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, 1994, PG&W had approximately 139,300 gas customers and
132,500 water customers.
PG&W has 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.
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
from sales to transportation service. See "GAS BUSINESS-Transportation and
Storage Service."
Since 1986, PG&W has incurred significant expenditures for water treatment
facilities and improvements to its water distribution system. While the PPUC
has approved rate increases since January 1, 1991, designed to produce an
aggregate of $35.8 million in additional annual water operating revenues, PG&W
will require additional rate increases in order to fully recover the capital
investment associated with its water utility operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations-Rate
Matters - Water Rate Filings" in Item 7 of this Form 10-K and "Industry
Segments."
As of December 31, 1994, PG&W employed approximately 965 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.
[CAPTION]
Year Ended December 31,
1994 1993 1992
(Thousands of Dollars)
[S] [C] [C] [C]
GAS UTILITY OPERATIONS
Operating revenues $167,992 $153,325 $143,227
Operating expenses excluding income taxes:
Cost of gas 98,653 86,557 77,720
Depreciation 6,667 6,388 6,087
Other operating expenses 37,247 34,927 34,031
Total 142,567 127,872 117,838
Operating income before income taxes 25,425 25,453 25,389
Income taxes 5,926 6,307 6,129
Operating income $ 19,499 $ 19,146 $ 19,260
Additions to utility plant $ 17,455 $ 13,325 $ 12,669
Identifiable assets at December 31 (a) $290,253 $285,596 $238,017
WATER UTILITY OPERATIONS
Operating revenues $ 66,731 $ 53,363 $ 48,651
Operating expenses excluding income taxes:
Depreciation 7,672 5,911 4,769
Other operating expenses 29,072 29,292 27,347
Deferred treatment plant costs, net 581 (1,532) (294)
Total 37,325 33,671 31,822
Operating income before income taxes 29,406 19,692 16,829
Income taxes 6,573 2,682 2,176
Operating income $ 22,833 $ 17,010 $ 14,653
Additions to utility plant $ 19,321 $ 32,575 $ 44,352
Identifiable assets at December 31 (a) $440,202 $426,389 $379,989
TOTAL OPERATIONS
Operating revenues $234,723 $206,688 $191,878
Operating expenses excluding income taxes:
Cost of gas 98,653 86,557 77,720
Depreciation 14,339 12,299 10,856
Other operating expenses 66,319 64,219 61,378
Deferred treatment plant costs, net 581 (1,532) (294)
Total 179,892 161,543 149,660
Operating income before income taxes 54,831 45,145 42,218
Income taxes 12,499 8,989 8,305
Operating income $ 42,332 $ 36,156 $ 33,913
Additions to utility plant $ 36,776 $ 45,900 $ 57,021
Identifiable assets at December 31 (a) $730,455 $711,985 $618,006
Other assets at December 31 (b) 8,825 14,323 11,866
Total assets $739,280 $726,308 $629,872
(a) Includes allocated common plant and is net of the respective accumulated
depreciation.
(b) Composed primarily of investments, cash and special deposits, prepayments
and unallocated deferred charges.
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Operating income from gas utility operations increased $353,000 (1.8%) from
$19.1 million in 1993 to $19.5 million in 1994, primarily as a result of a $2.6
million increase in the gross margin (gas operating revenues less the cost of
gas), the effect of which was partially offset by a higher level of maintenance
expense because of colder than normal weather in January and February 1994, and
increased gross receipts tax as a result of the higher level of gas revenues.
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 largely offset by a $1.3
million increase in the gross margin. The higher level of additions to gas
utility plant in 1994 was principally the result of increased expenditures for
mains and services.
Operating income from water utility operations increased $5.8 million
(34.2%) from $17.0 million in 1993 to $22.8 million in 1994. 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, as
well as a decrease in other taxes. The effects of these increases were
partially offset by increases in other operations expense, depreciation, net
deferred treatment plant costs 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 the
aforementioned rate increases which became effective in 1993. The effects of
this increase were partially offset by increases in other operations and
maintenance expenses, depreciation, and income and property taxes. Additions to
water utility plant decreased in 1994 and 1993, largely as a 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
116 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, 1994, PG&W had approximately
139,300 natural gas customers, from which it derived total natural gas revenues
of $168.0 million during 1994. The following chart shows a breakdown of the
types of customers and the percentages of gas revenues generated by each type of
customer in 1994:
[CAPTION]
Type of Customer % of Customers % of Revenues
[S] [C] [C]
Residential 91.6% 63.8%
Commercial 8.1 23.8*
Industrial 0.2 10.8*
Other Users 0.1 1.6
Total 100.0% 100.0%
* Includes the 4.0% of total gas revenues derived from interruptible
customers.
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During 1994, PG&W delivered an estimated total of 44,400,000 thousand cubic
feet ("MCF") of natural gas to its customers, of which 56.3% was sold at normal
tariff rates, 40.9% represented gas transported for customers and 2.8% 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 1994, a total of 1,157,000 MCF of natural gas was
sold by PG&W to interruptible customers and 3,712,000 MCF was transported for
such customers, which together represented 11.0% of the total deliveries of
natural gas by PG&W to its customers during 1994.
No individual customer accounted for as much as 2.0% of PG&W's operating
revenues in 1994.
Transportation and Storage Service. PG&W provides transportation service to
natural gas customers who consume at least 5,000 MCF of natural gas per year,
meet certain other conditions and execute a transportation agreement. In
addition, groups of up to ten customers, with a combined consumption of at least
5,000 MCF per year, are eligible for transportation service. Prior to March 25,
1993, transportation service was only provided to individual customers, or
groups of not more than three customers, who consumed at least 50,000 MCF of
natural gas per year. 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 firm
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.
Commencing in April, 1995, PG&W will begin offering a Market Sensitive Sales
Service ("MSSS") in conjunction with its transportation service. The MSSS,
which was approved by Order of the PPUC entered January 11, 1995, provides for
the sale of natural gas at contracted rates based on market prices and other
specified terms and conditions. The MSSS is expected to result in additional
sales of natural gas by PG&W and less transportation of natural gas by it on
behalf of third parties.
Set forth below is a summary of the gas transported by PG&W and the number
of its customers using transportation service from 1992 to 1994:
[CAPTION]
Number Volume of Gas Transported (MCF)
of Interstate Pennsylvania
Year Customers Gas Gas Total
[S] [C] [C] [C] [C]
1994 574 13,411,000 4,744,000 18,155,000
1993 569 10,078,000 4,627,000 14,705,000
1992 457 9,084,000 3,843,000 12,927,000
During 1995, PG&W expects to transport approximately 16,672,000 MCF of
natural gas, of which it anticipates approximately 5,203,000 MCF will be
Pennsylvania gas.
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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
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.
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 $3.7 million
in 1994, $4.6 million in 1993 and $3.4 million in 1992. These revenues
reflected the sale of 1,223,000 MCF, 1,541,000 MCF and 1,149,000 MCF in 1994,
1993, and 1992, respectively. It is anticipated that approximately 1,410,000
MCF will be sold under the Alternate Fuel Rate in 1995. 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 were 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 previous 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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On October 15, 1993, the PPUC adopted an annual purchased gas cost ("PGC")
order (the "PGC Order") regarding the recovery of Order 636 transition costs.
The PGC Order stated that Account 191 and New Facility Costs (the "Gas
Transition Costs") are subject to recovery through the annual PGC rate filing
made with the PPUC by PG&W and other larger local gas distribution companies.
The PGC Order also indicated that while Gas Supply Realignment and Stranded
Costs (the "Non-Gas Transition 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 PGC Order further stated that all such
filings would be evaluated on a case-by-case basis. As of February 1, 1994,
PG&W began to recover the Gas Transition 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 nineteen-month
period extending through March 31, 1995, will aggregate $1.2 million, of which
$1.1 million had been billed to PG&W and $659,000 had been recovered from its
customers as of December 31, 1994. By Order of the PPUC entered August 26,
1994, PG&W began recovering the Non-Gas Transition Costs that it estimates it
will ultimately be billed pursuant to Order 636 through the billing of a
surcharge to its customers effective September 12, 1994. It is currently
estimated that $9.4 million of Non-Gas Transition Costs will be billed to PG&W,
generally over a four-year period extending through the fourth quarter of 1997,
of which $3.8 million had been billed to PG&W and $1.1 million had been
recovered from its customers as of December 31, 1994. As of December 31, 1994,
PG&W had recorded a liability of $5.6 million for the estimated transition costs
that remained to be billed to it as of such date, and both a current asset and a
deferred asset (which together totaled $8.8 million) representing the transition
costs remaining to be recovered from its customers.
Sources of Supply. PG&W purchases natural gas from marketers, producers,
and integrated energy companies, generally under the terms of supply
arrangements that extend for the heating season (i.e., November through March)
or for periods of one year or longer. These contracts typically provide for an
adjustment each month in the cost of gas purchased pursuant thereto based on the
then current market prices for natural gas. The largest individual supplier, an
integrated energy company, accounted for 24.5% of PG&W's total purchases of
natural gas in 1994. No other supplier accounted for more than 15% of PG&W's
total purchases of natural gas in 1994.
The purchases of natural gas by PG&W during each of the years 1994, 1993 and
1992 are summarized below:
[CAPTION]
Volume Average
Year Purchased (MCF) Cost per MCF
[S] [C] [C]
1994 28,364,000 $2.82
1993 26,200,000 $2.98
1992 21,323,000 $2.61
During 1995, PG&W expects to purchase a total of approximately 30,157,000
MCF of natural gas under seasonal or longer-term contracts at a currently
projected average cost of $2.79 per MCF. It is expected that a portion of these
purchases will be made through a company that is being formed by a group of
eight Northeastern and Mid-Atlantic local gas distribution companies including
PG&W, the primary purposes of which will be to increase the reliability of
natural gas supplies and reduce the cost of natural gas for the eight companies.
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PG&W presently has adequate supplies of natural gas to meet the demands of
existing customers through October, 1995, and believes that it will be able to
obtain sufficient supplies to meet the demands of its existing customers and to
serve new customers (of which approximately 3,500 are expected to be added in
1995) beyond October, 1995.
Pipeline Transportation and Storage Entitlements. Pursuant to the terms of
Order 636, PG&W has entered into agreements with its former interstate pipeline
suppliers 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) Includes 3,300 MCF per day that PG&W can transport during the period
December through February pursuant to an agreement with Transco that
extends through 2011.
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.
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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 three years. The maximum capacity so released
on any one day in 1994 was 38,985 MCF. Through March 10, 1995, 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.
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, assuming the curtailment of service to interruptible customers, are
currently estimated to be 302,906 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 303,479 MCF. PG&W's
historic maximum daily sendout is 293,683 MCF, which occurred on January 19,
1994, when service to interruptible customers was curtailed. 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 1994 totaled $17.5 million and are estimated to be $21.9 million for
1995. The higher level of expenditures estimated for 1995 reflects certain
long-term pipeline improvement programs, as well as an increased emphasis on new
business development.
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
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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's gas distribution and transportation activities are not subject to the
Natural Gas Act, as amended.
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 periodic 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 that 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 considered 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." By letter dated February
2, 1994, the PPUC staff indicated that it would initiate an informal
investigation of the matter, including PG&W's responsibility for the incidents
referred to in the Emergency Order. Following discussions between the PPUC
staff and PG&W regarding the development of a mutually acceptable plan, PG&W
submitted a detailed plan of action for complying with the Emergency Order to
the PPUC on April 11, 1994, which was subsequently revised. The PPUC staff
agreed that the revised plan (the "Plan") satisfies the concerns of the PPUC
expressed in the Emergency Order, and on November 30, 1994, the PPUC staff and
PG&W entered into a Settlement Agreement, subject to approval by the PPUC, (i)
terminating the informal investigation initiated by the PPUC staff, (ii)
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memorializing the acceptance by the PPUC staff of the Plan and (iii) evidencing
PG&W's commitment to satisfy the requirements of the Plan. The PPUC must
approve the Settlement Agreement. PG&W does not believe that compliance with
the terms of the Settlement Agreement or any liability that might result from
violations of law or the Emergency Order will have a material adverse effect on
its financial position or results of operations.
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 procedure includes a process for the
reconciliation of actual gas costs incurred and actual revenues received and
also provides 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 this procedure, PG&W placed a purchased gas cost rate of
$3.68 per MCF in effect on December 1, 1994, and is required to file a proposed
purchased gas cost rate on or before June 1, 1995, to be effective December 1,
1995. It is not presently possible to estimate how this proposed rate will
compare to the current purchased gas cost rate of $3.68 per MCF, which is
scheduled to remain in effect through November 30, 1995. The annual changes in
gas rates on account of purchased gas costs have no effect on PG&W's earnings
since the change in revenues is 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.
FERC 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 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 PPUC the prudence of its gas supply costs and,
therefore, will be allowed to recover all such costs in its purchased gas cost
rate.
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 1, 1994,
to reflect the effect of tax legislation enacted by the Commonwealth of
Pennsylvania on June 16, 1994, decreasing the Corporate Net Income Tax rate.
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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, 1994, PG&W had approximately
132,500 water customers from which it derived total water revenues of $66.7
million during 1994. The following chart shows a breakdown of the types of
customers and the percentages of water revenues they generated in 1994:
[CAPTION]
Type of Customer % of Customers % of Revenues
[S] [C] [C]
Residential 91.6% 63.2%
Commercial 7.1 18.3
Industrial 0.3 8.6
Municipal and Other Users 1.0 9.9
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 36 active and
standby reservoirs located on extensive watershed lands and five wells. The
water supply can 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 1994 was approximately 66.5 million gallons. As of December 31, 1994,
the quantity of water held in PG&W's reservoirs was approximately 19.0 billion
gallons or 96.3% 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.
Filtration of Water Supplies. All of PG&W's water customers are supplied
with filtered water (except for several hundred who are supplied with ground
water from wells) 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 who are served from surface supplies 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
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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 or ground water pumped from wells.
Main Replacement and Rehabilitation Program and Other Distribution System
Improvements. PG&W distributes water to its customers through approximately
1,689 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. This program, which includes the selective replacement and
rehabilitation of water mains and services and the elimination of dead-end
lines, involved the expenditure of $55.0 million during the period 1988 through
1994.
In connection with its distribution system rehabilitation program, PG&W
intends to expend an average of $9.8 million per year during the period 1995
through 1997 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 in accordance with the PPUC's June 23, 1993, Order allowing PG&W a
conditional rate increase for the Scranton Water Rate Area. As part of the
settlement resolving certain disputed issues relating to such Order, PG&W 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. PG&W was in compliance with this provision of the
Order as of December 31, 1994, and the additional expenditures it is so required
to make are included in the amounts that it is planning to spend annually on
distribution system improvements during the years 1995 through 1997.
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<PAGE>
PG&W estimates that approximately 30% of the water introduced to its
distribution system is lost through leakage or otherwise cannot be accounted for
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
and it is continuing its efforts to identify additional sources utilizing the
services of consultants.
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.
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 (except for the small quantity of ground water pumped from
wells), disinfected, and treated with chemicals to minimize corrosion of the
distribution system and customers' piping. Water samples are taken at each of
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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.
Construction Expenditures. PG&W's construction expenditures for water
utility plant in 1994 totaled $19.3 million, and are estimated to be $23.0
million for 1995. The higher level of capital expenditures estimated for 1995
is primarily attributable to the construction of storage tanks at the Hillside
Water Treatment Plant and increased expenditures for distribution system
improvements.
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 10, 1995:
<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
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 that it will be able to obtain adequate future rate
relief as it makes further improvements to its distribution system and is able
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to demonstrate it is providing water that is suitable for all "household
purposes", i.e., meeting federal and state primary (health-related) and
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<PAGE>
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, all of whom are now receiving filtered
water (except for several hundred who are supplied ground water from wells) was
approximately $340 as of March, 1995. PG&W anticipates that this cost will
increase to approximately $460 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 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 level of
rates that PG&W expects to seek in future rate increases will be such that the
PPUC may question the "affordability" of such rates and may require that any
such rate increases be phased-in over a period of time in order to reduce
consumer "rate shock." 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.
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 1, 1994,
to reflect the effect of tax legislation enacted by the Commonwealth of
Pennsylvania on June 16, 1994, decreasing the Corporate Net Income Tax rate.
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ITEM 2. PROPERTIES
Gas. PG&W's gas system consists of approximately 2,191 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 a first mortgage lien
pursuant to the Indenture of Mortgage and Deed of Trust dated as of March 15,
1946, as supplemented by twenty-nine supplemental indentures (collectively, the
"Indenture") from PG&W to First Trust of New York, National Association, as
Trustee.
Water. PG&W's water system consists principally of 36 active and standby
reservoirs and stream intakes, ten water treatment plants, five wells, various
distribution system storage tanks, approximately 1,689 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.
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 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, and
December 3, 1992, between PG&W and the Pennsylvania Infrastructure Investment
Authority ("PENNVEST"), under the terms of which funds were provided to finance
the construction of certain water facilities. The PENNVEST Mortgage also
secures PG&W's obligations under assumption agreements dated April 5, 1993, with
PENNVEST which relate to loans which were assumed by PG&W in connection with its
acquisition of two small water companies.
ITEM 3. LEGAL PROCEEDINGS
There are no legal proceedings other than ordinary routine litigation
incidental to the business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
During the fourth quarter of 1994, 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, 1994 and 1993, were as follows:
1994 1993
First quarter $ .350 $ .7100
Second quarter .355 .7100
Third quarter .425 .7100
Fourth quarter .680 .6925
Total $ 1.810 $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, 1994, 1993 and 1992.
Percentage of Operating Revenues
Year Ended December 31,
1994 1993 1992
Operating Revenues:
Gas 71.6% 74.2% 74.6%
Water 28.4 25.8 25.4
Total operating revenues 100.0 100.0 100.0
Operating Expenses:
Cost of gas 42.0 41.9 40.5
Other operation expenses 17.1 18.8 19.8
Maintenance and depreciation 10.4 10.5 10.2
Deferred treatment plant costs, net 0.3 (0.7) (0.1)
Income and other taxes 12.2 12.1 12.0
Total operating expenses 82.0 82.6 82.4
Operating Income 18.0 17.4 17.6
Other Income, Net - 0.3 -
Interest Charges 9.5 9.9 10.9
Dividends on Preferred Stock 2.0 3.1 2.6
Earnings Applicable to Common Stock 6.5% 4.7% 4.1%
o Year ended December 31, 1994, compared with year ended December 31, 1993
Operating Revenues. PG&W's operating revenues increased $28.0 million
(13.6%) from $206.7 million for 1993 to $234.7 million for 1994.
Gas operating revenues increased by $14.7 million (9.6%) from $153.3 million
for 1993 to $168.0 million for 1994, primarily as a result of a price increase
averaging 19.0% (designed to total $28.8 million on an annual basis) effective
December 1, 1993, due to increased costs of purchased gas. See "-Rate Matters-
Gas Rate Filings." Also contributing to the increase in gas operating revenues
in 1994 was a 224 million cubic feet (1.0%) increase in sales to residential and
commercial heating customers. This increase was attributable to the addition of
approximately 2,200 new customers and occurred despite heating degree days* that
were 2.1% lower than normal and 0.3% less than in 1993. Additionally, the
implementation of surcharges to recover Federal Energy Regulatory Commission
("FERC") Order 636 transition costs (as more fully discussed below under "-Rate
Matters-Gas Rate Filings") acted to increase gas operating revenues by $1.8
million in 1994. The effects of the price increase and the surcharges on gas
operating revenues were partially offset by the switching of certain commercial
* 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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<PAGE>
and industrial customers from sales to transportation service and a price
decrease averaging 1.1% (designed to total $1.8 million on an annual basis)
effective December 1, 1994, due to decreased costs of purchased gas (see"-Rate
Matters-Gas Rate Filings").
Water operating revenues increased by $13.4 million (25.0%) from $53.4
million for 1993 to $66.7 million for 1994. This increase in revenues was
primarily 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 $21.9 million (12.8%) from $170.5 million for 1993 to $192.4
million for 1994. As a percentage of operating revenues, total operating
expenses decreased from 82.6% during 1993 to 82.0% during 1994. Operating
expenses related to gas utility operations increased by $14.3 million (10.7%)
from $134.2 million in 1993 to $148.5 million in 1994, primarily as a result of
a $12.1 million increase in the cost of gas, a higher level of other operations
and maintenance expense and increased gross receipts tax as a result of the
higher level of gas revenues. Operating expenses related to water utility
operations increased by $7.5 million (20.8%) from $36.4 million in 1993 to $43.9
million in 1994, primarily as a result of increases in other operation expense,
depreciation, net deferred treatment plant costs and income taxes.
The cost of gas increased $12.1 million (14.0%) from $86.6 million for 1993
to $98.7 million for 1994. The effect of this increase, which was the result of
higher costs for purchased gas and the implementation of surcharges to recover
FERC Order 636 transition costs (see "-Rate Matters-Gas Rate Filings"), was
partially offset by a 9.0% (2.6 billion cubic feet) decrease in the volume of
gas sold during 1994, compared to 1993. This decreased volume was largely
attributable to the aforementioned switching of certain customers from sales to
transportation service. The gross margin on gas operations (gas operating
revenues less the cost of gas) increased $2.6 million or 3.9% in 1994, primarily
as a result of the increased sales to residential and commercial heating
customers.
Other than the cost of gas and income taxes, operating expenses increased by
$6.3 million (8.3%) from $75.0 million for 1993 to $81.2 million for 1994. This
increase was largely attributable to a $1.2 million increase in other operation
and maintenance expenses (principally as a result of a $668,000 increase in
payroll costs, a $507,000 increase in other postretirement benefits and
increased provisions for uncollectible accounts of $728,000) and a $2.1 million
increase in net deferred treatment plant costs during 1994 (see "-Deferred
Treatment Plant Costs, Net and Carrying Charges"), as well as a $2.0 million
increase in depreciation (primarily because of capital additions and the change
in December, 1993, from a 4% compound interest to a straight-line method of
depreciation with respect to water plant in the Ceasetown and Watres Service
Areas). The effects of these increases were partially offset by a $613,000
increase in costs charged to construction (which acts to reduce expense) as a
result of a higher level of construction activity.
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Income taxes increased by $3.5 million from $9.0 million in 1993 to $12.5
million in 1994 due to a higher level of income before income taxes (for this
purpose, operating income net of interest charges).
Deferred Treatment Plant Costs, Net 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 allowance for funds used during construction ("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 $5.8
million of costs deferred with respect to the Scranton Area water treatment
plants and related facilities over a ten-year period beginning June 23, 1993, of
which $885,000 had been recovered as of December 31, 1994.
Similarly, as permitted by an Order of the PPUC entered September 24, 1992,
PG&W 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 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, 1994, a total of $4.6 million of costs relative to the
Crystal Lake, Ceasetown and Watres Water Treatment Plants and related facilities
had been deferred pursuant to the PPUC's Orders of September 24, 1992, and July
28, 1993. PG&W will seek recovery of the costs that have been so deferred 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 $6.2 million (17.1%) from $36.2 million for 1993 to $42.3 million
for 1994, and increased as a percentage of total operating revenues for such
periods from 17.4% in 1993 to 18.0% in 1994. Operating income from gas utility
operations increased $353,000 (1.8%) from $19.1 million in 1993 to $19.5 million
in 1994, primarily as a result of a $2.6 million increase in the gross margin,
the effect of which was partially offset by a higher level of maintenance
expense because of colder than normal weather in January and February, 1994, and
increased gross receipts tax as a result of the higher level of gas revenues.
Operating income from water utility operations increased $5.8 million (34.2%)
from $17.0 million in 1993 to $22.8 million in 1994. This increase was
primarily the result of rate increases effective March 9, 1993, June 23, 1993,
and December 16, 1993, and a decrease in other taxes, the effects of which were
partially offset by increases in other operations expense, depreciation, net
deferred treatment plant costs and income taxes, as discussed above.
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<PAGE>
Other Income, Net. Other income, net decreased $544,000 from $560,000 for
1993 to $16,000 for 1994. This decrease was primarily attributable to a $1.5
million decrease in the allowance for equity funds used during construction
because of a lower level of construction in progress, largely as a result of the
completion of the Crystal Lake, Watres and Ceasetown Water Treatment Plants in
1993, and the discontinuance of the deferral of carrying charges relative to
those plants. The effect of such items was partially offset by a $254,000
increase ($145,000 net of related income taxes) in gains on the sale of non-
watershed land, a $469,000 gain ($268,000 net of related income taxes) on the
sale of PG&W's interest in an oil and gas joint venture and a decrease in 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 increased by $2.1 million (10.4%) from
$20.4 million for 1993 to $22.5 million for 1994. This increase was primarily
attributable to a $1.2 million decrease in AFUDC, largely because of the
completion of the Crystal Lake, Ceasetown and Watres Water Treatment Plants, and
the discontinuance of the deferral, which totaled $1.2 million during 1993, of
the carrying charges associated with those plants.
Interest on long-term debt increased by $707,000 (3.4%) from $20.5 million
during 1993 to $21.2 million during 1994. The increase was principally the
result of an additional $868,000 of interest expense relative to the 1992 Series
B Bonds being reflected as interest on long-term debt (see "-Other Income,
Net"). The weighted average indebtedness outstanding during 1994 was $287.8
million as compared to $288.2 million during 1993. The weighted average
interest rate on indebtedness during 1994 was 7.73% as compared to 7.93% during
1993.
Dividends on Preferred Stock. Dividends on preferred stock decreased $1.8
million (28.2%) from $6.5 million for 1993 to $4.6 million for 1994, primarily
as a result of the redemption by PG&W on December 23, 1993, of 100,000 shares
($10.0 million), and on May 31, 1994, of 150,000 shares ($15.0 million), of its
9.50% cumulative preferred stock, $100 par value.
Earnings Applicable to Common Stock. Earnings applicable to common stock
increased $5.3 million (54.2%) from $9.8 million for 1993 to $15.2 million for
1994. The increased earnings in 1994 were the result of the matters discussed
above, principally the increases in water operating revenues resulting from the
rate increases which the PPUC allowed PG&W effective March 9, 1993, June 23,
1993, and December 16, 1993, and the increase in the gross margin on gas
operations resulting primarily from the higher level of sales to residential and
commercial heating customers. The effects of these factors were partially
offset by increased operating expenses and interest charges.
