F. Perugino By /s/ George E. Shriver
Title Vice President Title Direc. of Transp. & Exchange
<PAGE>
Revision No.
Control No. 1993-09-05-0135
Appendix A to Service Agreement No. 38012
Under Rate Schedule FSS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) PENNSYLVANIA GAS & WATER CO
Storage Contract Quantity 1,168,143 Dth
Maximum Daily Storage Quantity 16,517 Dth per day
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall become effective as of NOVEMBER 01, 1993. This
Appendix A shall cancel and supersede the previous Appendix A effective as of N/A , to the
Service Agreement referenced above. With the exception of this Appendix A. all other terms and conditions
of said Service Agreement shall remain in full force and effect
PENNSYLVANIA GAS & WATER CO
By /s/ Joseph F. Perugino
Its Vice President
Date November 15, 1993
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ George E. Shriver
Its Direc. of Transp. & Exchange
Date November 18, 1993
</TABLE>
SERVICE AGREEMENT NO. 38020
<TABLE>
<CAPTION>
CONTROL NO. 1993-10-02-1062
FTS1 SERVICE AGREEMENT
<S> <C>
THIS AGREEMENT, made and entered into this 01 day of NOVEMBER 1993, by and
between:
COLUMBIA GULF TRANSMISSION COMPANY
("TRANSPORTER")
AND
PENNSYLVANIA GAS & WATER CO
("SHIPPER")
WITNESSETH: That in consideration of the mutual covenants herein contained, the parties hereto agree as
follows:
Section 1. Service to be Rendered. Transporter shall perform and Shipper shall receive the service in
accordance with the provisions of the effective FTS 1 Rate Schedule and applicable General Terms and Condi-
tions of Transporter's FERC GasTraiff, First RevisedVolume No. 1 (Tariff), on file withthe Federal Energy
RegulatoryCommission (Commission), asthesamemaybeamended or supersededin accordance withthe
rules and regulations of the Commission herein contained. The maximum obligations of Transporter to deliver
gas hereunderto orfor Shipper, the designation of the points of delivery atwhich Transporter shall deliver
or cause gas to be delivered to or for Shipper, and the points of receipt at which the Shipper shall deliver or
cause gas to be delivered, are specified in Appendix A, as the same may be amended from time to time by
agreementbetween Shipper and Transporter, or in accordance with the rules and regulations of the Com-
mission. Service hereunder shall be provided subject to the provisions of Part284.222 of Subpart G
of the Commission's regulations. Shipper warrants that service hereunder is being provided on behalf of
AN INTERSTATE PIPELINE COMPANY,
COLUMBIA GAS TRANSMISSION.
Section2. Term. Serviceunderthis Agreement shallcommenceasof NOVEMBER 01, 1993, and shall
continue in full force and effect until OCTOBER 31, 2004, and from YEAR -to- YEAR thereafter
unless terminated by eitherparty upon 6 MONTHS' written notice to the other prior to the end of the
initial term granted or any anniversary date thereafter. Shipper and Transporter agree to avail themselves
of the Commission's pre-granted abandonment authority upon termination of this Agreement, subject to any
right of first refusal Shipper may have under the Commission's regulations and Transporter's Tariff.
Section 3. Rates. Shipper shall pay the charges and furnish Retainage as described in the above-referenced
Rate Schedule, unless otherwise agreed to by the parties in writing and specified as an amendment to this
Service Agreement
Section 4. Notices. Notices to Transporter under this Agreement shall be addressed to it at Post Office Box
683, Houston, Texas 77001, Anention: Director, Planning, Transportation and Exchange and notices to
Shipper shall be addressed to it at
PENNSYLVANIA GAS & WATER CO
DIRECTOR OF GAS SUPPLY
39 PUBLIC SQUARE
WILKES-BARRE, PA 18711
ATTN: WILLIAM ECKERT;
until changed by either party by written notice.
<PAGE>
SERVICE AGREEMENT NO. 38020
CONTROL NO.1993-10-02-1062
FTS1 SERVICE AGREEMENT
Section 5. Superseded Agreements. This Service Agreement supersedes and cancels, as of the effective
date hereof, the following Service Agreements: FTS1 33059
PENNSYLVANIA GAS & WATER CO
By /s/ Joseph F. Perugino
Title Vice President
COLUMBIA GULF TRANSMISSION COMPANY
By /s/ Howard M. Melton, Jr.
Title Vice President
<PAGE>
Revision No.
Control No. 1993-10-02-1062
Appendix A to Service Agreement No. 38020
Under Rate Schedule FTS1
between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) PENNSYLVANIA GAS & WATER CO
Transportation Demand 10,000 Dth/day
Primary Receipt Points
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
2700010 CGT - RAYNE 10,OOO
<PAGE>
Revision No,
Control No, 1993-10-02-1062
Appendix A to Service Agreement No. 38020
under Rate Schedule FTS1
between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) PENNSYLVANIA GAS & WATER CO
Primary Delivery Points
Measuring Measuring Maximum Daily
Point No. Point Name Quantity (Dth/Day)
801 TCO-LEACH 10,OOO
<PAGE>
Revision No.
Control No. 1993-10-02-1062
Appendix A to Service Agreement No. 38020
Under Rate Schedule FTS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) PENNSYLVANIA GAS & WATER CO
The Master List of Interconnects (MLI) as defined in Section 1 of the General Terms and Conditions is
incorporated herein by reference for purposes of listing valid secondary interruptible receipt points and
delivery points.
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall become effective as of NOVEMBER 01, 1993. This
Appendix A shall cancel and supersede the previous Appendix A effective as of N/A
to the Service Agreement referenced above. With the exception of this Appendix A, all otherterms and
conditions of said Service Agreement shall remain in full force and effect.
PENNSYLVANIA GAS & WATER CO
By /s/ Joseph F. Perugino
Its Vice President
Date October 20, 1993
COLUMBIA GULF TRANSMISSION COMPANY
By /s/ Howard M. Melton, Jr
Its Vice President
Date November I5, 1993
</TABLE>
SERVICE AGREEMENT NO. 38942
CONTROL NO. 1993-10-02-0987
ITS1 SERVICE AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
THIS AGREEMENT. made and entered into this 01 day of NOVEMBER 19 93, by and
between:
COLUMBIA GULF TRANSMISSION COMPANY
("TRANSPORTER")
AND
PENNSYLVANIA GAS & WATER CO
("SHIPPER")
WITNESSETH: That in consideration of the mutual covenants herein contained, the parties hereto agree as
follows:
Section 1-. Service to be Rendered. Transporter shall perform and Shipper shall receive the service in
accordance with the provisions of the effective I TS 1 Rate Schedule and applicable General Terms and Condi-
tions of Transporter's FERC GasTraiff, First Revised Volume No.1 (Tariff), on file with the Federal Energy
Regulatory Commission (Commission), as the same may be amended or superseded in accordance with the
rules and regulations of the Commission herein contained. The maximum obligations of Transporter to deliver
gas hereunder to or for Shipper, the designation of the points of deliveryatwhich Transporter shall deliver
or cause gas to be delivered to or for Shipper, and the points of receipt at which the Shipper shall deliver or
cause gas to be delivered, are specified in Appendix A, as the same may be amended from time to time by
agreement between Shipperand Transporter, or in accordance with the rules and regulations of the Com-
mission. Service hereundershall be provided subject to the provisions of Part 284.222 of Subpart G
of the Commission's regulations. Shipper warrants that service hereunder is being provided on behalf of
AN INTERSTATE PIPELINE COMPANY,
COLUMBIA GAS TRANSMISSION.
Section 2. Term. Service underthis Agreement shall commence as of NOVEMBER 01, 1993 , and shall
continue in full force and effect from month-to-month thereafter unless terminated by either party upon
thirty(30) days written noticeto the otherprior to the end of the initialterm granted or on any anniversary
date thereafter. Shipper and Transporter agree to avail themselves of the Commission's pre-granted abandon-
ment authority upon termination of this Agreement, subject to any right of first refusal Shipper may have under
the Commission's regulations and Transporter's Tariff.
Section 3. Rates. Shipper shall pay the charges and furnish Retainage as described in the above-referenced
Rate Schedule, unless otherwise agreed to by the parties in writing and specified as an amendment to this
Service Agreement
Section 4 Notices. Notices to Transporter under this Agreement shall be addressed to it at Post Office Box
683, Houston, Texas 77001, Attention: Director, Planning, Transportation and Exchange and notices to
Shipper shall be addressed to it at:
PENNSYLVANIA GAS & WATER CO
DIRECTOR OF GAS SUPPLY
39 PUBLIC SQUARE
WILKES-BARRE, PA 18711
ATTN: WILLIAM ECKERT;
until changed by either party by written notice.
<PAGE>
SERVICE AGREEMENT NO. 38942
CONTROL NO. 1993-10-02-0987
ITS1 SERVICE AGREEMENT
Section 5. Superseded Agreements. This Service Agreement supersedes and cancels, as of the effective
date hereof, the following Service Agreements: SEE APPENDIX B.
PENNSYLVANIA GAS & WATER CO
By /s/ Joseph F. Perugino
Title Vice President
COLUMBIA GULF TRANSMISSION COMPANY
By /s/ Howard M. Melton, Jr.
Title Vice President
<PAGE>
Revision No.
Control No. 1993-10-02-0987
Appendix A to Service Agreement No. 38942
Under Rate Schedule ITS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) PENNSYLVANIA GAS & WATER CO
Transportation Quantity 22,916 Dth per day
The Master List of Interconnects (MLI) as defined in Section 1 of the General Terms and
Conditions is incorporated herein by reference for purposes of llsting valid interruptible receipt points and
delivery points.
CANCELLATION OF PREVIOUS APPENDIX A
Service changes pursuant to this Appendix A shall become effective as of NOVEMBER 01, 1993. This
Appendix A shall cancel and supersede the previous Appendix A effective as of N/A
to the Service Agreement referenced above. With the exception of this Appendix A, all other terms and
conditions of said Service Agreement shall remain in full force and effect.
PENNSYLVANIA GAS & WATER CO
By /s/ Joseph F. Perugino
Its Vice President
Date October 20, 1993
COLUMBIA GULF TRANSMISSION COMPANY
By /s/ Howard M. Melton, Jr.
Its Vice President
Date December 17, 1993
<PAGE>
Revision No.
Control No. 1993-10-02-0987
Appendix B to Service Agreement No. 38942
Under Rate Schedule ITS1
Between (Transporter) COLUMBIA GULF TRANSMISSION COMPANY
and (Shipper) PENNSYLVANIA GAS & WATER CO
Superseded Agreements: ITS1 32539
ITS1 33059
</TABLE>
SERVICE AGREEMENT NO. 3 7 8 9 7
CONTROL NO. 1993-10-02 - 0158
I TS SERVICE AGREEMENT
<TABLE>
<CAPTION>
<S> <C>
THIS AGREEMENT, made and entered into this 01 day of NOVEMBER 1993 by and
between:
COLUMBIA GAS TRANSMISSION CORPORATION
("SELLER")
AND
PENNSYLVANIA GAS & WATER CO
("BUYER")
WITNESSETH: That in consideration of the mutual covenants herein contained. the parties hereto agree as
follows:
Section 1. Service to be Rendered. Seller shall perform and Buyer shall receive service in accor-
dance with the provisions of the effective ITS Rate Schedule and applicable General Terms and
Conditions of Seller's FERC Gas Tariff, Second Revised Volume No. 1 (Tariff), on file with the Federal
Energy Regulatory Commission (Commission), as the same may be amended or superseded in accor-
dance with the rules and regulations of the Commission. The maximum obligation of Seller to
deliver gas hereunder to or for Buyer, the designation of the points of delivery at which
Seller shall deliver or cause gas to be delivered to or for Buyer, and the points of receipt at which Buyer
shall deliver or cause gas to be delivered, are specified in Appendix A, as the same may be amended from
time to time by agreement between Buyer and Seller, or in accordance with the rules and regulations of the
Commission. Service hereunder shall be provided subject to the provisions of Part 284. 102 of Subpart B
of the Commission's regulations. Buyer warrants that service hereunder is being provided on behalf of
A LOCAL DISTRIBUTION COMPANY
PENNSYLVANIA GAS & WATER CO.
Section 2. Term. Service under this Agreement shall commence as of NOVEMBER 01, 1993, and shall
continue in full force and effect from month-to-month thereafter unless terminate by either party upon 30
days written notice to the other prior to the end of the initial term granted or made on any anniversary date there-
after. Pre-granted abandonment shall apply upon termination of this Agreement, subject to any right of first
refusal Buyer may have under the Commission's regulations and Seller's Tariff.
Section 3. Rates. Buyer shall pay Seller the charges and furnish Retainage as described in the
above-referenced Rate Schedule, unless otherwise agreed to by the parties in writing and specified as an
amendment to this Service Agreement.
Section 4. Notices. Notices to Seller under this Agreement shall be addressed to it at Post Office Box 1273,
Charleston, West Virginia 25325-1273, Attention: Director, Transportation and Exchange and notices to
Buyer shall be addressed to it at:
PENNSYLVANIA GAS & WATER CO
DIRECTOR OF GAS SUPPLY
39 PUBLIC SQUARE
WILKES-BARRE, PA 18711
ATTN: WILLIAM ECKERT;
until changed by either party by written notice,
<PAGE>
SERVICE AGREEMENT NO. 37897
CONTROL NO. 1993-10-02-0158
ITS SERVICE AGREEMENT
Section 5. Superseded Agreements. This Service Agreement supersedes and cancels, as of the effective
date hereof, the following Service Agreements: ITS 33059
PENNSYLVANIA GAS & WATER CO
By /s/ Joseph F. Perugino
Title Vice President
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ Robert D. Stuart
Title Manager
<PAGE>
Revision No.
Control No. 1993-10-02-0158
Appendix A to Service Agreement No. 37897
Under Rate Schedule ITS
Between (Seller) COLUMBIA GAS TRANSMISSION CORPORATION
and (Buyer) PENNSYLVANIA GAS & WATER CO
Transportation Quantity 15,000 Dth/day
The Master List of Interconnects (MLI) as defined in Section 1 of the General Terms and Conditions is
incorporated herein by reference for purposes of listing valid interruptible receipt points and delivery points.
Service changes pursuant to this Appendix A shall become effective as of NOVEMBER 01, 1993. This
Appendix A shall cancel and supersede the previous Appendix A effective as of N/A
to the Service Agreement referenced above. With the exception of this Appendix A, all other terms
and conditions of said Service Agreement shall remain in full force and effect.
PENNSYLVANIA GAS & WATER CO
By /s/ Joseph F. Perugino
Its Vice President
Date October 26, 1993
COLUMBIA GAS TRANSMISSION CORPORATION
By /s/ Robert D. Stuart
Its Mananger
Date November 18, 1993
</TABLE>
SECOND AMENDED AND RESTATED PROJECT FACILITIES
AGREEMENT, dated as of December 1, 1993 between LUZERNE COUNTY
INDUSTRIAL DEVELOPMENT AUTHORITY (the "Authority") and
PENNSYLVANIA GAS AND WATER COMPANY (the "Company").