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<TABLE>
<CAPTION>
<S> <C>
Before the $534,000 premium paid on the redemption of 150,000 shares of
PG&W's 9.50% cumulative preferred stock on May 31, 1994, and the $446,000
premium paid on the redemption of 150,000 shares of PG&W's 8.90% cumulative
preferred stock on December 16, 1994, the earnings per share of common stock
increased $.56 (23.7%) from $2.36 per share for 1993 to $2.92 per share for 1994.
This improvement was the result of the 54.2% increase in earnings applicable to
common stock and occurred despite a 24.3% increase in the weighted average
number of shares outstanding during 1994, 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. While premiums on the redemption
of preferred stock are charged to retained earnings and are not a determinant of
earnings applicable to common stock, the premiums associated with any
redemptions occurring subsequent to January 20, 1994, must be taken into account
in calculating the earnings per share of common stock. As a consequence, the
premiums on the redemption of the 150,000 shares of PG&W's 9.50% cumulative
preferred stock and the 150,000 shares of PG&W's 8.90% cumulative preferred
stock acted to reduce earnings per share for 1994 by $.19 per share, resulting in
earnings of $2.73 per share of common stock for the year, an increase of $.37 per
share (15.7%) over the earnings of $2.36 per share for the year ended December
31, 1993.
</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% (designed to total $9.5 million on an annual basis) effective
December 1, 1992, and 19.0% (designed to total $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.
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 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
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$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 the deferral of
treatment plant costs (which acted to reduce expenses).
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 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 the deferral of treatment plant costs
during 1993. See "Deferred Treatment Plant Costs, Net and Carrying Charges."
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 were retroactive to January 1, 1993,
increased PG&W's income tax expense by approximately $124,000 for the year 1993.
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 AFUDC and of the deferred treatment plant
carrying charges that were recorded during 1993. See "-Other Income, Net", as
discussed above.
Deferred Treatment Plant Costs, Net and Carrying Charges. As more fully
discussed above, pursuant to an Order of the PPUC entered September 24, 1992,
PG&W deferred all operating expenses, including depreciation and property taxes,
and the carrying charges (equivalent to the AFUDC) 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. Similarly, 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 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 contemplated by the PPUC's
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Orders, PG&W will seek recovery of the $4.6 million of costs that have been so
deferred in its next rate increase request relating to the Spring Brook Water
Rate Area.
Pursuant to an Order of the PPUC entered September 5, 1990, PG&W deferred
all operating expenses and the carrying charges 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 $5.8 million of costs 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.
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%)
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 the recording of $1.6 million of
deferred treatment plant carrying charges and allowance for equity funds used
during construction. This amount 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 Authority's 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 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.
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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,
1993, June 23, 1993, and December 16, 1993, and the increase in the 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 despite 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 PEI on October 27, 1993.
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 1992, or which are currently pending.
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 1994, 1993 and 1992 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, 1994 $3.74 $3.68 $(1,800,000)
December 1, 1993 2.79 3.74 28,800,000
December 1, 1992 2.46 2.79 9,500,000
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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 October 15, 1993, the PPUC adopted an annual purchased gas cost ("PGC")
order (the "PGC Order") regarding the recovery of FERC Order 636 transition
costs. The PGC Order stated that Account 191 and New Facility Costs (the "Gas
Transition Costs") are subject to recovery through the annual PGC rate filing
made with the PPUC by PG&W and other larger local gas distribution companies.
The PGC Order also indicated that while Gas Supply Realignment and Stranded
Costs (the "Non-Gas Transition 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 stated that all such filings would be evaluated on a case-by-case
basis. As of February 1, 1994, PG&W began to recover the Gas Transition 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 nineteen-month period extending through March 31, 1995, will
aggregate $1.2 million, of which $1.1 million had been billed to PG&W and
$659,000 had been recovered from its customers as of December 31, 1994. By
Order of the PPUC entered August 26, 1994, PG&W began recovering the Non-Gas
Transition Costs that it estimates it will ultimately be billed by its
interstate pipelines pursuant to FERC Order 636 through the billing of a
surcharge to its customers effective September 12, 1994. It is currently
estimated that $9.4 million of Non-Gas Transition Costs will be billed to PG&W,
generally over a four-year period extending through the fourth quarter of 1997,
of which $3.8 million had been billed to PG&W and $1.1 million had been
recovered from its customers as of December 31, 1994. As of December 31, 1994,
PG&W had recorded a liability of $5.6 million for the estimated transition costs
that remained to be billed to it as of such date and both a current asset and a
deferred asset (which together totaled $8.8 million) representing the transition
costs remaining to be recovered from PG&W's customers.
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 despite 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 its customers with water service
meeting or exceeding the PPUC's standards for quantity and quality, based on
testing performed by PG&W and an independent laboratory of water at certain
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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. See
"-Liquidity and Capital Resources-Failure to Obtain Adequate Rate Relief" for a
discussion of the adverse effects on PG&W if adequate rate relief were denied.
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, all of whom are now receiving filtered
water (except for several hundred who are supplied with ground water from
wells), was approximately $340 as of March, 1995. PG&W anticipates that this
cost will increase to approximately $460 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 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 level of
rates that PG&W expects to seek in future rate increases will be such that the
PPUC may question the "affordability" of such rates and may also require that
any rate increases be phased-in over a period of time in order to reduce
consumer "rate shock." 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.
Scranton Area. By Order adopted March 22, 1991, the PPUC granted PG&W an
approximate 110% rate increase effective March 23, 1991, for the Scranton Water
Rate Area that was 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." In
accordance with said Order, PG&W deferred the billing of $4.7 million of the
increased revenue recorded during the period March 23, 1991, through March 22,
1992. Effective March 23, 1992, PG&W began to bill such $4.7 million by means
of a surcharge that will be in effect during the period through March 22, 2001,
and as of December 31, 1994, $1.4 million had been so billed to its Scranton
Water Rate Area customers.
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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 FASB Statement 92. The settlement 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 revenue deferred in accordance with the phase-in plan. However,
pursuant to the terms of the settlement, PG&W deferred the billing of
approximately $900,000 of the increased revenue recorded during the first year
of the phase-in period (i.e., the period March 9, 1993, through March 8, 1994).
Effective March 9, 1995, PG&W began to bill, by means of the surcharge that will
be in effect in years three through five of the phase-in period, the approximate
$900,000 that has been so deferred, as well as the related carrying charges.
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. This rate increase request involved the
approximately 56,000 customers in PG&W's Scranton Water Rate Area at such date.
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 (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 (with which it was in compliance as of
December 31, 1994) 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
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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 Office of Consumer Advocate (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. 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 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 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 accordance with the provisions of FASB Statement 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.
However, pursuant to the terms of the settlement, PG&W deferred the billing of
$5.3 million of the increased revenue recorded during the first year of the
phase-in period (i.e., the period December 16, 1993, through December 15, 1994).
The amount so deferred was $200,000 less than the $5.5 million originally
estimated because of slightly lower than anticipated consumption. Effective
December 16, 1995, PG&W will begin to bill the $5.3 million that had been so
deferred, as well as the related carrying charges, by means of the surcharge
that will be effective in years three through five of the phase-in period.
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
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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. 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. 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
PG&W has been granted by the PPUC since 1991 with respect to customers being
supplied with filtered water. PG&W also believes that it will be allowed
additional rate increases by the PPUC for its approximately 132,500 water
customers, all of whom are now receiving filtered water (except for several
hundred who are supplied with ground water from wells), 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."
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).
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 no unsecured debt due on demand or within one year
from issuance outstanding as of December 31, 1994.
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.
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<PAGE>
PG&W believes that it will be able to raise in a timely manner such funds as
are required for its future construction expenditures, refinancings and other
working capital requirements.
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
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 $67.5 million
of unsecured revolving bank credit. Specifically, PG&W has 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 May 31, 1996, 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 0.195% per annum on the average
daily amount of the unused portion of the available funds. As of March 10,
1995, $35.0 million of borrowings were outstanding under the Credit Agreement.
<TABLE>
<CAPTION>
<S> <C>
PG&W currently has three additional short-term bank lines of credit with an
aggregate borrowing capacity of $7.5 million which provide for borrowings at
interest rates generally less than prime. Borrowings outstanding under two of
these bank lines of credit with borrowing capacities of $2.0 million and $3.0
million mature on May 31, 1995, and June 30, 1995, respectively. Borrowings
outstanding under the third bank line of credit with a borrowing capacity of
$2.5 million mature on May 31, 1996. As of March 10, 1995, PG&W had $3.9 million
of borrowings outstanding under these additional bank lines of credit. Prior to
their respective maturities, PG&W intends to renew the $7.5 million of these
bank lines of credit.
</TABLE>
Current Maturities of Long-Term Debt and Preferred Stock
As of December 31, 1994, $3.8 million of PG&W preferred stock and long-term
debt was required to be repaid within twelve months. Such amount included $3.0
million of borrowings that were outstanding under PG&W's bank lines of credit as
of such date.
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 1993.
-32-
<PAGE>
During 1993 and 1994, PG&W utilized $15.9 million and $9.8 million,
respectively, of the proceeds from the issuance by the Luzerne County Industrial
Development Authority (the "Authority") on December 22, 1992, of $30.0 million
of its 1992 Series B Bonds and with respect to which PG&W issued $30.0 million
of its 7.125% First Mortgage Bonds to the PNC Bank (formerly Northeastern Bank
of Pennsylvania) as trustee (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 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.
As of December 31, 1994, $3.4 million of the proceeds (including investment
income) was held by the IDA Trustee and was available to finance the future
construction of qualified water facilities for PG&W.
In addition, 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. Also, during 1993 and 1994,
PG&W borrowed $1.6 million and $695,000 respectively, 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 $270,000 remained available as of
December 31, 1994, 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.
On May 31, 1994, PG&W issued 500,000 shares of its common stock to PEI for
aggregate net proceeds of $20.0 million. PG&W used a portion of the proceeds it
so received to redeem $15.0 million of its 9.50% cumulative preferred stock and
to fund the $534,375 premium in connection with such redemption. The remaining
$4.5 million of proceeds were used by PG&W to repay a portion of its bank
borrowings and for working capital purposes.
On July 28, 1994, PEI implemented a Customer Stock Purchase Plan (the
"Customer Plan") which provides the residential customers of PG&W with a method
of purchasing newly-issued shares of PEI common stock at a 5% discount from the
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<PAGE>
market price. PEI uses proceeds from the issuance of shares through the
Customer Plan to purchase common stock of PG&W. During 1994, PG&W realized $1.7
million from the issuance of common stock to PEI in connection with the Customer
Plan. Additionally, on January 3, 1995, PG&W realized $1.2 million from the
issuance of common stock to PEI in connection with the Customer Plan.
Through PEI's Dividend Reinvestment and Stock Purchase Plan ("DRP"), holders
of shares of PEI common stock may reinvest cash dividends and/or make cash
investments in the common stock of PEI. The DRP was amended on May 5, 1994, to
provide PEI's shareholders with a method of reinvesting cash dividends and
making cash investments to purchase newly-issued shares of PEI's common stock at
a 5% discount from the market price. Prior to such amendment, cash dividends
were reinvested at 100% of the market price in newly-issued shares and cash
investments were used to purchase shares of PEI common stock on the open market.
PEI uses the proceeds from the DRP to purchase common stock of PG&W. During
1994, 1993 and 1992, PG&W realized $1.8 million, $465,000 and $385,000,
respectively, from the issuance of common stock to PEI in connection with the
DRP. Additionally, on January 3, 1995, PG&W realized $1.3 million from the
issuance of common stock to PEI in connection with the DRP.
On November 15, 1994, the Authority issued $30.0 million of its Exempt
Facilities Revenue Refunding Bonds, 1994 Series A (Pennsylvania Gas and Water
Company Project) (the "1994 Series A Bonds") and in connection therewith, PG&W
issued $30.0 million of its 7% Series First Mortgage Bonds. PG&W will make
payments to the IDA Trustee pursuant to the 7% Series First Mortgage Bonds in
amounts sufficient and at the times necessary to pay the debt service
requirements on the 1994 Series A Bonds. The proceeds from the issuance of the
1994 Series A Bonds, along with additional funds provided by PG&W, were
deposited with the IDA Trustee for the Authority's Exempt Facilities Revenue
Bonds, 1987 Series B (Pennsylvania Gas and Water Company Project) (the "1987
Series B Bonds") on November 15, 1994, for use in redeeming the 1987 Series B
Bonds on December 1, 1994. The deposit of such funds acted to discharge all of
PG&W's obligations with respect to its 8%, 1987 Series B Note in the principal
amount of $30.0 million which had been issued to the IDA Trustee in connection
with the 1987 Series B Bonds and which was subject to repayment on December 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 July 25, 1994, S&P said PG&W's outlook
was "stable" and that "continued, though slow financial improvement is expected
with the phase-in of water rate relief." However, S&P noted that "significant
capital expenditures and an excessive dividend payout...will continue to
challenge management over the intermediate 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 both
S&P and Moody's would result in the interest rate charged on borrowings under
the Credit Agreement being increased by one quarter percent per annum (which
increase could cost PG&W as much as $150,000 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
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<PAGE>
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. See "-Failure to Obtain Adequate
Rate Relief."
Construction Expenditures and Related Financing
Expenditures for the construction of utility plant during the period 1992
through 1994 were as follows:
[CAPTION]
Water Gas
Year Facilities Facilities Total
(Thousands of Dollars)
[S] [C] [C] [C]
1992 $ 44,352 $ 12,669 $ 57,021
1993 32,575 13,325 45,900
1994 19,321 17,455 36,776
$ 96,248 * $ 43,449 $139,697
* Includes $30.5 million, $20.7 million and $2.1 million, expended in
1992, 1993 and 1994, 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.
Approximately $13.2 million of PG&W's expenditures for the construction
of water facilities during 1994 were financed with proceeds from the
issuance of the Authority's 1992 Series B Bonds being held by the IDA
Trustee for the benefit of PG&W and with revenues from the water rate
increase for Scranton Water Rate Area which was effective June 23, 1993
(the "Scranton Area Water Rate Increase") (see "-Rate Matters-Water Rate
Filings-Scranton Area"). The balance ($6.1 million) of PG&W's expenditures
for the construction of water facilities during 1994, as well as its
expenditures for the construction of gas facilities during 1994, were
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 1995 through 1997 will
total $147.7 million, of which $74.5 million will involve the construction of
water facilities and $73.2 million will involve the construction of gas
facilities. PG&W anticipates that a portion of such water facilities will be
financed with the $3.4 million of proceeds from the issuance of the Authority's
1992 Series B Bonds held by the IDA Trustee as of December 31, 1994, for the
benefit of PG&W and with $7.5 million of revenues from the Scranton Area Water
Rate Increase, while the balance of its expenditures for water facilities ($63.6
million), as well as its expenditures for gas facilities, will be financed with
approximately $25.0 million from the issuance of a term loan in 1995, $29.5
million in 1996 from the sale of common stock to PEI, $50.0 million from the
issuance of another series of first mortgage bonds in 1997, proceeds from the
sale of common stock to PEI in connection with the Customer Plan and DRP, and
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.
-35-
<PAGE>
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, possibly reducing dividends on its common
stock, thereby resulting in a reduction of PEI's common stock dividends,
curtailing or deferring work on various capital projects, all of which could
negatively impact the quality and reliability of services rendered to the public
by PG&W.
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.
-36-
<PAGE>
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 37 through 62 of this Form 10-K.
-37-
<PAGE>
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, 1994 and 1993, 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, 1994. 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, 1994 and 1993, and the results of its operations and
its cash flows for each of the three years in the period ended December 31, 1994
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 schedule listed in Item 14 is the
responsibility of the Company's management and is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audits of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
New York, N.Y.
February 17, 1995
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<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
STATEMENTS OF INCOME
[CAPTION]
Year Ended December 31,
1994 1993 1992
(Thousands of Dollars)
[S] [C] [C] [C]
OPERATING REVENUES:
Gas $ 167,992 $ 153,325 $ 143,227
Water 66,731 53,363 48,651
Total operating revenues 234,723 206,688 191,878
OPERATING EXPENSES:
Cost of gas 98,653 86,557 77,720
Other operation expenses 40,153 38,859 37,971
Maintenance 10,093 9,341 8,677
Depreciation 14,339 12,299 10,856
Deferred treatment plant costs, net 581 (1,532) (294)
Income taxes 12,499 8,989 8,305
Other taxes 16,073 16,019 14,730
Total operating expenses 192,391 170,532 157,965
OPERATING INCOME 42,332 36,156 33,913
OTHER INCOME, NET (Note 3) 16 560 30
INCOME BEFORE INTEREST CHARGES 42,348 36,716 33,943
INTEREST CHARGES:
Interest on long-term debt 21,222 20,515 18,929
Other interest 1,575 2,589 4,292
Allowance for borrowed funds used
during construction (255) (1,482) (1,773)
Deferred treatment plant carrying
charges - (1,207) (461)
Total interest charges 22,542 20,415 20,987
NET INCOME 19,806 16,301 12,956
DIVIDENDS ON PREFERRED STOCK 4,639 6,462 5,065
EARNINGS APPLICABLE TO COMMON STOCK $ 15,167 $ 9,839 $ 7,891
COMMON STOCK:
Earnings per share of common stock (Note 4):
Before premium on redemption of
preferred stock $ 2.92 $ 2.36 $ 2.02
Premium on redemption of
preferred stock (.19) - -
Earnings per share of common stock $ 2.73 $ 2.36 $ 2.02
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,189,108 4,176,087 3,908,351
The accompanying notes are an integral part of the financial statements.
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<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
BALANCE SHEETS
[CAPTION]
December 31,
1994 1993
(Thousands of Dollars)
ASSETS
[S] [C] [C]
UTILITY PLANT:
Gas plant, at original cost less
acquisition adjustments of $386,000 $260,679 $245,969
Water plant, at original cost plus
acquisition adjustments of $14,572,000, and
$14,577,000, respectively 376,735 360,996
Common plant, at original cost 26,118 26,212
663,532 633,177
Accumulated depreciation (94,461) (86,287)
569,071 546,890
OTHER PROPERTY AND INVESTMENTS:
Restricted funds held by trustee (Note 6) 3,401 12,853
Other 2,872 3,291
6,273 16,144
CURRENT ASSETS:
Cash and cash equivalents 304 2,714
Accounts receivable -
Customers 22,297 20,533
Others 1,474 1,258
Reserve for uncollectible accounts (1,299) (1,223)
Accrued utility revenues 13,299 16,123
Materials and supplies, at average cost 4,078 3,549
Gas held by suppliers, at average cost 20,025 26,650
Deferred cost of gas & supplier refunds, net 8,475 12,752
Prepaid expenses and other 2,531 2,026
71,184 84,382
DEFERRED CHARGES:
Deferred taxes collectible 55,410 51,382
Natural gas transition costs collectible (Note 2) 4,099 -
Unamortized debt expense 7,177 5,745
Deferred treatment plant costs
and carrying charges 9,548 10,129
Deferred water utility billings (Note 2) 8,908 3,885
Other 7,610 7,751
92,752 78,892
TOTAL ASSETS $739,280 $726,308
The accompanying notes are an integral part of the financial statements.
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<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
BALANCE SHEETS
[CAPTION]
December 31,
1994 1993
(Thousands of Dollars)
[S] [C] [C]
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see accompanying statements on
page 42):
Common shareholder's investment (Notes 4 and 7) $216,032 $188,011
Preferred stock (Note 5) -
Not subject to mandatory redemption, net 33,615 33,615
Subject to mandatory redemption 1,760 31,840
Long-term debt (Note 6) 311,725 266,259
563,132 519,725
CURRENT LIABILITIES:
Current portion of long-term debt and
preferred stock subject to mandatory
redemption (Notes 5, 6 and 8) 3,810 38,664
Notes payable -
Bank (Note 8) - 2,000
Parent - 3,680
Accounts payable -
Suppliers 16,762 22,401
Affiliates, net 788 1,888
Accrued general business and realty taxes 3,881 3,574
Accrued income taxes 3,185 4,984
Accrued interest 4,716 4,042
Accrued natural gas transition costs (Note 2) 2,356 -
Other 3,455 2,440
38,953 83,673
DEFERRED CREDITS:
Deferred income taxes 96,939 87,005
Accrued natural gas transition costs (Note 2) 3,250 -
Unamortized investment tax credits 8,943 9,183
Advances for construction 11,349 10,985
Contributions in aid of construction 10,207 9,810
Operating reserves 2,383 1,863
Other 4,124 4,064
137,195 122,910
COMMITMENTS AND CONTINGENCIES (Notes 10 and 11)
TOTAL CAPITALIZATION AND LIABILITIES $739,280 $726,308
The accompanying notes are an integral part of the financial statements.
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<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C>
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 19,806 $ 16,301 $ 12,956
Effects of noncash charges (credits) to income -
Depreciation 14,365 12,324 10,875
Deferred income taxes, net 5,871 1,678 2,048
Provisions for self insurance 1,695 1,800 1,196
Deferred treatment plant costs and carrying
charges, net 581 (3,560) (756)
Allowance for equity funds used during
construction (40) (734) -
Deferred water utility billings (5,574) (582) (969)
Other, net 3,522 4,540 2,812
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues 1,449 (2,159) (2,517)
Gas held by suppliers 6,625 (5,038) (1,586)
Accounts payable (5,609) (515) 2,377
Deferred cost of gas and supplier refunds, net 5,784 (13,307) (11,429)
Other current assets and liabilities, net (559) 754 2,794
Other operating items, net (3,822) (3,251) (2,326)
Net cash provided by operating activities 44,094 8,251 15,475
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (net of allowance for
equity funds used during construction) (37,940) (46,526) (58,324)
Other, net 2,226 1,493 2,030
Net cash used for investing activities (35,714) (45,033) (56,294)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 23,439 32,366 12,905
Issuance of preferred stock - - 23,615
Redemption of preferred stock (30,080) (10,080) (80)
Dividends on common and preferred stock (14,244) (18,398) (14,940)
Issuance of long-term debt 30,696 20,634 110,000
Repayment of long-term debt (38,584) (31,485) (57,371)
(Repayment) issuance of note payable to parent (3,680) - 3,680
Intercompany advance - - 15,000
Restricted funds held by trustee (Note 6) 9,753 15,868 (27,994)
Net increase (decrease) in bank borrowings 15,370 32,247 (20,167)
Other, net (3,460) (2,226) (3,917)
Net cash provided by (used for) financing
activities (10,790) 38,926 40,731
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS (2,410) 2,144 (88)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 2,714 570 658
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 304 $ 2,714 $ 570
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 21,001 $ 21,092 $ 16,972
Income taxes $ 7,353 $ 6,790 $ 3,667
-42-
</TABLE>
<PAGE>
The accompanying notes are an integral part of the financial statements.
-43-
<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
STATEMENTS OF CAPITALIZATION
<TABLE>
<CAPTION>
December 31,
1994 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 - 5,456,665 shares and
4,868,718 shares, respectively $ 54,567 $ 48,687
Additional paid-in capital 90,201 72,642
Retained earnings 71,264 66,682
Total common shareholder's investment 216,032 38.4% 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 6.0% 33,615 6.5%
Subject to mandatory redemption -
5.75% cumulative preferred, 18,400 and
19,200 shares outstanding, respectively 1,840 1,920
8.90% cumulative preferred, 150,000 shares
outstanding in 1993 - 15,000
9.50% 1988 series cumulative preferred,
150,000 shares outstanding in 1993 - 15,000
Less current redemption requirements (80) (80)
Total preferred stock subject to
mandatory redemption 1,760 0.3% 31,840 6.1%
LONG-TERM DEBT (Note 6):
First mortgage bonds 237,535 207,745
Notes 65,500 77,845
Other 12,420 19,253
Less current maturities and sinking
fund requirements (3,730) (38,584)
Total long-term debt 311,725 55.3% 266,259 51.2%
TOTAL CAPITALIZATION $563,132 100.0% $519,725 100.0%
The accompanying notes are an integral part of the financial statements.
</TABLE>
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<PAGE>
PENNSYLVANIA GAS AND WATER COMPANY
STATEMENTS OF COMMON SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1992, 1993 AND 1994
[CAPTION]
Additional
Common Paid-In Retained
Stock Capital Earnings Total
(Thousands of Dollars)
[S] [C] [C] [C] [C]
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
Net income for 1994 - - 19,806 19,806
Issuance of common stock 5,880 17,559 - 23,439
Premium on redemption of preferred
stock - - (980) (980)
Dividends on:
Preferred stock (Note 5) - - (4,639) (4,639)
Common stock ($1.81 per share) - - (9,605) (9,605)
Balance at December 31, 1994 $54,567 $ 90,201 $ 71,264 $216,032
The accompanying notes are an integral part of the financial statements.
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<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 one wholly-owned subsidiary, Penn Gas
Development Co. (PGD), which has not been consolidated since it is
insignificant. Prior to October 1, 1994, PG&W had four other wholly-owned
subsidiaries, each a small water company, which were not consolidated since they
also were insignificant. As of September 30, 1994, these four small water
companies were merged into PG&W. The equity method is used to account for
PG&W's investment in PGD and was used to account for its investment in the four
small water companies prior to their merger into PG&W.
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, which is being amortized
over a ten-year period, 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 treatment is consistent with PPUC Orders.
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 7% in 1994, 8% in 1993 and 7% in 1992.
PG&W provides for depreciation on a straight-line basis for gas plant and
all common plant. As of December 31, 1994, depreciation was provided on a
straight-line basis for approximately 96% 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]
1994 1993 1992
[S] [C] [C] [C]
Gas 2.48% 2.49% 2.51%
Water 2.02 1.71 1.57
Common 7.62 8.06 6.76
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<PAGE>
The increase in the annual rate of depreciation relative to water plant in
both 1994 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 has generally been
made as PG&W was allowed to initially increase its rates for customers receiving
filtered water service.
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 on cycles
that extends over the bi-monthly period. 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.
Deferred Charges (Regulatory Assets). 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 more fully discussed in
the following paragraphs, certain pre-operating costs relative to PG&W's water
treatment plants, costs associated with an early retirement plan, 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.
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 $5.8 million of costs deferred relative to
the Scranton Area water treatment plants and related facilities over a ten-year
period beginning June 23, 1993, of which $885,000 had been recovered as of
December 31, 1994.
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
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<PAGE>
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. A total of $4.6 million of costs relative to these 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 these costs, which total $4.6 million, 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.
PG&W also 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. 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.
<TABLE>
<CAPTION>
The components of PG&W's net deferred income tax liability as of December 31,
1994 and 1993, are shown below:
1994 1993
(Thousands of Dollars)
<S> <C> <C>
Utility plant basis differences $94,430 $86,924
Deferred treatment plant costs, net 4,194 4,460
Deferred water utility billings 4,151 1,892
FERC Order 636 transition costs 1,371 -
Contributions and advances for construction (3,544) (3,284)
Alternative minimum tax (2,213) (2,176)
Operating reserves (1,020) (816)
Other (430) 5
Net deferred income tax liability $96,939 $87,005
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The provision for income taxes consists of the following components:
<CAPTION>
1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C>
Included in operating expenses:
Currently payable -
Federal $ 4,986 $ 5,644 $ 4,664
State 1,893 1,917 1,888
Total currently payable 6,879 7,561 6,552
Deferred, net -
Federal 5,486 2,535 2,512
State 390 (851) (503)
Total deferred, net 5,876 1,684 2,009
Amortization of investment tax credits (256) (256) (256)
Total included in operating expenses 12,499 8,989 8,305
Included in other income, net:
Currently payable -
Federal 213 (44) (29)
State 85 (28) (26)
Total currently payable 298 (72) (55)
Deferred, net -
Federal (5) (6) 39
State - - -
Total deferred, net (5) (6) 39
Total included in other income, net 293 (78) (16)
Total provision for income taxes $ 12,792 $ 8,911 $ 8,289
The components of deferred income taxes, which are recorded consistent with
the treatment allowed by the PPUC for ratemaking purposes, are as follows:
<CAPTION>
1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C>
Excess of tax depreciation over
depreciation for accounting purposes $ 3,449 $ 3,214 $ 2,502
Deferred treatment plant costs, net (266) 1,458 585
Deferred water utility billings 2,259 75 258
FERC Order 636 transition costs 1,371 - -
Take-or-pay costs, net (652) (1,126) (446)
Other, net (290) (1,943) (851)
Total deferred taxes, net $ 5,871 $ 1,678 $ 2,048
Included in:
Operating expenses $ 5,876 $ 1,684 $ 2,009
Other income, net (5) (6) 39
Total deferred taxes, net $ 5,871 $ 1,678 $ 2,048
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<PAGE>
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>
1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C>
Income before income taxes $32,598 $25,212 $21,245
Tax expense at statutory federal
income tax rate $11,409 $ 8,824 $ 7,223
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 1,751 935 1,161
Deferred treatment plant carrying
charges and allowance for equity funds
used during construction (14) (545) -
Amortization of investment tax credits (256) (256) (256)
Other, net (98) (47) 161
Total provision for income taxes $12,792 $ 8,911 $ 8,289
(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 1994, 1993 and 1992 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, 1994 $3.74 $3.68 $(1,800,000)
December 1, 1993 2.79 3.74 28,800,000
December 1, 1992 2.46 2.79 9,500,000
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 FERC Order 636 Transition Costs. On October 15, 1993, the PPUC
adopted an annual purchased gas cost ("PGC") order (the "PGC Order") regarding
recovery of Federal Energy Regulatory Commission ("FERC") Order 636 transition
costs. The PGC Order stated that Gas Transition Costs are subject to recovery
through the annual PGC rate filing made with the PPUC by PG&W and other larger
local gas distribution companies. The PGC Order also indicated that while Non-
Gas Transition Costs were not natural gas costs eligible for recovery under the
PGC rate filing mechanism, such costs were 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
stated that all such filings would be evaluated on a case-by-case basis. As of
February 1, 1994, PG&W began to recover the Gas Transition Costs that are being
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<PAGE>
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
nineteen-month period extending through March 31, 1995, will aggregate $1.2
million, of which $1.1 million had been billed to PG&W and $659,000 had been
recovered from its customers as of December 31, 1994. By Order of the PPUC
entered August 26, 1994, PG&W began recovering the Non-Gas Transition Costs that
it estimates it will ultimately be billed pursuant to FERC Order 636 through the
billing of a surcharge to its customers effective September 12, 1994. It is
currently estimated that $9.4 million of Non-Gas Transition Costs will be billed
to PG&W, generally over a four-year period extending through the fourth quarter
of 1997, of which $3.8 million had been billed to PG&W and $1.1 million had been
recovered from its customers as of December 31, 1994. PG&W has recorded a
liability for the $5.6 million of such estimated transition costs that remain to
be billed to it as of December 31, 1994, and both a current asset and a deferred
asset (which together totaled $8.8 million as of December 31, 1994) representing
the transition costs remaining to be recovered from its customers.
Water Rate Filings
Scranton Area Water Rate 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. 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 (with which it was in compliance as of December 31, 1994) 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 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. 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
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<PAGE>
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 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 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
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. 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
Statement 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.
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<PAGE>
(3) OTHER INCOME, NET
Other income, net was comprised of the following elements:
<CAPTION>
1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C>
Gain on sale of investment in joint
venture, net of related income taxes $ 268 $ - $ -
Gain on sale of non-watershed land and
other property, net of related income
taxes 165 20 102
Deferred treatment plant carrying charges
and allowance for equity funds used
during construction 40 1,555 -
Interest on note to affiliate - - 133
Amortization of preferred stock issuance
costs, net of related income tax
benefits (227) (126) (66)
Net interest expense on proceeds
remaining in construction fund (217) (785) (23)
Premium on retirement/defeasance of debt (40) (81) (127)
Other 27 (23) 11
Total $ 16 $ 560 $ 30
(4) COMMON STOCK
Since January 1, 1992, 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 and Customer 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
May 31, 1994 500,000 $ 40.00 $20.0
Total 1,642,922 $64.4 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
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. The proceeds from the shares issued on May 31, 1994, were used by
PG&W to redeem $15.0 million of its 9.50% 1988 series cumulative preferred
stock, to fund the $534,375 premium in connection with such redemption, to repay
a portion of its bank borrowings and for working capital purposes.
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<PAGE>
On July 28, 1994, PEI implemented a Customer Stock Purchase Plan (the
"Customer Plan") which provides the residential customers of PG&W with a method
of purchasing newly-issued shares of PEI common stock at a 5% discount from the
market price. PEI uses proceeds from the issuance of shares through the
Customer Plan to purchase common stock of PG&W. During 1994, PG&W realized $1.7
million from the issuance of common stock to PEI in connection with the Customer
Plan. Additionally, on January 3, 1995, PG&W realized $1.2 million from the
issuance of common stock to PEI in connection with the Customer Plan.
Through PEI's Dividend Reinvestment and Stock Purchase Plan ("DRP"), holders
of shares of PEI common stock may reinvest cash dividends and/or make cash
investments in the common stock of PEI. The DRP was amended on May 5, 1994, to
provide PEI's shareholders with a method of reinvesting cash dividends and
making cash investments to purchase newly-issued shares of PEI's common stock at
a 5% discount from the market price. Prior to such amendment, cash dividends
were reinvested at 100% of the market price in newly-issued shares and cash
investments were used to purchase shares of PEI common stock on the open market.
PEI uses the proceeds from the DRP to purchase common stock of PG&W. During
1994, 1993 and 1992, PG&W realized $1.8 million, $465,000 and $385,000,
respectively, from the issuance of common stock to PEI in connection with the
DRP. Additionally, on January 3, 1995, PG&W realized $1.3 million from the
issuance of common stock to PEI in connection with the DRP.
(5) PREFERRED STOCK
Preferred Stock of PG&W Subject to Mandatory Redemption
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). On May 31, 1994, PG&W
redeemed the remaining 150,000 outstanding shares of its 9.50% 1988 series
cumulative preferred stock, $100 par value, at a price of $103.5625 per share,
which included a voluntary redemption premium of $3.5625 per share ($534,375 in
the aggregate), plus accrued dividends.
On December 16, 1994, PG&W redeemed all 150,000 shares of its 8.90%
cumulative preferred stock at a price of $102.97 per share, which included a
voluntary redemption premium of $2.97 per share ($445,500 in the aggregate).
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, 1994, for an aggregate purchase price in
each year of $80,000.
As of December 31, 1994, the sinking fund requirements relative to PG&W's
5.75% cumulative preferred stock (the only series of preferred stock subject to
mandatory redemption that was outstanding on such date) were $80,000 for each of
the years 1995 through 1999.
At PG&W's option, the 5.75% cumulative preferred stock may currently be
redeemed at a price of $102.00 per share ($1,876,800 in the aggregate.)
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<PAGE>
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, 1994, were as follows:
<CAPTION>
Series 1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C>
4.10% $ 410 $ 410 $ 409
5.75% 108 113 117
8.90% 1,280 1,335 1,335
9.00% 2,250 2,250 829
9.50% 1988 series 591 2,354 2,375
Total $4,639 $6,462 $5,065
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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<PAGE>
(6) LONG-TERM DEBT
Long-term debt consisted of the following components at December 31, 1994
and 1993:
<CAPTION>
1994 1993
(Thousands of Dollars)
<S> <C> <C>
First mortgage bonds -
6.05 % Series, due 2019 $ 19,000 $ 19,000
7 % Series, due 2017 30,000 -
7.125% Series, due 2022 30,000 30,000
7.20 % Series, due 2017 50,000 50,000
8 % Series, due 1997 3,535 3,745
8.375% Series, due 2002 30,000 30,000
9.23 % Series, due 1999 10,000 10,000
9.34 % Series, due 2019 15,000 15,000
9.57 % Series, due 1996 50,000 50,000
237,535 207,745
Notes -
1%, due 1994 (Small Business Administration) - 845
8%, 1987 Series B, defeased on November 15, 1994 - 30,000
Bank borrowings, at weighted average interest
rates of 5.28% and 4.31%, respectively,
(Note 8) 65,500 47,000
65,500 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 12,420 19,253
Less current maturities and sinking
fund requirements (3,730) (38,584)
Total long-term debt $311,725 $266,259
7.125% Series First Mortgage Bonds. On December 22, 1992, the Luzerne
County Industrial Development Authority (the "Authority") issued $30.0 million
of its 7.125% 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 PNC Bank (formerly Northeastern Bank of Pennsylvania), as trustee (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, 1994, $3.4 million
(including investment income) 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.
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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<PAGE>
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
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<PAGE>
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.
7% Series First Mortgage Bonds. On November 15, 1994, the Authority issued
$30.0 million of its Exempt Facilities Revenue Refunding Bonds, 1994 Series A
(Pennsylvania Gas and Water Company Project) due 2017 (the "1994 Series A
Bonds") and, in connection therewith, PG&W issued $30.0 million of its 7% Series
First Mortgage Bonds, as security for the 1994 Series A Bonds. PG&W will make
payments to the IDA Trustee pursuant to the 7% Series First Mortgage Bonds in
amounts sufficient and at the times necessary to pay the debt service
requirements on the 1994 Series A Bonds. The proceeds from the issuance of the
1994 Series A Bonds, along with additional funds provided by PG&W, were
deposited with the IDA Trustee for the Authority's $30.0 million of 8% Exempt
Facilities Revenue Bonds, 1987 Series B (Pennsylvania Gas and Water Company
Project) (the "1987 Series B Bonds") on November 15, 1994, for use in redeeming
the 1987 Series B Bonds on December 1, 1994. The deposit of such funds acted to
discharge all of PG&W's obligations with respect to its 8%, 1987 Series B Note
in the principal amount of $30.0 million which had been issued to the IDA
Trustee in connection with the 1987 Series B Bonds and which was subject to
repayment on December 1, 1994.
Maturities and Sinking Fund Requirements. As of December 31, 1994, 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>
1995 $ 3,730,000
1996 $113,258,000 (a)
1997 $ 3,694,000
1998 $ 611,000
1999 $ 10,644,000 (b)
(a) Includes $62.5 million of bank borrowings outstanding as of December 31,
1994, due May 31, 1996, and PG&W's 9.57% Series First Mortgage Bonds in
the principal amount of $50.0 million due September 1, 1996.
(b) Includes PG&W's 9.23% Series First Mortgage Bonds in the principal
amount of $10.0 million due September 1, 1999.
Liens Securing Indebtedness. 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 $12.4 million as of December 31, 1994.
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<PAGE>
(7) DIVIDEND RESTRICTIONS
The preferred stock provisions of PG&W's Restated Articles of Incorporation
and certain of the agreements under which PG&W has issued long-term debt provide
for certain dividend restrictions. As of December 31, 1994, $37,357,000 of the
retained earnings of PG&W were restricted against the payment of cash dividends
on common stock under the most restrictive of these covenants.
(8) BANK NOTES PAYABLE
PG&W has 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 May 31,
1996, 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 .195% per annum on the average daily amount of the unused portion of the
available funds. As of March 10, 1995, $35.0 million of borrowings were
outstanding under the Credit Agreement. PG&W currently has three additional
bank lines of credit with an aggregate borrowing capacity of $7.5 million which
provide for borrowings at interest rates generally less than prime. Borrowings
outstanding under two of these bank lines of credit with borrowing capacities of
$2.0 million and $3.0 million mature on May 31, 1995, and June 30, 1995,
respectively. Borrowings outstanding under the third bank line of credit with a
borrowing capacity of $2.5 million mature on May 31, 1996. As of March 10,
1995, PG&W had $3.9 million of borrowings outstanding under these additional
bank lines of credit. The commitment fees paid by PG&W with respect to its
revolving bank credit agreements totaled $97,000 in 1994, $113,000 in 1993 and
$152,000 in 1992.
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 no
unsecured debt due on demand or within one year from issuance outstanding as of
December 31, 1994.
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<PAGE>
Information relating to PG&W's bank lines of credit and borrowings under
those lines of credit is set forth below:
<CAPTION>
As of December 31,
1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C>
Borrowings under lines of credit
Short-term $ - $ 2,000 $ -
Long-term 65,500 47,000 17,000
$ 65,500 $ 49,000 $ 17,000
Unused lines of credit
Short-term $ - $ 5,000 $ -
Long-term 2,000 13,000 28,000
$ 2,000 $ 18,000 $ 28,000
Total lines of credit
Prime rate $ - $ 2,000 $ 45,000
Other than prime rate 67,500 65,000 -
$ 67,500 $ 67,000 $ 45,000
Short-term bank borrowings (a)
Maximum amount outstanding $ 5,692 $ 5,666 $ -
Daily average amount outstanding $ 441 $ 637 $ -
Weighted daily average interest
rate 3.984% 4.046% -
Weighted average interest rate at
year-end - 4.208% -
Range of interest rates 3.700- 3.750- -
6.000% 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 as
of December 31, 1992, or December 31, 1994.
(9) POSTEMPLOYMENT BENEFITS
Pension 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
$562,000, $443,000 and $333,000 in 1994, 1993 and 1992, respectively.
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<PAGE>
The following items were the components of the net pension cost for the
years 1994, 1993 and 1992:
</TABLE>
<TABLE>
<CAPTION>
1994 1993 1992
(Thousands of Dollars)
<S> <C> <C> <C>
Present value of benefits earned
during the year $ 999 $ 854 $ 789
Interest cost on projected benefit
obligations 2,545 2,402 2,262
Return on plan assets 973 (3,127) (2,646)
Net amortization and deferral (101) (97) (93)
Deferral of investment (loss) gain (3,854) 411 21
Net pension cost $ 562 $ 443 $ 333
The funded status of the plan as of December 31, 1994 and 1993, was as follows:
</TABLE>
[CAPTION]
1994 1993
(Thousands of Dollars)
[S] [C] [C]
Actuarial present value of the projected
benefit obligations:
Accumulated benefit obligations
Vested $ 21,592 $ 24,265
Nonvested 77 125
Total 21,669 24,390
Provision for future salary increases 7,565 9,769
Projected benefit obligations 29,234 34,159
Market value of plan assets, primarily
invested in equities and bonds 30,457 32,471
Plan assets in excess of (less than) projected
benefit obligations 1,223 (1,688)
Unrecognized net transition asset as of
January 1, 1986, being amortized over
20 years (2,528) (2,758)
Unrecognized prior service costs 2,150 2,279
Unrecognized net (gain) loss (1,644) 1,710
Accrued pension cost at year-end $ (799) $ (457)
The discount rate used to determine the actuarial present value of the
projected benefit obligations was 8-3/4% in 1994 and 8% in 1993. An expected
long-term rate of return on plan assets of 9% and a 5-1/2% projected increase in
future compensation levels were assumed in determining the net pension cost for
both of the years 1994 and 1993.
Other Postretirement Benefits
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 $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 years 1994 and 1993:
[CAPTION]
1994 1993
(Thousands of Dollars)
[S] [C] [C]
Present value of benefits earned during the year $ 269 $ 226
Interest cost on accumulated benefit obligation 967 967
Return on plan assets (6) -
Net amortization and deferral 654 617
Net cost of postretirement benefits other than
pensions 1,884 1,810
Less disbursements for benefits (987) (983)
Increase in liability for postretirement benefits
other than pensions $ 897 $ 827
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of December 31,
1994 and 1993, follow:
[CAPTION]
1994 1993
(Thousands of Dollars)
[S] [C] [C]
Accumulated benefit obligation:
Retirees $ 9,021 $ 10,149
Fully eligible active employees 1,628 1,735
Other active employees 1,305 1,222
11,954 13,106
Plan assets at fair value 839 -
Accumulated benefit obligation
in excess of plan assets 11,115 13,106
Unrecognized transition obligation
being amortized over 20 years (11,108) (11,725)
Unrecognized net gain (loss) 885 (554)
Accrued liability for postretirement
benefits other than pensions $ 892 $ 827
The assumptions used to calculate the costs to be accrued by PG&W under FASB
Statement 106 included discount rates of 8-3/4% and 8% in 1994 and 1993,
respectively, and a 5-1/2% projected annual increase in future compensation
levels. It was also assumed that the per capita cost of covered health care
benefits would increase at an annual rate of 10-1/2% in 1994 and that this rate
would decrease gradually to 5-1/2% 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, 1994, by approximately $778,000 and the aggregate of
the service and interest cost components of the net cost of postretirement
benefits other than pensions for the year 1994 by approximately $64,000.
The additional costs accrued pursuant to FASB Statement 106 are allocated
between PG&W's gas utility and water utility operations. By Orders entered in
1993 relative to PG&W's water utility operations, the PPUC approved the
inclusion of the costs required to be accrued pursuant to FASB Statement 106 in
PG&W's water rates. Since PG&W has not sought to increase its base gas rates,
the $447,000 ($256,000 net of related income taxes) and $407,000 ($232,000 net
of related income taxes) of additional cost incurred in 1994 and 1993,
respectively, with regard to PG&W's gas utility operations as a result of the
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<PAGE>
adoption of the provisions of FASB Statement 106 were expensed without any
adjustment being made to its gas rates.
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<PAGE>
Other 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
consistently recorded liabilities for benefits of this nature prior to the
effectiveness of FASB Statement 112 and, as a result, the provisions of FASB
Statement 112, which PG&W adopted effective January 1, 1994, did not have a
material impact on its financial position or results of operations.
(10) CONSTRUCTION EXPENDITURES
PG&W estimates the cost of its 1995 construction program will be $44.9
million, which includes $23.0 million for the construction of water facilities
and $21.9 million for the construction of gas facilities.
(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 periodic inspection and maintenance of all such
valves and the verification of all gas service line information. PG&W submitted
a detailed plan of action for complying with the Emergency Order to the PPUC on
April 11, 1994, which was subsequently revised. The PPUC staff agreed that the
revised plan (the "Plan") satisfies the concerns of the PPUC expressed in the
Emergency Order, and on November 30, 1994, the PPUC staff and PG&W entered into
a Settlement Agreement, subject to approval by the PPUC, (i) terminating the
informal investigation of the matter initiated by the PPUC staff, (ii)
memorializing the acceptance by the PPUC staff of the Plan and (iii) evidencing
PG&W's commitment to satisfy the requirements of the Plan. The PPUC must
approve the Settlement Agreement. PG&W does not believe that compliance with
the terms of the Settlement Agreement or any liability that might result from
violations of law 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.
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(12) INDUSTRY SEGMENTS
Financial information with respect to PG&W's industry segments for the years
ended December 31, 1994, 1993 and 1992 is included in Item 1 of this Form 10-K.
Such industry segment information is incorporated herein as part of these
Financial Statements.
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
(Thousands of Dollars, Except Per Share Amounts)
<S> <C> <C> <C> <C>
Operating revenues $ 96,285 $ 43,483 $ 31,862 $ 63,093
Operating income 15,892 7,654 6,225 12,561
Net income (loss) 9,037 882 (520) 5,768
Earnings (loss) applicable
to common stock
Before premium on
redemption of
preferred stock 1.86 .17 (.10) 1.06
Premium on redemption of
preferred stock - (.11) - (.08)
Earnings (loss) per share
of common stock (a) 1.86 .06 (.10) .98
QUARTER ENDED
March 31, June 30, September 30, December 31,
1993 1993 1993 1993
(Thousands of Dollars, Except Per Share Amounts)
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
</TABLE>
(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.
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(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 the trustee has been based on the market value as of the respective
dates 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 quoted market price as of the respective dates 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 rate as
of the respective dates 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 the respective dates for preferred stock of
comparable credit quality with similar terms and maturities.
The carrying amounts and estimated fair values of PG&W's financial
instruments at December 31, 1994 and 1993, were as follows:
[CAPTION]
1994 1993
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
[S] [C] [C] [C] [C]
Restricted funds held by trustee $ 3,401 $ 3,401 $ 12,853 $ 12,857
Long-term debt (including current
portion) 315,455 317,867 306,843 327,436
Preferred stock subject to
mandatory redemption (including
current portion) 1,840 1,877 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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ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
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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 . . . . . . . . . . . . 37
Statements of Income for each of the three years in the
period ended December 31, 1994 . . . . . . . . . . . . . . . . 38
Balance Sheets as of December 31, 1994 and 1993. . . . . . . . . 39
Statements of Cash Flows for each of the three years in the
period ended December 31, 1994 . . . . . . . . . . . . . . . . 41
Statements of Capitalization as of December 31, 1994 and 1993. . 42
Statements of Common Shareholder's Investment for each of
the three years in the period ended December 31, 1994. . . . . 43
Notes to Financial Statements. . . . . . . . . . . . . . . . . . 44
2. Financial Statement Schedules
The following financial statement schedule for PG&W is 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
II Valuation and Qualifying Accounts for the three-year
period ended December 31, 1994 . . . . . . . . . . . . . 66
3. Exhibits
See "Index to Exhibits" located on page 68 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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<TABLE>
<CAPTION>
<S> <C>
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K - continued
</TABLE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of 1994.
(c) Executive Compensation Plans and Arrangements
The following listing includes PG&W's executive compensation plans and
arrangements in effect as of December 31, 1994.
Exhibit
10-32 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.
10-33 Agreement dated as of March 15, 1991, by and between PEI, PG&W and
Robert L. Jones -- filed as Exhibit No. 10-38 to PG&W's Annual
Report on Form 10-K for 1990, File No. 1-3490.
10-34 Employment Agreement effective September 1, 1994, between PEI and
Dean T. Casaday -- filed as Exhibit 10-1 to PEI's Quarterly Report
on Form 10-Q for the quarter ended September 30, 1994, File No.
0-7812.
10-35 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.
10-36 First Amendment to the Supplemental Retirement Agreement, dated as
of September 1, 1994, between PEI and Dean T. Casaday -- filed as
Exhibit 10-37 to PEI's Annual Report on Form 10-K for 1994, File No.
0-7812.
10-37 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.
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Schedule II
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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.
PENNSYLVANIA GAS AND WATER COMPANY
(Registrant)
Date: March 27, 1995 By: /s/ Dean T. Casaday
Dean T. Casaday
President and Chief Executive
Officer
(Principal Executive Officer)
Date: March 27, 1995 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.
Signature Capacity Date
/s/ Kenneth L. Pollock Chairman of the Board of March 27, 1995
Kenneth L. Pollock Directors
/s/ William D. Davis Vice Chairman of the Board March 27, 1995
William D. Davis of Directors
/s/ Dean T. Casaday Director, President and March 27, 1995
Dean T. Casaday Chief Executive Officer
/s/ Robert J. Keating Director March 27, 1995
Robert J. Keating
/s/ John D. McCarthy Director March 27, 1995
John D. McCarthy
/s/ Kenneth M. Pollock Director March 27, 1995
/s/ Kenneth M. Pollock
/s/ James A. Ross Director March 27, 1995
James A. Ross
/s/ Ronald W. Simms Director March 27, 1995
Ronald W. Simms
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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 January 18, 1995 --
filed herewith.
(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. 1-3490.
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. 1-3490.
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 of New York, as Trustee
-- 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 as Exhibit 4-20 to PG&W's Annual Report on Form 10-K for
1993, File No. 1-3490.
4-21 Twenty-ninth Supplemental Indenture, dated as of November 1, 1994,
from PG&W to First Trust of New York, National Association, as
Successor Trustee to Morgan Guaranty Trust Company of New York --
filed herewith.
NOTE: The First, Second, Third, Fifth, Sixth, Seventh, Eighth,
Eleventh and Thirteenth Supplemental Indentures merely convey
additional properties to the Trustee.
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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 as Exhibit 10-7 to PG&W's Annual Report on
Form 10-K for 1993, File No. 1-3490.
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 as Exhibit 10-8 to PG&W's
Annual Report on Form 10-K for 1993, File No. 1-3490.
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 as Exhibit 10-9 to PG&W's Annual
Report on Form 10-K for 1993, File No. 1-3490.
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 as Exhibit 10-10 to PG&W's Annual
Report on Form 10-K for 1993, File No. 1-3490.
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Exhibit
Number
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 as Exhibit 10-11 to PG&W's Annual Report on
Form 10-K for 1993, File No. 1-3490.
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 as Exhibit 10-12 to PG&W's Annual
Report on Form 10-K for 1993, File No. 1-3490.
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 as Exhibit 10-13 to PG&W's Annual
Report on Form 10-K for 1993, File No. 1-3490.
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 as Exhibit 10-14 to PG&W's Annual
Report on Form 10-K for 1993, File No. 1-3490.
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.
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Exhibit
Number
10-20 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.
10-21 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.
10-22 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.
10-23 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.
10-24 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.
10-25 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.
10-26 Second Amended and Restated Project Facilities Agreement, dated as
of December 1, 1993, between PG&W and the Luzerne County Industrial
Development Authority -- filed as Exhibit 10-30 to PG&W's Annual
Report on Form 10-K for 1993, File No. 1-3490.
10-27 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 as Exhibit 10-31 to PG&W's Annual Report on
Form 10-K for 1993, File No. 1-3490.