RECITALS
Pursuant to a Project Facilities Agreement dated as of
March 1, 1982 (the "1982 Agreement"), the Authority issued an
aggregate of $19,000,000 of its Exempt Facilities Revenue Bonds,
1982 Series A (Pennsylvania Gas and Water Company Project) (the
"1982 Bonds") under a Trust Indenture dated as of March 1, 1982
between the Authority and Northeastern Bank of Pennsylvania (now
PNC Bank, National Association), as trustee (the "1982
Indenture"). In order to provide for a portion of the costs of
refunding the 1982 Bonds and pursuant to an Amended and Restated
Project Facilities Agreement dated as of January 1, 1989 (the
"1989 Agreement"), the Authority issued an aggregate of
$19,000,000 of its Exempt Facilities Revenue Bonds, 1989 Series A
(Pennsylvania Gas and Water Company Project) (the "1989 Bonds")
under a Trust Indenture dated as of January 1, 1989 between the
Authority and Northeastern Bank of Pennsylvania (now PNC Bank,
National Association), as trustee (the "1989 Indenture"). In
order to provide for a portion of the costs of refunding the 1989
Bonds, the Company has requested the Authority to issue its
Exempt Facilities Revenue Refunding Bonds, 1993 Series A
(Pennsylvania Gas and Water Company Project) (the "1993 Series A
Bonds") in the aggregate principal amount of $19,000,000 under
the terms of a Trust Indenture (the "1993 Indenture") dated as of
the date hereof between the Authority and PNC Bank, National
Association, as trustee (the "Trustee"). The Authority will use
the proceeds received from the sale of the 1993 Series A Bonds,
together with other moneys available for such purpose, to provide
for the refunding of the 1989 Bonds and the redemption thereof on
January 1, 1994. In connection with the issuance of the 1993
Series A Bonds, the Authority and the Company desire to amend and
restate the 1989 Agreement as hereinafter provided.
NOW, THEREFORE, in consideration of the foregoing and
the undertakings herein set forth and intending to be legally
bound, the Authority and the Company hereby agree that, effective
upon the defeasance of the 1989 Indenture, as provided for in the
Refunding Agreement (the "Refunding Agreement") dated as of
December 1, 1993 between the Authority and PNC Bank, National
Association, as escrow agent, the 1989 Agreement is amended and
restated in full as follows (the 1989 Agreement, as hereby
amended and restated, is referred to as the "Agreement"):
I. BACKGROUND, REPRESENTATIONS AND FINDINGS
1.1 Background. The Authority is a public
instrumentality of the Commonwealth of Pennsylvania and a public
body corporate and politic organized under the Pennsylvania
Industrial and Commercial Development Authority Law (the "Act").
Under the Act, the Authority is authorized to enter into
agreements providing for the financing of the acquisition,
construction and equipment of development projects (including
facilities for the furnishing by a public utility of water which
is or will be made available on reasonable demand to members of
the general public) and the sale thereof to occupants (including
public utilities) for the public purposes of alleviating
unemployment, maintaining employment at a high level, and
creating and developing business opportunities by the
construction, improvement, rehabilitation, revitalization and
financing of industrial, specialized and commercial enterprises,
including facilities for the furnishing by a public utility of
water available on reasonable demand to members of the general
public.
The Company is a Pennsylvania corporation engaged in,
among other things, furnishing water in the Pennsylvania Counties
of Lackawanna, Luzerne, Wayne and Susquehanna; and the Company is
engaged primarily in activities regulated by the Pennsylvania
Public Utility Commission. The Company previously requested the
Authority, and the Authority agreed, to issue the 1989 Bonds to
finance a project (the "Project") consisting of the payment of a
portion of the costs of the acquisition, construction, equipment
and sale to the Company of a specialized enterprise project (as
defined in the Act) consisting of facilities, located in the
Pennsylvania Counties of Luzerne, Lackawanna, Wayne and
Susquehanna for the furnishing of water which is available on
reasonable demand to members of the general public in portions of
the Pennsylvania Counties of Luzerne, Lackawanna, Wayne and
Susquehanna which facilities and their costs are generally
described in Schedule A to this Agreement (the "Project
Facilities"). The Pennsylvania Secretary of Commerce, as
required by the Act, approved the financing for the Project on
June 29, 1981, which approval was amended by letter dated
March 5, 1982. The acquisition, construction and equipment of
the Project Facilities has been completed prior to the date
hereof and title to the Project Facilities has vested in the
Company pursuant to the 1989 Agreement. The Company has
requested the Authority to enter into this Agreement to provide
for the refunding of the 1989 Bonds.
The proceeds of the 1989 Bonds issued by the Authority
pursuant to the 1989 Agreement were applied to making certain
deposits in the funds and accounts created pursuant to the 1989
Indenture. The rates for the water furnished by the Project
Facilities have been established or approved by the Pennsylvania
Public Utilities Commission, for purposes of Section 142(a)(4) of
the Internal Revenue Code of 1986, as amended (the "Code"), so
that the interest on the 1989 Bonds was not, and the interest on
the 1993 Series A Bonds will not be, includible in gross income
of the holders thereof for purposes of Federal income tax law.
1.2 Company Representations. The Company represents
that:
(a) It is a corporation duly organized and
existing in good standing under Pennsylvania law with full power
and legal right to enter into this Agreement and perform its
obligations hereunder, and is a corporation engaged primarily in
activities regulated by the Pennsylvania Public Utility
Commission. The making and performance of this Agreement on the
Company's part have been duly authorized by all necessary
corporate action in accordance with the provisions of the
Restated Articles of Incorporation and By-Laws of the Company,
and will not, as of the date of the delivery of the 1993 Series A
Bonds, violate or conflict with any governmental rule or
regulation applicable to the Company, or violate any instrument
by which the Company is bound, other than such violations or
conflicts as would not have a material adverse effect on the
Company's business or financial position.
(b) The Project Facilities constitute a
specialized enterprise project consisting of facilities for the
furnishing by a utility activity (as defined in the Act) of water
available on reasonable demand to members of the general public.
(c) The acquisition and construction of the
Project Facilities did not commence prior to the approval of the
Project by the Pennsylvania Secretary of Commerce.
(d) The Project Facilities consist of land or
property of a character subject to allowance for depreciation
under Section 167 of the Code.
(e) The proceeds of the 1982 Bonds did not exceed
the Costs of the Project in respect of the Project Facilities as
permitted under the Act.
(f) The Company has acquired all permits and
licenses and has satisfied all other requirements necessary for
the acquisition, construction, equipment and operation by the
Company of the Project Facilities.
1.3 Authority Representations and Findings. The
Authority hereby confirms the following representations and
findings:
(a) It is a public instrumentality of the
Commonwealth of Pennsylvania and a public body corporate and
politic duly organized under the Act with full power and legal
right to enter into this Agreement and perform its obligations
hereunder.
(b) The making and performance of this Agreement
on the Authority's part have been duly authorized by all
necessary action, have been and will be done in full compliance
with the provisions of the Act and will not violate any
instrument to which the Authority is a party.
(c) The Company is financially responsible to
assume all obligations prescribed by the Authority in this
Agreement and by the Act and is qualified to be an occupant for
purposes of the Act and is engaged in activities in Pennsylvania
requiring substantial capital, and its operations contribute to
economic growth and the creation of employment opportunities.
(d) The Project promotes the health, safety and
general welfare of the people of Pennsylvania and the purposes of
the Act by maintaining employment in Pennsylvania and by
providing a specialized enterprise project consisting of
facilities for the furnishing by a utility activity (as defined
in the Act) of water available on reasonable demand to members of
the general public.
(e) The issuance of the 1989 Bonds was approved
by publicly elected local officials as required by the Code,
after public hearings held upon at least two weeks public notice.
(f) The issuance of the 1993 Series A Bonds and
the execution of this Agreement and the 1993 Indenture have been
approved by the Authority at a duly constituted meeting.
II. COMPLETION OF AND TITLE TO PROJECT FACILITIES
2.1 Completion of and Title to Project Facilities.
Prior to the date hereof, (i) those portions of the acquisition,
construction and equipment of the Project Facilities financed
with the proceeds of the 1982 Bonds have been completed, (ii)
substantially all of the proceeds of the 1989 Bonds were used to
redeem the 1982 Bonds and the proceeds of the 1982 Bonds were
spent for costs of the Project, and (iii) all of the Authority's
right, title and interest in the Project Facilities, together
with all of the Authority's rights to support, rights to occupy
the ground and air space under and around the Project Facilities
and rights of ingress and egress to the Project Facilities have
vested in the Company.
III. FINANCING THE PROJECT
3.1 Issuance of 1993 Series A Bonds. In order to
refund the 1989 Bonds, the Authority, at the request of the
Company, will issue and sell the 1993 Series A Bonds under the
1993 Indenture.
3.2 Deposit of 1993 Series A Bond Proceeds. The
proceeds of the 1993 Series A Bonds shall be deposited in the
Clearing Fund established under the 1993 Indenture; except that
accrued interest on the 1993 Series A Bonds received by the
Authority upon the sale of the 1993 Series A Bonds shall be
deposited into the Bond Fund established under the 1993
Indenture, and shall be applied to the first interest payments
due on the 1993 Series A Bonds. The proceeds of the 1993 Series
A Bonds deposited in the Clearing Fund established under the 1993
Indenture shall be applied to the refunding of the 1989 Bonds as
provided in and in accordance with the terms of the Refunding
Agreement.
3.3 1993 Series A Bonds Not to Become Arbitrage Bonds.
The Authority and the Company hereby covenant to each other and
to the holders of the 1993 Series A Bonds that, notwithstanding
any other provision of this Agreement or any other instrument,
they will neither make nor instruct the Trustee to make any
investment or other use of money in the Bond Fund or the Clearing
Fund or other proceeds of the 1993 Series A Bonds which would
cause the 1993 Series A Bonds to become arbitrage bonds under
Section 148 of the Code and the regulations thereunder, and that
they will comply with the requirements of such Section and
regulations throughout the term of the 1993 Series A Bonds. The
Company covenants that it will not knowingly take or authorize or
permit, to the extent such action is within the control of the
Company, any action to be taken with respect to the Project
Facilities, or the proceeds of the 1993 Series A Bonds (including
investment earnings on the 1993 Series A Bonds), or insurance,
condemnation, or any other proceeds derived directly or
indirectly in connection with the Project Facilities, which will
result in the loss of the exclusion from gross income of interest
on the 1993 Series A Bonds for purposes of Federal income
taxation (except for any 1993 Series A Bond held by a person
referred to in Section 147(a) of the Code); and the Company also
covenants that it will not knowingly omit to take any action in
its power which, if omitted, would cause such a result.
3.4 Restriction on Use of Bond Fund and Clearing Fund.
The Company shall not use or direct the use of moneys from the
Bond Fund or the Clearing Fund in any way so as to cause the
interest on any 1993 Series A Bonds to be included in gross
income for purposes of Federal income tax and shall use the
proceeds (including the proceeds of the investment thereof) of
the 1993 Series A Bonds deposited in the Clearing Fund to refund
the 1989 Bonds as provided in the Refunding Agreement.
3.5 No "Same Issue" Bonds. Neither the Company nor
any other principal user of the Project Facilities, nor any
related person, within the meaning of Section 144(a)(3) of the
Code, has participated, or will participate, in the offering for
sale or sale of any issue of private activity bonds within the
meaning of Section 141 of the Code, which are or will be required
to be aggregated with the 1993 Series A Bonds as part of the
"same issue" within the meaning of Revenue Ruling 81-216, 1981-2
C.B. 21.
IV. FIRST MORTGAGE BONDS
4.1 First Mortgage Bonds. As evidence of its
obligations to pay the purchase price of the Project Facilities
(such purchase price being an amount equal to the principal of
and premium (if any) and interest payable on the 1993 Series A
Bonds), the Company will, concurrently with the issuance and sale
of the 1993 Series A Bonds, execute and deliver to the Trustee,
as assignee of the Authority, $19,000,000 principal amount of the
Company's First Mortgage Bonds 6.05% Series due 2019 (the "First
Mortgage Bonds"), issued under the Company's Indenture of
Mortgage and Deed of Trust dated March 15, 1946, as heretofore or
hereafter amended or supplemented (the "Mortgage"), to Morgan
Guaranty Trust Company of New York, as trustee (such trustee and
its successors in trust being hereinafter referred to as the
"Mortgage Trustee").
4.2 Acceleration of Payment to Redeem Bonds. The
Authority will (subject to any applicable rights under the 1993
Indenture to purchase 1993 Series A Bonds in lieu of redemption)
redeem any or all 1993 Series A Bonds or portions thereof upon
the occurrence of an event which gives rise to any mandatory
redemption specified in the 1993 Series A Bonds or in the 1993
Indenture. Whenever any of the 1993 Series A Bonds are subject
to optional or extraordinary optional redemption, the Authority
will, but only upon request of the Company, redeem the same in
accordance with such request and the 1993 Indenture. In either
event, the Company will pay an amount equal to the then
applicable redemption price of such 1993 Series A Bonds as a
prepayment on the First Mortgage Bonds, plus interest accrued to
the redemption date, less any credits to which the Company may be
entitled hereunder, under the 1993 Indenture or under the First
Mortgage Bonds.
4.3 No Defense or Set-Off. Except as set forth in any
applicable provisions of the 1993 Indenture or the First Mortgage
Bonds which are not inconsistent with the provisions of this
Agreement, the obligation of the Company to make the payments
required under the First Mortgage Bonds shall be absolute and
unconditional without defense or set-off by reason of any default
by the Authority under this Agreement or under any other
agreement between the Company and the Authority or for any other
reason, including, without limitation, any acts or circumstances
that may constitute failure of consideration, destruction of or
damage to the Project Facilities, commercial frustration of
purpose, or failure of the Authority to perform and observe any
agreement, whether express or implied, or any duty, liability or
obligation arising out of or connected with this Agreement, it
being the intention of the parties that the payments required
under this Agreement and the First Mortgage Bonds will be paid in
full when due without any delay or diminution whatsoever.
Nothing contained in this Section shall be construed to release
the Authority from its obligation to perform any of the
agreements on its part herein contained; and in the event the
Authority should fail to perform any such agreement on its part,
the Company may institute such action against the Authority as
the Company may deem necessary to compel performance.
4.4 Assignment of Authority's Rights. As the source
of payment for the 1993 Series A Bonds, the Authority will assign
to the Trustee all the Authority's rights under this Agreement
with respect to the 1993 Series A Bonds, including its rights to
receive all amounts due under the First Mortgage Bonds (except
rights to receive payments under Section 5.2 or 5.4 hereof). The
Company consents to such assignments and agrees to make payments
required by the First Mortgage Bonds directly to the Trustee,
without defense or set-off by reason of any dispute between the
Company and any such Trustee.
V. COVENANTS OF THE COMPANY
5.1 Maintenance and Operation of Project Facilities.
The Company agrees that it will cause the Project Facilities to
be maintained and operated during their useful lives but this
covenant shall not require the Company to operate any portion of
the Project Facilities after the Company, in its sole discretion,
determines that it is no longer practical, economic, or desirable
to do so and shall not prevent the Company from selling all or
any portion of its interest in any property or from merging or
consolidating with another corporation, provided that (a)(i) in
the case of any such merger or consolidation other than one in
which the Company is the continuing corporation or (ii) in the
case of the sale of all or substantially all of the property of
the Company, the corporation formed by such consolidation, or
into which the Company shall have been merged, or to which such
property has been sold, shall be a solvent domestic corporation
organized under the laws of the United States or a state thereof,
shall be qualified to do business in the Commonwealth of
Pennsylvania, and shall expressly assume, in a form reasonably
satisfactory to the Trustee, all obligations of the Company
hereunder and under the First Mortgage Bonds then outstanding;
(b) after such merger, consolidation or sale, the Company or the
surviving entity is not in default hereunder; and (c) such merger
or consolidation is permitted under the provisions of the
Mortgage.
5.2 Payment of Authority's Expenses. At the time of
the issuance of the 1993 Series A Bonds, the Company shall pay
the Authority's financing fee related to such Bonds, as
established at the time of initial application to the Authority,
and from time to time shall reimburse the Authority for the
Authority's reasonable expenses in respect of the 1993 Series A
Bonds, including reasonable fees and expenses of counsel.
5.3 Payment of Trustee's Compensation and Expenses.
The Company will pay the reasonable compensation and reasonable
expenses of the Trustee and any Paying Agent under the 1993
Indenture, including all costs of redeeming 1993 Series A Bonds
thereunder.
5.4 Indemnity Against Claims. The Company will
indemnify the Authority and the Trustee against claims arising
out of the construction or operation of the Project Facilities;
provided, however, that the Company will not indemnify the
Authority or the Trustee against such claims which result from
the gross negligence or willful misconduct of the Authority, the
Trustee, or their respective officers, employees or agents. If
any such claim for which indemnification is sought is asserted,
the Authority or the Trustee, as the case may be, will give
prompt notice to the Company and the Company will assume the
defense thereof, with full power to litigate, compromise or
settle the same in its sole discretion.
5.5 Limitation of Liability of the Authority;
Authority Disclaimer. In the event of any default by the
Authority hereunder, the liability of the Authority to the
Company shall be enforceable only out of its interest under this
Agreement and there shall be no other recourse by the Company
against the Authority or any of the property now or hereafter
owned by it. The Authority makes no warranty either express or
implied as to the actual or designed capacity of the Project
Facilities, as to the suitability of the Project Facilities for
the purposes specified in this Agreement, as to the condition of
the Project Facilities, or that the Project Facilities will be
suitable for the Company's purposes or needs.
5.6 Default, etc. In addition to all other rights of
the Authority granted herein or otherwise by law, the Authority
shall have the right to specifically enforce the performance and
observation by the Company of any of its obligations, agreements
or covenants under this Agreement and may take any actions at law
or in equity to collect any payments due or to obtain other
remedies. If the Company shall default under any provisions of
this Agreement and the Authority shall employ attorneys or incur
other expenses for the collection of payments due or for the
enforcement of the performance or observance of any obligation or
agreement on the part of the Company contained herein, the
Company will on demand therefor reimburse the reasonable fees of
such attorneys and such reasonable expenses so incurred.
5.7 Deficiencies in Revenues. If for any reason,
including the Company being required to withhold or pay any tax
imposed by reason of its obligations evidenced by the First
Mortgage Bonds, amounts paid to the Trustee on the First Mortgage
Bonds, together with other moneys held by the Trustee and then
available, would not be sufficient to make the corresponding
payments of principal or redemption price of, and interest on,
the 1993 Series A Bonds when such payments become due, the
Company will pay the amounts required from time to time to make
up any such deficiency.
5.8 Arbitrage Rebate. The Company expects that all
of the proceeds of the 1993 Series A Bonds, other than amounts
held in the Bond Fund established pursuant to the 1993
Indenture, will be expended within six months of the date of
issuance of the 1993 Series A Bonds. The Company, therefore,
does not expect to have any earnings subject to rebate with
respect to the 1993 Series A Bonds. Notwithstanding the
foregoing, the Company covenants to comply with the arbitrage
rebate requirements of the Code, including without limitation
Section 148(f) thereof.
5.9 Notice and Certification with Respect to
Bankruptcy Proceedings. The Company shall promptly notify the
Trustee of the occurrence of any of the following events and
shall keep the Trustee informed of the status of any petition in
bankruptcy filed (or bankruptcy or similar proceeding otherwise
commenced) against the Company: (i) application by the Company
for or consent by the Company to the appointment of a receiver,
trustee, liquidator or custodian or the like of itself or of its
property, or (ii) admission by the Company in writing of its
inability to pay its debts generally as they become due, or
(iii) general assignment by the Company for the benefit of
creditors, or (iv) adjudication of the Company as a bankrupt or
insolvent, or (v) commencement by the Company of a voluntary case
under the United States Bankruptcy Code or filing by the Company
of a voluntary petition or answer seeking reorganization of the
Company, an arrangement with creditors of the Company or an order
for relief or seeking to take advantage of any insolvency law or
filing by the Company of an answer admitting the material
allegations of an insolvency proceeding against it, or action by
the Company for the purpose of effecting any of the foregoing, or
(vi) if without the application, approval or consent of the
Company, a proceeding shall be instituted in any court of
competent jurisdiction, under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, seeking in
respect of the Company an order for relief or an adjudication in
bankruptcy, reorganization, dissolution, winding up, liquidation,
a composition or arrangement with creditors, a readjustment of
debts, the appointment of a trustee, receiver, liquidator or
custodian or the like of the Company or of all or any substantial
part of its assets, or other relief in respect thereof under any
bankruptcy or insolvency law.
VI. COVENANTS OF THE AUTHORITY
6.1 Maintenance of Its Existence. The Authority
agrees that it will maintain its corporate existence and use its
best efforts to maintain and renew all its material rights,
powers, privileges and franchises.
6.2 Compliance with Laws. The Authority shall comply
in all material respects with all valid and applicable laws,
acts, rules, regulations, permits, orders, requirements and
directions of any legislative, executive, administrative or
judicial body.
6.3 Compliance with the Indenture. The Authority
shall comply in all material respects with its covenants in
Article VIII of the 1993 Indenture.
VII. MISCELLANEOUS
7.1 Notices. Notice hereunder shall be given to:
The Authority - Luzerne County Industrial
Development Authority
54 West Union Street
Wilkes-Barre, Pennsylvania 18711
Attention: Chairman
The Company - Pennsylvania Gas and Water Company
39 Public Square
Wilkes-Barre, Pennsylvania 18711
Attention: Secretary
7.2 Assignments. This Agreement may not be assigned
by either party without the consent of the other, except that the
Authority may assign its rights to the Trustee pursuant to
Section 4.4 hereof.
7.3 Illegal, etc. Provisions Disregarded. In case any
provision of this Agreement shall for any reason be held invalid,
illegal or unenforceable in any respect, this Agreement shall be
construed as if such provision had never been contained herein.
7.4 Amendments. This Agreement may not be amended
except by an instrument in writing signed by the parties and, if
such amendment occurs after the issuance of the 1993 Series A
Bonds and adversely affects the interests of holders of any 1993
Series A Bonds, consented to by the Trustee; provided that no
such consent of the Trustee shall be necessary if and to the
extent that such amendment pertains to the issuance of additional
bonds by the Authority for the benefit of the Company.
7.5 Controlling Law. This Agreement shall be deemed
to be a contract made in the Commonwealth of Pennsylvania and
governed by Pennsylvania law.
7.6 Term of Agreement. This Agreement shall become
effective upon its delivery and shall continue in effect until
all 1993 Series A Bonds have been paid or provision for such
payment has been made as provided in the 1993 Indenture.
7.7 Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed and
delivered shall be an original; but such counterparts shall
together constitute but one and the same instrument.
<PAGE>
WITNESS the due execution of this Second Amended and
Restated Project Facilities Agreement as of the day and year
first mentioned above.
[SEAL] LUZERNE COUNTY INDUSTRIAL
DEVELOPMENT AUTHORITY
Attest:
___________________________ By:___________________________
Secretary Vice Chairman
[SEAL] PENNSYLVANIA GAS AND WATER
COMPANY
Attest:
______________________________ By:___________________________
Secretary Vice President, Finance
<PAGE>
Schedule A
Project Facilities
<PAGE>
BD31719.A(PF) Closing Item No. A-1
SECOND AMENDED AND RESTATED
PROJECT FACILITIES AGREEMENT
Between
LUZERNE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY
And
PENNSYLVANIA GAS AND WATER COMPANY
Dated as of December 1, 1993
<PAGE>
TABLE OF CONTENTS
Page
I. BACKGROUND, REPRESENTATIONS AND FINDINGS. . . . . . . . . . 2
1.1 Background . . . . . . . . . . . . . . . . . . . . . 2
1.2 Company Representations. . . . . . . . . . . . . . . 3
1.3 Authority Representations and Findings . . . . . . . 4
II. COMPLETION OF AND TITLE TO PROJECT FACILITIES . . . . . . 4
2.1 Completion of and Title to Project Facilities. . . . 4
III. FINANCING THE PROJECT. . . . . . . . . . . . . . . . . . 5
3.1 Issuance of 1993 Series A Bonds. . . . . . . . . . . 5
3.2 Deposit of 1993 Series A Bond Proceeds . . . . . . . 5
3.3 1993 Series A Bonds Not to Become Arbitrage Bonds. . 5
3.4 Restriction on Use of Bond Fund and Clearing Fund. . 6
3.5 No "Same Issue" Bonds. . . . . . . . . . . . . . . . 6
IV. FIRST MORTGAGE BONDS. . . . . . . . . . . . . . . . . . . 6
4.1 First Mortgage Bonds . . . . . . . . . . . . . . . . 6
4.2 Acceleration of Payment to Redeem Bonds. . . . . . . 6
4.3 No Defense or Set-Off. . . . . . . . . . . . . . . . 7
4.4 Assignment of Authority's Rights . . . . . . . . . . 7
V. COVENANTS OF THE COMPANY . . . . . . . . . . . . . . . . . 7
5.1 Maintenance and Operation of Project Facilities. . . 7
5.2 Payment of Authority's Expenses. . . . . . . . . . . 8
5.3 Payment of Trustee's Compensation and Expenses . . . 8
5.4 Indemnity Against Claims . . . . . . . . . . . . . . 8
5.5 Limitation of Liability of the Authority;
Authority Disclaimer . . . . . . . . . . . . . . . . 8
5.6 Default, etc . . . . . . . . . . . . . . . . . . . . 9
5.7 Deficiencies in Revenues . . . . . . . . . . . . . . 9
5.8 Arbitrage Rebate . . . . . . . . . . . . . . . . . . 9
5.9 Notice and Certification with Respect to
Bankruptcy Proceedings . . . . . . . . . . . . . . . 9
VI. COVENANTS OF THE AUTHORITY. . . . . . . . . . . . . . . . 10
6.1 Maintenance of Its Existence . . . . . . . . . . . . 10
6.2 Compliance with Laws . . . . . . . . . . . . . . . . 10
6.3 Compliance with the Indenture. . . . . . . . . . . . 10
VII. MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . 10
7.1 Notices. . . . . . . . . . . . . . . . . . . . . . . 10
7.2 Assignments. . . . . . . . . . . . . . . . . . . . . 11
7.3 Illegal, etc. Provisions Disregarded . . . . . . . . 11
7.4 Amendments . . . . . . . . . . . . . . . . . . . . . 11
7.5 Controlling Law. . . . . . . . . . . . . . . . . . . 11
7.6 Term of Agreement. . . . . . . . . . . . . . . . . . 11
7.7 Counterparts . . . . . . . . . . . . . . . . . . . . 11
BOND PURCHASE AGREEMENT
$19,000,000
Luzerne County Industrial Development Authority
Exempt Facilities Revenue Refunding Bonds,
1993 Series A
(Pennsylvania Gas and Water Company Project)
December 2, 1993
Luzerne County Industrial Development
Authority
Wilkes-Barre, Pennsylvania 18711
Attention: Executive Director
Pennsylvania Gas and Water Company
39 Public Square
Wilkes-Barre, Pennsylvania 18711
Attention: Chief Financial Officer
Gentlemen:
Legg Mason Wood Walker, Incorporated, as representative
(in such capacity, the "Representative"), on behalf of itself and
Butcher & Singer, a division of Wheat, First Securities, Inc.
(together, the "Underwriters"), offers to enter into this Bond
Purchase Agreement (the "Purchase Agreement") relating to
$19,000,000 aggregate principal amount of Luzerne County Industrial
Development Authority Exempt Facilities Revenue Refunding Bonds,
1993 Series A (Pennsylvania Gas and Water Company Project) (the
"Bonds") of the Luzerne County Industrial Development Authority
(the "Issuer"). This offer is made subject to acceptance by the
Issuer and the Company (as hereinafter defined) prior to 5:00 P.M.,
prevailing time in Philadelphia, Pennsylvania, on the date hereof,
and upon such acceptance, as evidenced by the due execution hereof
by the Issuer and the Company, this Purchase Agreement shall
constitute a binding agreement among the Issuer, the
Representative, the Underwriters and the Company in full force and
effect according to the terms hereof.
All capitalized terms used herein and not otherwise
defined shall have the meanings specified in the Official Statement
(defined below).
<PAGE>
The Bonds shall mature and shall be subject to mandatory
and optional redemption and shall bear interest as set forth in
Exhibit A hereto and shall otherwise be as described in the
Official Statement hereinafter mentioned. The Bonds shall be
eligible for deposit at The Depository Trust Company, New York, New
York ("DTC") and for DTC's book-entry only system for clearance and
settlement of municipal securities transactions.
The Bonds shall be issued pursuant to a Bond Resolution
of the Authority adopted on November 12, 1993 (the "Bond
Resolution"). The Bonds shall be as described in, and shall be
issued under and pursuant to, the Indenture.
The Bonds are special limited obligations of the Issuer,
payable solely from and secured by (i) the payments to be made by
the Company under and pursuant to the Agreement and the 1993 First
Mortgage Bonds, and (ii) amounts on deposit from time to time in
the funds and accounts created pursuant to the Indenture. To
evidence and secure its obligations under the Agreement, the
Company will issue and deliver to the Issuer the Company's 1993
First Mortgage Bonds in the principal amount of $19,000,000 issued
under and secured by the Indenture of Mortgage, as to be further
supplemented by the Twenty-Eighth Supplemental Indenture to be
dated as of December 1, 1993, providing for the issuance of the
1993 First Mortgage Bonds.
Proceeds of the Bonds will be used to provide funds
sufficient, together with other available moneys supplied by or on
behalf of the Company, to reimburse National Australia Bank,
Limited, New York Branch ("NAB") for drawings on a letter of
credit (the "Letter of Credit") provided by NAB in connection with
the issuance of the 1989 Bonds. Proceeds of the draws on the
Letter of Credit will be used to enable the Issuer, at the
direction of the Company, to refund (the "Refunding Program"),
through redemption on January 1, 1994, the Issuer's 1989 Bonds.
The estimated sources and uses of proceeds of the Bonds, together
with other available moneys, is attached hereto as Exhibit B.
The Issuer and the Company hereby consent to and confirm
the prior use by the Underwriters of the Preliminary Official
Statement dated November 15, 1993 (the "Preliminary Official
Statement") in connection with the public offering of the Bonds by
the Underwriters, and further confirm the authority of the
Underwriters to use, and consent to the use of, a final Official
Statement, which has been or will be approved by the Company, with
respect to the Bonds, to be dated the date hereof, and any
amendments or supplements thereto which shall be approved by the
Company (as so amended and supplemented, the "Official Statement")
in connection with the public offering, sale and distribution of
the Bonds. The Issuer, with respect to information pertaining to
the Issuer contained in the Preliminary Official Statement, and the
Company, with respect to all information contained in the
Preliminary Official Statement other than information pertaining to
the Issuer, hereby represent and warrant that the Preliminary
Official Statement previously furnished to the Underwriters has
been "deemed final" by the Issuer and the Company as of its date
for purposes of Rule 15c2-12 ("Rule 15c2-12") of the Securities and
Exchange Commission (the "Commission") promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"),
except for the omission of such information as is permitted to be
omitted in accordance with paragraph (b)(1) of Rule 15c2-12.
The Issuer shall provide, or cause to be provided, to the
Representative as soon as practicable after the Issuer's acceptance
of this Purchase Agreement (but, in no event later than seven
business days after the Issuer's acceptance hereof, and in
sufficient time to accompany any confirmation that requests payment
from any customer) copies of the Official Statement, executed by
the Issuer and the Company (and conformed copies thereof) in
sufficient quantity to enable the Representative to comply with the
rules of the Commission and the Municipal Securities Rulemaking
Board.
The Issuer and the Company hereby authorize the
Representative and the Representative hereby agrees to file the
Official Statement with at least one of the nationally recognized
municipal securities information repositories designated by the
Commission. The Issuer and the Company further authorize the
Representative and the Representative hereby agrees to file the
Official Statement with the Municipal Securities Rulemaking Board,
or its designee.