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Exhibit
Number
10-28 7% Bond Purchase Agreement, dated November 1, 1994, among the
Luzerne County Industrial Development Authority, PG&W and Wheat
First Butcher Singer, as representative on behalf of itself and Legg
Mason Wood Walker Incorporated -- filed herewith.
10-29 Amended and Restated Project Facilities Agreement, dated as of
November 1, 1994, between PG&W and the Luzerne County Industrial
Development Authority -- filed herewith.
10-30 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, File No. 1-3490.
10-31 First Amendment to Credit Agreement and Notes, dated as of December
16, 1994, 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 herewith.
10-32 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.
10-33 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.
10-34 Employment Agreement, effective September 1, 1994, between PEI and
Dean T. Casaday -- filed as Exhibit 10-1 to PEI's Quarterly Report
on Form 10-Q for the Quarter ended September 30, 1994, File No.
0-7812.
10-35 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.
10-36 First Amendment to the Supplemental Retirement Agreement, dated as
of September 1, 1994, between PEI and Dean T. Casaday -- filed as
Exhibit 10-37 to PEI's Annual Report on Form 10-K for 1994, File No.
0-7812.
10-37 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.
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TABLE OF CONTENTS
PART I PAGE
Item l. BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Item 2. PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . 16
Item 3. LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . 16
Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS . . . . 16
PART II
Item 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS . . . . . . . . . . . . . . . . . . . 17
Item 6. SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . *
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS . . . . . . . . . . . 18
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . 36
Item 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . 63
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 . . . . . . . . . . . . . . . . . . . . . . . 64**
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . 67
________________________
* 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 68.
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<TABLE>
<CAPTION>
PENNSYLVANIA GAS AND WATER COMPANY
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
FOR THE THREE-YEAR PERIOD ENDED DECEMBER 31, 1994
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, 1994 $ 1,223 $ 2,325 $ - $ 2,249(a) $ 1,299
Year ended December 31, 1993 $ 1,475 $ 1,590 $ - $ 1,842(a) $ 1,223
Year ended December 31, 1992 $ 1,607 $ 1,806 $ - $ 1,938(a) $ 1,475
Shown as operating reserves on the balance sheets:
Insurance -
Year ended December 31, 1994 $ 1,863 $ 1,695 $ - $ 1,175(b) $ 2,383
Year ended December 31, 1993 $ 1,565 $ 1,823 $ 75 $ 1,600(b) $ 1,863
Year ended December 31, 1992 $ 1,847 $ 1,216 $ - $ 1,498(b) $ 1,565
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>
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PENNSYLVANIA GAS AND WATER COMPANY
B Y L A W S
ARTICLE I
STOCKHOLDERS
Section 1. Place of Holding Meetings. Meetings of stockholders
shall be held within the State of Pennsylvania, and, unless otherwise
determined by the Board of Directors, all meetings of the stockholders
shall be held at the office of the Company.
Section 2. Voting.
(a) Voting Rights of Stockholders. - Unless otherwise provided in
the articles, every stockholder of the Company shall be
entitled to one vote for every share standing in the name of
the stockholder on the books of the Company; provided,
however, that in all elections for directors such
stockholders may cast the whole number of his votes for one
candidate or distribute them upon two or more candidates as
he may prefer.
(b) Voting and Other Action by Proxy.
(1) Every stockholder entitled to vote at a meeting of
stockholders may authorize another person to act for the
stockholder by proxy.
(2) The presence of, or vote or other action at a meeting of
stockholders by a proxy of a stockholder shall
constitute the presence of, or vote or action by the
stockholder.
(3) Where two or more proxies of a stockholder are present,
the Company shall, unless otherwise expressly provided
in the proxy, accept, as the vote of all shares
represented thereby the vote cast by a majority of them
and, if a majority of the proxies cannot agree whether
the shares represented shall be voted or upon the manner
of voting the shares, the voting of the shares shall be
divided equally among those persons.
(c) Execution and Filing. - Every proxy shall be executed in
writing by the stockholder or by the duly authorized
attorney-in-fact of stockholder and filed with the Secretary
of the Company. A telegram, telex, cablegram, datagram or
similar transmission from a stockholder or attorney-in-fact,
or a photographic, facsimile or similar reproduction of a
writing executed by a stockholder or attorney-in-fact:
(1) may be treated as properly executed for purposes of this
subsection; and
(2) shall be so treated if it sets forth a confidential and
unique identification number or other mark furnished by
the Company to the stockholder for the purposes of a
particular meeting or transaction.
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(d) Revocation. A proxy, unless coupled with an interest, shall
be revocable at will, notwithstanding any other agreement or
any provision in the proxy to the contrary, but the
revocation of a proxy shall not be effective until written
notice thereof has been given to the Secretary of the
Company. An unrevoked proxy shall not be valid after three
years from the date of its execution unless a longer time is
expressly provided therein.
A proxy shall not be revoked by the death or incapacity of
the maker unless, before the vote is counted or the authority
is exercised, written notice of the death or incapacity is
given to the Secretary of the Company.
(e) Expenses. The Company shall pay the reasonable expenses of
solicitation of votes, proxies or consents of stockholders by
or on behalf of the Board of Directors or its nominees for
election to the Board, including solicitation by professional
proxy solicitors and otherwise.
(f) Voting by Fiduciaries and Pledgees. Shares of the Company
standing in the name of a trustee or other fiduciary and
shares held by an assignee for the benefit of creditors or by
a receiver may be voted by the trustee, fiduciary, assignee
or receiver. A stockholder whose shares are pledged shall be
entitled to vote the shares until the shares have been
transferred into the name of the pledgee, or a nominee of the
pledgee, but nothing in this section shall affect the
validity of a proxy given to a pledgee or nominee.
(g) Voting by Joint Holders of Shares. Where shares of the
Company are held jointly or as tenants in common by two or
more persons, as fiduciaries or otherwise:
(1) if only one or more of such persons is present in person
or by proxy, all of the shares standing in the names of
such persons shall be deemed to be represented for the
purpose of determining a quorum and the Company shall
accept as the vote of all the shares the vote cast by a
joint owner or a majority of them; and
(2) if the persons are equally divided upon whether the
shares held by them shall be voted or upon the manner of
voting the shares, the voting of the shares shall be
divided equally among the persons without prejudice to
the rights of the joint owners or the beneficial owners
thereof among themselves.
(3) However, if there has been filed with the Secretary of
the Company a copy, certified by an attorney at law to
be correct, of the relevant portions of the agreement
under which the shares are held or the instrument by
which the trust or estate was created or the order of
court appointing them or of an order of court directing
the voting of the shares, the persons specified as
having such voting power in the document latest in date
of operative effect so filed, and only those persons,
shall be entitled to vote the shares but only in
accordance therewith.
(h) Voting by Corporations. Any corporation that is a
stockholder of the Company may vote at meetings of
stockholders of this Company by any of its officers or
agents, or by proxy appointed by any officer or agent, unless
some other person, by resolution of the Board of Directors of
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the other corporation or a provision of its articles or
bylaws, a copy of which resolution or provision certified to
be correct by one of its officers has been filed with the
Secretary of this Company, is appointed its general or
special proxy in which case that person shall be entitled to
vote the shares.
Section 3. Quorum. Any number of stockholders together holding
at least a majority of the stock issued and outstanding of the class or
classes entitled to vote, who shall be present in person or represented by
proxy at any meeting (other than an adjourned meeting as specified in
Article I, Section 8, herein) duly called, shall constitute a quorum for
the transaction of business, except as may be otherwise provided by law.
The stockholders present at a duly organized meeting can continue to do
business until adjournment notwithstanding the withdrawal of enough
shareholders to leave less than a quorum.
Section 4. Adjournment of Meetings. If less than a quorum shall
be in attendance at the time for which the meeting shall have been called,
the meeting may be adjourned from time to time by a majority vote of the
stockholders present or represented, without any notice other than an
announcement at the meeting, until a quorum shall attend. Any meeting at
which a quorum is present may also be adjourned, in like manner, for such
time, or upon such call, as may be determined by vote.
Section 5. Annual Election of Directors. The Board of Directors
may fix and designate the date and time of the Annual Meeting of
Stockholders for the election of directors and the transaction of other
business. If no such date and time is fixed and designated by the
Board,the meeting for any calendar year shall be held on the second
Wednesday in May at an hour to be named in the notice. At each Annual
Meeting, the stockholders entitled to vote shall, as provided in Section 2
of this Article, by ballot, elect a Board of Directors, and they may
transact such other corporate business as shall come before the meeting.
The candidates receiving the highest number of votes from each class or
group of classes, if any, entitled to elect directors separately up to the
number of directors to be elected by the class or group of classes shall be
elected. If at any meeting of stockholders, directors of more than one
class are to be elected, each class of directors shall be elected in a
separate election.
Section 6: Special Meetings. How Called. Special meetings of
the stockholders for any purpose or purposes, may be called at any time by
the Board, upon written request delivered to the Secretary of the Company.
In addition, an "interested stockholder" (as defined in section 2553 of the
Pennsylvania Business Corporation Law as it may from time to time be
amended) may, upon written request delivered to the Secretary of the
Company, call a special meeting for the purpose of approving a business
combination under either subsection (3) or (4) of section 2555. Any
request for a special meeting of stockholders shall state the purpose or
purposes of the proposed meeting. Upon receipt of any such request, it
shall be the duty of the Secretary to give notice, in a manner consistent
with these Bylaws, of a special meeting of the stockholders to be held at
such time as the Secretary may fix, which time may not be, if the meeting
is called pursuant to a statutory right, more than sixty (60) days after
receipt of the request. If the Secretary shall neglect or refuse to fix
the date of the meeting and give notice thereof, the person or persons
calling the meeting may do so. Business transacted at any special meeting
shall be confined to the business stated in the notice.
Section 7. Manner of Voting at Stockholders' Meetings. At all
meetings of stockholders, all questions, except the question of an
amendment to the Bylaws, and the election of directors, and all such other
questions, the manner of deciding which is especially regulated by statute,
shall be determined by a majority vote of the stockholders entitled to vote
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present in person or represented by proxy; provided, however, that any
qualified voter may demand a stock vote, and in that case, such stock vote
shall immediately be taken.
Section 8. Notice of Stockholders' Meetings. Written notice of
every meeting of the stockholders stating the place, the date and hour
thereof and the matters to be acted on at such meeting, shall be given in a
manner consistent with the applicable provisions of section 14 of the
Securities Exchange Act of 1934, as amended, and the rules and regulations
thereunder, or any successor act or regulation (the "Exchange Act"), by, or
at the direction of, the Secretary of the Company or, in the absence of the
Secretary of the Company any Assistant Secretary of the Company, at least
twenty (20) days prior to the day named for a meeting, to each stockholder
entitled to vote thereat on the date fixed as a record date in accordance
with these Bylaws or, if no record date be fixed, then of record at the
close of business on the 50th day next preceding the day of the meeting, at
such address as appears on the transfer books of the Company. Any notice
of any meeting of stockholders shall state that, for purposes of any
meeting that has been previously adjourned for one or more periods
aggregating at least fifteen (15) days because of an absence of a quorum,
the stockholders entitled to vote who attend such a meeting, although less
than a quorum pursuant to Article 1, Section 3 of these Bylaws, shall
nevertheless constitute a quorum for the purpose of acting upon any matter
set forth in the original notice of the meeting that was so adjourned.
Notice or other communications need not be sent to any stockholder with
whom the Company has been unable to communicate for more than twenty-four
(24) consecutive months because communications to the stockholder are
returned unclaimed or the stockholder has otherwise failed to provide the
Company with a current address. Whenever the stockholder provides the
Company with a current address, the Company shall commence sending notices
and other communications to the stockholder in the same manner as to the
other stockholders.
Section 9. Unanimous Written Consent. Any action required or
permitted to be taken at a meeting of the stockholders or of a class of
stockholders may be taken without a meeting if, prior or subsequent to the
action, a consent or consents thereto in writing, setting forth the action
so taken, shall be signed by all of the stockholders who would be entitled
to vote at a meeting for such purpose and filed with the Secretary.
Except as otherwise provided in Article V, Section 5 of these
Bylaws, the record date for determining stockholders entitled to express
consent or dissent to action in writing without a meeting, when prior
action by the Board of Directors is not necessary, shall be at the close of
business on the day on which the first written consent or dissent is filed
with the Secretary. If prior action by the Board of Directors is
necessary, the record date for determining such stockholders shall be at
the close of business on the day on which the Board adopts the resolution
relating to such action.
ARTICLE II
DIRECTORS
Section 1. First Meeting. The newly elected directors may hold
their first meeting for the purpose of organization and the transaction of
business, if a quorum be present, immediately after the Annual Meeting of
Stockholders, or the time and place of such meeting may be fixed by consent
in writing of all the directors.
Section 2. Election of Officers. At such meeting the directors
shall elect a President, one or more Vice Presidents, a Treasurer and a
Secretary, who need not be directors. The directors may also elect such
other officers as provided in Article III, Section 1. of these Bylaws.
Such officers shall hold office until the next annual election of officers
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and until their successors are elected and qualify, unless removed by the
Board of Directors as provided in Section 8 of Article III of these Bylaws.
Section 3. Regular Meetings. Regular meetings of the directors
may be held without notice at such places and times as shall be determined
from time to time by resolution of the directors.
Section 4. Special Meetings. How called. Notice. Special
meetings of the Board may be called by either the President, the Secretary,
the Chairman of the Executive Committee or by the Secretary pursuant to the
written request of any two directors, upon forty-eight (48) hours' notice
afforded by either telephone, telegraph, facsimile or personal notice, or
upon three (3) days' notice afforded by mail.
Section 5. Number and Quorum. The number of directors shall be
not less than three (3) nor more than fifteen (15). Within such limits,
the number of directors may be increased or decreased by the Board of
Directors from time to time without a vote of the stockholders. The
directors shall be elected by the stockholders, at the Annual Meeting of
stockholders, in each year, to hold office for the term of one year and
until their successors are chosen. A majority of the directors in office
shall constitute a quorum for the transaction of business. Directors need
not be stockholders.
Section 6. Place of Meeting. The directors may hold their
meetings and have one or more offices, and keep the books of the Company,
outside the State of Pennsylvania, at any office or offices of the Company,
or at any other place, as they may from time to time by resolution
determine.
Section 7. Powers of Directors. The Board of Directors shall
have all the necessary powers for the management of the business of the
Company, and subject to the restrictions imposed by law, or by these
Bylaws, may exercise all the powers of the Corporation.
Section 8. Vacancies. Vacancies occurring in the membership of
the Board of Directors, from whatever cause arising, shall be filled by a
majority vote of the remaining directors, and in case of any increase in
the number of directors, the additional directors authorized by such
increase shall be elected by a majority vote of the directors in office,
although less than a quorum.
Section 9. Removal of Directors. Any one or more of the
directors may be removed, either with or without cause, at any time, by a
majority vote of the stockholders entitled to vote at any regular or
special meeting. The successor or successors of any director or directors
so removed shall be elected by the remaining directors.
Section 10. Compensation of Directors. Directors and members of
any committee of the Board of Directors, except full-time officers and
employees of the Company, shall be entitled to such reasonable compensation
for their services as directors and members of any such committee as shall
be fixed from time to time by resolution of the Board of Directors, and
shall also be entitled to reimbursement for any reasonable expenses
incurred in attending such meetings. The compensation of directors may be
paid on such basis as is determined in the resolution of the Board of
Directors.
Section 11. Executive Committee and Other Committees. How
Appointed. The directors may by a resolution adopted by a majority of the
directors in office appoint from their number an Executive Committee of
three or more members and other Committees of one or more members. The
Committees may make their own rules of procedure and shall meet where and
as provided by such rules, or by a resolution of the directors. A majority
shall constitute a quorum, but in every case the affirmative vote of a
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majority of all the members of the committee shall be necessary to the
adoption of any resolution.
Section 12. Executive Committee. Powers. During the intervals
between the meetings of the directors, the Executive Committee shall have
and may exercise all the powers of the directors in the management of the
business and affairs of the Company, including power to authorize the seal
of the Company to be affixed to all papers which may require it, in such
manner as such committee shall deem best for the interests of the Company,
in all cases in which specific directions shall not have been given by the
directors. Neither the Executive Committee or any other committee of the
Board of Directors created by these Bylaws nor the Board of Directors shall
have any power or authority as to the following:
(i) the submission to stockholders of any action requiring
approval of stockholders under the Pennsylvania Business Corporation Law.
(ii) the creation or filling of vacancies in the Board of
Directors.
(iii) the adoption, amendment or repeal of the Bylaws.
(iv) the amendment or repeal of any resolution of the Board that
by its terms is amendable or repealable only by the Board.
(v) action on matters committed by the Bylaws or resolution of
the Board of Directors to another committee of the Board.
Section 13. Meeting by Telephonic Conference. Any meeting of the
Board of Directors or of a committee thereof, including the Executive
Committee, may be held in which any one or more or all of the directors or
participants may participate as if present in person, by means of
conference telephone or similar communication equipment in a manner by
which all persons participating in the meeting can hear each other.
Section 14. Substitute Committee Members. The Board may
designate one or more directors as alternate members of any committee who
may replace any absent or disqualified member at any meeting of the
committee or for the purposes of any written action by the committee. In
the absence or disqualification of a member and alternate member or members
of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another director to act at the meeting in
the place of the absent or disqualified member.
Section 15. Personal Liability of Directors. To the fullest
extent that the laws of the Commonwealth of Pennsylvania, as now in effect
or as hereafter amended, permit elimination or limitation of the liability
of directors, no director of the Company shall be personally liable for
monetary damages as such for any action taken, or any failure to take any
action, as a director. Further, any amendment or repeal of this Section 15
which has the effect of increasing director liability shall operate
prospectively only, and shall not affect any action taken, or any failure
to act, prior to its adoption.
Section 16. Action by Consent of Directors. Any action required
or permitted to be taken at a meeting of the Board or of a committee of the
Board may be taken without a meeting if, prior or subsequent to the action,
a consent or consents in writing setting forth the action so taken shall be
signed by all of the directors in office or the members of the committee,
as the case may be, and filed with the Secretary of the Company.
ARTICLE III
OFFICERS
Section 1. Required Officers of the Company. The officers of the
Company shall be a Chairman of the Board of Directors, a President, one or
more Vice Presidents, a Secretary and a Treasurer, one or more Assistant
Secretaries, and one or more Assistant Treasurers. One person may hold any
two offices except the office of President and Vice President. The Board
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of Directors may appoint such other officers as from time to time they may
determine. All officers of the Company, as between themselves and the
Company, shall have such authority and perform such duties in the
management of the Company as may be provided by or pursuant to the Board of
Directors, or as may be determined by or pursuant to these Bylaws.
Section 1A. Chairman of the Board of Directors. The Chairman of
the Board of Directors shall be a member of the Board of Directors. He
shall preside as Chairman at all meetings of the stockholders and of the
Board of Directors, and shall perform such other duties as are specified in
these Bylaws or as are usually performed by a Chairman of the Board of
Directors, or as from time to time shall be assigned to him by the Board of
Directors. In the absence of, or at the request of, the Chairman of the
Board of Directors, the Board of Directors is authorized to designate a
Chairman for the Annual Meeting or special meetings.
Section 2. President. The President shall be the Chief Executive
Officer of the Company and shall have general management and control of the
business and affairs of the Company, subject to the direction of the Board
of Directors, and he shall generally do and perform all acts incident to
the office of the President, or which are authorized or required by law.
The President shall have power to call special meetings of the stockholders
or directors for any purpose or purposes, and when authorized by the Board
of Directors or these Bylaws shall make and sign contracts and agreements
in the name of and on behalf of the Company.
Section 3. Vice Presidents. Each Vice President shall have such
powers and shall perform such duties as may be assigned to him by the
President or the Board of Directors. In case of the absence or disability
of the President, the duties of the office of the President shall be
performed by the Vice Presidents in the order of priority established by
the Board, and unless and until the Board of Directors shall otherwise
direct.
Section 4. Secretary. The Secretary shall give, or cause to be
given, notice of all meetings of stockholders and directors, and all other
notices required by law or by these Bylaws, and in case of his absence or
refusal or neglect so to do, any such notice may be given by any person
thereunto directed by the President, or by the directors or stockholders
upon whose request the meeting is called, as provided in these Bylaws. He
shall record all the proceedings of the meetings of the stockholders and of
the directors in a book to be kept for that purpose, and shall perform such
other duties as may be assigned to him by the directors or the President.
He shall have custody of the seal of the Company and shall affix the same
to all instruments requiring it, when authorized by the directors or the
President, and attest the same.
Section 5. Assistant Secretary. The Board of Directors may
appoint an Assistant Secretary or more than one Assistant Secretary. Each
Assistant Secretary shall have such powers and shall perform such duties as
may be assigned to him by the Board of Directors or the President.
Section 6. Treasurer. The Treasurer shall have the custody of
all funds, securities, evidences of indebtedness and other valuable
documents of the Company; he shall receive and give or cause to be given
receipts and acquittances for moneys paid in on account of the Company and
shall pay out of the fund on hand all just debts of the Company, of
whatever nature upon maturity of the same; he shall enter or cause to be
entered in books of the Company to be kept for that purpose full and
accurate accounts of all moneys received and paid out on account of the
Company, and he shall perform all the other duties incident to the office
of the Treasurer. If the Board of Directors so determine, he shall give
the Company a bond for the faithful discharge of his duties in such amount
and with such security as the Board shall prescribe.
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Section 7. Assistant Treasurer. The Board of Directors may
appoint an Assistant Treasurer or more than one Assistant Treasurer. Each
Assistant Treasurer shall have such powers and shall perform such duties as
may be assigned to him by the Board of Directors or the President.
Section 8. Removal of Officers and Agents.
Any officer or agent of the Company may be removed by the Board of
Directors with or without cause. The removal shall be without prejudice to
the contract rights, if any, of any person so removed. Election or
appointment of an officer or agent shall not of itself create contract
rights.
ARTICLE IV
CAPITAL STOCK
Section 1. Issue of Certificates of Stock. Certificates of the
shares of the capital stock of the Company shall be in such form as shall
be approved by the Board of Directors. Each stockholder shall be entitled
to a certificate of his stock under the seal of the Company, executed, by
facsimile or otherwise, by or on behalf of the Company, by the President or
a Vice President, and also by the Treasurer or an Assistant Treasurer. In
case any officer who has signed or whose facsimile signature has been
placed upon any share certificate shall have ceased to be such officer,
because of death, resignation or otherwise, before the certificate is
issued, it may be issued by the Company with the same effect as if the
officer had not ceased to be such at the time of issue. No stock
certificate shall be valid unless countersigned and registered in such
manner, if any, as the directors shall by resolution prescribe.
Section 2. Transfer of Shares. The shares of stock of the
Company shall be transferable upon its books by the holders thereof in
person or by their duly authorized attorneys or legal representatives, and
upon such transfer the old certificates shall be surrendered to the Company
by the delivery thereof to the person in charge of the stock and transfer
books and ledgers, or to such other person as the directors may designate,
by whom they shall be cancelled, and new certificates shall thereupon be
issued. A record shall be made of each transfer, and a duplicate thereof
mailed to the Pennsylvania office of the Company.
Section 3. Dividends. The directors may declare dividends from
the surplus or net profits arising from the business of the Company as and
when they deem expedient. Before declaring any dividend, there may be
reserved out of the accumulated profits such sum or sums as the directors
from time to time, in their discretion, think proper for working capital or
as a reserve fund to meet contingencies or for equalizing dividends, or for
such other purposes as the directors shall think conducive to the interest
of the Company.
Section 4. Lost Certificates. If the owner of a share
certificate claims that it has been lost, destroyed, or wrongfully taken,
the Company shall issue a new certificate in place of the original
certificate if the owner so requests before the Company has notice that the
certificate has been acquired by a bona fide purchaser and if the owner has
filed with the Company an indemnity bond and an affidavit of facts
satisfactory to the Board or its designated agent, and has complied with
such other reasonable requirements, if any, as the Board may deem
appropriate.
Section 5. Rules as to Issue of Certificates. The Board of
Directors may make such rules and regulations as it may deem expedient
concerning the issue, transfer and registration of certificates of stock of
the Company.
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Each and every person accepting from the Company certificates of
stock therein shall furnish the Corporation a written statement of his or
her residence or post office address.
Section 6. Holder of Record to be deemed Holder in Fact. The
Company shall be entitled to treat the holder of record of any share or
shares of stock as the holder in fact thereof, and accordingly shall not be
bound to recognize any equitable or other claim to, or interest in, such
share or shares on the part of any other person, whether or not it shall
have express or other notice thereof, save as expressly provided by law or
by Section 7 of this Article.
Section 7. Shares of Stock Held for Account of Another. The
Board of Directors is authorized to adopt a procedure whereby a stockholder
of the Corporation may certify in writing that all or part of the shares of
stock registered in the name of the stockholder are held for account of a
specified person or persons. The resolution of the Board of Directors that
adopts this certification procedure may include the following:
(1) The class of stockholder who may qualify.
(2) The purpose or purposes for which the certification may be
made.
(3) The form of certification and the information that it should
contain.
(4) The time after the record date within which the certification
must be received by the Corporation, if the certification
concerns a record date.
(5) Any other provisions regarding the certification procedure
that the Board of Directors deems necessary or desirable.
On receipt by the Corporation of a certification that complies
with the procedure adopted by the Board of Directors, the person specified
in the certification is deemed, for the purpose set forth in the
certification, to be the holder of record of the shares of stock indicated
in the certification in place of the stockholder making the certification.
ARTICLE V
MISCELLANEOUS PROVISIONS
Section 1. Fiscal Year. The fiscal year of the Company shall end
on the 31st day of December of each year.
Section 2. Checks, etc. All checks, drafts or orders for the
payment of money shall be signed by such officer(s) or agent(s) as the
directors may designate.
Section 3. Notice and Waiver of Notice. Except as provided in
Article 1 Section 8 of these Bylaws, whenever, under the provisions of the
Pennsylvania Business Corporation Law or of the Articles or of these Bylaws
or otherwise, written notice is required to be given to any person, it may
be given to such person either personally or by sending a copy thereof by
first class or express mail, postage prepaid, telegram (with messenger
service specified), telex, TWX (with answerback received), courier service
(with charges prepaid) or facsimile transmission to his or her address (or
to his or her telex, TWX, or facsimile number) appearing on the books of
the Company or, in the case of directors, supplied by the director to the
Company for the purpose of notice. If the notice is sent by mail,
telegraph or courier service, it shall be deemed to have been given to the
person entitled thereto when deposited in the United States mail or with a
telegraph office or courier service for delivery to that person. A notice
given by telex or TWX shall be deemed to have been given when dispatched.