1. Purchase, Sale and Closing. The Issuer hereby
agrees to sell to the Underwriters, and the Underwriters, upon the
basis of the representations, warranties, covenants and agreements
of the Company and the Issuer contained herein, but subject to the
conditions hereinafter set forth, jointly and severally agree to
purchase from the Issuer, all (but not less than all) of the Bonds
at an aggregate purchase price of $19,000,000, plus accrued
interest on the Bonds from December 1, 1993, to the Closing Date
(as hereinafter defined). Payment for the Bonds shall be made by
wire transfer to the Trustee in Federal funds. The closing for the
delivery of and payment for the Bonds shall take place at the
offices of Ballard Spahr Andrews & Ingersoll, 1735 Market Street,
51st Floor, Philadelphia, Pennsylvania, at 9:00 am., local time in
Philadelphia, Pennsylvania, on December 21, 1993, or at such other
date, time or place as may be designated by the Representative,
with the approval of the Company and the Issuer (the "Closing
Date"). The Bonds will be delivered on the Closing Date to DTC in
New York, New York, in definitive fully registered form without
coupons, duly executed and authenticated, registered in the name of
DTC's nominee, Cede & Co., and in the form of one Bond certificate
in the principal amount of $19,000,000 maturing January 1, 2019.
The Bonds will be made available to the Representative for
inspection at a place suitable for such inspection in New York, New
York, at least 24 hours before the Closing Date.
As sole compensation for the services of the Underwriters
with respect to the Bonds the Company shall pay the Underwriters
concurrently with closing of the sale of the Bonds a fee equal to
$399,000 in connection with the purchase and sale of the Bonds
hereunder.
2. Authority of Representative; Public Offering of
Bonds. The Representative hereby represents and warrants that it
has been duly designated and authorized to execute this Agreement
on behalf of itself and the other Underwriter and to act hereunder
for and on behalf of itself and the other Underwriter. The
Underwriters agree to make a bona fide public offering of the Bonds
at not in excess of the initial public offering prices set forth in
the Official Statement.
3. Representations and Warranties of Issuer. In
addition to the other representations and warranties made by the
Issuer in this Agreement, the Issuer hereby represents and warrants
to the Company and the Underwriters as follows:
(a) The Issuer is a body corporate and politic
constituting a public corporation and public instrumentality duly
created and validly existing under the Pennsylvania Industrial and
Commercial Development Authority Law of 1967, as amended (the
"Act"), and has (or at the relevant time or times had) full power
and authority (i) to adopt the Bond Resolution, (ii) to execute,
deliver and perform its obligations under this Purchase Agreement,
the Indenture, the Agreement and all other Issuer documents
relating to the Refunding Program (the "Issuer Financing
Documents"), (iii) to issue, sell, execute and deliver the Bonds to
the Underwriters as provided in this Purchase Agreement, and (iv)
to finance the Project Facilities and to undertake, carry out and
consummate all other transactions contemplated by each of the
aforesaid documents.
(b) The Issuer has duly authorized by all requisite
corporate action (i) the execution and delivery of, and the due
performance of its obligations under, this Purchase Agreement and
the other Issuer Financing Documents, (ii) the taking of any and
all actions as may be required on the part of the Issuer to carry
out, give effect to and consummate the transactions contemplated by
this Purchase Agreement and the other Issuer Financing Documents,
and (iii) the distribution of the Preliminary Official Statement
and the execution and distribution of the Official Statement.
(c) The Bond Resolution has been duly adopted by
the Issuer and is in full force and effect. This Purchase
Agreement has been duly authorized, executed and delivered by the
Issuer. The Purchase Agreement is, and when executed and delivered
by the parties thereto, the other Issuer Financing Documents will
be, legal, valid and binding obligations of the Issuer, enforceable
in accordance with their respective terms, subject to applicable
bankruptcy, insolvency, reorganization, moratorium and similar laws
in effect from time to time affecting the rights of creditors
generally and except to the extent that the enforceability thereof
may be limited by the application of general principles of equity.
At the Closing Date, each of the Issuer Financing Documents shall
have been duly executed and delivered by the Issuer.
(d) The Bonds have been duly authorized by the
Issuer and, when issued, authenticated by the Trustee, delivered
and paid for by the Underwriters on the Closing Date in accordance
with the terms of this Purchase Agreement, will constitute legal,
valid and binding obligations of the Issuer, enforceable in
accordance with their terms, and entitled to the benefits and
security of the Indenture, except as such enforceability may be
limited by bankruptcy, insolvency or other laws of general
application relating to or affecting creditors' rights and by
general principles of equity.
(e) The adoption of the Bond Resolution, the
execution and delivery by the Issuer of this Purchase Agreement,
the Bonds and the other Issuer Financing Documents, and compliance
with the provisions of the Bond Resolution and of this Purchase
Agreement, the Bonds and the other Issuer Financing Documents, will
not conflict with or constitute a breach of, or a default under,
any indenture, commitment, agreement or other instrument to which
the Issuer is a party or by which it or any of its property is
bound, or any constitutional or statutory provision, rule,
regulation, ordinance, judgment, order or decree to which the
Issuer or any of its property is subject.
(f) There is no action, suit, proceeding, inquiry
or investigation before or by any court, arbitrator, grand jury,
public board or body, in which the Issuer has been served or of
which it has otherwise received official notice or which, to the
best knowledge of the Issuer after due inquiry, is threatened
against the Issuer (nor to the best knowledge of the Issuer is
there any basis therefor), (i) which in any way questions the
powers of the Issuer referred to in subparagraph (a) of this
Paragraph 3 or the validity of the proceedings taken by the Issuer
in connection with the issuance and sale of the Bonds, or (ii)
wherein an unfavorable decision, ruling or finding would adversely
affect the transactions contemplated by this Purchase Agreement or
by the Official Statement, or (iii) which in any way would
adversely affect the legality, validity or enforceability of the
Issuer's obligations with respect to the Bonds, the Bond
Resolution, this Purchase Agreement or the other Issuer Financing
Documents.
(g) No approval, permit, consent, authorization or
order of any court or any governmental agency, authority or body
not already obtained (other than any approvals that may be required
under the Blue Sky or securities laws of any jurisdiction, as to
which no representation is made) is required with respect to the
Issuer in connection with the issuance and sale of the Bonds; the
execution and delivery by the Issuer of, or the performance by the
Issuer of its obligations under, this Purchase Agreement and the
other Issuer Financing Documents; or the transactions on the part
of the Issuer contemplated hereby and thereby.
(h) On and as of the date hereof and unless an
event of the nature described in Paragraph 5(c) hereof subsequently
occurs, at all times during the period from the date hereof to and
including the date which is 25 days following the End of the
Underwriting Period (as defined and determined in accordance with
Paragraph 11 hereof), the information in the Official Statement
with respect to the Issuer and its affairs does not and will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of
the circumstances under which they are made, not misleading.
(i) If the Official Statement is supplemented or
amended pursuant to Paragraph 5(c) hereof, at the time of each such
supplement or amendment to the Official Statement and, unless the
Official Statement is subsequently supplemented or amended pursuant
to Paragraph 5(c) hereof, at all times during the period from the
date of this Purchase Agreement to and including the date which is
25 days following the End of the Underwriting Period (as defined
and determined in accordance with Paragraph 11 hereof), the
information with respect to the Issuer and its affairs contained in
the Official Statement, as so amended or supplemented, will not
contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading.
4. Representations and Warranties of Company. In
addition to the other representations made by the Company in this
Purchase Agreement, the Company hereby represents and warrants to
the Issuer and the Underwriters as follows:
(a) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the Commonwealth of Pennsylvania, with full corporate power and
authority to own, lease and operate its properties and conduct its
business as its business is described in Appendix A to the
Preliminary Official Statement. The Company is duly qualified as
a foreign corporation to transact business and is in good standing
in each jurisdiction in which it owns or leases properties or in
which the conduct of its business requires such qualification,
except to the extent that the failure to be so qualified or be in
good standing would not have a material adverse effect on the
business, financial (or other) condition, results of operations or
prospects of the Company and its subsidiaries considered as a
whole.
(b) The financial statements of the Company,
together with related notes and schedules as set forth in the
Preliminary Official Statement, present fairly in all material
respects the financial position and the results of operations of
the Company at the indicated dates and for the indicated periods.
Such financial statements have been prepared in accordance with
generally accepted accounting principles, consistently applied
throughout the periods presented except as noted in the
accountant's reports thereon or the notes thereto, and all
adjustments necessary for a fair presentation of results for such
periods have been made; and the selected financial information
included in the Preliminary Official Statement presents fairly the
information shown therein and has been compiled on a basis
consistent with the financial statements presented therein.
(c) Since the date as of which information is given
in the Preliminary Official Statement (except to the extent
corrected or updated in the Official Statement), there has not been
any material adverse change or any development involving a
prospective material adverse change in or affecting the business,
financial (or other) condition, operations, management or prospects
of the Company and its subsidiaries taken as a whole, whether or
not occurring in the ordinary course of business, and there has not
been any material transaction entered into by the Company or any of
its subsidiaries, other than transactions in the ordinary course of
business and changes and transactions contemplated by the
Preliminary Official Statement. None of the Company and its
subsidiaries has any contingent obligations which are or are
reasonably likely to be material to the Company and its
subsidiaries taken as whole and which are required to be disclosed
and are not disclosed in the Preliminary Official Statement (except
to the extent such omission has been corrected in the Official
Statement).
(d) The Preliminary Official Statement and the
Official Statement (together with any amendments or supplements
thereto), as of their respective dates did not, and the Official
Statement (together with any amendments or supplements thereto) as
of the Closing Date will not, contain (as used hereinafter, the
term "contain" shall include information contained in documents
incorporated by reference therein) any untrue statement of a
material fact or omit to state a material fact required to be
stated therein in order to make the statements therein, in light of
the circumstances under which they were made, not misleading
(except to the extent any untrue statement or omission contained in
the Preliminary Official Statement was corrected in the Official
Statement); provided, however, this representation and warranty
shall not apply to statements or omissions made in reliance upon
and in conformity with information furnished in writing to the
Company by or on behalf of any Underwriter through the
Representative expressly for use therein or as to information
relating to the Issuer.
(e) The Company, PEI, and their subsidiaries are
not in violation of their respective Articles of Incorporation or
By-Laws or in default in the performance or observance of any
obligation, agreement, covenant or condition contained in any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which any of them is a party or by which any of them
or their properties may be bound, other than such violations or
defaults that would not individually or in the aggregate have a
material adverse effect on the business, financial (or other)
condition, results of operations or prospects of the Company, PEI
and their subsidiaries considered as a whole.
(f) On August 26, 1993, a securities certificate
was registered by the Pennsylvania Public Utility Commission with
respect to the issuance of the 1993 First Mortgage Bonds, and no
other consent, approval, authorization, registration, or order of
any court or governmental authority or agency was required to be
made or obtained by the Company for the offer and sale of the 1993
First Mortgage Bonds and the Bonds except for filings and
applications pursuant to state securities or Blue Sky laws and
regulations.
(g) The 1993 First Mortgage Bonds have been duly
and validly authorized and, when issued and delivered against
payment therefor and in accordance with the Mortgage, will be duly
and validly issued and conform, in all material respects, to the
description of the 1993 First Mortgage Bonds contained in the
Preliminary Official Statement and the Official Statement, and the
1993 First Mortgage Bonds will be valid and binding obligations of
the Company, enforceable against the Company in accordance with
their terms, except as the enforcement thereof may be limited by
applicable bankruptcy, insolvency, reorganization or other similar
laws affecting creditors' rights generally and except as
enforcement thereof is subject to general principles of equity
(regardless of whether enforcement is considered in a proceeding in
equity or at law); when the 1993 First Mortgage Bonds are issued in
accordance with the provisions of the Mortgage, such 1993 First
Mortgage Bonds will entitle the holders thereof to the rights and
security specified in such Mortgage, except as enforcement thereof
may be limited by applicable bankruptcy, insolvency, reorganization
or other similar laws affecting creditors' rights generally and
except as enforcement thereof is subject to general principles of
equity (regardless of whether enforcement is considered in a
proceeding in equity or at law); and the Mortgage conforms, in all
material respects, to the description thereof in the Preliminary
Official Statement and the Official Statement.
(h) Each of the Agreement, the Refunding Agreement
and the Twenty-Eighth Supplemental Indenture has been duly
authorized by the Company and each of the Agreement and the Twenty-
Eighth Supplemental Indenture conforms, in all material respects,
to the description thereof contained in the Preliminary Official
Statement and the Official Statement.
(i) The execution and delivery of this Purchase
Agreement did not, and the issuance and sale of the 1993 First
Mortgage Bonds and the Bonds, the execution and delivery of the
Agreement, the Refunding Agreement and the Twenty-Eighth
Supplemental Indenture, and the compliance by the Company with all
of the provisions of this Purchase Agreement, the Refunding
Agreement, the Agreement and the Twenty-Eighth Supplemental
Indenture (the "Company Financing Documents") and the consummation
of the transactions herein and therein contemplated will not
conflict with or constitute a breach of, or default under any
contract, indenture, mortgage, loan agreement, note, lease or other
instrument to which the Company, PEI or any of their subsidiaries
is a party, or by which any of them may be bound or to which any of
their property or assets is subject (except for such conflicts,
breaches, violations and defaults that would not have a material
adverse effect on the financial condition or operations of the
Company and its subsidiaries taken as a whole and that would not
affect the validity of the 1993 First Mortgage Bonds) nor will such
action result in any violation of the provisions of the respective
Articles of Incorporation or By-Laws of the Company, PEI or any of
their respective subsidiaries or any law, administrative regulation
or administrative or court decree.
(j) Except in each case for such exceptions
(including those described in the Official Statement) as would not,
individually or in the aggregate, have a material adverse effect on
the business, financial (or other) condition, results of operations
or prospects of the Company and its subsidiaries considered as a
whole, (i) the Company and its subsidiaries have such permits,
licenses, franchises, water rights, certificates, approvals and
authorizations of governmental or regulatory authorities
("Permits") as are necessary to own their respective properties and
to conduct their respective businesses in the manner now being
conducted and as described in the Preliminary Official Statement,
and (ii) the Company and its subsidiaries have each fulfilled and
performed all of their respective obligations with respect to such
Permits, and no event has occurred which allows, or after notice or
lapse of time would allow, revocation or termination thereof or
result in any other impairment of the rights of the holder of any
such Permit.
(k) There is no action, suit or proceeding before
or by any court or governmental agency or body, domestic or
foreign, now pending or, to the knowledge of the Company,
threatened against or affecting the Company or any of its
subsidiaries which, in the opinion of management of the Company
after consultation with legal counsel handling such matters, is
reasonably likely to (i) result in any material adverse change in
the condition, financial or otherwise, earnings, affairs or
business prospects of the Company and its subsidiaries considered
as a whole, except as set forth in, or incorporated by reference
in, the Preliminary Official Statement or the Official Statement,
or (ii) materially and adversely affect the offering of the 1993
First Mortgage Bonds and the Bonds.
(l) This Purchase Agreement has been duly
authorized, executed and delivered by the Company.
(m) PEI is a "holding company" within the meaning
of the Public Utility Holding Company Act of 1935 as amended
("PUHCA"), but is exempt, pursuant to Section 3(a) of PUHCA, from
all the provisions of PUHCA (except Section 9(a)(2) thereof) and
the rules and regulations thereunder. PEI has filed an annual
exemption statement on Form U-3A-2 pursuant to Rule U-2 promulgated
under PUHCA for each year of its existence as required to maintain
its exempt status. The Commission has taken no action, nor
threatened to take any action, to terminate PEI's exemption and the
Company and PEI are not aware of any basis the Commission may have
for taking any such action.
(n) The Company is not subject to the Natural Gas
Act, 15 U.S.C. Subsection 717 et seq.; all of the conditions set forth in
Section 1(c) of the Natural Gas Act, 15 U.S.C. Subsection 717(c), for the
non-application of the Natural Gas Act to the Company are
satisfied.
(o) Except as set forth in the Official Statement,
the Company and its subsidiaries are in compliance with all
applicable laws, ordinances, rules or regulations, and any order,
judgment or decree to which each may be subject, except where the
failure to comply would not have a material adverse effect on the
business, financial (or other) condition, operations or prospects
of the Company and its subsidiaries taken as a whole.
(p) The Company and its subsidiaries are in
compliance with all applicable environmental protection laws and
all applicable orders, rules and regulations promulgated under such
laws by governmental agencies having jurisdiction therein, except
for such failures to be in compliance as would not, individually or
in the aggregate, have a material adverse affect on the business,
financial (or other) condition, results of operations or prospects
of the Company and its subsidiaries considered as a whole. Neither
the Company nor any of its subsidiaries have received any notice
that they are responsible parties or potentially responsible
parties or are subject to any evaluation under the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as
amended (42 U.S.C. Section 9601 et seq.) or the Resource
Conservation and Recovery Act of 1976, as amended (42 U.S.C.
Section 6901 et seq.) or applicable state environmental laws, nor
do any of them have knowledge of any liability to which they may be
subject under such statutes, except where any such notice, claim,
evaluation or liability is not reasonably likely to result in a
material adverse effect on the business, financial (or other)
condition, results of operations or prospects of the Company and
its subsidiaries taken as a whole. Except to the extent that such
matters would not individually or in the aggregate have a material
adverse effect on the business, financial (or other) condition,
results of operations or prospects of the Company and its
subsidiaries considered as a whole, there are no past or present
events, conditions, circumstances, activities, practices, incidents
or actions of the Company or any of its subsidiaries that, to the
knowledge of the Company based on present legal and regulatory
requirements: (i) interfere with or prevent compliance or continued
compliance with applicable environmental laws or with applicable
orders, rules, and regulations promulgated under such laws by
government agencies having jurisdiction therein; or (ii) would be
reasonably likely to give rise to any legal liability (whether
statutory or at common law) or form the basis of any claim, action,
suit, proceeding, notice of violation, investigation or demand
(whether for money damages, remediation, clean up or performance of
any evaluation, study or assessment or injunctive or equitable
relief) based on or relating to the generation, handling, storage
or release into the environment of any pollutant, contaminant,
chemical or industrial, toxic or hazardous substance or waste.
(q) The Company and its subsidiaries have such
title to, or other interest in, all real property and personal
property owned by them as is necessary for the conduct of their
respective businesses as currently being conducted or as
contemplated to be conducted as described in the Preliminary
Official Statement. The Company and its subsidiaries occupy their
respective leased properties under valid and binding leases.
5. Covenants of Issuer and Company. The Issuer and the
Company hereby covenant and agree with the Representative and the
Underwriters as follows:
(a) To cooperate with the Representative in
endeavoring to qualify the Bonds for offer and sale under the state
securities or Blue Sky laws of such jurisdictions as the
Representative may reasonably request and in determining their
eligibility for investment under the laws of such jurisdictions as
the Representative may reasonably request, provided that the
foregoing shall not require the Issuer or the Company to qualify to
do business in any foreign jurisdiction or require the Issuer to
submit to service of process in any jurisdiction;
(b) Not to take, or omit to take any action which
it is required to take which will adversely affect the exclusion of
the interest on the Bonds from the gross income of the holders
thereof for Federal income tax purposes;
(c) To promptly notify the Representative if,
during the period from the date hereof to and including the date
which is 25 days following the End of the Underwriting Period (as
defined and determined in accordance with Paragraph 11 hereof), any
event shall occur which is reasonably likely to, or would cause the
Official Statement, as then supplemented or amended, to contain any
untrue statement of a material fact or to omit to state a material
fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, and if in
the opinion of the Representative such event requires the
preparation and distribution of a supplement or amendment to the
Official Statement, to prepare and furnish to the Representative
(i) such number of copies of the supplement or amendment to the
Official Statement, in form and substance mutually agreed upon by
the Issuer and the Company and approved by the Representative, as
the Representative may reasonably request, and (ii) if such
notification shall be given subsequent to the Closing Date, such
additional legal opinions, certificates, instruments and other
documents as the Representative may reasonably deem necessary to
evidence the truth and accuracy of any such supplement or amendment
to the Official Statement; and
(d) In the case of the Company, concurrently with
the Company's acceptance hereof, to deliver to the Representative
a letter of Arthur Andersen & Co., independent certified public
accountants, substantially in the form set forth in Exhibit C
hereto.
6. Conditions Precedent. The obligations of the
Underwriters hereunder are subject to the satisfaction, or waiver
thereof by the Representative, of the following conditions:
(a) At the time of Closing: (1) this Purchase
Agreement, and the other Issuer Financing Documents and Company
Financing Documents shall be in full force and effect, and this
Purchase Agreement shall not have been amended, modified or
supplemented prior to the Closing except as may have been agreed to
by the Representative; (2) the Issuer and the Company shall have
duly adopted, and there shall be in full force and effect, such
additional resolutions or agreements as shall, in the opinion of
Bond Counsel, be necessary in connection with the transactions
contemplated hereby; (3) the representations and warranties of the
Issuer in the Issuer Financing Documents and of the Company in the
Company Financing Documents shall be true and accurate in all
material respects; (4) the Issuer and the Company shall perform or
shall have performed all obligations required under or specified in
this Purchase Agreement to be performed at or prior to the Closing;
and (5) the proceeds of the sale of the Bonds shall be applied as
described in the Official Statement.
(b) The Representative may terminate this Purchase
Agreement by notification from the Representative to the Issuer and
the Company if at any time prior to the Closing: (1) legislation
shall be enacted by the Congress of the United States or adopted by
either House thereof or a decision by a Court of the United States
or the United States Tax Court shall be rendered, or a ruling,
regulation or official release or statement by or on behalf of the
Treasury Department of the United States, the Internal Revenue
Service or other governmental agency shall be made with respect to
Federal taxation upon revenues or other income of the general
character expected to be derived by the Issuer or upon interest
received on bonds of the general character of the Bonds which would
have the effect of changing, directly or indirectly, the Federal
income tax consequences of interest on bonds of the general
character of the Bonds in the hands of holders thereof, or which
would materially affect the market price of the Bonds adversely; or
(2) legislation shall be enacted or any action shall be taken by
the Securities and Exchange Commission which, in the opinion of the
counsel for the Representative, has the effect of requiring the
contemplated distribution of the Bonds to be registered under the
Securities Act of 1933, as amended, or the Indenture to be
qualified under the Trust Indenture Act of 1939, as amended; or (3)
there shall exist any event which either (A) makes untrue or
incorrect in any material respect any statement or information
contained in the Preliminary Official Statement or the Official
Statement, or (B) is not reflected in the Preliminary Official
Statement or the Official Statement but should be reflected therein
in order to make the statements and information contained therein,
in the light of the circumstances under which they are made, not
misleading and the effect of such event materially adversely
impacts the marketability of the Bonds; or (4) the United States
shall be engaged in any conflict or hostilities which have resulted
in a declaration of war, a national emergency or any other national
calamity, or there shall have occurred any other conflict or
outbreak of hostilities or an escalation of any existing conflict
or hostilities, the effect of such outbreak or escalation on the
financial markets of the United States being such as, in the
reasonable belief of the Representative, materially and adversely
affects the ability of the Representative to market or sell the
Bonds; or (5) there shall be in force a general suspension of
trading on the New York Stock Exchange or minimum or maximum prices
for trading shall have been fixed and be in force, or maximum
ranges for prices for securities shall have been required and be in
force on the New York Stock Exchange, whether by virtue of a
determination by the New York Stock Exchange or by order of the
Securities and Exchange Commission or any other governmental
authority having jurisdiction; or (6) a general banking moratorium
shall have been declared by Federal, New York or Pennsylvania
authorities having jurisdiction and be in force; or (7) a stop
order, ruling, regulation or official statement by the Securities
and Exchange Commission shall be issued or made to the effect that
the issuance, offering or sale of the Bonds, or obligations of the
general character of the Bonds as contemplated hereby, is in
violation of any provision of the Securities Act of 1933, as
amended, the Securities Exchange Act of 1934, as amended, or the
Trust Indenture Act of 1939, as amended; or (8) a supplement or
amendment shall have been made to the Official Statement subsequent
to the date hereof which, in the reasonable judgment of the
Representative, materially adversely affects the marketability of
the Bonds or market prices thereof.
(c) At the Closing, the Representative shall
receive the following documents:
1. Executed counterparts of the Company Financing
Documents and the Issuer Financing Documents;
2. A Certified copy of the Bond Resolution;
3. The approving opinion of Ballard, Spahr,
Andrews & Ingersoll, Bond Counsel, as to the Bonds, addressed
to the Issuer and the Representative in the form attached as
Exhibit D to the Official Statement with such changes as are
satisfactory to the Representative;
4. A supplemental opinion or opinions of Bond
Counsel addressed to the Company and the Representative, in
form satisfactory to the Representative, to the effect that:
(A) the Bonds are exempt securities within the meaning of
Section 3(a)(2) of the Securities Act of 1933, and it is not
necessary to qualify the Indenture under the Trust Indenture
Act of 1939, as amended, (B) each of the Indenture and the
Agreement has been duly authorized, executed, and delivered
and constitutes the valid and binding obligation of the
Issuer, and is enforceable in accordance with its terms,
subject to limitations on creditors' rights generally, (C) the
Purchase Agreement has been duly authorized, executed, and
delivered by the Issuer and constitutes the legal, valid, and
binding obligation of the Issuer, enforceable in accordance
with its terms, (D) the descriptions, statements and summaries
of provisions of the Bonds, the Bond Resolution, the
Indenture, and the Agreement contained in the Official
Statement under the headings "INTRODUCTORY STATEMENT", "THE
1993 BONDS", "SECURITY FOR THE 1993 BONDS", and "APPENDIX C -
Summary of Certain Provisions of the Indenture, the Agreement,
The 1993 First Mortgage Bonds and the Mortgage" fairly
summarize the provisions of the documents or matters of law
intended to be summarized therein as of the date of the
Official Statement, and the descriptions and summaries
contained on the cover page and under the heading "TAX
MATTERS" accurately reflect the opinion of such counsel with
respect to the matters stated therein relating to Pennsylvania
and federal tax law as applicable to the Bonds, and (E) all
conditions precedent to the defeasance of the 1989 Bonds have
been satisfied.
5. Certificates dated the date of Closing, signed
by the Chairman or Vice Chairman of the Issuer and by an
authorized officer of the Company, sufficient in form and
substance to show to the satisfaction of Bond Counsel and the
Representative that the Bonds will not be arbitrage bonds
under Section 148 of the Code and the regulations thereunder.
6. A certificate, dated the day of Closing, in
form and substance satisfactory to Bond Counsel and the
Representative, signed by the chief financial officer of the
Company in which such officer states that (A) the
representations and warranties of the Company in this Purchase
Agreement are true and correct in all material respects as of
the date of Closing; (B) the Preliminary Official Statement
and the Official Statement, as of their respective dates,
insofar as they relate to the Company do not contain any
untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary to
make the statements therein not misleading; and (C) no event
affecting the Company occurred since the date of the Purchase
Agreement which is required to be disclosed in the Official
Statement in order to make the statements and information
therein not misleading in any material respect.
7. A certificate or certificates, dated the date
of Closing, signed by the Chairman, Vice Chairman, or
Secretary of the Issuer and in form and substance satisfactory
to Bond Counsel and the Representative in which such official,
to the best of his knowledge, states that: (A) the
representations of the Issuer herein contained are true and
correct as of the date of the Closing, and the Official
Statement insofar as it contains information with respect to
the Issuer, does not include any untrue statement of a
material fact or omit to state any material fact required to
be stated therein or necessary to make the statements therein,
in light of the circumstances in which they were made, not
misleading; (B) no litigation is pending or, to the knowledge
of the Issuer after consultation with its counsel, threatened
(i) to restrain or enjoin the issuance or delivery of the
Bonds, the application of the proceeds thereof, or the
payment, collection or application of revenues pursuant to the
Indenture and the Agreement, (ii) in any way contesting or
affecting any authority for, or the validity of the Bonds, the
Indenture, the Agreement, this Purchase Agreement, the
application of the proceeds of the Bonds or the payment,
collection or application of revenues, pursuant to the
Indenture and the Agreement, or (iii) in any way contesting
the right and power of the Issuer to act as described in the
Bond Resolution and the Indenture or the Agreement; and (C) to
the knowledge of the Issuer, no event affecting the Issuer has
occurred since the date of the Official Statement which should
be disclosed in the Official Statement for the purposes for
which it is to be used, or which it is necessary to disclose
therein in order to make the statements and information
therein with respect to the Issuer not misleading in any
material respect.
8. An opinion of LeBoeuf, Lamb, Leiby & MacRae,
special counsel for the Company, addressed to the Trustee, the
Issuer and the Representative, dated the date of Closing,
substantially in the form of Exhibit D hereto.
9. An opinion and supplemental letter of Hughes
Hubbard & Reed, counsel for the Company, addressed to the
Trustee, the Issuer and the Representative, dated the date of
Closing, substantially in the form of Exhibit E hereto.
10. An opinion of Hourigan, Kluger, Spohrer &
Quinn, Solicitors for the Issuer, addressed to the
Representative, the Company, and Bond Counsel, dated the date
of Closing, to the effect that: (A) the Issuer has been duly
incorporated and is validly existing as an instrumentality of
the Commonwealth of Pennsylvania, is in good standing under
the laws of the Commonwealth of Pennsylvania and has the full
power and authority to enter into the Indenture and the
Agreement and to issue and sell the Bonds; (B) the Purchase
Agreement, the Indenture, and the Agreement have been duly and
validly authorized, executed and delivered by the Issuer and
are valid and binding obligations of the Issuer enforceable in
accordance with their respective terms except as
enforceability may be limited by applicable bankruptcy,
reorganization, insolvency, or other laws or equitable
principles affecting creditors' rights generally; (C) the
Bonds have been duly and validly authorized, executed, issued
and delivered by the Issuer and constitute the legal, valid
and binding limited obligations of the Issuer, enforceable in
accordance with their respective terms except as
enforceability may be limited by applicable bankruptcy,
reorganization, insolvency or other laws or equitable
principles affecting creditors' rights generally; (D) to the
knowledge of such counsel, there is no action, suit,
proceeding or investigation, at law or in equity, before or by
any court, public board or body, pending or threatened against
or affecting the Issuer, or which the Issuer is or may be a
part or of which property of the Issuer is or may be the
subject, wherein an unfavorable decision, ruling or finding
would adversely affect the transactions contemplated by the
Official Statement or the validity of the Bonds, the
Indenture, the Agreement, or the Purchase Agreement, or which
is required to be set forth in the Official Statement; (E) the
execution and delivery of, the consummation of the trans-
actions contemplated by, and the fulfillment and compliance
with the terms of, the Bonds, the Indenture, the Agreement,
and the Purchase Agreement, do not and will not conflict with
or constitute on the part of the Issuer a breach of or default
under any indenture, mortgage, deed of trust or other
instrument to which the Issuer is a party or by which it is or
may be bound of which we have knowledge after due inquiry, or
any existing law, regulation, administrative or court order or
decree to which the Issuer is a party or by which it is or may
be subject; (F) the Official Statement has been duly
authorized, approved, signed and delivered by the Issuer; (G)
the Bond Resolution was duly adopted by the affirmative vote
of a majority of the entire Board of the Issuer at a public
meeting duly called and held in accordance with all applicable
laws and the By-Laws of the Issuer and has not been amended,
modified or rescinded and remains in full force and effect as
of this date; (H) based upon their participation in the
preparation of the Preliminary Official Statement and the
Official Statement, including conferences and telephone
conferences, the information in the Preliminary Official
Statement and the Official Statement insofar as it pertains to
the Issuer is true and correct in all material respects and
does not contain any untrue statement of a material fact or
omit to state a material fact necessary to make the statements
therein, in the light of the circumstances under which they
were made, not misleading; and (I) such other matters as the
Representative may reasonably request prior to the Closing.