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If mailed at least twenty (20) days prior to the meeting or corporate
action to be taken, notice may be sent by any class of postpaid mail
(including bulk mail). Whenever any notice is required to be given by the
Pennsylvania Business Corporation Law or by the Articles or these Bylaws, a
waiver thereof in writing, signed by the person or persons entitled to the
notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Neither the business to be
transacted nor the purpose of a meeting need be specified in the waiver of
notice of the meeting. Attendance of a person at any meeting shall
constitute a waiver of notice of the meeting, except where any person
attends a meeting for the express purpose of objecting to the transaction
of any business because the meeting was not lawfully called or convened,
and the person so objects at the beginning of the meeting.
Section 4. Inspection of Books. Every stockholder shall, upon
written verified demand stating the purpose thereof, have a right to
examine, in person or by agent or attorney, during the usual hours for
business for any proper purpose, the share register books and records of
account, and records of the proceedings of the incorporators, stockholders
and directors and to make copies or extracts therefrom. A proper purpose
shall mean a purpose reasonably related to the interest of the person as a
stockholder. In every instance where an attorney or other agent is the
person who seeks the right of inspection, the demand shall be accompanied
by a verified power of attorney or other writing that authorizes the
attorney or other agent to so act on behalf of the stockholder. The demand
shall be directed to the Company at its registered office in the
Commonwealth of Pennsylvania or at its principal place of business wherever
situated.
Section 5. Record date. The Board of Directors may fix a time
prior to the date of any meeting of stockholders as a record date for the
determination of the stockholders entitled to notice of, or to vote at, the
meeting, which time, except in the case of an adjourned meeting, shall be
not more than 90 days prior to the date of the meeting of stockholders.
Only stockholders of record on the date fixed shall be so entitled
notwithstanding any transfer of shares on the books of the Company after
any record date fixed as provided in this subsection. The Board of
Directors may similarly fix a record date for the determination of
stockholders of record for any other purpose. When a determination of
stockholders for a record date has been made as provided in this Section
for the purpose of a meeting, such determination shall apply to any
adjournments thereof unless the Board fixes a new record date for the
adjourned meeting.
ARTICLE VI
AMENDMENT AND REPEAL
Section 1. Amendment and Repeal of Bylaws. The stockholders by
the affirmative vote of the holders of a majority of the stock issued and
outstanding of the class or classes entitled to vote, may at any meeting,
provided the substance of the proposed amendment shall have been stated in
the notice of the meeting, amend, alter or repeal any of these Bylaws.
Section 2. Amendments By Directors. Except as prohibited by law,
the directors, by the affirmative vote of a majority of the Board, may at
any meeting amend, alter or repeal these Bylaws, in whole or in part.
ARTICLE VII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 1. Right to Indemnification. Except as prohibited by
law, every director and officer of the Company shall be entitled as of
right to be indemnified by the Company against reasonable expense and any
liability paid or incurred by such person in connection with any actual or
threatened claim, action, suit or proceeding, civil, criminal,
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administrative, investigative or other, whether brought by or in the right
of the Company or otherwise, in which he or she may be involved, as a party
or otherwise, by reason of such person being or having been a director or
officer of the Company or by reason of the fact that such person is or was
serving at the request of the Company as a director, officer, employee,
fiduciary or other representative of another corporation, partnership,
joint venture, trust, employee benefit plan or other entity (such claim,
action, suit or proceeding hereinafter being referred to as "Action").
Such indemnification shall include the right to have expenses incurred by
such person in connection with an Action paid in advance by the Company
prior to final disposition of such Action, subject to such conditions as
may be prescribed by law. Persons who are not directors or officers of the
Company may be similarly indemnified in respect of service to the Company
or to another such entity at the request of the Company to the extent the
Board of Directors at any time designates such person as entitled to the
benefits of this Section. As used herein, "expense" shall include fees and
expenses of counsel selected by such person; and "liability" shall include
amounts of judgments, excise taxes, fines and penalties, and amounts paid
in settlement.
Section 2. Right of Claimant to Bring Suit. If a claim for
indemnification by any person eligible to be indemnified under Section 1 is
not paid in full by the Company within 30 days after a written claim has
been received by the Company, the claimant may at any time thereafter bring
suit against the Company to recover the unpaid amount of the claim, and, if
successful in whole or in part, the claimant shall also be entitled to be
paid the expense of prosecuting such claim. It shall be a defense to any
such suit that the conduct of the claimant was such that under Pennsylvania
law the Company would be prohibited from indemnifying the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Company. Neither the failure of the Company (including its Board of
Directors, independent legal counsel and its stockholders) to have made a
determination prior to the commencement of such suit that indemnification
of the claimant is proper in the circumstances because the conduct of the
claimant was not such that indemnification would be prohibited by law, nor
an actual determination by the Company (including its Board of Directors,
independent legal counsel or its stockholders) that the conduct of the
claimant was such that indemnification would be prohibited by law, shall be
a defense to the suit or create a presumption that the conduct of the
claimant was such that indemnification would be prohibited by law.
Section 3. Insurance and Funding. The Company may purchase and
maintain insurance to protect itself and any person eligible to be
indemnified hereunder against any liability or expense asserted or incurred
by such person in connection with any Action, whether or not the Company
would have the power to indemnify such persons against such liability or
expense by law or under the provisions of this Article VII. The Company
may create a trust fund, grant a security interest, cause a letter of
credit to be issued or use other means (whether or not similar to the
foregoing) to ensure the payment of such sums as may become necessary to
effect indemnification as provided herein.
Section 4. Non-exclusivity; Nature and Extent of Rights. The
right of indemnification provided for herein (1) shall not be deemed
exclusive of any other rights, whether now existing or hereafter created,
to which those seeking indemnification hereunder may be entitled under any
agreement, by-law or charter provision, vote of stockholders or directors
or otherwise, (2) shall be deemed to create contractual rights in favor of
persons entitled to indemnification hereunder, (3) shall continue as to
persons who have ceased to have the status pursuant to which they were
entitled or were designated as entitled to indemnification hereunder and
shall inure to the benefit of the heirs and legal representatives of
persons entitled to indemnification hereunder and (4) shall be applicable
to Actions commenced after the adoption hereof, whether arising from acts
or omissions occurring before or after the adoption hereof. The right of
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indemnification provided for herein may not be amended, modified or
repealed so as to limit in any way the indemnification provided for herein
with respect to any acts or omissions occurring prior to the effective date
of any such amendment, modification or repeal.
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CONFORMED COPY
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Twenty-Ninth Supplemental Indenture
DATED AS OF NOVEMBER 1, 1994
(SUPPLEMENTAL TO INDENTURE DATED AS OF MARCH 15, 1946)
------------------
PENNSYLVANIA GAS AND WATER COMPANY
(FORMERLY SCRANTON-SPRING BROOK WATER SERVICE COMPANY)
TO
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION
TRUSTEE
------------------
FIRST MORTGAGE BONDS 7% SERIES DUE 2017
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1
TWENTY-NINTH SUPPLEMENTAL INDENTURE, dated as of the first day of November
1994, 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 FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, a national banking association organized and existing under the
laws of the United States, and having its principal place of business at No. 100
Wall Street, Suite 1600, 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 Morgan Guaranty
Trust Company of New York ('Morgan') (formerly Guaranty Trust Company of New
York), to secure its First Mortgage Bonds and has executed and delivered
twenty-eight 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; as of December 1, 1992; and as of December 1,
1993 (the Original Indenture as heretofore supplemented and to be supplemented
by this Twenty-Ninth Supplemental Indenture, and as the same may be further
supplemented by additional indentures supplemental thereto, being hereinafter
collectively called the 'Indenture'); and
WHEREAS, the Company, Morgan and the Trustee executed and delivered the
Resignation, Successor Appointment and Acceptance Agreement dated as of
September 2, 1994, pursuant to which the Trustee became successor trustee under
the Indenture; and
WHEREAS, the Company at October 31, 1994 (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
2
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 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, $3,535,000 (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, $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
$19,000,000 (of an original issue of $19,000,000) principal amount of bonds of a
series designated First Mortgage Bonds 6.05% Series due 2019; 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
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
3
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
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-Ninth
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 7% Series due
2017 (hereinafter sometimes called 'bonds of the Twenty-First Series'); and
WHEREAS, the Company proposes to execute and to request the Trustee to
authenticate and deliver up to $30,000,000 principal amount of bonds of the
Twenty-First Series pursuant to the provisions of Sections 3.02 to 3.06, both
inclusive, of the Original Indenture; and
WHEREAS, the bonds of the Twenty-First 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 TWENTY-FIRST 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.
4
PENNSYLVANIA GAS AND WATER COMPANY
(Formerly Scranton-Spring Brook Water Service Company)
First Mortgage Bond 7% Series due 2017
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
December 1, 2017 (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 June and the first day of December in each
year commencing June 1, 1995, to pay interest thereon, at said office or agency,
at the rate of 7% 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 November 1, 1994), 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 June 1 or December 1 will be
paid to the person in whose name this bond was registered at the close of
business on the fifteenth day of May or the fifteenth day of November 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
November 1, 1994 (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)
5
by, a certain mortgage and deed of trust, dated as of March 15, 1946
(hereinafter called the 'Original Indenture'), and by twenty-nine 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 First Trust of New York,
National Association, as successor 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, 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 7% Series due 2017 of the Company.
6
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, 1994 Series A (Pennsylvania
Gas and Water Company Project) due December 1, 2017 (the '1994 Series A Bonds').
The principal amount of bonds of this series to be redeemed upon any redemption
of the 1994 Series A Bonds shall be equal to 100% of the principal amount of
1994 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 1994 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 December 1, 2004 and November 30, 2005, 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 December 1, 2005 and November
30, 2006, 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 1994 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.
7
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 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 First
Trust of New York, National Association, or its successor, as Trustee under the
Indenture.
8
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
9
[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.
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION, as Trustee
By:________________________________
Authorized Officer
[End of Form of Bond]
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-Ninth Supplemental Indenture have been complied with and observed,
and all things necessary to make this Twenty-Ninth 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
Twenty-First Series, hereinafter referred to, has been in all respects duly
authorized;
NOW, THEREFORE, THIS TWENTY-NINTH 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 Twenty-First 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 First
Trust of New York, National Association, as Trustee, and its successor or
successors in the trust and its or their assigns forever, the following
described property -- that is to say:
10
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
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 September 30, 1994, 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:
Section 01. Parcel of land situate in the City of Scranton, Lackawanna
County, from William W. Scranton, joined by Mary L. Scranton, his wife, by Deed
dated July 12, 1994 and recorded July 18, 1994 in Lackawanna County
11
Deed Book 1478 at Page 230. Containing Fourteen One Hundredths (0.14) of an
acre.
II
The following pieces or parcels of land situate in the County of Luzerne
and Commonwealth of Pennsylvania, to wit:
Section 01. Two (2) parcels of land situate in the Township of Kingston,
Luzerne County, from Harry F. Goeringer and Mary C. Goeringer, by Deed dated
December 22, 1936 and recorded December 29, 1936 in Luzerne County Deed Book 761
at Page 160. Containing Twenty-Six One Hundredths (0.26) of an acre.
Section 02. Parcel of land situate in the Borough of Dallas, Luzerne
County, from Harry F. Goeringer and Mary C. Goeringer, by Deed dated August 31,
1953 and recorded September 1, 1953 in Luzerne County Deed Book 1210 at Page 25.
Containing Thirty-Six One Hundredths (0.36) of an acre.
Section 03. Three (3) parcels of land situate in the Township of Kingston,
Luzerne County, from Harry F. Goeringer and Mary C. Goeringer, by Deed dated
August 31, 1953 and recorded September 1, 1953 in Luzerne County Deed Book 1210
at Page 21. Containing One and Twenty-Seven One Hundredths (1.27) of an acre.
Section 04. Parcel of land situate in the Township of Kingston, Luzerne
County, from M. E. Keeler and Ethel H. Keeler, his wife, by Deed dated September
9, 1959 and recorded September 21, 1959 in Luzerne County Deed Book 1436 at Page
868. Containing Twenty-Five One Hundredths (0.25) of an acre.
Section 05. Parcel of land situate in the Township of Kingston, Luzerne
County, from Sheldon J. Rice and E. Pendred Rice, his wife, and Margaret Bell
Rice, widow, by Deed dated April 10, 1971 and recorded April 14, 1971 in Luzerne
County Deed Book 1716 at Page 806. Containing Seventy-Eight One Hundredths
(0.78) of an acre.
Section 06. Parcel of land situate in the Township of Kingston, Luzerne
County, from Trucksville Realty Company, by Deed dated June 4, 1973 and recorded
June 15, 1973 in Luzerne County Deed Book 1786 at Page 664. Containing Six One
Hundredths (0.06) of an acre.
Section 07. Parcel of land situate in the Township of Kingston, Luzerne
County, from Rulison Evans, by Deed dated June 4, 1973 and recorded June 15,
1973 in Luzerne County Deed Book 1786 at Page 692. Containing Fifteen One
Hundredths (0.15) of an acre.
12
III
The following rights-of-way and/or easements situate in the County of
Columbia and Commonwealth of Pennsylvania, to wit:
Section 01. Right-of-way for gas pipeline in the Township of Briar Creek,
Columbia County, from Peter Stenko, et al, by Indenture dated December 10, 1993
and recorded December 27, 1993 in Columbia County Record Book 556 at Page 994.
Section 02. Right-of-way for gas pipeline in the Township of Scott,
Columbia County, from Delmar R. Zeisloft, et ux, by Indenture dated February 25,
1994 and recorded March 30, 1994 in Columbia County Record Book 564 at Page 580.
Section 03. Right-of-way for gas pipeline in the Town of Bloomsburg,
Columbia County, from J. Harland Melick, et ux, by Indenture dated March 25,
1994 and recorded March 30, 1994 in Columbia County Record Book 564 at Page 585.
Section 04. Right-of-way for gas pipeline in the Township of Scott,
Columbia County, from Canadian Four State Holding Ltd, et al, by Indenture dated
May 5, 1994 and recorded July 19, 1994 in Columbia County Record Book 574 at
Page 523.
Section 05. Right-of-way for gas pipeline in the Township of Scott,
Columbia County, from Delmar R. Zeisloft, et ux, by Indenture dated July 19,
1994 and recorded July 19, 1994 in Columbia County Record Book 574 at Page 529.
Section 06. Right-of-way for gas pipeline in the Borough of Berwick,
Columbia County, from Briar Meadows Development, Inc., by Indenture dated
September 2, 1994 and recorded September 29, 1994 in Columbia County Record Book
580 at Page 636.
IV
The following rights-of-way and/or easements situate in the County of
Lackawanna and Commonwealth of Pennsylvania, to wit:
Section 01. Right-of-way for gas pipeline in the City of Scranton,
Lackawanna County, from Scranton Mall Associates, by Indenture dated June 17,
1993 and recorded December 27, 1993 in Lackawanna County Deed Book 1458 at Page
99.
Section 02. Right-of-way for gas pipeline in the City of Scranton,
Lackawanna County, from City of Scranton, by Indenture dated July 26, 1993
13
and recorded December 27, 1993 in Lackawanna County Deed Book 1458 at Page 107.
Section 03. Right-of-way for gas pipeline in the City of Scranton,
Lackawanna County, from Consolidated Rail Corporation, by Indenture dated
September 30, 1993 and recorded December 1, 1993 in Lackawanna County Deed Book
1455 at Page 305.
Section 04. Right-of-way for gas pipeline in the Borough of Dalton,
Lackawanna County, from Richard J. Volz, et ux, et al, by Indenture dated
October 15, 1993 and recorded October 20, 1994 in Lackawanna County Deed Book
1451 at Page 186.
Section 05. Right-of-way for gas pipeline in the City of Scranton,
Lackawanna County, from Ferranti Brothers, Inc., by Indenture dated October 20,
1993 and recorded December 1, 1993 in Lackawanna County Deed Book 1455 at Page
313.
Section 06. Right-of-way for gas pipeline in the Borough of Olyphant,
Lackawanna County, from Harry Zinskie, et ux, et al, by Indenture dated October
25, 1993 and recorded December 1, 1993 in Lackawanna County Deed Book 1455 at
Page 318.
Section 07. Right-of-way for water pipeline in the Borough of Olyphant,
Lackawanna County, from Harry Zinskie, et ux, et al, by Indenture dated October
25, 1993 and recorded December 1, 1993 in Lackawanna County Deed Book 1455 at
Page 323.
Section 08. Right-of-way for gas pipeline in the City of Scranton,
Lackawanna County, from Oakmont Manor, Inc., by Indenture dated November 5, 1993
and recorded December 1, 1993 in Lackawanna County Deed Book 1455 at Page 328.
Section 09. Right-of-way for gas pipeline in the Township of Abington,
Lackawanna County, from Randall G. Brundage, et ux, by Indenture dated November
5, 1993 and recorded December 1, 1993 in Lackawanna County Deed Book 1455 at
Page 333.
Section 10. Right-of-way for gas pipeline in the Borough of Taylor,
Lackawanna County, from Gilbert Weinberger, by Indenture dated November 17, 1993
and recorded December 1, 1993 in Lackawanna County Deed Book 1455 at Page 337.
Section 11. Right-of-way for gas pipeline in the Borough of Clarks Green,
Lackawanna County, from Henry Jellock, et ux, by Indenture dated December 10,
1993 and recorded December 27, 1993 in Lackawanna County Deed Book 1458 at Page
115.
14
Section 12. Right-of-way for gas pipeline in the Borough of Blakely,
Lackawanna County, from Janet Ann Merli, by Indenture dated December 10, 1993
and recorded December 27, 1993 in Lackawanna County Deed Book 1458 at Page 130.
Section 13. Right-of-way for water pipeline in the Borough of Archbald,
Lackawanna County, from Joseph Krajewski, et ux, by Indenture dated December 13,
1993 and recorded December 27, 1993 in Lackawanna County Deed Book 1458 at Page
120.
Section 14. Right-of-way for gas pipeline in the Borough of Archbald,
Lackawanna County, from Joseph Krajewski, et ux, by Indenture dated December 13,
1993 and recorded December 27, 1993 in Lackawanna County Deed Book 1458 at Page
125.
Section 15. Right-of-way for gas pipeline in the Township of South
Abington, Lackawanna County, from Gilbert Weinberger, Inc., by Indenture dated
December 23, 1993 and recorded January 31, 1994 in Lackawanna County Deed Book
1460 at Page 480.
Section 16. Right-of-way for gas pipeline in the Borough of Moosic,
Lackawanna County, from Hemingway Development, et al, by Indenture dated January
5, 1994 and recorded January 31, 1994 in Lackawanna County Deed Book 1460 at
Page 484.
Section 17. Right-of-way for gas pipeline in the Borough of Old Forge,
Lackawanna County, from Robert J. Avery, et ux, by Indenture dated January 11,
1994 and recorded January 31, 1994 in Lackawanna County Deed Book 1460 at Page
489.
Section 18. Right-of-way for cathodic protection in the City of Scranton,
Lackawanna County, from City of Scranton, by Indenture dated January 11, 1994
and recorded March 30, 1994 in Lackawanna County Deed Book 1466 at Page 520.
Section 19. Right-of-way for gas pipeline in the Borough of Moosic,
Lackawanna County, from Glenmaura National Golf Club, by Indenture dated
February 7, 1994 and recorded March 30, 1994 in Lackawanna County Deed Book 1466
at Page 526.
Section 20. Right-of-way for gas pipeline in the Borough of Moosic,
Lackawanna County, from Glenmaura National Golf Club, by Indenture dated
February 7, 1994 and recorded March 30, 1994 in Lackawanna County Deed Book 1466
at Page 530.
Section 21. Right-of-way for water pipeline in the Borough of Dickson
City, Lackawanna County, from Wegmans Food Market, by Indenture dated
15
March 4, 1994 and recorded March 30, 1994 in Lackawanna County Deed Book 1466 at
Page 534.
Section 22. Right-of-way for gas pipeline in the Borough of Dickson City,
Lackawanna County, from Wegmans Food Market, by Indenture dated March 4, 1994
and recorded March 30, 1994 in Lackawanna County Deed Book 1466 at Page 543.
Section 23. Right-of-way for water pipeline in the City of Scranton,
Lackawanna County, from Scranton Lackawanna Industrial Building Company, by
Indenture dated March 9, 1994 and recorded March 30,1994 in Lackawanna County
Deed Book 1466 at Page 551.
Section 24. Right-of-way for gas pipeline in the Borough of Old Forge,
Lackawanna County, from Frank Riviello, et ux, by Indenture dated March 31, 1994
and recorded June 8, 1994 in Lackawanna County Deed Book 1474 at Page 13.
Section 25. Right-of-way for water storage tank, water pipelines, access
and related facilities in the Borough of Old Forge, Lackawanna County, acquired
by Condemnation Proceedings No. 1802 of 1994, as property of PAGNOTTI COAL
COMPANY, Successor by Merger to PITREAL CORPORATION. A Declaration of Taking was
filed on April 14, 1994 and recorded in Lackawanna County Prothonotary Office.
Section 26. Right-of-way for gas pipeline in the City of Scranton,
Lackawanna County, from Scott P. Jones, by Indenture dated April 28, 1994 and
recorded June 8, 1994 in Lackawanna County Deed Book 1474 at Page 17.
Section 27. Right-of-way for water pipeline in the City of Scranton,
Lackawanna County, from Douglas M. Fink, by Indenture dated April 29, 1994 and
recorded June 8, 1994 in Lackawanna County Deed Book 1474 at Page 21.
Section 28. Right-of-way for gas pipeline in the Township of South
Abington, Lackawanna County, from Edward A. Barry, et ux, by Indenture dated May
10, 1994 and recorded June 8, 1994 in Lackawanna County Deed Book 1474 at Page
25.
Section 29. Right-of-way for gas pipeline in the Borough of Blakely,
Lackawanna County, from June Marie McShaffery, et al, by Indenture dated May
31,1994 and recorded July 11, 1994 in Lackawanna County Deed Book 1477 at Page
336.
Section 30. Right-of-way for gas pipeline in the Borough of Dunmore,
Lackawanna County, from Frank J. Summa, widower, by Indenture dated June 2, 1994
and recorded July 11, 1994 in Lackawanna County Deed Book 1477 at Page 340.
16
Section 31. Right-of-way for gas pipeline in the Borough of Old Forge,
Lackawanna County, from Anthony Bruno, by Indenture dated June 3, 1994 and
recorded July 11, 1994 in Lackawanna County Deed Book 1477 at Page 344.
17
Section 32. Right-of-way for gas pipeline in the Township of Carbondale,
Lackawanna County, from Robert J. Fortuner, et ux, by Indenture dated June 22,
1994 and recorded August 8, 1994 in Lackawanna County Deed Book 1480 at Page
452.
Section 33. Right-of-way for water pipeline in the Township of Carbondale,
Lackawanna County, from Robert J. Fortuner, et ux, by Indenture dated June 22,
1994 and recorded August 8, 1994 in Lackawanna County Deed Book 1480 at Page
445.
Section 34. Right-of-way for gas pipeline in the Township of Abington,
Lackawanna County, from Paul Misiura, et ux, by Indenture dated June 30, 1994
and recorded July 11, 1994 in Lackawanna County Deed Book 1477 at Page 348.
Section 35. Right-of-way for gas pipeline in the City of Scranton,
Lackawanna County, from Keyser Terrace, Inc., by Indenture dated July 5, 1994
and recorded July 11, 1994 in Lackawanna County Deed Book 1477 at Page 357.
Section 36. Right-of-way for water pipeline in the City of Scranton,
Lackawanna County, from Keyser Terrace, Inc., by Indenture dated July 5, 1994
and recorded July 11, 1994 in Lackawanna County Deed Book 1477 at Page 352.
Section 37. Right-of-way for gas pipeline in the Borough of Glenburn,
Lackawanna County, from W. Kenneth Rees, by Indenture dated July 13, 1994 and
recorded August 8, 1994 in Lackawanna County Deed Book 1480 at Page 441.
Section 38. Right-of-way for gas pipeline in the Borough of Dunmore,
Lackawanna County, from Emerald Isle Realty, by Indenture dated July 15, 1994
and recorded August 8, 1994 in Lackawanna County Deed Book 1480 at Page 437.
Section 39. Right-of-way for gas pipeline in the Borough of Moosic,
Lackawanna County, from Corey Street Properties, by Indenture dated July 25,
1994 and recorded August 8, 1994 in Lackawanna County Deed Book 1480 at Page
431.
Section 40. Right-of-way for gas pipeline in the City of Scranton,
Lackawanna County, from Alyn J. Scheatzle, et ux, by Indenture dated July 26,
1994 and recorded August 8, 1994 in Lackawanna County Deed Book 1480 at Page
427.
17
V
The following right-of-way and/or easements situate in the County of
Luzerne and Commonwealth of Pennsylvania, to wit:
Section 01. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Harry F. Goeringer and Mary C. Goeringer, by Indenture
dated December 22, 1936 and recorded December 29, 1936 in Luzerne County Deed
Book 761 at Page 160.
Section 02. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Etta R. Roche, by Indenture dated March 31, 1947 and
recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 361.
Section 03. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from G. L. Howell, by Indenture dated March 31, 1947 and
recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 361.
Section 04. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from G. H. Johnson and Ethel Johnson, by Indenture dated March
1, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 361.
Section 05. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Raymond Gregory and Goldie S. Gregory, by Indenture dated
March 31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at
Page 361.
Section 06. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from H. E. Owens and Betty Owens, by Indenture dated March 31,
1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 361.
Section 07. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Maude Robbins and W. J. Robbins, by Indenture dated March
31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page
361.
Section 08. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from John C. Lewis and Emily J. Lewis, by Indenture dated March
31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page
361.
Section 09. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Wilford H. Parsons and Edith K. Parsons, by Indenture dated
March 31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at
Page 361.
18
Section 10. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Gertrude Perrin, by Indenture dated March 31, 1947 and
recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 361.
Section 11. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Ben N. Pettebone and Nellie C. Pettebone, by Indenture
dated March 31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033
at Page 361.