11. A letter from Arthur Andersen & Co. addressed
to the Representative and dated the date of Closing
reaffirming the matters set forth in Exhibit C hereto, but
with the procedures described being carried out as of a date
not more than five business days prior to the date of Closing,
and references to the Preliminary Official Statement shall be
updated to also include the Official Statement.
12. Evidence that the ratings on the Bonds of "BBB-
" by Standard and Poor's Corporation and "Baa3" by Moody's
Investors Service have not been reduced.
13. Pennsylvania Public Utility Commission
Securities Certificate and Order for the 1993 First Mortgage
Bonds.
14. Department of Commerce Notification.
15. An Information Return for Tax-Exempt Private
Activity Bond Issues (IRS Form 8038), in a form satisfactory
to Bond Counsel for filing, executed by the Issuer.
16. Written calculations demonstrating that the
money deposited under the Refunding Agreement on the Closing
Date is sufficient to redeem the 1989 Bonds on January 1,
1994.
17. Such additional opinions, certificates, or
documentation as the Representative or Bond Counsel may
reasonably request.
18. A fully executed counterpart of the Letter of
Representations from the Issuer and the Trustee to DTC with
respect to the Bonds, in form and substance satisfactory to
the Representative and its counsel, which Letter of
Representations shall have been duly accepted by DTC as
evidenced by its execution thereof.
19. Evidence of the due filing in all requisite
filing offices of:
(i) The Mortgage
(ii) Financing Statements on Form UCC-l naming the Issuer
as debtor and the Trustee as secured party relative to the
security interests created under the Indenture with respect to
the Bonds; and
(iii) Financing Statements on Form UCC-1 naming the
Company as debtor and the Mortgage Trustee as secured party,
relative to the security interests created under the Twenty-
Eighth Supplemental Indenture.
20. Such additional certificates or documents as
the Representative or its counsel or Bond Counsel may
reasonably request to evidence the authority of the Trustee to
act under the Indenture and the Refunding Agreement.
7. Expenses. All costs and expenses incident to the
authorization, preparation, issuance, sale and delivery of the
Bonds including, without limitation, costs of the preparation,
printing, distribution, execution, delivery and recording or
filing, as the case may be, of the Preliminary Official Statement
and the Official Statement, together with any amendments and
supplements thereto, and the Indenture, the Bonds, this Purchase
Agreement, the Agreement and all other documents, the fees and
disbursements of Bond Counsel, counsel to the Company, counsel to
the Trustee, counsel to the Issuer and firms of accountants and
other consultants and advisors retained by the Issuer or the
Company in connection with this transaction, all rating agency
fees, and all fees and expenses of the Trustee, shall be the
obligation of the Company or shall be paid from the proceeds of the
issuance and sale of the Bonds or otherwise. The Underwriters
shall pay the cost of qualifying the Bonds for sale under the Blue
Sky or securities laws of any jurisdictions and all advertising
costs and other expenses and all costs and expenses of its counsel
in connection with the public offering of the Bonds and the
transactions contemplated thereby.
8. Indemnification and Contribution.
(a) The Company will indemnify and hold harmless
the Issuer and its members, officers and employees and each
Underwriter and each person, if any, who controls (within the
meaning of Section 15 of the Securities Act of 1933, as amended
(the "Act") or Section 20 of the Exchange Act) any Underwriter,
from and against any and all losses, claims, damages or
liabilities, joint or several, to which such indemnified person may
become subject under the Act, the Exchange Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions
in respect thereof) arise out of or are based upon any untrue
statement or alleged untrue statement of a material fact contained
in the Preliminary Official Statement or the Official Statement or
any amendment or supplement thereto, or arise out of or are based
upon any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the
statements therein not misleading; and the Company agrees to
reimburse such indemnified person for any legal or other expenses
reasonably incurred by such indemnified person in connection with
investigating, preparing or defending any such loss, claim, damage,
liability, or action as such expenses are incurred; provided,
however, the Company will not be liable in any such case to the
extent that any such loss, claim, damages or liability referred to
in the preceding sentence (x) arises out of or is based upon an
untrue statement or omission or alleged untrue statement or
omission based upon information pertaining to the Issuer, (y)
arises out of or is based upon an untrue statement or omission or
alleged untrue statement or omission made in the Preliminary
Official Statement or the Official Statement in reliance upon and
in conformity with written information furnished to the Company by
or on behalf of such Underwriter expressly for use in the
Preliminary Official Statement, the Official Statement or any
amendment or supplement thereto, or (z) arises out of or is based
upon the fact that such Underwriter sold Bonds to a person to whom
there was not sent or given, at or prior to the written
confirmation of such sale, a copy of the Official Statement
(excluding documents incorporated by reference), or of the Official
Statement as then amended or supplemented (excluding documents
incorporated by reference), in any case where such delivery is
required by the Municipal Securities Rulemaking Board or by Rule
15c2-12 if the Company has previously furnished copies thereof to
such Underwriter and the loss, claim, damage, liability or expense
of such Underwriter results from an untrue statement contained in
or the omission of a material fact from the Preliminary Official
Statement which was corrected in the Official Statement (or the
Official Statement as amended or supplemented). This indemnity
agreement will be in addition to any liability or obligation which
the Company may otherwise have to the persons referred to above in
this Paragraph 8(a).
(b) Each Underwriter will indemnify and hold
harmless (i) the Issuer and its members, officers and employees and
(ii) the Company and each person, if any, who controls the Company
within the meaning of either Section 15 of the Act or Section 20 of
the Exchange Act, in each case from and against any and all losses,
claims, damages or liabilities to which such indemnified person may
be subject under the Act, the Exchange Act or otherwise, insofar as
such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or
alleged untrue statement of a material fact contained in the
Preliminary Official Statement or the Official Statement (as
amended or supplemented if the Company or the Issuer shall have
furnished any amendments or supplements thereto), or arise out of
or are based upon any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make
the statements therein not misleading, in each case to the extent,
but only to the extent that such untrue statement or omission or
alleged untrue statement or omission was made in the Preliminary
Official Statement, the Official Statement or any amendment or
supplement thereto in reliance upon or in conformity with written
information furnished to the indemnified person by or on behalf of
such Underwriter expressly for use therein, and the Underwriters
agree to reimburse such indemnified person for any legal or other
expenses reasonably incurred by such indemnified person in
connection with investigating, preparing to defend or defending any
such action or claim.
(c) Promptly after receipt by an indemnified person
under subsection (a) or (b) above of notice of the assertion of any
claim or the commencement of any action, such indemnified person or
its affiliate that is a party to this Purchase Agreement shall, if
a claim in respect thereof is to be made against the indemnifying
party under such subsection, notify the indemnifying party in
writing of the assertion or the commencement thereof; but the
omission to so notify the indemnifying party (i) shall not relieve
it from any liability which it may have to any indemnified person
under such subsection unless and to the extent such failure
prejudices the indemnifying party of substantial rights or
defenses; and (ii) shall not, in any event, relieve the
indemnifying party from any obligations to any indemnified person
other than the indemnification obligations under such subsection.
In case any such action shall be brought against any indemnified
person or its affiliate that is a party to this Purchase Agreement
shall notify the indemnifying party of the commencement thereof,
the indemnifying party shall be entitled to participate therein
and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified
person. Notwithstanding the indemnifying party's election to
appoint counsel to represent the indemnified person in an action,
the indemnified person shall have the right to employ separate
counsel (including local counsel) and the indemnifying party shall
bear the reasonable fees, costs and expenses of such separate
counsel if and only if (i) the use of counsel chosen by the
indemnifying party to represent the indemnified person would
present such counsel with a conflict of interest, (ii) the
indemnifying party shall not have employed counsel reasonably
satisfactory to the indemnified person to represent the indemnified
person within a reasonable time after notice of the institution of
such action, or (iii) the indemnifying party shall authorize the
indemnified person to employ separate counsel at the expense of the
indemnifying party. It is understood that the indemnifying party
shall, in connection with any such action or separate but
substantially similar or related actions in the same jurisdiction
arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of only one separate
firm of attorneys together with appropriate local counsel at any
time from all indemnified persons not having actual differing
interests with any other indemnified person. An indemnifying party
will not, without the prior written consent of the indemnified
parties, settle or compromise or consent to the entry of any
judgment with respect to any pending or threatened claim, action,
suit or proceeding in respect of which indemnification or
contribution may be sought hereunder (whether or not the
indemnified parties are actual or potential parties to such claim
or action) unless such settlement, compromise or consent includes
an unconditional release of each indemnified person from all
liability arising out of such claim, action, suit or proceeding.
(d) If for any reason whatsoever (other than
because and to the extent that any of the following are applicable:
(A) the exception to Paragraph 8(a) provided in the next to last
sentence of Paragraph 8(a) above, or (B) the specific reasons set
forth in the first sentence of Paragraph 8(c) above pursuant to
which an indemnified person would not be entitled to
indemnification pursuant to Paragraph 8(a) above), the
indemnification provided for in Paragraph 8(a) or (b) above is
unavailable to an indemnified person referred to therein in respect
of any losses, claims, damages, liabilities, judgments or other
expenses covered by Paragraph 8(a) or (b), then each indemnifying
party, in lieu of indemnifying such indemnified person, shall
contribute to the amount paid or payable by such indemnified person
as a result of such losses, claims, damages, liabilities, judgments
and expenses (i) in such proportion as is appropriate to reflect
the relative benefits received by the Company on the one hand and
the Underwriters on the other from the offering of the Bonds, or
(ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate
to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company on the one hand
and the Underwriters on the other in connection with the actions,
statements or omissions which resulted in such losses, claims,
damages, liabilities or expenses, as well as any other relevant
equitable considerations. The relative benefits received by the
Company on the one hand and the Underwriters on the other shall be
deemed to be in the same proportion as the maximum total proceeds
to be received, or the actual proceeds received, by the Company
from the sale of the Bonds (before deducting expenses), whether or
not consummated, bear to the total fee received by the Underwriters
pursuant to the last paragraph of section 1 of this Purchase
Agreement (the "Underwriting Fee"). The relative fault of the
Company on the one hand and the Underwriter on the other shall be
determined by reference to, among other things, whether any untrue
or alleged untrue statement of a material fact or the omission to
state a material fact relates to information supplied by the
Company or by the Underwriter, and the parties' relative intent,
knowledge, access to information and opportunity to correct or
prevent such statement or omission.
(e) The Company and the Underwriters agree that it
would not be just and equitable if contribution pursuant to
paragraph 8(d) were determined by pro rata allocation or by any
other method of allocation which does not take account of the
equitable considerations referred to in the immediately preceding
paragraph. The amount paid or payable by an indemnified person as
a result of the losses, claims, damages, liabilities or judgments
referred to in the immediately preceding paragraph shall be deemed
to include, subject to the limitation set forth above, any legal or
other expenses reasonably incurred by such indemnified person in
connection with investigating or defending any such action or
claim. Notwithstanding the provisions of Paragraph 8(d), in no
event shall any Underwriter be required to contribute any amount in
excess of the amount by which one-half of the Underwriting Fee
exceeds the amount of any damages which such Underwriter has
otherwise been required to pay by reason of such untrue or alleged
untrue statement or omission or alleged omission. No person guilty
of fraudulent misrepresentation (within the meaning of Paragraph
11(f) of the Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. The
Underwriters' obligations to contribute pursuant to Paragraph 8(d)
are several on a co-equal (i.e., 50-50) basis.
9. Survival of Representations, Warranties and
Agreements. All representations, warranties and agreements of the
Issuer and the Company, and all agreements of the Underwriters, set
forth in this Agreement shall remain operative and in full force
and effect regardless of (a) any investigation, or statement as to
the results thereof, made by or on behalf of the Underwriters (b)
delivery of and payment for the Bonds, and (c) any termination of
this Agreement.
10. Information Furnished By Underwriters.
The Company acknowledges that the following
information constitutes the only written information furnished by
or on behalf of any Underwriter expressly for inclusion in the
Preliminary Official Statement or the Official Statement (or any
supplement thereto): (i) the statements set forth in capital
letters on the inside front cover regarding stabilization, and (ii)
the paragraph of text on page 13 under the caption "Underwriting."
11. Determination of End of Underwriting Period.
(a) For purposes of this Agreement, the "End of the
Underwriting Period" shall mean the earlier of (i) the Closing
Date, unless the Issuer and the Company have each been notified to
the contrary by the Representative on or prior to the Closing Date,
or (ii) the date on which the "end of the underwriting period" for
the Bonds has occurred under Rule 15c2-12; provided, however, that
the Issuer and the Company shall be entitled to treat as the End of
the Underwriting Period the date specified in the notification of
the Representative required under subparagraph (c) of this
Paragraph 11.
(b) The Representative shall provide to the Issuer
and the Company, upon request, such information as may be
reasonably required by the Issuer or the Company in order to
determine whether the "end of the underwriting period" for the
Bonds has occurred under Rule 15c2-12 with respect to the unsold
balance of Bonds that are held by any Underwriter for sale to the
public within the meaning of Rule 15c2-12.
(c) As soon as practicable following receipt
thereof, the Representative shall deliver the Official Statement,
and any supplement or amendment thereto, to a nationally recognized
municipal securities information repository approved by the
Commission.
12. Section Headings; Execution in Counterparts.
Section headings in this Agreement are inserted for convenience of
reference only and shall not be considered a part of, or used in
the interpretation of any provisions of, this Agreement. This
Agreement may be executed and accepted in any number of
counterparts, all of which taken together shall constitute one and
the same instrument, and any of the parties hereto may execute or
accept this Agreement by signing any such counterpart.
13. Notice and Other Actions. All notices, requests,
demands and formal actions hereunder shall be in writing and mailed
by registered or certified mail, postage prepaid, or delivered
personally or by any recognized overnight delivery service with
charges prepaid, to the following address:
The Issuer:
Luzerne County Industrial Development Authority
54 West Union Street
Wilkes-Barre, PA 18701
Attention: Secretary
with a copy to:
Hourigan, Kluger, Spohrer & Quinn, P.C.
700 Mellon Bank Center
8 West Market Street
Wilkes-Barre, PA 18701-1861
The Representative:
Legg Mason Wood Walker, Inc.
Jordan Building
203 Franklin Avenue
Scranton, PA 18503-1996
Attention: Thomas Karam
The Company:
Pennsylvania Gas and Water Company
Wilkes-Barre Center
39 Public Square
Wilkes-Barre, PA 18711-1601
Attention: Secretary
14. Parties In Interest. This Agreement is made solely
for the benefit of the Underwriters, the Company, the Issuer and
their respective successors and assigns, and no other person or
entity shall acquire or have any rights under or by virtue of this
Agreement. The terms "successors" and "assigns" shall not include
any purchaser of Bonds from or through any Underwriter merely
because of such purchase.
15. Governing Law. This Agreement shall be governed by
and construed in accordance with the laws of the Commonwealth of
Pennsylvania.
16. Severability. The provisions of this Agreement are
intended to be severable. If any provision of this Agreement shall
be held invalid or unenforceable in whole or in part in any
jurisdiction such provision shall, as to such jurisdiction, be
ineffective to the extent of such invalidity or unenforceability
without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions
hereof in any jurisdiction.
17. Time of the Essence. Time shall be of the essence
in this Agreement.
18. Limitation of Issuer's Liability. Notwithstanding
<PAGE>
anything to the contrary herein or in the Bonds, the liability of
the Issuer under this Purchase Agreement or any other instrument,
certificate or agreement executed in connection with the issuance
of the Bonds shall be and hereby is limited for all purposes to the
Issuer's interest in the 1993 First Mortgage Bonds and the
Agreement. In taking any action under this Purchase Agreement or
any other instrument, certificate or agreement executed in
connection with the issuance of the Bonds, the Issuer shall be
entitled to rely upon written directions of the Company and counsel
of nationally recognized standing in matters pertaining to bonds
issued by states and their political subdivisions and shall be
entitled to payment from the Company of all reasonable costs, fees
and expenses incurred or imposed by the Issuer in connection with
the Bonds.
Very truly yours,
LEGG MASON WOOD WALKER, INCORPORATED
By:
Title:
ACCEPTED AND AGREED as of the
date first above written:
LUZERNE COUNTY INDUSTRIAL
DEVELOPMENT AUTHORITY
By:
Authorized Officer
PENNSYLVANIA GAS AND WATER COMPANY
By:
Vice President, Finance<PAGE>
EXHIBIT A
DESCRIPTION OF CERTAIN PROVISIONS OF BONDS
Maturity Date: January 1, 2019
Interest Rate: 6.05%
Redemption Provisions: The Bonds are subject to redemption as
follows:
Optional Redemption. The Bonds are subject to redemption
prior to maturity, at the option of the Issuer, upon direction
of the Company, on any date on or after January 1, 2004, in
whole, or in part by lot, upon payment of the applicable
redemption price shown below (such price being expressed as a
percentage of the principal amount of Bonds to be redeemed),
plus interest accrued to the date fixed for redemption.
[CAPTION]
Redemption Period Redemption Price
(both dates inclusive)
[S] [C]
January 1, 2004 through December 31, 2004 102%
January 1, 2005 through December 31, 2005 101%
January 1, 2006 and thereafter 100%
Extraordinary Optional Redemption. The Bonds are subject to
redemption at any time prior to maturity at the option of the
Authority, upon the direction of the Company, in whole, at a
redemption price equal to 100% of the principal amount thereof,
plus interest accrued to the date fixed for redemption, if any of
the following events shall have occurred:
(i) the damage or destruction of all or substantially all of
the Project Facilities to such extent that, in the reasonable
opinion of the Company, the repair and restoration thereof would
not be economical; or
(ii) the condemnation of all or substantially all of the
Project Facilities or the taking by condemnation of any part, use
or control of the Project Facilities so as to render them
unsatisfactory to the Company for their intended use; or
(iii) in the Company's reasonable opinion, (1) unreasonable
burdens or excess liabilities shall have been imposed upon the
Company with respect to the Project Facilities or the operation
thereof, including, but without being limited to, federal, state or
other ad valorem, property, income or other taxes not being imposed
on the date of the Agreement other than ad valorem taxes presently
levied upon privately owned property used for the same general
purpose as the Project Facilities, or (2) the continued operation
of the Project Facilities is impractical, uneconomical or
undesirable for any reason; or
(iv) as a result of any change in the Constitution of
Pennsylvania or the Constitution of the United States of America,
or by legislative or administrative body (whether state or
federal), or by a final decree, a judgment or order of any court or
administrative body (whether state or federal), after any contest
thereof by the Company in good faith, the Indenture, the Agreement
or the Bonds shall become void or unenforceable or impossible of
performance in accordance with the intent and purposes of the
Issuer and the Company as expressed in the Agreement.
Any such redemption shall be on any date within 180 days
following the occurrence of one of the events listed above.
Special Mandatory Redemption. The Bonds are subject to
mandatory redemption in whole at any time at a redemption price
equal to 100% of the principal amount thereof, together with
accrued interest to the date fixed for redemption, within 180 days
after the occurrence of any "final determination" that, as a result
of a failure by the Company to observe any covenant, agreement or
representation in the Agreement, the interest payable on the Bonds
or any of them is includable for federal income tax purposes in the
gross income of any owner of a Bond, other than an owner who is a
"substantial user" of the Project Facilities or a "related person"
as provided in Section 147(a) of the Internal Revenue Code of 1986,
as amended (the "Code"). As used in the preceding sentence, a
"final determination" shall be deemed to have occurred upon the
issuance to that effect of a published or private ruling or
technical advice by the Internal Revenue Service or a judicial
decision in a proceeding by any court of competent jurisdiction in
the United States (from which ruling, advice or decision no further
right of appeal exists), in all cases in which the Company has
participated or been a party or has been given an opportunity to
participate and has failed to do so; provided, however, that if the
final determination of taxability shall include the determination
that the interest on an amount less than all of the Bonds
outstanding is includable in the gross income of the owners
thereof, and the loss of tax exemption can be cured by a partial
redemption of the Bonds, then only such amount of the Bonds shall
be redeemed (at the redemption price set forth above, together with
accrued interest to the date fixed for redemption); and provided
further, however, that no decree or judgment by any court or action
by the Internal Revenue Service shall be considered a final
determination unless (i) the Issuer has given the Company and the
Trustee prompt written notice of the commencement of such action or
judicial proceeding which resulted in such decree or judgment, and
(ii) the Issuer offers the Company, at the Company's expense, the
opportunity to control the defense thereof.
Notwithstanding the foregoing, if the lien of the Indenture is
discharged prior to the occurrence of a final determination, the
Bonds will not be redeemed as described above.
<PAGE>
EXHIBIT B
STATEMENT OF ESTIMATED SOURCES AND USES
As set forth in the Official Statement
<PAGE>
EXHIBIT C
LETTER FROM ARTHUR ANDERSEN & CO.
Pursuant to Paragraph 5(d) of the Purchase Agreement, Arthur
Andersen & Co. shall furnish a letter to the Underwriters to the
effect that:
(i) They are independent certified public accountants
with respect to the Company and its subsidiaries within the meaning
of the Securities Act of 1933, as amended, and the applicable
published rules and regulations thereunder;
(ii) In their opinion, the financial statements and any
supplementary financial information and schedules audited by them
and included or incorporated by reference in the Preliminary
Official Statement or the Official Statement comply as to form in
all material respects with the applicable accounting requirements
of the Act or the Exchange Act, as applicable, and the published
rules and regulations thereunder;
(iii) The unaudited selected financial information with
respect to the results of operations and financial position of the
Company for the five most recent fiscal years included in the
Preliminary Official Statement and the Official Statement agrees
with the corresponding amounts in the audited financial statements
for such five fiscal years which were included or incorporated by
reference in the Company's Annual Reports on Form 10-K for such
fiscal years;
(iv) On the basis of limited procedures, not constituting
an examination in accordance with generally accepted auditing
standards, consisting of a reading of the unaudited financial
statements and other information referred to below, a reading of
the latest interim financial statements of the Company and its
subsidiaries, a reading of the minute books of the Company and its
subsidiaries since the date of the latest audited financial
statements included or incorporated by reference in the Preliminary
Official Statement and the Official Statement, inquiries of
officials of the Company and its subsidiaries responsible for
financial and accounting matters and such other inquiries and
procedures as may be specified in such letter, nothing came to
their attention that caused them to believe that:
(A) the unaudited condensed statements of income,
balance sheets and statements of cash flows included or
incorporated by reference in the Company's Quarterly
Reports on Form 10-Q incorporated by reference in the
Preliminary Official Statement and the Official Statement
do not comply as to form in all material respects with
the applicable accounting requirements of the Securities
Exchange Act of 1934, as amended, as it applies to Form
10-Q and the related published rules and regulations
thereunder or are not in conformity with generally
accepted accounting principles applied on a basis
substantially consistent with the basis for the audited
statements of income, balance sheets and statements of
cash flows included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent
fiscal year;
(B) any other unaudited income statement data and
balance sheet items included in the Preliminary Official
Statement and the Official Statement do not agree with
the corresponding items in the unaudited financial
statements from which such data and items were derived,
and any such unaudited data and items were not determined
on a basis substantially consistent with the basis for
the corresponding amounts in the audited financial
statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent
fiscal year;
(C) the unaudited financial statements which were
not included in the Preliminary Official Statement and
the Official Statement but from which were derived the
unaudited condensed financial statements referred to in
clause (A) and any unaudited income statement data and
balance sheet items included in the Preliminary Official
Statement and the Official Statement and referred to in
clause (B) were not determined on a basis substantially
consistent with the basis for the audited financial
statements included or incorporated by reference in the
Company's Annual Report on Form 10-K for the most recent
fiscal year;
(D) any unaudited pro forma condensed financial
statements included or incorporated by reference in the
Preliminary Official Statement and the Official Statement
do not comply as to form in all material respects with
the applicable accounting requirements of the Securities
Act of 1933, as amended, and the published rules and
regulations thereunder or the pro forma adjustments have
not been properly applied to the historical amounts in
the compilation of those statements;
(E) as of a specified date not more than five days
prior to the date of such letter, there have been any
changes in the capital stock or any increase in the long-
term debt of the Company, or any decreases in net current
assets or net assets or other items specified by the
Underwriters, or any increases in any items specified by
the Underwriters, in each case as compared with amounts
shown in the last balance sheet included or incorporated
by reference in the Preliminary Official Statement and
the Official Statement, except in each case for changes,
increases or decreases which the Preliminary Official
Statement and the Official Statement disclose have
occurred or may occur or which are described in such
letter; and
(F) for the period from the date of latest
financial statements included or incorporated by
reference in the Preliminary Official Statement and the
Official Statement to the specified date referred to in
clause (E) there were any decreases in total operating
revenues or the total or per share amounts of net income
or other items specified by the Underwriters, or any
increases in any items specified by the Underwriters, in
each case as compared with the comparable period of the
preceding year and with any other period of corresponding
length specified by the Underwriters, except in each case
for increases or decreases which the Preliminary Official
Statement and the Official statement disclose have
occurred or may occur or which are described in such
letter; and
(v) In addition to the examination referred to in their
report(s) included or incorporated by reference in the Preliminary
Official Statement and the Official Statement and the limited
procedures, reading of minute books, inquiries and other procedures
referred to in paragraphs (iii) and (iv) above, they have carried
out certain specified procedures, not constituting an audit in
accordance with generally accepted auditing standards, with respect
to certain amounts, percentages and financial information specified
by the Underwriters which are derived from the general accounting
records of the Company and its subsidiaries, which appear in the
Preliminary Official Statement and the Official Statement
(excluding documents incorporated by reference) and have compared
certain of such amounts, percentages and financial information with
the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
<PAGE>
EXHIBIT D
FORM OF OPINION OF LE BOEUF, LAMB, LEIBY & MAC RAE
[Date of Closing]
Ladies and Gentlemen:
We have acted as special counsel to Pennsylvania Gas and Water
Company, a Pennsylvania corporation (the "Company"), in connection
with the issuance and sale by the Luzerne County Industrial
Development Authority (the "Authority") of $19,000,000 aggregate
principal amount of its Exempt Facilities Revenue Refunding Bonds,
1993 Series A (Pennsylvania Gas and Water Company Project) (the
"Bonds"). The Bonds are being sold to the underwriters (the
"Underwriters") named in the Bond Purchase Agreement dated December
2, 1993 (the "Bond Purchase Agreement") among the Company, the
Authority and the Underwriters.
This opinion is being furnished to you in accordance with
Paragraph 6(c)(8) of the Bond Purchase Agreement. Capitalized
terms not otherwise defined herein shall have the corresponding
meanings given them (i) first, in order of priority, in the Bond
Purchase Agreement and, if not defined therein, (ii) in the
Official Statement dated December 2, 1993, relating to the Bonds
(the "Official Statement").
In such capacity, we have participated in the preparation of
portions of (i) the Preliminary Official Statement dated November
15, 1993 (the "Preliminary Official Statement") relating to the
Bonds, and (ii) the Official Statement. We have also represented
the Company before the Pennsylvania Public Utility Commission
("PPUC"), the Pennsylvania Department of Environmental Regulation
("DER") and in other regulatory matters. PPUC, DER and the United
States Environmental Protection Agency are collectively referred to
as the "Regulatory Authorities".
In rendering the opinions set forth below, we also have
examined such certificates of public officials, corporate records
and documents and other instruments, and have made such other
investigations, as we have deemed necessary in connection with the
opinions hereinafter set forth. As to certain issues of fact
material to such opinions, we have relied upon certificates of
officers of the Company and upon the representations of the Company
contained in the Bond Purchase Agreement.
We have assumed that the documents we have reviewed in
connection with this opinion which purport to have been executed by
parties other than the Company or Pennsylvania Enterprises, Inc.,
a Pennsylvania corporation, which is the Company's parent ("PEI"),
or the directors and officers of the Company or PEI have been duly
executed by such parties and that such parties had all requisite
power to enter into and perform all obligations thereunder, that
execution and delivery thereof have been duly authorized by all
requisite action and that the subject instruments are valid and
binding upon said parties.
We have assumed the authenticity of all documents submitted to
us as originals, the genuineness of all signatures thereon, and the
legal capacity of natural persons executing such documents and the
conformity to originals of all documents submitted to us as copies
and the authenticity of such originals.
Based upon the foregoing, and subject to the limitations
contained herein, we are of the opinion that:
(i) The Company has been duly incorporated and is
validly existing as a corporation in good standing under the laws
of the Commonwealth of Pennsylvania, with full corporate power and
authority to own, lease and operate its properties and conduct its
business as described in the Preliminary Official Statement and the
Official Statement, to issue the 1993 First Mortgage Bonds, to
execute and deliver the Bond Purchase Agreement, the Agreement, the
Refunding Agreement, the Twenty-Eighth Supplemental Mortgage
Indenture and all other documents being executed and delivered by
it at the Closing and to perform its obligations thereunder.
(ii) The Bond Purchase Agreement, the Agreement, the
Refunding Agreement and the Twenty-Eighth Supplemental Mortgage
Indenture have been duly authorized, executed and delivered by the
Company and are valid, legally binding and enforceable instruments
in accordance with their terms, except (a) as rights of indemnity
or contribution are limited by public policy or by law, (b) as
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting
creditors' rights generally, and (c) as enforcement thereof is
subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(iii) The 1993 First Mortgage Bonds have been duly
authorized, issued and executed by the Company and are the legal,
valid and binding obligations of the Company, enforceable in
accordance with their terms, and are entitled to the benefits and
security of the Mortgage in accordance with its terms and are
secured thereby equally and ratably with all first mortgage bonds
of the Company outstanding under the Mortgage, except as
enforcement thereof may be limited by applicable bankruptcy,
insolvency, reorganization or other similar laws affecting
creditors' rights generally and except as enforcement thereof is
subject to general principles of equity (regardless of whether
enforcement is considered in a proceeding in equity or at law).
(iv) The Company has filed with the PPUC, pursuant to the
provisions of Chapter 19 of the Pennsylvania Public Utility Code,
a securities certificate relating to the issuance and sale of the
1993 First Mortgage Bonds, and such Securities Certificate has been
registered by order of such Commission dated August 26, 1993, which
Order is in effect as of the date of this opinion and is not
subject to any appeal or modification which could affect the
validity or terms of the 1993 First Mortgage Bonds. To the extent
required by applicable Pennsylvania law, all issued and outstanding
equity and debt securities of the Company have been issued pursuant
to valid security certificates registered by the PPUC.
(v) Except for the Order of the PPUC referred to in
paragraph (iv) above, no approval by any other governmental
authorities, federal, state or otherwise, is required in connection
with the issue and sale of the 1993 First Mortgage Bonds and the
execution and delivery of the Agreement, the Bond Purchase
Agreement, the Refunding Agreement and the Twenty-Eighth
Supplemental Mortgage Indenture, except as may be required under
state or foreign securities or Blue Sky laws and regulations, as to
which no opinion is being rendered.
(vi) The Company possesses, with minor exceptions or
qualifications, such valid franchises, water rights, licenses or
permits, free from unduly burdensome restrictions and of
indeterminate duration, as are usual for the adequate conduct of
the business of the Company in the Commonwealth of Pennsylvania.