Section 12. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from William Williams and Martha S. Williams, by Indenture dated
March 31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at
Page 361.
Section 13. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Jacob B. Rice Estate by Sheldon J. Rice, Executor, by
Indenture dated March 31, 1947 and recorded June 13, 1949 in Luzerne County Deed
Book 1033 at Page 361.
Section 14. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Frank G. Mathers, President of the Board of Trustees of the
Free Methodist Church of Trucksville, Pennsylvania, by Indenture dated March 31,
1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 361.
Section 15. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from George R. Flack, by Indenture dated March 31, 1947 and
recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 361.
Section 16. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from James Trebilcox, by Indenture dated March 31, 1947 and
recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 361.
Section 17. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from May A. Cronk, Besse J. Cronk and Elizabeth Cronk, by
Indenture dated March 31, 1947 and recorded June 13, 1949 in Luzerne County Deed
Book 1033 at Page 361.
Section 18. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from John A. Demko and Florence Demko, by Indenture dated March
31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page
361.
Section 19. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Charles Steinhauer and Mrs. Charles Steinhauer, by
Indenture dated March 31, 1947 and recorded June 13, 1949 in Luzerne County Deed
Book 1033 at Page 361.
19
Section 20. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Fred J. Laux and Bertha E. Laux, by Indenture dated March
31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page
361.
Section 21. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Delphine Norrie Rees and R. E. Rees, by Indenture dated
March 31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at
Page 361.
Section 22. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Richard Nordheim and Theresa Nordheim, by Indenture dated
March 31, 1947 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at
Page 361.
Section 23. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Etta Roche and Harold K. Weiss, by Indenture dated
September 23, 1948 and recorded June 13, 1949 in Luzerne County Deed Book 1033
at Page 358.
Section 24. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Walter L. Fish and Mildred F. Fish, by Indenture dated
September 23, 1948 and recorded June 13, 1949 in Luzerne County Deed Book 1033
at Page 355.
Section 25. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Donald A. Miller and Dorothy G. Miller, by Indenture dated
September 23, 1948 and recorded June 13, 1949 in Luzerne County Deed Book 1033
at Page 355.
Section 26. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Amanda E. Pfahler, by Indenture dated September 23, 1948
and recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 355.
Section 27. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Trucksville Vol. Fire Co., by W. E. Strange, by Indenture
dated September 23, 1948 and recorded June 13, 1949 in Luzerne County Deed Book
1033 at Page 355.
Section 28. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Thelma Davenport, by Indenture dated September 23, 1948 and
recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 355.
Section 29. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Warren S. Taylor and Guida M. Taylor, by Indenture
20
dated September 23, 1948 and recorded June 13, 1949 in Luzerne County Deed Book
1033 at Page 355.
Section 30. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Gertrude P. Hanson, by Indenture dated September 23, 1948
and recorded June 13, 1949 in Luzerne County Deed Book 1033 at Page 355.
Section 31. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Kingston Township School District, by Indenture dated
October 14, 1948 and recorded June 13, 1949 in Luzerne County Deed Book 1033 at
Page 348.
Section 32. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Cedrick Griffiths and Elizabeth G. Griffiths, by Indenture
dated December 13, 1948 and recorded June 13, 1949 in Luzerne County Deed Book
1033 at Page 352.
Section 33. Right-of-way for water pipeline in the Borough of Dallas,
Luzerne County, from Harry F. Goeringer and Mary C. Goeringer, by Indenture
dated August 31, 1953 and recorded September 1, 1953 in Luzerne County Deed Book
1210 at Page 25.
Section 34. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Harry F. Goeringer and Mary C. Goeringer, by Indenture
dated August 31, 1953 and recorded September 1, 1953 in Luzerne County Deed Book
1210 at Page 21.
Section 35. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Thomas F. McGuire, by Indenture dated June 20, 1964 and
recorded June 23, 1964 in Luzerne County Deed Book 1546 at Page 618.
Section 36. Right-of-way for water pipelines and access in the Township of
Kingston, Luzerne County, from Sheldon J. Rice and E. Pendred Rice, his wife,
and Margaret Bell Rice, widow, by Indenture dated April 10, 1971 and recorded
April 14, 1971 in Luzerne County Deed Book 1716 at Page 806.
Section 37. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Trucksville Realty Company, by Indenture dated June 4, 1973
and recorded June 15, 1973 in Luzerne County Deed Book 1786 at Page 664.
Section 38. Right-of-way for water pipelines and access in the Township of
Kingston, Luzerne County, from Rulison Evans, by Indenture dated June 4, 1973
and recorded June 15, 1973 in Luzerne County Deed Book 1786 at Page 692.
21
Section 39. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from George G. Conyngham and Shirley L. Conyngham, his wife, by
Indenture dated October 20, 1988 and recorded December 2, 1988 in Luzerne County
Deed Book 2292 at Page 838.
Section 40. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Hillside Farms, Inc., by Merger Conyngham and Company,
Inc., Now by Merger W. H. Conyngham & Company, Inc., by Indenture dated October
24, 1988 and recorded December 2, 1988 in Luzerne County Deed Book 2292 at Page
841.
Section 41. Right-of-way for water pipeline in the Township of Kingston,
Luzerne County, from Robert A. Williamson and Carol L. Williamson, his wife, by
Indenture dated November 3, 1988 and recorded December 2, 1988 in Luzerne County
Deed Book 2292 at Page 320.
Section 42. Right-of-way for gas pipeline in the City of Nanticoke,
Luzerne County, from Greater Wilkes-Barre Industrial Fund and ERC Properties, by
Indenture dated September 30, 1993 and recorded December 1, 1993 in Luzerne
County Deed Book 2476 at Page 961.
Section 43. Right-of-way for gas pipeline in the City of Wilkes-Barre,
Luzerne County, from Wilkes-Barre General Hospital, by Indenture dated October
4, 1993 and recorded December 1, 1993 in Luzerne County Deed Book 2476 at Page
956.
Section 44. Right-of-way for gas pipeline in the Borough of West Wyoming,
Luzerne County, from Paul E. Matteucci, et ux, by Indenture dated October 18,
1993 and recorded November 16, 1993 in Luzerne County Deed Book 2475 at Page
439.
Section 45. Right-of-way for water pipeline in the Township of Wilkes-
Barre, Luzerne County, from Joseph Paglianite, et al, by Indenture dated October
29, 1993 and recorded December 1, 1993 in Luzerne County Deed Book 2476 at Page
940.
Section 46. Right-of-way for gas pipeline in the Borough of Wyoming,
Luzerne County, from George J. Campas, Sr., et al, by Indenture dated November
3, 1993 and recorded December 1, 1993 in Luzerne County Deed Book 2476 at Page
930.
Section 47. Right-of-way for water pipeline in the Borough of Wyoming,
Luzerne County, from George J. Campas, Jr., et al, by Indenture dated November
3, 1993 and recorded December 1, 1993 in Luzerne County Deed Book 2476 at Page
935.
22
Section 48. Right-of-way for water pipeline in the Township of Hanover,
Warrior Run Borough and Sugar Notch Borough, Luzerne County, from Greater
Wilkes-Barre Industrial Fund, Inc., by Indenture dated November 15, 1993 and
recorded December 1, 1993 in Luzerne County Deed Book 2476 at Page 971.
Section 49. Right-of-way for gas pipeline in the Township of Hanover,
Warrior Run Borough and Sugar Notch Borough, Luzerne County, from Greater
Wilkes-Barre Industrial Fund, Inc., by Indenture dated November 15, 1993 and
recorded December 1, 1993 in Luzerne County Deed Book 2476 at Page 980.
Section 50. Right-of-way for gas pipeline in the Township of Dallas,
Luzerne County, from JRH, Inc., by Indenture dated November 15, 1993 and
recorded December 1, 1993 in Luzerne County Deed Book 2476 at Page 989.
Section 51. Right-of-way for gas pipeline in the Borough of Kingston,
Luzerne County, from First United Methodist Church, Kingston, by Indenture dated
November 17, 1993 and recorded December 1, 1993 in Luzerne County Deed Book 2476
at Page 966.
Section 52. Right-of-way for gas pipeline in the Township of Kingston,
Luzerne County, from Corgan Contracting Co., by Indenture dated November 18,
1993 and recorded December 1, 1993 in Luzerne County Deed Book 2476 at Page 948.
Section 53. Right-of-way for gas pipeline in the Township of Exeter,
Luzerne County, from Joseph Katarsky, by Indenture dated November 18, 1993 and
recorded December 1, 1993 in Luzerne County Deed Book 2476 at Page 952.
Section 54. Right-of-way for gas pipeline in the Township of Plains,
Luzerne County, from Wilkes-Barre Federal Credit Union, by Indenture dated
November 29, 1993 and recorded December 1, 1993 in Luzerne County Deed Book 2476
at Page 944.
Section 55. Right-of-way for gas pipeline in the Township of Hanover,
Luzerne County, from Ray W. Turner, Jr., et al, by Indenture dated December 2,
1993 and recorded December 28, 1993 in Luzerne County Deed Book 2479 at Page
656.
Section 56. Right-of-way for gas pipeline in the City of Nanticoke,
Luzerne County, from James J. Brodginski, Sr., et al, by Indenture dated
December 3, 1993 and recorded December 28, 1993 in Luzerne County Deed Book 2479
at Page 646.
Section 57. Right-of-way for water pipeline in the City of Nanticoke,
Luzerne County, from James J. Brodginski, Sr., et al, by Indenture dated
23
December 3, 1993 and recorded December 28, 1993 in Luzerne County Deed Book 2479
at Page 651.
Section 58. Right-of-way for gas pipeline in the Borough of Wyoming,
Luzerne County, from Francis G. Capitano, by Indenture dated December 9, 1993
and recorded December 28, 1993 in Luzerne County Deed Book 2479 at Page 642.
Section 59. Right-of-way for gas pipeline in the Borough of Wyoming,
Luzerne County, from Marien M. Boehm, widow, by Indenture dated December 9, 1993
and recorded December 28, 1993 in Luzerne County Deed Book 2479 at Page 660.
Section 60. Right-of-way for gas pipeline in the Borough of Wyoming,
Luzerne County, from Bernard Shockloss, et ux, by Indenture dated December 9,
1993 and recorded December 28, 1993 in Luzerne County Deed Book 2479 at Page
672.
Section 61. Right-of-way for gas pipeline in the Borough of Edwardsville,
Luzerne County, from James Donovan, et ux, by Indenture dated December 20, 1993
and recorded December 28, 1993 in Luzerne County Deed Book 2479 at Page 668.
Section 62. Right-of-way for gas pipeline in the Township of Dallas,
Luzerne County, from Lo-Meadows, Inc., by Indenture dated December 22, 1993 and
recorded January 27, 1994 in Luzerne County Deed Book 2481 at Page 1136.
Section 63. Right-of-way for gas pipeline in the Township of Kingston,
Luzerne County, from Thomas C. Lloyd, Jr., et ux, by Indenture dated December
23, 1993 and recorded December 28, 1993 in Luzerne County Deed Book 2479 at Page
664.
Section 64. Right-of-way for gas pipeline in the Township of Dallas,
Luzerne County, from George Stolarick, by Indenture dated January 3, 1994 and
recorded January 27, 1994 in Luzerne County Deed Book 2481 at Page 1152.
Section 65. Condemnation for access road and water line in the Borough of
West Wyoming, Luzerne County, from Jerome A. Freedman, et ux, et al, by
Indenture dated January 7, 1994 and recorded January 7, 1994 in Luzerne County
Deed Book 2480 at Page 701.
Section 66. Right-of-way for water pipeline in the Borough of Duryea,
Borough of Avoca and Borough of Dupont, Luzerne County, from Hurricane Realty,
Inc., by Indenture dated January 11, 1994 and recorded January 27, 1994 in
Luzerne County Deed Book 2481 at Page 1146.
24
Section 67. Right-of-way for gas pipeline in the Borough of Duryea,
Borough of Avoca and Borough of Dupont, Luzerne County, from Hurricane Realty,
Inc., by Indenture dated January 11, 1994 and recorded January 27, 1994 in
Luzerne County Deed Book 2481 at Page 1187.
Section 68. Right-of-way for water pipeline in the City of Wilkes-Barre,
Luzerne County, from Boich Development Corp., by Indenture dated January 14,
1994 and recorded January 27, 1994 in Luzerne County Deed Book 2481 at Page
1182.
Section 69. Right-of-way for gas pipeline in the City of Wilkes-Barre,
Luzerne County, from Boich Development Corp., by Indenture dated January 14,
1994 and recorded January 27, 1994 in Luzerne County Deed Book 2481 at Page
1177.
Section 70. Right-of-way for gas pipeline in the City of Wilkes-Barre,
Luzerne County, from McCarthy Tire Service Company, by Indenture dated February
14, 1994 and recorded March 31, 1994 in Luzerne County Deed Book 2487 at Page
950.
Section 71. Right-of-way for gas pipeline in the City of Wilkes-Barre,
Luzerne County, from Wilkes-Barre Property, L. P., by Indenture dated February
17, 1994 and recorded March 31, 1994 in Luzerne County Deed Book 2487 at Page
955.
Section 72. Right-of-way for gas pipeline in the Borough of Dallas,
Luzerne County, from SRHC, Inc., by Indenture dated February 21, 1994 and
recorded March 31, 1994 in Luzerne County Deed Book 2487 at Page 959.
Section 73. Right-of-way for gas pipeline in the Township of Kingston,
Luzerne County, from First Fidelity Bank, N. A., by Indenture dated February 25,
1994 and recorded March 31, 1994 in Luzerne County Deed Book 2487 at Page 967.
Section 74. Right-of-way for gas pipeline in the City of Wilkes-Barre,
Luzerne County, from City of Wilkes-Barre, by Indenture dated March 8, 1994 and
recorded March 31, 1994 in Luzerne County Deed Book 2487 at Page 983.
Section 75. Right-of-way for water pipeline in the City of Wilkes-Barre,
Luzerne County, from City of Wilkes-Barre, by Indenture dated March 8, 1994 and
recorded March 31, 1994 in Luzerne County Deed Book 2487 at Page 988.
Section 76. Right-of-way for gas and water pipelines in the Township of
Rice, Luzerne County, from Montaintop Village, L. P., by Indenture dated March
21, 1994 and recorded March 31, 1994 in Luzerne County Deed Book 2487 at Page
993.
25
Section 77. Right-of-way for gas pipeline in the Township of Dallas,
Luzerne County, from C.A.R. Enterprises, by Indenture dated March 28, 1994 and
recorded June 6, 1994 in Luzerne County Deed Book 2493 at Page 1150.
Section 78. Right-of-way for gas pipeline in the Township of Dallas,
Luzerne County, from Williams and Williams Real Estate, by Indenture dated March
25, 1994 and recorded June 6, 1994 in Luzerne County Deed Book 2493 at Page
1146.
Section 79. Right-of-way for gas pipeline in the Borough of Courtdale,
Luzerne County, from Thomas C. Huk, et ux, by Indenture dated March 30, 1994 and
recorded June 6, 1994 in Luzerne County Deed Book 2493 at Page 1157.
Section 80. Right-of-way for gas pipeline in the Borough of West Wyoming,
Luzerne County, from Ralph Mastruzzo, et ux, by Indenture dated April 6, 1994
and recorded June 6, 1994 in Luzerne County Deed Book 2493 at Page 1161.
Section 81. Right-of-way for gas pipeline in the Township of Plains,
Luzerne County, from Rokom, Inc., by Indenture dated April 12, 1994 and recorded
June 6, 1994 in Luzerne County Deed Book 2493 at Page 1170.
Section 82. Right-of-way for water pipeline in the City of Nanticoke,
Luzerne County, from James J. Brodginski, Sr., et al, by Indenture dated April
25, 1994 and recorded June 6, 1994 in Luzerne County Deed Book 2493 at Page
1165.
Section 83. Right-of-way for gas pipeline in the Borough of Luzerne,
Luzerne County, from Bernard Zapusek, widower, by Indenture dated April 27, 1994
and recorded June 6, 1994 in Luzerne County Deed Book 2493 at Page 1179.
Section 84. Right-of-way for gas pipeline in the Township of Newport,
Luzerne County, from John M. Wengryn, et ux, by Indenture dated May 3, 1994 and
recorded June 6, 1994 in Luzerne County Deed Book 2493 at Page 1183.
Section 85. Right-of-way for gas pipeline in the Township of Newport,
Luzerne County, from David Schaefer, by Indenture dated May 6, 1994 and recorded
June 6, 1994 in Luzerne County Deed Book 2493 at Page 1187.
Section 86. Right-of-way for gas pipeline in the City of Nanticoke,
Luzerne County, from Joseph D. Nalepa, et ux, by Indenture dated May 13, 1994
and recorded June 6, 1994 in Luzerne County Deed Book 2493 at Page 1191.
Section 87. Right-of-way for water pipeline in the Borough of Hughestown,
Luzerne County, from Joseph Mitchell, et ux, by Indenture dated May 20, 1994 and
recorded June 6, 1994 in Luzerne County Deed Book 2493 at Page 1195.
26
Section 88. Right-of-way for gas regulator in the Borough of Pringle,
Luzerne County, from UGI Utilities, Inc., by Indenture dated May 25, 1994 and
recorded August 12, 1994 in Luzerne County Deed Book 2500 at Page 1145.
Section 89. Right-of-way for water pipeline in the Township of Jenkins,
Luzerne County, from Roze Development Company, by Indenture dated June 2, 1994
and recorded July 11, 1994 in Luzerne County Deed Book 2497 at Page 575.
Section 90. Right-of-way for gas pipeline in the Township of Wilkes-Barre,
Luzerne County, from Sunshine Market, Inc., by Indenture dated June 7, 1994 and
recorded July 11, 1994 in Luzerne County Deed Book 2497 at Page 580.
Section 91. Right-of-way for water pipeline in the Township of Wilkes-
Barre, Luzerne County, from Sunshine Market, Inc., by Indenture dated June 7,
1994 and recorded July 11, 1994 in Luzerne County Deed Book 2497 at Page 567.
Section 92. Right-of-way for gas pipeline in the Township of Wright,
Luzerne County, from Eastern Consolidated Management Company, by Indenture dated
June 17, 1994 and recorded July 11, 1994 in Luzerne County Deed Book 2497 at
Page 588.
Section 93. Right-of-way for water pipeline in the Township of Wright,
Luzerne County, from Eastern Consolidated Management Company, by Indenture dated
June 17, 1994 and recorded July 11, 1994 in Luzerne County Deed Book 2497 at
Page 593.
Section 94. Right-of-way for cathodic protection in the Borough of
Larksville, Luzerne County, from John A. Connolly, Jr., et al, by Indenture
dated June 30, 1994 and recorded July 11, 1994 in Luzerne County Deed Book 2497
at Page 598.
Section 95. Right-of-way for gas pipeline in the Borough of Pringle and
Borough of Luzerne, Luzerne County, from Timothy J. Connolly, et al, by
Indenture dated June 20, 1994 and recorded July 11, 1994 in Luzerne County Deed
Book 2497 at Page 639.
Section 96. Right-of-way for gas pipeline in the Township of Dallas,
Luzerne County, from Martin Kapral, et ux, by Indenture dated June 21, 1994 and
recorded July 11, 1994 in Luzerne County Deed Book 2497 at Page 623.
Section 97. Right-of-way for gas pipeline in the Township of Newport,
Luzerne County, from Marcella Sedor, widow, by Indenture dated June 21, 1994 and
recorded July 11, 1994 in Luzerne County Deed Book 2497 at Page 616.
27
Section 98. Right-of-way for water pipeline in the Township of Newport,
Luzerne County, from Marcella Sedor, widow, by Indenture dated June 21, 1994 and
recorded July 11, 1994 in Luzerne County Deed Book 2497 at Page 609.
Section 99. Right-of-way for gas pipeline in the Borough of Plymouth,
Luzerne County, from John C. Good, et ux, by Indenture dated June 27, 1994 and
recorded July 11, 1994 in Luzerne County Deed Book 2497 at Page 635.
Section 100. Right-of-way for gas pipeline in the Borough of Larksville,
Luzerne County, from Anita Gulich, single, by Indenture dated June 30, 1994 and
recorded July 11, 1994 in Luzerne County Deed Book 2497 at Page 631.
Section 101. Right-of-way for fire hydrant in the Township of Conyngham,
Luzerne County, from Norbanc Realty Company, by Indenture dated July 7, 1994 and
recorded July 11, 1994 in Luzerne County Deed Book 2497 at Page 627.
Section 102. Right-of-way for gas pipeline in the Township of Hanover and
City of Wilkes-Barre, Luzerne County, from Joseph DelBalso, et al, by Indenture
dated July 12, 1994 and recorded August 12, 1994 in Luzerne County Deed Book
2500 at Page 1165.
Section 103. Right-of-way for water pipeline in the Township of Hanover
and City of Wilkes-Barre, Luzerne County, from Joseph DelBalso, et al, by
Indenture dated July 12, 1994 and recorded August 12, 1994 in Luzerne County
Deed Book 2500 at Page 1156.
Section 104. Right-of-way for gas pipeline in the Township of Kingston,
Luzerne County, from Allied Contractors and Engineers, Inc., by Indenture dated
July 21, 1994 and recorded August 12, 1994 in Luzerne County Deed Book 2500 at
Page 1161.
Section 105. Right-of-way for water pipeline in the Township of Jenkins,
Luzerne County, from Samuel J. Milazzo, et ux, by Indenture dated August 3, 1994
and recorded August 12, 1994 in Luzerne County Deed Book 2500 at Page 1177.
Section 106. Right-of-way for gas pipeline in the City of Wilkes-Barre,
Luzerne County, from Luzerne Associates Limited Partnership, by Indenture dated
August 5, 1994 and recorded August 12, 1994 in Luzerne County Deed Book 2500 at
Page 1181.
Section 107. Right-of-way for gas pipeline in the Borough of Kingston,
Luzerne County, from Barbara M. Schwartz, widow, by Indenture dated August 16,
1994 and recorded September 27, 1994 in Luzerne County Deed Book 2505 at Page
841.
28
Section 108. Right-of-way for gas pipeline in the Borough of Kingston,
Luzerne County, from James L. Caffrey, by Indenture dated August 22, 1994 and
recorded September 27, 1994 in Luzerne County Deed Book 2505 at Page 845.
Section 109. Right-of-way for gas pipeline in the Borough of Kingston,
Luzerne County, from Kingston Healthcare Center, Inc., by Indenture dated August
24, 1994 and recorded September 27, 1994 in Luzerne County Deed Book 2505 at
Page 865.
Section 110. Right-of-way for water pipeline in the Borough of Kingston,
Luzerne County, from Kingston Healthcare Center, Inc, by Indenture dated August
24, 1994 and recorded September 27, 1994 in Luzerne County Deed Book 2505 at
Page 860.
Section 111. Right-of-way for gas pipeline in the Township of Hanover,
Luzerne County, from Mericle Development Corp., by Indenture dated August 31,
1994 and recorded September 27, 1994 in Luzerne County Deed Book 2505 at Page
849.
28
Section 112. Right-of-way for gas pipeline in the Township of Wilkes-
Barre, Luzerne County, from City of Wilkes-Barre Industrial Development
Authority, et al, by Indenture dated September 7, 1994 and recorded September
27, 1994 in Luzerne County Deed Book 2505 at Page 854.
Section 113. Right-of-way for gas pipeline in the Township of Wright,
Luzerne County, from Barbara Macko, Executrix of the Estate of Helen Smith,
deceased, by Indenture dated September 13, 1994 and recorded September 27, 1994
in Luzerne County Deed Book 2505 at Page 886.
Section 114. Right-of-way for gas pipeline in the Township of Wright,
Luzerne County, from Mark A. Macko, et ux, by Indenture dated September 13, 1994
and recorded September 27, 1994 in Luzerne County Deed Book 2505 at Page 882.
Section 115. Right-of-way for gas pipeline in the Township of Wright,
Luzerne County, from Brian J. Macko, by Indenture dated September 13, 1994 and
recorded September 27, 1994 in Luzerne County Deed Book 2505 at Page 878.
Section 116. Right-of-way for gas pipeline in the Township of Kingston,
Luzerne County, from Gerald J. Belardinelli, by Indenture dated September 13,
1994 and recorded September 27, 1994 in Luzerne County Deed Book 2505 at Page
870.
Section 117. Right-of-way for gas pipeline in the Borough of Edwardsville,
Luzerne County, from Francis Bublo, et ux, by Indenture dated September 15, 1994
and recorded September 27, 1994 in Luzerne County Deed Book 2505 at Page 874.
VI
The following rights-of-way and/or easements situate in the County of
Lycoming and Commonwealth of Pennsylvania, to wit:
Section 01. Right-of-way for gas pipeline in the Borough of South
Williamsport, Lycoming County, from Citizens Fire Company #2, by Indenture dated
November 11, 1993 and recorded November 30, 1993 in Lycoming County Deed Book
2175 at Page 081.
Section 02. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from James J. Carey, et ux, by Indenture dated November 17,
1993 and recorded November 30, 1993 in Lycoming County Deed Book 2175 at Page
084.
Section 03. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Faxon-Kenmar United Methodist Church, by Indenture
29
dated November 17, 1993 and recorded November 30, 1993 in Lycoming County Deed
Book 2175 at Page 087.
Section 04. Right-of-way for gas pipeline in the Township of Fairfield,
Lycoming County, from Warren A. Choate, et ux, et al, by Indenture dated
November 30, 1993 and recorded December 27, 1993 in Lycoming County Deed Book
2192 at Page 245.
Section 05. Right-of-way for gas pipeline in the Township of Clinton,
Lycoming County, from Pennsylvania College of Technology, by Indenture dated
December 1, 1993 and recorded December 27, 1993 in Lycoming County Deed Book
2192 at Page 250.
Section 06. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from J. Savoy Realty Co., Inc., by Indenture dated December 16,
1993 and recorded December 27, 1993 in Lycoming County Deed Book 2192 at Page
254.
Section 07. Right-of-way for gas pipeline in the Township of Old Lycoming,
Lycoming County, from Daniel A. Klingerman, et ux, by Indenture dated December
17, 1993 and recorded December 27, 1993 in Lycoming County Deed Book 2192 at
Page 257.
Section 08. Right-of-way for gas pipeline in the Borough of Montoursville,
Lycoming County, from Borough of Montoursville, by Indenture dated December 20,
1993 and recorded December 27, 1993 in Lycoming County Deed Book 2192 at Page
261.