(vii) The Twenty-Eighth Supplemental Mortgage Indenture
and a UCC-l financing statement in respect thereof have been filed
for recordation in such manner (including, with respect to the
financing statement, the notation on such financing statement that
the debtor is a transmitting utility) and in such places as is
required by law in order to establish, preserve and protect the
lien of the Mortgage on all real estate and fixed property of the
Company (excluding easements and other similar rights) described in
the Mortgage as subject to the lien thereof, except as described in
paragraph (ix) below.
(viii) Under existing law, no recording, registration,
filing, re-recording, re-registration or re-filing of the Mortgage,
any indenture supplemental thereto, any UCC-l financing statement
or any other document is necessary to maintain the lien of the
Mortgage upon any such property now subject to the lien thereof.
However, as to real property acquired after October 31, 1993, the
lien of the Mortgage will be an equitable lien rather than a legal
lien in the absence of recordation of a supplemental indenture
specifically conveying such property.
(ix) The Mortgage, as security for the Company's
obligations with respect to the 1993 First Mortgage Bonds, creates
a valid first lien on all real estate and fixed property (excluding
easements and other similar rights) specifically described therein
as subject to the lien thereof other than property released from
the Mortgage in accordance with the terms thereof or parcels
recently sold for which a release has not yet been obtained but
which are not material, individually or in the aggregate, subject
only to (a) permitted encumbrances as defined in the Mortgage, (b)
other liens permitted under the Mortgage, (c) liens, encumbrances
and title defects not discoverable by a diligent search of the
public land records and judgments indices, and (d) minor defects
and encumbrances customarily found in the case of properties of
like size and character and defects in rights-of-way and easements
existing at the time of acquisition thereof by the Company, none of
which impair the use of such properties by the Company. However,
as to real property acquired after October 31, 1993, the lien of
the Mortgage will be an equitable lien rather than a legal lien in
the absence of recordation of a supplemental indenture specifically
conveying such property.
(x) Neither the Company nor PEI is in violation of any
provision of their respective Articles of Incorporation or By-Laws
or, to our knowledge after due inquiry, in violation of or default
in the performance or observance of any obligation, agreement,
covenant or condition contained in any material contract,
indenture, mortgage, loan agreement, note, lease or other
instrument to which any of them is a party or by which any of them
or their properties may be bound, which has been filed with or
submitted to any Regulatory Authority or the Securities and
Exchange Commission ("Filed Documents") (except for such defaults
that would not have a material adverse effect on the financial
condition or operations of the Company and its subsidiaries taken
as a whole and that would not affect the validity of the Bond
Purchase Agreement, the Agreement, the Twenty-Eighth Supplemental
Mortgage Indenture, the 1993 First Mortgage Bonds and the Refunding
Agreement). Without limitation of the foregoing, to our knowledge
after due inquiry, (a) no event has occurred which, with the giving
of notice or lapse of time or both, would be an event of default
under any Filed Documents governing indebtedness of the Company or
PEI, and (b) the execution and delivery of the Bond Purchase
Agreement, the Refunding Agreement, the Twenty-Eighth Supplemental
Mortgage Indenture and the Agreement did not and the issuance of
the Bonds and the 1993 First Mortgage Bonds, the compliance by the
Company with all of the terms and provisions of the Bond Purchase
Agreement, the Agreement, the Twenty-Eighth Supplemental Mortgage
Indenture and the Refunding Agreement, and the consummation of the
transactions therein contemplated will not conflict with or
constitute a breach of, or default under (except for such
conflicts, breaches, and defaults that would not have a material
adverse effect on the financial condition or operations of the
Company and its subsidiaries taken as a whole and that would not
affect the validity of the Bond Purchase Agreement, the Agreement,
the Twenty-Eighth Supplemental Mortgage Indenture, the 1993 First
Mortgage Bonds and the Refunding Agreement), or result in the
creation or imposition of any lien, charge or encumbrance upon any
property or assets of the Company or PEI pursuant to any Filed
Documents to which the Company or PEI is a party or by which it or
any of them may be bound or to which any of the property or assets
of the Company or PEI is subject, other than the Mortgage. The
issuance of the 1993 First Mortgage Bonds and the Bonds (by the
Issuer) does not violate the provisions of the Articles of
Incorporation or By-Laws of the Company or PEI. To our knowledge
after due inquiry, the issuance of the 1993 First Mortgage Bonds
does not violate any law, published rule, regulation administered
or order issued by any Regulatory Authority or pursuant to any
Filed Document.
(xi) Except for such exceptions to the following as do
not or will not, individually or in the aggregate, have a material
adverse effect on the business, financial (or other) conditions,
results of operations or prospects of the Company, (a) the Company
has such Permits from any Regulatory Authority as are necessary to
own its properties and to conduct its business in the manner now
being conducted and as described in the Preliminary Official
Statement and the Official Statement, (b) to our knowledge after
due inquiry the Company has fulfilled and performed all of its
obligations with respect to such Permits, and no event has occurred
which allows, or after notice or lapse of time would allow,
revocation or termination thereof or result in any other impairment
of the rights of the holder of any such Permit, and (c) the Company
has not received any notice of proceedings relating to the
revocation or modification of any such Permit. To our knowledge
after due inquiry, there is no proceeding pending or threatened to
be brought before the PPUC against the Company that may cause any
Permit material to the operations of the Company to be revoked,
withdrawn, canceled, suspended or not renewed. To our knowledge
after due inquiry, the Company is in substantial compliance with
the provisions of the Pennsylvania Public Utility Code, 66
Pa.C.S.A. Subsection 101 et seq., and the rules and regulations of the PPUC
thereunder and any applicable orders of the PPUC and with all
federal and state drinking water statutes and regulations.
(xii) To our knowledge after due inquiry, except as
described or referred to in the Preliminary Official Statement and
the Official Statement, there is no action, suit or proceeding
before or by any court or Regulatory Authority, now pending or
threatened, against or affecting the Company which might (i) result
in any material adverse change in the condition, financial or
otherwise, earnings, affairs or business prospects of the Company,
(ii) materially and adversely affect the properties or assets of
the Company, or (iii) materially and adversely affect the issuance
of the 1993 First Mortgage Bonds.
(xiii) Statements in Appendix A of the Preliminary
Official Statement and the Official Statement, to the extent such
statements describe regulation by, or action of, the Regulatory
Authorities, or laws administered by any of them, constitute a fair
and accurate summary of the legal matters, terms, documents,
proceedings or circumstances referred to therein, and present or
summarize fairly in all material respects the information disclosed
therein.
(xiv) The Company is not subject to the Natural Gas Act,
15 U.S.C. Subsection 717 et seq.
Where an opinion set forth above is qualified, (i) "to our
knowledge," it is intended to be limited to the actual knowledge of
the attorneys in this Firm who have participated in our
representation of the Company in the issuance of the 1993 First
Mortgage Bonds, or our representation of the Company before the
PPUC and in other regulatory matters, [and (ii) "after due inquiry"
consists solely of a review of the subject matter of the opinions
so qualified with appropriate officers of the Company and PEI and
a review of such documents or agreements as may have been
identified by such officers of the Company and PEI as being
necessary to be reviewed in connection with the subject matter of
such opinions.]
The opinions expressed above in paragraphs (vii) and (ix) are
based upon searches and opinions made by other or prior counsel,
and in our opinion such counsel are, or in the case of prior
opinions were, competent and qualified and such opinions are
satisfactory in scope and form and may be relied upon.
The foregoing opinions are limited to the laws of the United
States and the Commonwealth of Pennsylvania.
In addition to the matters set forth above, this is to confirm
that, although we have not independently verified and are not
passing upon or assuming any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Preliminary Official Statement and the Official Statement (except
in respect of the matters covered by paragraph (xiii)) nothing has
come to our attention during the course of our representation of
the Company in connection with matters relating to the Preliminary
Official Statement and the Official Statement and our general
representation of the Company in regulatory matters that causes us
to believe that the Preliminary Official Statement and the Official
Statement (except as to the financial statements, schedules and
other financial information contained or incorporated by reference
therein or omitted therefrom as to which we express no view)
contained any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in
order to make the statements therein not misleading.
The opinions and beliefs expressed herein are for your sole
benefit, and may only be relied on by you. With respect to the
first sentence of paragraph (x) of the foregoing opinion, as it
applies to certain financial covenants, we have only relied upon a
certificate of John F. Kell, Jr., Vice President of Finance of the
Company and PEI, relating to such financial covenants and have not
undertaken any investigation and do not express any opinion as to
the calculations required by such financial covenants.
Very truly yours,
LeBoeuf, Lamb, Leiby & MacRae
<PAGE>
EXHIBIT E
FORM OF OPINION OF HUGHES HUBBARD & REED
[Date of Closing]
Ladies and Gentlemen:
We have acted as special counsel to Pennsylvania Gas and Water
Company, a Pennsylvania corporation (the "Company"), in connection
with the issuance and sale by the Luzerne County Industrial
Development Authority (the "Authority") of $19,000,000 aggregate
principal amount of its Exempt Facilities Revenue Refunding Bonds,
1993 Series A (Pennsylvania Gas and Water Company Project) (the
"Bonds"). The Bonds are being sold to underwriters (the
"Underwriters") pursuant to the Bond Purchase Agreement dated
December 2, 1993 (the "Bond Purchase Agreement") among the Company,
the Authority and the Underwriters.
This opinion is being furnished to you at the request of the
Company pursuant to paragraph (9) of Section 6(c) of the Bond
Purchase Agreement. Except as otherwise indicated herein,
capitalized terms used in this Opinion Letter are defined as set
forth in the Bond Purchase Agreement or the Accord (see below).
This Opinion Letter is governed by, and shall be interpreted
in accordance with, the Legal Opinion Accord (the "Accord") of the
ABA Section of Business Law (1991). As a consequence, it is
subject to a number of qualifications, exceptions, definitions,
limitations on coverage and other limitations, all as more
particularly described in the Accord, and this Opinion Letter
should be read in conjunction therewith.
The law covered by the opinion set forth below is limited
to (a) the Public Utility Holding Company Act of 1935, as amended
(the "PUHCA"), and the rules and regulations under such statute,
and (b) the Laws of the State of New York.
In our capacity as special counsel, we have participated with
other counsel in the preparation of (i) the Preliminary Official
Statement dated November 15, 1993 (the "Preliminary Official
Statement") relating to the Bonds and (ii) the Official Statement.
We have also represented the Company or PEI (as defined below) in
connection with, or are otherwise generally familiar with, the
agreements or instruments listed on Annex A to this opinion (the
"Covered Agreements").
In rendering the opinion set forth below, we also have
examined such certificates of public officials, corporate records
and documents and other instruments, and have made such other
investigations as we have deemed necessary in connection with the
opinion hereinafter set forth. As to certain issues of fact
material to this opinion, we have relied upon certificates of
officers of the Company and upon the representations of the Company
contained in the Bond Purchase Agreement.
We have assumed that the documents we have reviewed in
connection with this opinion which purport to have been executed by
parties other than the Company or Pennsylvania Enterprises, Inc.,
a Pennsylvania corporation, which is the Company's parent ("PEI"),
or the directors and officers of the Company or PEI, have been duly
executed by such parties and that such parties had all requisite
power to enter into and perform all obligations thereunder, that
execution and delivery thereof has been duly authorized by all
requisite action and that such documents are valid and binding upon
such parties.
We have assumed the authenticity of all documents submitted to
us as originals, the genuineness of all signatures thereon, and the
legal capacity of natural persons executing such documents and the
conformity to originals of all documents submitted to us as copies.
Based upon the foregoing, we are of the opinion that:
(i) The terms of the 1993 First Mortgage Bonds and the
Mortgage conform, in all material respects, to the description
thereof contained in the Preliminary Official Statement and the
Official Statement.
(ii) To the Opinion Giver's Actual Knowledge, the
execution and delivery of the Bond Purchase Agreement, the
Agreement, the Refunding Agreement and the Twenty-Eighth
Supplemental Mortgage Indenture, and the issuance and sale of the
1993 First Mortgage Bonds, do not constitute a default under any of
the Covered Agreements, except for such defaults that would not
have a material adverse effect on the financial condition or
operations of the Company and its subsidiaries taken as a whole and
that would not affect the validity of the 1993 First Mortgage
Bonds.
(iii) PEI is a "holding company" within the meaning of
the Public Utility Holding Company Act of 1935 ("PUHCA"), but is
exempt, pursuant to Section 3(a) of PUHCA, from all the provisions
of PUHCA (except Section 9(a)(2) thereof) and the rules and
regulations thereunder, assuming that, (A) no person, except PEI,
directly or indirectly owns, controls or holds with power to vote
10% or more of the voting securities (as defined in PUHCA) of the
Company, and (B) no person, directly or indirectly, owns, controls
or holds with power to vote 10% or more of the voting securities
(as defined in the PUHCA) of PEI.
With respect to paragraph (ii) of the foregoing opinion as it
applies to certain financial covenants, we have relied only upon a
certificate of John F. Kell, Jr., Vice President of Finance of the
Company and PEI, relating to such financial covenants and have not
undertaken any investigation and do not express any opinion as to
the calculations required by such financial covenants.
The opinion and beliefs expressed herein are for the sole
benefit of the Underwriters in connection with the transactions
referred to in the Bond Purchase Agreement and may not be relied
upon for any other purpose.
Very truly yours,
HUGHES HUBBARD & REED
<PAGE>
HUGHES HUBBARD & REED
OPINION RIDER
[Date of Closing]
[Addressees]
Ladies and Gentlemen:
This letter is being delivered to you pursuant to paragraph
(9) of Section 6(c) of the Bond Purchase Agreement, dated December
2, 1993 (the "Bond Purchase Agreement") among Pennsylvania Gas and
Water Company, Luzerne County Industrial Development Authority and
Legg Mason Wood Walker, Incorporated, on behalf of itself and
Butcher & Singer, a Division of Wheat, First Securities, Inc. All
capitalized terms not otherwise defined herein shall have the same
meaning as in the Bond Purchase Agreement.
In connection with the issuance of the Bonds, as special
counsel for the Company, we have assumed the truth of information
furnished to us and have not independently verified and do not
assume any responsibility for the accuracy, completeness or
fairness of the statements contained in the Preliminary Official
Statement or the Official Statement except for and to the extent
set forth in paragraph (i) of our opinion to you of even date
herewith. We have participated in conferences with representatives
of the Company, other counsel for the Company, the independent
public accountants for the Company, your counsel and your
representatives, and bond counsel, at which conferences the
contents of the Preliminary Official Statement and the Official
Statement were discussed. Our examination of the Preliminary
Official Statement and the Official Statement and our participation
in such conferences have not led us to believe that, as of their
respective dates, the Preliminary Official Statement or the
Official Statement (except we express no view as to (x) the
financial statements and schedules and exhibits and other financial
or statistical data contained therein or omitted therefrom and (y)
documents incorporated therein by reference including but not
limited to the documents specified under the heading "Incorporation
of Certain Documents by Reference" in Appendix A to the Preliminary
Official Statement and the Official Statement) contained an untrue
statement of a material fact or omitted to state a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances under which they were made,
not misleading.
We call your attention to the fact that we are not admitted to
practice in the Commonwealth of Pennsylvania and we do not have a
regulated utility practice. Further, we have not advised PEI, the
Company or any of its subsidiaries with respect to their business
operations, including federal and state regulation of their gas and
water businesses (other than the Public Utility Holding Company Act
of 1935), litigation and agreements (other than the Agreements
listed on Annex A hereto).
This letter is furnished by us solely for the benefit of
the Underwriters in connection with the transactions referred to in
the Bond Purchase Agreement and may not be relied upon for any
other purpose without our prior written consent in each instance.
Very truly yours,
HUGHES HUBBARD & REED