Section 09. Right-of-way for gas pipeline in the Township of Fairfield,
Lycoming County, from Philip H. Bower, et ux, by Indenture dated December 22,
1993 and recorded December 27, 1993 in Lycoming County Deed Book 2192 at Page
265.
Section 10. Right-of-way for gas pipeline in the Township of Old Lycoming,
Lycoming County, from Carl N. Miller, et ux, by Indenture dated March 9, 1994
and recorded March 30, 1994 in Lycoming County Deed Book 2233 at Page 105.
Section 11. Right-of-way for gas pipeline in the Township of Muncy Creek,
Lycoming County, from James R. Rothermel, et ux, by Indenture dated March 18,
1994 and recorded March 30, 1994 in Lycoming County Deed Book 2233 at Page 108.
Section 12. Right-of-way for gas pipeline in the Township of Muncy Creek,
Lycoming County, from Harvey Stauffer, Jr., et ux, by Indenture dated March 21,
1994 and recorded March 30, 1994 in Lycoming County Deed Book 2233 at Page 111.
30
Section 13. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from Michael J. Puma, by Indenture dated May 26, 1994 and
recorded June 7, 1994 in Lycoming County Deed Book 2267 at Page 266.
Section 14. Right-of-way for gas pipeline in the Borough of South
Williamsport, Lycoming County, from Kyle Enterprises, Inc., by Indenture dated
May 27, 1994 and recorded June 7, 1994 in Lycoming County Deed Book 2267 at Page
263.
Section 15. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Loyalsock Township School District, by Indenture dated
June 8, 1994 and recorded July 12, 1994 in Lycoming County Deed Book 2285 at
Page 115.
Section 16. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Harry Dean, et al, by Indenture dated July 7, 1994 and
recorded August 25, 1994 in Lycoming County Deed Book 2308 at Page 52.
Section 17. Right-of-way for gas pipeline in the Township of Old Lycoming,
Lycoming County, from Daniel A. Klingerman, et ux, by Indenture dated July 13,
1994 and recorded August 25, 1994 in Lycoming County Deed Book 2308 at Page 48.
Section 18. Right-of-way for gas pipeline in the Township of Fairfield,
Lycoming County, from Bonnell Enterprises, by Indenture dated August 25, 1994
and recorded September 29, 1994 in Lycoming County Deed Book 2323 at Page 321.
Section 19. Right-of-way for gas pipeline in the Township of Fairfield,
Lycoming County, from 220 Fairfield Associates, by Indenture dated August 25,
1994 and recorded September 29, 1994 in Lycoming County Deed Book 2323 at Page
324.
Section 20. Right-of-way for gas pipeline in the City of Williamsport,
Lycoming County, from Pennsylvania College of Technology, by Indenture dated
August 26, 1994 and recorded September 29, 1994 in Lycoming County Deed Book
2323 at Page 327.
Section 21. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from David J. Eiswerth, et ux, by Indenture dated September 26,
1994 and recorded September 29, 1994 in Lycoming County Deed Book 2323 at Page
331.
Section 22. Right-of-way for gas pipeline in the Township of Loyalsock,
Lycoming County, from Robert N. Tagge, et ux, by Indenture dated September 26,
1994 and recorded September 29, 1994 in Lycoming County Deed Book 2323 at Page
335.
31
VII
The following rights-of-way and/or easements situate in the County of
Montour and Commonwealth of Pennsylvania, to wit:
Section 01. Right-of-way for gas pipeline in the Township of Mahoning,
Montour County, from Paul J. Diehl, Inc., by Indenture dated November 10, 1993
and recorded November 30, 1993 in Montour County Record Book 173 at Page 804.
Section 02. Right-of-way for gas pipeline in the Township of Mahoning,
Montour County, from Paul J. Diehl, et ux, by Indenture dated November 10, 1993
and recorded November 30, 1993 in Montour County Record Book 173 at Page 798.
Section 03. Right-of-way for gas pipeline in the Township of Mahoning,
Montour County, from Maryanne Diehl, by Indenture dated November 10, 1993 and
recorded November 30, 1993 in Montour County Record Book 173 at Page 795.
Section 04. Right-of-way for gas pipeline in the Township of Mahoning,
Montour County, from Paul J. Diehl, et ux, by Indenture dated November 10, 1993
and recorded November 30, 1993 in Montour County Record Book 173 at Page 801.
Section 05. Right-of-way for gas pipeline in the Township of Mahoning,
Montour County, from Greater Danville Area Industrial Development Corporation,
by Indenture dated June 23, 1994 and recorded July 12, 1994 in Montour County
Record Book 177 at Page 1343.
VIII
The following rights-of-way and/or easements situate in the County of
Northumberland and Commonwealth of Pennsylvania, to wit:
Section 01. Right-of-way for gas pipeline in the Borough of Milton,
Northumberland County, from Northumberland County Industrial Development
Authority, Milton Steel, Inc. and W. Milton State Bank, by Indenture dated
October 14, 1993 and recorded November 30, 1993 in Northumberland County Record
Book 937 at Page 134.
Section 02. Right-of-way for gas pipeline in the Borough of Milton,
Northumberland County, from Lawrence S. Mattern, et ux, by Indenture dated
November 12, 1993 and recorded November 30, 1993 in Northumberland County Record
Book 937 at Page 140.
Section 03. Right-of-way for gas pipeline in the Township of Turbot,
Northumberland County, from D. T. Clark, Inc., by Indenture dated November
32
30, 1993 and recorded December 27, 1993 in Northumberland County Record Book 941
at Page 577.
Section 04. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Thomas P. Garvey, by Indenture dated December 27,
1993 and recorded March 1, 1994 in Northumberland County Record Book 948 at Page
876.
Section 05. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Thomas P. Garvey, by Indenture dated March 8, 1994
and recorded March 30, 1994 in Northumberland County Record Book 952 at Page 98.
Section 06. Right-of-way for gas pipeline in the Township of Turbot,
Northumberland County, from Donald A. Byerly, et ux, by Indenture dated March
29, 1994 and recorded June 7, 1994 in Northumberland County Record Book 961 at
Page 348.
Section 07. Right-of-way for gas pipeline in the Township of West
Chillisquaque, Northumberland County, from Fred W. Strickland, et ux, by
Indenture dated June 27, 1994 and recorded July 12, 1994 in Northumberland
County Record Book 966 at Page 322.
Section 08. Right-of-way for gas pipeline in the Township of Point,
Northumberland County, from Robert E. Rockey, et ux, by Indenture dated August
31, 1994 and recorded September 29, 1994 in Northumberland County Record Book
977 at Page 322.
Section 09. Right-of-way for gas pipeline in the Borough of Watsontown,
Northumberland County, from John D. Moran, et ux, by Indenture dated September
23, 1994 and recorded September 29, 1994 in Northumberland County Record Book
977 at Page 325.
Section 10. Right-of-way for gas pipeline in Borough of Milton,
Northumberland County, from Weis Markets, Inc., by Indenture dated February 15,
1994, and February 23, 1994, and recorded March 1, 1994 in Northumberland County
Record Book 948 at Page 879.
IX
The following rights-of-way and/or easements situate in the County of
Snyder and Commonwealth of Pennsylvania, to wit:
Section 01. Right-of-way for gas pipeline in the Borough of Selinsgrove,
Snyder County, from Susquehanna University of the Evangelical Lutheran Church,
by Indenture dated October 29, 1993 and recorded November 30, 1993 in Snyder
County Record Book 324 at Page 741.
33
Section 02. Right-of-way for gas pipeline in the Township of Monroe,
Snyder County, from John A. Spigelmyer, et ux, by Indenture dated May 27, 1994
and recorded June 7, 1994 in Snyder County Record Book 334 at Page 896.
Section 03. Right-of-way for gas pipeline in the Borough of Selinsgrove,
Snyder County, from Mary G. Inch, widow, by Indenture dated August 26, 1994 and
recorded September 29, 1994 in Snyder County Record Book 341 at Page 458.
Section 04. Right-of-way for gas pipeline in the Borough of Selinsgrove,
Snyder County, from Harlan G. Orndorf, et ux, by Indenture dated August 29, 1994
and recorded September 29, 1994 in Snyder County Record Book 341 at Page 461.
Section 05. Right-of-way for gas pipeline in the Borough of Shamokin Dam,
Snyder County, from Carey N. Sheaffer, et ux, by Indenture dated August 31, 1994
and recorded September 29, 1994 in Snyder County Record Book 341 at Page 464.
X
The following rights-of-way and/or easements situate in the County of Union
and Commonwealth of Pennsylvania, to wit:
Section 01. Right-of-way for gas pipeline in the Township of Kelly, Union
County, from William J. Metzger, Sr., by Indenture dated October 11, 1993 and
recorded June 7, 1994 in Union County Record Book 365 at Page 132.
Section 02. Right-of-way for gas pipeline in the Township of Union, Union
County, from Carl H. Lemmerman, III, et ux, by Indenture dated May 27, 1994 and
recorded June 7, 1994 in Union County Record Book 365 at Page 136.
Section 03. Right-of-way for gas pipeline in the Township of Kelly, Union
County, from David A. Hoffman, et ux, by Indenture dated June 13, 1994 and
recorded July 12, 1994 in Union County Record Book 372 at Page 1.
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;
34
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 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 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-Ninth 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 TWENTY-FIRST 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 7%
Series due 2017. 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 Twenty-First Series shall be limited to $30,000,000. All bonds of the
Twenty-First Series shall mature December 1, 2017, and shall bear interest at
the rate of 7% per annum, payable semi-annually on the first day of June and
first day of December in each year, commencing June 1, 1995; provided, however,
that the interest payable on the bonds of the Twenty-First 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 November 1, 1994 (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
Twenty-First 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
35
(16) days prior to any interest payment date on which the amount of interest
payable on the bonds of the Twenty-First Series shall be reduced pursuant to the
preceding sentence of the amount by which the interest payable on the bonds of
the Twenty-First Series shall be reduced on such interest payment date. The
principal of and interest on each 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 Twenty-First 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
authentication of any such bond is an interest payment date for bonds of the
Twenty-First 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
Twenty-First Series is authenticated prior to the first interest payment date
for bonds of the Twenty-First Series it shall bear interest from November 1,
1994). So long as there is no existing default in the payment of interest on the
bonds of the Twenty-First Series, the person in whose name any bond of the
Twenty-First 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 May or the
fifteenth day of November 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 Twenty-First 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 Twenty-First Series is registered five (5) days before the date of
payment of the defaulted interest.
Bonds of the Twenty-First Series shall be issued as fully registered bonds
without coupons, in such denominations as authorized by the Board of Directors.
Bonds of the Twenty-First 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 Twenty-First 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.
36
Section 1.02. (i) The bonds of the Twenty-First 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, 1994 Series A (Pennsylvania Gas and Water Company Project) due December
1, 2017 (the '1994 Series A Bonds'). The principal amount of bonds of the
Twenty-First Series to be redeemed upon any redemption of the 1994 Series A
Bonds shall be equal to 100% of the principal amount of 1994 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 Twenty-First Series of the principal
amount of 1994 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
Twenty-First 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 Twenty-First Series to be redeemed plus interest accrued to the date fixed
for redemption except (a) in the case of bonds of the Twenty-First Series which
are redeemed upon a redemption of the 1994 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 December 1, 2004 and November 30, 2005,
inclusive, the redemption price shall be equal to 102% of the principal amount
of the bonds of the Twenty-First Series to be redeemed plus interest accrued to
the date fixed for redemption and (ii) in the case of bonds of the Twenty-First
Series which are redeemed upon an Optional IDA Redemption which occurs between
December 1, 2005 and November 30, 2006, inclusive, the redemption price shall be
equal to 101% of the principal amount of the bonds of the Twenty-First Series to
be redeemed plus interest accrued to the date fixed for redemption.
(ii) The bonds of the Twenty-First Series are subject to mandatory
redemption, in whole, if the IDA Trustee declares the 1994 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 Twenty-First 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 Twenty-First Series which are
redeemed under the circumstances set forth in this subsection (ii) shall be
equal
37
to 100% of the principal amount of the bonds of the Twenty-First Series to be
redeemed plus interest accrued to the date fixed for redemption.
(iii) The bonds of the Twenty-First 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 the Twenty-First 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 Twenty-First 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 Twenty-First 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 TWENTY-FIRST SERIES.
Bonds of the Twenty-First Series will not be entitled to the benefit of a
Sinking Fund.
ARTICLE 3.
ISSUANCE OF BONDS OF THE TWENTY-FIRST SERIES.
Bonds of the Twenty-First Series may be executed, authenticated and
delivered from time to time as provided or permitted by the provisions of
Article 3 of the Original Indenture and the provisions of this Twenty-Ninth
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, Twenty-Seventh and Twenty-Eighth Supplemental
Indentures, are hereby further amended by this Twenty-Ninth Supplemental
Indenture by inserting in each such section the words 'or bonds of the 7% Series
due 2017' 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%
38
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 7.20% Series due 2017 or bonds of the 8.375% Series due 2002 or
bonds of the 7.125% Series due 2022 or bonds of the 6.05% Series due 2019' 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-Ninth 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-Ninth 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-eight
supplemental indentures and as supplemented by this Twenty-Ninth Supplemental
Indenture is in all respects ratified and confirmed, and the Original Indenture,
together with the twenty-nine indentures supplemental thereto, shall be read,
taken and construed as one and the same indenture.
Section 4.03. This Twenty-Ninth 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-Ninth 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 First Trust of New York, National Association does hereby
constitute and appoint Catherine F. Donohue to be its attorney for it, and in
its name and as and for its corporate act and deed to acknowledge this
Twenty-Ninth 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.
39
IN WITNESS WHEREOF, said Pennsylvania Gas and Water Company and said First
Trust of New York, National Association 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
FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION
By: __________/s/_HELEN G. CHIN_________
Name: Helen G. Chin
Title: Vice President
[CORPORATE SEAL]
Attest:
____/s/_CATHERINE F. DONOHUE____
Assistant Secretary
40
COMMONWEALTH OF PENNSYLVANIA
ss.:
COUNTY OF LUZERNE
}
BE IT REMEMBERED that on the 9th day of November, A.D., 1994, before the
undersigned 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
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,
1998
Member, Pennsylvania Association
of Notaries
41
COMMONWEALTH OF PENNSYLVANIA
ss.:
COUNTY OF LUZERNE
}
I HEREBY CERTIFY that on this 9th day of November, A.D., 1994, before me, 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]
NOTARIAL SEAL
JOANNE MCHALE, NOTARY PUBLIC
WILKES-BARRE, LUZERNE COUNTY
MY COMMISSION EXPIRES SEPT. 6, 1998
Member, Pennsylvania Association of
Notaries
42
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
}
BE IT REMEMBERED that on the 8th day of November, A.D., 1994, before the
undersigned 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 corporate seal of the above-named FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, affixed to the foregoing Supplemental Indenture; that the seal so
affixed is the corporate seal of said FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION, 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/ JOANNE E. ILSE_______
Notary Public
JOANNE E. ILSE
Notary Public, State of New York
No. 01IL5018680
Qualified in Queens County
Commission Expires October 4,
1995
43
STATE OF NEW YORK
ss.:
COUNTY OF NEW YORK
}
I HEREBY CERTIFY that on this 8th day of November, A.D., 1994, before me, 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 FIRST TRUST OF NEW YORK, NATIONAL
ASSOCIATION.
Witness my hand and notarial seal the day and year aforesaid.
___________/s/ JOANNE E. ILSE___________
Notary Public
JOANNE E. ILSE
Notary Public, State of New York
No. 01IL5018680
Qualified in Queens County
Commission Expires October 4, 1995
[NOTARIAL SEAL]
CERTIFICATE OF RESIDENCE
FIRST TRUST OF NEW YORK, NATIONAL ASSOCIATION hereby certifies that its
precise name and address as Trustee hereunder are: FIRST TRUST OF NEW YORK,
NATIONAL ASSOCIATION, 100 WALL STREET, SUITE 1600, NEW YORK, NEW YORK 10005.
By:_________/s/_HELEN G. CHIN___________
Name: Helen G. Chin
Title: Vice President
Not distributed, incorporate HHR additional comments;
blackline against bap4 and distribute Final version
BOND PURCHASE AGREEMENT
$30,000,000
Luzerne County Industrial Development Authority
Exempt Facilities Revenue Refunding Bonds,
1994 Series A
(Pennsylvania Gas and Water Company Project)
November 1, 1994
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:
Wheat First Butcher Singer, as representative (in
such capacity, the "Representative"), on behalf of itself
and Legg Mason Wood Walker, Incorporated (individually, an
"Underwriter" and together, the "Underwriters"), offers to
enter into this Bond Purchase Agreement (the "Purchase
Agreement") relating to $30,000,0001 aggregate principal
amount of Luzerne County Industrial Development Authority
Exempt Facilities Revenue Refunding Bonds, 1994 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).
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 October 17, 1994 (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 1994 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 1994 First
Mortgage Bonds in the principal amount of $30,000,000 issued
under and secured by the Indenture of Mortgage, as to be
further supplemented by the Twenty-Ninth Supplemental
Indenture to be dated as of November 1, 1994, providing for
the issuance of the 1994 First Mortgage Bonds.
Payment of the principal of and interest on the
Bonds will be insured by a municipal bond insurance policy
to be issued by AMBAC Indemnity Corporation ("AMBAC") on the
Closing Date.
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 Swiss
Bank Corporation, New York Branch ("SBC") for drawings on a
letter of credit (the "Letter of Credit") provided by SBC in
connection with the issuance of the 1987 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 December 1,
1994, the Issuer's 1987 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 October 19, 1994 (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 $30,000,000, plus
accrued interest on the Bonds from November 1, 1994, 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 November 15, 1994, 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 $30,000,000 maturing December 1, 2017.
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 $600,000.00 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,
and 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 subsidiary 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 the 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 subsidiary 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 its subsidiary, other than transactions in the
ordinary course of business and changes and transactions
contemplated by the Preliminary Official Statement. Neither
the Company nor its subsidiary has any contingent
obligations which are or are reasonably likely to be
material to the Company and its subsidiary 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 respective
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 respective subsidiaries
considered as a whole.
(f) On August 18, 1994, a securities
certificate was registered by the Pennsylvania Public
Utility Commission with respect to the issuance of the 1994
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 1994
First Mortgage Bonds and the Bonds, except for filings and
applications pursuant to state securities or Blue Sky laws
and regulations.
(g) The 1994 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 1994 First
Mortgage Bonds contained in the Preliminary Official
Statement and the Official Statement, and the 1994 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
1994 First Mortgage Bonds are issued in accordance with the
provisions of the Mortgage, such 1994 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-Ninth Supplemental Indenture has
been duly authorized by the Company and each of the
Agreement and the Twenty-Ninth 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
1994 First Mortgage Bonds and the Bonds, the execution and
delivery of the Agreement, the Refunding Agreement and the
Twenty-Ninth 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-Ninth 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
respective 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
subsidiary taken as a whole and that would not affect the
validity of the 1994 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 subsidiary considered as a whole, (i) the Company
and its subsidiary 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 subsidiary 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 its
subsidiary 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 subsidiary 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 1994
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 subsidiary 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 subsidiary taken as a whole.
(p) The Company and its subsidiary 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 subsidiary considered as a whole. Neither the
Company nor its subsidiary 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 subsidiary 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 subsidiary considered as a
whole, there are no past or present events, conditions,
circumstances, activities, practices, incidents or actions
of the Company or its subsidiary 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
with respect thereto; 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 subsidiary 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
subsidiary 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 LLP, 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 1994 BONDS",
"SECURITY FOR THE 1994 BONDS", and "APPENDIX C -Summary of
Certain Provisions of the Indenture, the Agreement, The 1994
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 EXEMPTION" 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 1987 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, Greene &
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 LLP
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 "AAA" by Standard and Poor's Corporation, "Aaa" by
Moody's Investors Service and "AAA" of Fitch Investors
Service, Inc. have not been reduced;
13. Pennsylvania Public Utility Commission
Securities Certificate and Order for the 1994 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 1987 Bonds on
December 1, 1994;
17. A certified copy of the municipal bond
insurance policy of AMBAC in standard form and substance,
insuring the timely payment of principal of and interest on
the Bonds accompanied by:
(i) a certificate signed by an authorized
officer of AMBAC, or an opinion of counsel to AMBAC, to the
effect that the information relating to AMBAC appearing
under the caption "Municipal Bond Insurance" in the Official
Statement does not contain any untrue statement of a
material fact or omit to state a material fact necessary to
make the statements made therein, in light of the
circumstances under which they were made, not misleading;
and
(ii) an opinion of counsel to AMBAC to the
effect that: (A) AMBAC is duly organized and validly
existing under the laws of its state of incorporation and is
qualified to do business in the Commonwealth of Pennsylvania
and (B) the policy has been duly and validly issued by AMBAC
and constitutes the legal, valid and binding obligation of
AMBAC enforceable in accordance with its terms except as
limited by bankruptcy, insolvency, moratorium and other
similar laws or equitable principles affecting creditors'
rights generally;
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-
Ninth 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; and
21. Such additional opinions, certificates,
or documentation as the Representative or Bond Counsel may
reasonably request.
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,
the premium for the bond insurance policy issued by AMBAC,
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 this 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, such
indemnified person 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 first 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:
Wheat First Butcher Singer
600 Linden Street
Scranton, PA 18503
Attention: Kevin Finley
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 jurisdictions 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 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 1994 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,
WHEAT FIRST BUTCHER SINGER
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
EXHIBIT A
DESCRIPTION OF CERTAIN PROVISIONS OF BONDS
Maturity Date: December 1, 2017
Interest Rate: 7.00%
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
December 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]
December 1, 2004 through November 30, 2005 102%
December 1, 2005 through November 30, 2006 101%
December 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.
EXHIBIT B
STATEMENT OF ESTIMATED SOURCES AND USES
As set forth in the Official Statement
EXHIBIT C
LETTER FROM ARTHUR ANDERSEN LLP
Pursuant to Paragraph 5(d) of the Purchase Agreement,
Arthur Andersen LLP 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.
EXHIBIT D
FORM OF OPINION OF LE BOEUF, LAMB, GREENE & 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 $30,000,000 aggregate principal amount of
its Exempt Facilities Revenue Refunding Bonds, 1994 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
November 1, 1994 (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 November 1,
1994, 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 October 19, 1994 (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 Resources ("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 1994 First Mortgage Bonds, to execute and
deliver the Bond Purchase Agreement, the Agreement, the
Refunding Agreement, the Twenty-Ninth 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-Ninth 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 1994 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 1994 First Mortgage Bonds, and such
securities certificate has been registered by Order of the
PPUC dated August 18, 1994, 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
1994 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 1994
First Mortgage Bonds and the execution and delivery of the
Agreement, the Bond Purchase Agreement, the Refunding
Agreement and the Twenty-Ninth 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-Ninth 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 September 30, 1994, 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 1994 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 September 30, 1994, 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
subsidiary taken as a whole and that would not affect the
validity of the Bond Purchase Agreement, the Agreement, the
Twenty-Ninth Supplemental Mortgage Indenture, the 1994 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-Ninth Supplemental Mortgage Indenture and the
Agreement did not, and the issuance of the Bonds and the
1994 First Mortgage Bonds, the compliance by the Company
with all of the terms and provisions of the Bond Purchase
Agreement, the Agreement, the Twenty-Ninth 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
subsidiary taken as a whole and that would not affect the
validity of the Bond Purchase Agreement, the Agreement, the
Twenty-Ninth Supplemental Mortgage Indenture, the 1994 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
1994 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 1994 First Mortgage Bonds
does not violate any law, published rule, regulation
administered or order issued by any Regulatory Authority or
any Filed Documents.
(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 1994 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 1994 First Mortgage Bonds, or our
representation of the Company before the PPUC and in other
regulatory matters, and (ii) "after due inquiry," it
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 omitted to state any
material fact required to be stated therein or necessary in
order to make the statements therein, in light of the
circumstances under which they were made, 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. We
hereby consent to Hughes Hubbard & Reed relying on this
opinion as to the matters of Pennsylvania law in giving its
opinion to you on the date hereof with respect to matters
covered by this opinion.
Very truly yours,
LeBoeuf, Lamb, Greene & MacRae
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 $30,000,000 aggregate principal amount of
its Exempt Facilities Revenue Refunding Bonds, 1994 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 November 1, 1994 (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 October 19, 1994
(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 1994 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-Ninth
Supplemental Mortgage Indenture, and the issuance and sale
of the 1994 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
subsidiary taken as a whole and that would not affect the
validity of the 1994 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
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 November 1, 1994 (the "Bond Purchase
Agreement") among Pennsylvania Gas and Water Company,
Luzerne County Industrial Development Authority and Wheat
First Butcher Singer, on behalf of itself and Legg Mason
Wood Walker, Incorporated. 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, (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
and (z) information relating to the Issuer, AMBAC or the
Underwriters or information contained under the headings
"Book-Entry Only System", "Municipal Bond Insurance" or "Tax
Exemption" or in Appendix D or Appendix E 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 its subsidiary 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
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AMENDED AND RESTATED PROJECT FACILITIES AGREEMENT,
dated as of November 1, 1994 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
December 1, 1987 (the "1987 Agreement"), the Authority issued an
aggregate of $30,000,000 of its Exempt Facilities Revenue Bonds,
1987 Series B (Pennsylvania Gas and Water Company Project) (the
"1987 Bonds") under a Trust Indenture dated as of December 1,
1987 between the Authority and Northeastern Bank of Pennsylvania
(now PNC Bank, National Association), as trustee (the "1987
Indenture"). In order to provide for a portion of the costs of
refunding the 1987 Bonds, the Company has requested the Authority
to issue its Exempt Facilities Revenue Refunding Bonds, 1994
Series A (Pennsylvania Gas and Water Company Project) (the "1994
Series A Bonds") in the aggregate principal amount of $30,000,000
under the terms of a Trust Indenture (the "1994 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 1994 Series A
Bonds, together with other moneys available for such purpose, to
provide for the refunding of the 1987 Bonds and the redemption
thereof on December 1, 1994. In connection with the issuance of
the 1994 Series A Bonds, the Authority and the Company desire to
amend and restate the 1987 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 1987 Indenture, as provided for in the
Refunding Trust Agreement (the "Refunding Agreement") dated as of
November 1, 1994 between the Authority and PNC Bank, National
Association, as escrow agent, the 1987 Agreement is amended and
restated in full as follows (the 1987 Agreement, as hereby
amended and restated, is referred to as the "Agreement"):
I. BACKGROUND, REPRESENTATIONS AND FINDINGS
1.1Background. 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 and Luzerne; 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 1987 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 and Lackawanna 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 and
Lackawanna 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
August 26, 1986. 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 1987 Agreement. The Company has
requested the Authority to enter into this Agreement to provide
for the refunding of the 1987 Bonds.
The proceeds of the 1987 Bonds issued by the Authority
pursuant to the 1987 Agreement were applied to making certain
deposits in the funds and accounts created pursuant to the 1987
Indenture. The rates for the water furnished by the Project
Facilities have been established or approved by the Pennsylvania
Public Utility 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 1987 Bonds was not, and the interest on
the 1994 Series A Bonds will not be, includible in gross income
of the holders thereof for purposes of Federal income tax law.
1.2Company 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 1994 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 1987 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.
1.3Authority 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 1987 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 1994 Series A Bonds and
the execution of this Agreement and the 1994 Indenture have been
approved by the Authority at a duly constituted meeting.
II.COMPLETION OF AND TITLE TO PROJECT FACILITIES
2.1Completion 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 1987 Bonds have been completed, (ii)
substantially all of the proceeds of the 1987 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
3.1Issuance of 1994 Series A Bonds. In order to
refund the 1987 Bonds, the Authority, at the request of the
Company, will issue and sell the 1994 Series A Bonds under the
1994 Indenture.
3.2Deposit of 1994 Series A Bond Proceeds. The
proceeds of the 1994 Series A Bonds shall be deposited in the
Clearing Fund established under the 1994 Indenture; except that
accrued interest on the 1994 Series A Bonds received by the
Authority upon the sale of the 1994 Series A Bonds shall be
deposited into the Bond Fund established under the 1994
Indenture, and shall be applied to the first interest payments
due on the 1994 Series A Bonds. The proceeds of the 1994 Series
A Bonds deposited in the Clearing Fund established under the 1994
Indenture shall be applied to the refunding of the 1987 Bonds as
provided in and in accordance with the terms of the Refunding
Agreement.
3.31994 Series A Bonds Not to Become Arbitrage Bonds.
The Authority and the Company hereby covenant to each other and
to the holders of the 1994 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 1994 Series A Bonds which would
cause the 1994 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 1994 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 1994 Series A Bonds (including
investment earnings on the 1994 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 1994 Series A Bonds for purposes of Federal income
taxation (except for any 1994 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.
3.4Restriction 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 1994 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 1994 Series A Bonds deposited in the Clearing Fund to refund
the 1987 Bonds as provided in the Refunding Agreement.
3.5No "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 1994 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
4.1First 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 1994 Series A
Bonds), the Company will, concurrently with the issuance and sale
of the 1994 Series A Bonds, execute and deliver to the Trustee,
as assignee of the Authority, $30,000,000 principal amount of the
Company's First Mortgage Bonds 7.00% Series due 2017 (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 First
Trust of New York, National Association, as successor 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").
4.2Acceleration of Payment to Redeem Bonds. The
Authority will (subject to any applicable rights under the 1994
Indenture to purchase 1994 Series A Bonds in lieu of redemption)
redeem any or all 1994 Series A Bonds or portions thereof upon
the occurrence of an event which gives rise to any mandatory
redemption specified in the 1994 Series A Bonds or in the 1994
Indenture. Whenever any of the 1994 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 1994 Indenture. In either
event, the Company will pay an amount equal to the then
applicable redemption price of such 1994 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 1994 Indenture or under the First
Mortgage Bonds.
4.3No Defense or Set-Off. Except as set forth in any
applicable provisions of the 1994 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.
4.4Assignment of Authority's Rights. As the source
of payment for the 1994 Series A Bonds, the Authority will assign
to the Trustee all the Authority's rights under this Agreement
with respect to the 1994 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
5.1Maintenance 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.
5.2Payment of Authority's Expenses. At the time of
the issuance of the 1994 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 1994 Series A
Bonds, including reasonable fees and expenses of counsel.
5.3Payment 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 1994
Indenture, including all costs of redeeming 1994 Series A Bonds
thereunder.
5.4Indemnity 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.
5.5Limitation 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.
5.6Default, 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.
5.7Deficiencies 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 1994 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 1994 Series A Bonds, other than amounts
held in the Bond Fund established pursuant to the 1994
Indenture, will be expended within six months of the date of
issuance of the 1994 Series A Bonds. The Company, therefore,
does not expect to have any earnings subject to rebate with
respect to the 1994 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.
5.9Notice 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
6.1Maintenance 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.
6.2Compliance 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.
6.3Compliance with the Indenture. The Authority
shall comply in all material respects with its covenants in
Article VIII of the 1994 Indenture.
VII. MISCELLANEOUS
7.1Notices. 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
7.2Assignments. 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.
7.3Illegal, 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.
7.4Amendments. 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 1994 Series A
Bonds and adversely affects the interests of holders of any 1994
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.
7.5Controlling Law. This Agreement shall be deemed
to be a contract made in the Commonwealth of Pennsylvania and
governed by Pennsylvania law.
7.6Term of Agreement. This Agreement shall become
effective upon its delivery and shall continue in effect until
all 1994 Series A Bonds have been paid or provision for such
payment has been made as provided in the 1994 Indenture.
7.7Counterparts.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 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>
BD36740.A(PF) Closing Item No. A-1
AMENDED AND RESTATED
PROJECT FACILITIES AGREEMENT
Between
LUZERNE COUNTY INDUSTRIAL DEVELOPMENT AUTHORITY
And
PENNSYLVANIA GAS AND WATER COMPANY
Dated as of November 1, 1994
<PAGE>
TABLE OF CONTENTS
Page
I. BACKGROUND, REPRESENTATIONS AND FINDINGS 1
1.1 Background 1
1.2 Company Representations 3
1.3 Authority Representations and Findings 3
II. COMPLETION OF AND TITLE TO PROJECT FACILITIES 4
2.1 Completion of and Title to Project Facilities 4
III. FINANCING THE PROJECT 4
3.1 Issuance of 1994 Series A Bonds 4
3.2 Deposit of 1994 Series A Bond Proceeds 5
3.3 1994 Series A Bonds Not to Become Arbitrage Bonds 5
3.4 Restriction on Use of Bond Fund and Clearing Fund 5
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 6
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 8
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
SCHEDULE A - Project Facilities
FIRST AMENDMENT TO CREDIT AGREEMENT AND NOTES
THIS FIRST AMENDMENT TO CREDIT AGREEMENT AND NOTES (the
"First Amendment"), dated as of the 16th day of December, 1994
(the "First Amendment Effective Date"), is made and entered into
by and among Pennsylvania Gas and Water Company, a Pennsylvania
corporation (the "Borrower"), the Banks (as defined in the Credit
Agreement, as such term is hereinafter defined) and PNC Bank,
Northeast PA, in its capacity as agent for the Banks under the
Credit Agreement (hereinafter referred to in such capacity as the
"Agent") and CoreStates Bank, N.A., and NBD Bank, N.A., in their
respective capacities as co-agents for the Banks under the Credit
Agreement (hereinafter referred to in such capacity individually
as the "Co-Agent" and collectively as the "Co-Agents").
WITNESSETH:
WHEREAS, pursuant to a Credit Agreement (the "Credit
Agreement") dated April 19, 1993 by and among the Borrower, the
Banks, the Agent and the Co-Agents, the Banks agreed to extend
Revolving Credit Loans to the Borrower not to exceed Sixty
Million Dollars ($60,000,000) in the aggregate at any one time
outstanding; and
WHEREAS, pursuant to the Credit Agreement, the Borrower
executed and delivered to each Bank a Revolving Credit Note
(individually a "Revolving Credit Note" and collectively, the
"Revolving Credit Notes") dated April 22, 1993 in the face amount
of such Bank's Revolving Credit Commitment and made payable to
the order of such Bank; and
WHEREAS, the Borrower, the Banks, the Agent and the Co-
Agents wish to amend the Credit Agreement and the Revolving
Credit Notes as hereinafter set forth including (i) extending the
Expiration Date to May 31, 1996, (ii) reducing the Commitment
Fees, (iii) reducing the rates of interest under the Euro-Rate
Option and the CD Rate Option and (iv) adjusting the Tangible Net
Worth covenant.
NOW THEREFORE, in consideration of the mutual promises
contained herein and other valuable consideration, and with the
intent to be legally bound hereby, the parties hereto agree as
follows:
A. 1. (a) Subject to paragraph H. hereof, the
definition of Expiration Date set forth in Section 1.01 of the
Credit Agreement is hereby deleted and there is substituted
therefor the following:
Expiration Date shall mean the earlier of (i) May
31, 1996 or (ii) the date on which the Revolving
Credit Commitment is reduced to zero pursuant to
Section 2.10.
(b) Subject to paragraph H. hereof, the
reference to the date of April 30, 1995 in the second paragraph
of the Revolving Credit Notes is hereby deleted and there is
substituted therefor the term "Expiration Date".
2. Subject to paragraph H. hereof, from and
after the First Amendment Effective Date, the Commitment Fees set
forth in Section 2.03 of the Credit Agreement, payable as
consideration for each Bank's Revolving Credit Commitment under
the Credit Agreement, shall be equal to (a) 28.5 basis points
(285/1,000 of 1%) per annum for any day on which the long-term
senior secured debt of the Borrower is rated by S&P at BB+ or
lower or by Moody's at Ba1 or lower, or is not rated by either
S&P or Moody's, (b) 19.5 basis points (195/1,000 of 1%) for any
day on which the long-term senior secured debt of the Borrower is
rated by S&P at BBB- or by Moody's at Baa3 (c) 16 basis points
(16/100) of 1%) for any day on which the long-term senior secured
debt of the Borrower is rated by S&P at BBB or by Moody's at
Baa2, (d) 13.5 basis points (135/1,000 of 1%) for any day on
which the long-term senior secured debt of the Borrower is rated
by S&P at BBB+ or by Moody's at Baa1 and (e) 11 basis points
(11/100 of 1%) for any day on which the long-term senior secured
debt of the Borrower is rated by S&P at A- or higher or by
Moody's at A3 or higher (computed on the basis of a year of 365
or 366 days, as the case may be, and actual days elapsed) on the
average daily unborrowed amount of such Bank's Revolving Credit
Commitment as the same may be constituted from time to time; if
the Borrower's long-term senior debt rating by S&P and Moody's
are covered by different subsections set forth above, the
Commitment Fee shall be based upon the lower number of basis
points set forth in such subsections (for example, if the S&P
rating is BBB and the Moody's rating is Baa3, the Commitment Fee
shall be based upon 16 basis points).
3. Subject to paragraph H. hereof, from and
after the First Amendment Effective Date, the rate of interest on
the Revolving Credit Loans subject to the Euro-Rate Option set
forth in Section 3.01(b)(ii) of the Credit Agreement shall be a
rate per annum (computed on the basis of a year of 360 days and
actual days elapsed) equal to the sum of (A) the Euro-Rate, plus
(B)(I) 80 basis points (8/10 of 1%) for any day on which the
long-term senior secured debt of the Borrower is rated (x) BB+ or
lower by S&P or (y) Ba1 or lower by Moody's, or is not rated by
either S&P or Moody's, (II) 55 basis points (55/100 of 1%) for
any day on which the long-term senior secured debt of the
Borrower is rated (x) BBB- by S&P or (y) Baa3 by Moody's, (III)
47.5 basis points (475/1,000 of 1%) for any day on which the
long-term senior secured debt of the Borrower is rated (x) BBB by
S&P or (y) Baa2 by Moody's, (IV) 40 basis points (4/10 of 1%) for
any day on which the long-term senior secured debt of the
Borrower is rated (x) BBB+ by S&P or (y) Baa1 by Moody's and (V)
32.5 basis points (325/1,000 of 1%) for any day on which the
long-term senior secured debt of the Borrower is rated (x) A- or
higher by S&P or (y) A3 or higher by Moody's; if the Borrower's
long-term senior debt rating by S&P and Moody's are covered by
different subsections set forth above, the interest rate under
the Euro-Rate Option shall be based upon the lower number of
basis points set forth in such subsections (for example, if the
S&P rating is BBB and the Moody's rating is Baa3, the interest
rate shall be equal to the Euro-Rate plus 47.5 basis points).
4. Subject to paragraph H. hereof, from and
after the First Amendment Effective Date, the rate of interest on
the Revolving Credit Loans subject to the CD Rate Option set
forth in Section 3.01(b)(iii) of the Credit Agreement shall be a
rate per annum (computed on the basis of a year of 360 days and
actual days elapsed) equal to the sum of (A) the CD Rate plus (B)
(I) 92.5 basis points (925/1,000 of 1%) for any day on which the
long-term senior secured debt of the Borrower is rated (x) BB+ or
lower by S&P or (y) Ba1 or lower by Moody's, or is not rated by
either S&P or Moody's, (II) 67.5 basis points (675/1,000 of 1%)
for any day on which the long-term senior secured debt of the
Borrower is rated (x) BBB- by S&P or (y) Baa3 by Moody's, (III)
60 basis points (6/10 of 1%) for any day on which the long-term
senior secured debt of the Borrower is rated (x) BBB by S&P or
(y) Baa2 by Moody's, (IV) 52.5 basis points (525/1,000 of 1%) for
any day on which the long-term senior secured debt of the
Borrower is rated (x) BBB+ by S&P or (y) Baa1 by Moody's and (V)
45 basis points (45/100 of 1%) for any day on which the long-term
senior secured debt of the Borrower is rated (x) A- or higher by
S&P or (y) A3 or higher by Moody's; if the Borrower's long-term
senior debt rating by S&P and Moody's are covered by different
subsections set forth above, the interest rate under the CD Rate
Option shall be based upon the lower number of basis points set
forth in such subsections (for example, if the S&P rating is BBB
and the Moody's rating is Baa3, the interest rate shall be equal
to the CD Rate plus 60 basis points).
5. (a) Subject to paragraph H. hereof, from and
after the First Amendment Effective Date, the limitation of Five
Hundred Thousand Dollars ($500,000) set forth in Section 7.01(m),
PEI Capital Contribution, of the Credit Agreement shall be
increased to One Million Dollars ($1,000,000) and Section 7.01(m)
shall read as follows:
(m) PEI Capital Contribution. The
Borrower shall cause PEI to make
capital contributions (including
without limitation repayment of
advances and stock purchases) to
the Borrower in an amount equal to
at least eighty percent (80%) of
the net cash proceeds of all
offerings of Capital Stock of PEI,
other than proceeds [not exceeding
One Million Dollars ($1,000,000)
received during any fiscal year of
PEI] from the issuance of shares of
Capital Stock of PEI pursuant to
PEI's Employees' Savings Plan [a
Section 401(k) plan].
(b) Subject to paragraph H. hereof, from and
after the First Amendment Effective Date, the amounts of Two
Hundred Twenty Million Dollars ($220,000,000) and Five Hundred
Thousand Dollars ($500,000) set forth in Section 7.02(r), Minimum
Tangible Net Worth, of the Credit Agreement shall be increased to
Two Hundred Thirty Million Dollars ($230,000,000) and One Million
Dollars ($1,000,000), respectively, and the references to the
term "the Closing Date" in such section shall be deleted and
there shall be substituted therefor the date of September 30,
1994, and Section 7.02(r) shall read as follows:
(r) Minimum Tangible Net Worth. At no
time shall Tangible Net Worth be
less than the sum of Two Hundred
Thirty Million Dollars
($230,000,000) plus eighty percent
(80%) of the net proceeds of the
sale of any Capital Stock of PEI
after the September 30, 1994 (other
than proceeds [not exceeding One
Million Dollars ($1,000,000)
received during any fiscal year of
PEI] from the issuance of shares of
Capital Stock of PEI pursuant to
PEI's Employees' Savings Plan [a
section 401(k) plan]) plus one
hundred percent (100%) of the net
proceeds of the sale of any
Preferred Stock of the Borrower
after September 30, 1994.
B. Borrower represents and warrants to the Agent, the
Co-Agents and each of the Banks that no consent, approval,
exemption, order or authorization of, or registration or filing
with, any Official Body or any other Person is required to be
obtained or made by Borrower under any Law or any agreement to
which Borrower is a party in connection with the amendments to
the Credit Agreement set forth in paragraph A. hereof, except the
approval of such amendments by the Pennsylvania Public Utility
Commission.
C. On the First Amendment Effective Date:
(a) The representations and warranties of
the Borrower contained in Article V of the Credit Agreement shall
be true in all material respects on and as of the First Amendment
Effective Date with the same effect as though such
representations and warranties have been made on and as of such
date (except the representations and warranties set forth in the
first sentence of Section 5.01(b), Section 5.01(k), the last
sentence of Section 5.01(l), the portion of the last sentence of
Section 5.01(n) following the semi-colon in such sentence, the
last sentence of Section 5.01(o), Section 5.01(r), the last
sentence of Section 5.01(s), the first sentence of Section
5.01(t)(i) and the last sentence of Section 5.01(t)(v) of the
Credit Agreement, which representations and warranties shall be
true and correct in all material respects on and as of the
specific dates or times referred to therein or if no date or time
is specified, as of the Closing Date, and with respect to the
representations and warranties set forth in the last sentence of
5.01(s) and the first sentence of Section 5.01(t)(i) of the
Credit Agreement, such representations and warranties as they may
have been modified as set forth in one or more written notices
from the Borrower to the Agent shall be true and correct in all
material respects on and as of the First Amendment Effective Date
and, provided, however, that with respect to Section 5.01(m), the
amendments to the Credit Agreement set forth in paragraph A.
hereof must be approved by the Pennsylvania Public Utility
Commission, which approval has not yet been obtained) and the
Borrower shall have performed and complied in all material
respects with all covenants and conditions of the Credit
Agreement and this First Amendment; and no Event of Default or
Potential Default shall have occurred and be continuing or shall
exist.
(b) There shall be delivered to the Agent
for the benefit of each Bank a certificate dated the First
Amendment Effective Date and signed by the Secretary or an
Assistant Secretary of the Borrower, certifying as appropriate as
to:
(i) all corporate action taken by
the Borrower in connection with this First Amendment; and
(ii) the names of the officer or
officers authorized to sign this First Amendment and the true
signatures of such officer or officers and the identities of the
Authorized Officers permitted to act on behalf of the Borrower
for purposes of this First Amendment and the Credit Agreement as
amended hereby and the true signatures of such officers, on which
the Agent and each Bank may conclusively rely.
(c) This First Amendment shall have been
duly executed and delivered by the Borrower to the Agent for the
benefit of the Banks.
(d) There shall be delivered to the Agent
for the benefit of each Bank a written opinion of LeBoeuf, Lamb,
Greene & MacRae, Pennsylvania counsel to the Borrower, dated the
First Amendment Effective Date and in form and substance
satisfactory to the Agent and its counsel as to the matters set
forth in Exhibit "A" hereto.
(e) All legal details and proceedings in
connection with the transactions contemplated by this First
Amendment shall be in form and substance reasonably satisfactory
to the Agent and counsel for the Agent, and the Agent shall have
received all such other counterpart originals or certified or
other copies of such documents and proceedings in connection with
such transactions, in form and substance reasonably satisfactory
to the Agent and said counsel, as the Agent or said counsel may
reasonably request.
(f) The Borrower shall pay or cause to be
paid to the Agent for itself, to the extent not previously paid,
all fees and expenses for which the Agent is entitled to be paid
or reimbursed in connection with this First Amendment.
(g) Neither the execution, delivery nor
performance of this First Amendment shall contravene any Law
applicable to the Borrower or any of the Banks.
(h) No action, proceeding, investigation,
regulation or legislation shall have been instituted, threatened
or proposed before any court, governmental agency or legislative
body to enjoin, restrain or prohibit, or to obtain damages in
respect of, this First Amendment or the consummation of the
transactions contemplated hereby or which, in the Agent's sole
discretion, would make it inadvisable to consummate the
transactions contemplated by this First Amendment.
D. Except as expressly amended hereby, the terms,
provisions, conditions and agreements of the Credit Agreement and
the Revolving Credit Notes are hereby confirmed and ratified and
shall remain in full force and effect.
E. THIS FIRST AMENDMENT SHALL BE A CONTRACT MADE
UNDER, AND GOVERNED BY, THE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA WITHOUT GIVING EFFECT TO ITS CONFLICT OF LAWS
PROVISIONS.
F. This First Amendment shall be binding upon, and
inure to the benefit of, the Borrower, the Banks, the Agent and
the Co-Agents and their respective successors and assigns, except
that the Borrower may not assign or transfer any of its rights
and obligations hereunder or any interest herein.
G. All defined terms used herein which are not
defined herein but which are defined in the Credit Agreement
shall have the meanings herein as are given to them in the Credit
Agreement.
H. This First Amendment shall be effective as of the
First Amendment Effective Date, provided, however, that if the
Pennsylvania Public Utility Commission has not approved the
amendments to the Credit Agreement set forth in paragraph A.
hereof on or before April 29, 1995, such amendments shall be void
and shall have no force or effect and the terms and provisions of
the Credit Agreement, as in effect prior to the First Amendment
Effective Date, shall continue to apply and be in effect for all
times on and after the First Amendment Effective Date. Subject
to the preceding sentence,from and after the First Amendment
Effective Date, all references to the Credit Agreement and the
Revolving Credit Notes in the Credit Agreement and the Revolving
Credit Notes shall be deemed to be references to the Credit
Agreement and the Revolving Credit Notes as amended hereby.
I. 1. Within five (5) days after the Pennsylvania
Public Utility Commission approves, or fails to approve or
disapproves of, the amendments to the Credit Agreement set forth
in paragraph A. hereof, but in no event later than April 29,
1995, the Borrower shall notify the Agent of the action taken by
the Pennsylvania Public Utility Commission and shall furnish the
Agent with a copy of any writing issued by the Pennsylvania
Public Utility Commission in connection therewith as soon as
practicable.
2. If the Pennsylvania Public Utility Commission
approves the amendments to the Credit Agreement set forth in
paragraph A. hereof, within five (5) days after such action is
taken, but in no event later than April 29, 1995, Borrower shall
furnish to the Agent, for the benefit of each Bank, a written
opinion of Pennsylvania counsel to the Borrower, dated the date
such approval is obtained and in form and substance satisfactory
to the Agent and its counsel, as to the matters set forth in
Exhibit "B" hereto.
J. This First Amendment may be executed in as many
counterparts as shall be convenient and by the different parties
hereto on separate counterparts, each of which when executed by
the Borrower, the Banks, the Agent and the Co-Agents shall be
regarded as an original.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto, by their
officers thereunto duly authorized, have executed this First
Amendment as of the day and year first above written.
ATTEST: (SEAL) PENNSYLVANIA GAS AND WATER
COMPANY
By_______________________ By_________________________________
Name_____________________ Name_______________________________
Title____________________ Title______________________________
PNC BANK, NORTHEAST PA,
individually and as Agent
By_________________________________
Name_______________________________
Title______________________________
CORESTATES BANK, N.A., individually
and as a Co-Agent
By_________________________________
Name_______________________________
Title______________________________
NBD BANK, N.A., individually and
as a Co-Agent
By_________________________________
Name_______________________________
Title______________________________
<PAGE>
LTCB TRUST COMPANY
By_________________________________
Name_______________________________
Title______________________________
MELLON BANK, N.A.
By_________________________________
Name_______________________________
Title______________________________
FIRST FIDELITY BANK, N.A. formerly
MERCHANTS BANK NORTH, N.A.
By_________________________________
Name_______________________________
Title______________________________
BF-21739.5:3/1/95:0011-05284
[Final on Letterhead of LeBoeuf, Lamb, Greene & MacRae]
December 16, 1994
PNC Bank, Northeast PA,
as Agent for the Banks
(as defined below)
69 Public Square
Corporate Banking
Wilkes-Barre, Pennsylvania 18711
Ladies and Gentlemen:
We have acted as Pennsylvania counsel to Pennsylvania
Gas and Water Company, a Pennsylvania corporation (the
"Borrower"), in connection with the execution and delivery of the
Credit Agreement dated as of April 19, 1993 (the "Credit
Agreement"), as amended by a First Amendment to Credit Agreement
and Notes dated as of December 16, 1994 (the "First Amendment"),
among the Borrower, the banks parties thereto (the "Banks") and
PNC Bank, Northeast PA, as agent for the Banks (the "Agent") and
the execution and delivery of the Notes issued pursuant thereto;
the Credit Agreement as amended by the First Amendment is
hereinafter referred to as the "Amended Credit Agreement".
This opinion is delivered to you pursuant to paragraph
C.(d) of the First Amendment. All capitalized terms used herein
and not otherwise defined herein have the respective meanings
ascribed to them in the Amended Credit Agreement.
In connection with the transactions contemplated by the
Amended Credit Agreement, we have acted in a limited capacity as
Pennsylvania corporate counsel, and in conjunction with said role
have made such investigations of law, have examined the Amended
Credit Agreement and Notes, and certificates of public officials
and of the Borrower, and have examined and relied upon corporate
documents and records of the Borrower and have made such
examinations and inquiries as we deem necessary or appropriate in
connection with our opinion hereinafter set forth. In rendering
this opinion, we have also relied upon representations and
certificates of officers and employees of the Borrower and other
company counsel and certificates of Official Bodies including
EXHIBIT "A"<PAGE>
representations of the Borrower set forth in the Amended Credit
Agreement and we have assumed the genuineness of signatures of
all persons signing any documents, the authenticity of all
documents submitted to us as originals, the conformity to
original documents of all documents submitted to us as certified,
conformed or photostatic copies and the authenticity of all such
latter documents.
In rendering this opinion, we have assumed that (x) the
Amended Credit Agreement has been duly authorized, executed and
delivered by each Bank and the Agent and (y) the Amended Credit
Agreement constitutes the valid and binding obligation of each
Bank and the Agent enforceable against them in accordance with
its terms.
The opinions expressed herein are subject to the
following qualifications:
(i) the enforceability of the Amended Credit Agreement
and the Notes is subject to the effect of bankruptcy,
insolvency, reorganization, moratorium or other similar laws
relating to or affecting the rights of creditors generally;
(ii) the enforceability of the Amended Credit
Agreement and the Notes is subject to the effect of general
principles of equity (regardless of whether enforcement is
considered in proceedings at law or in equity) and to the
discretion of the court before which any proceeding therefor
may be brought (including without limitation the discretion
of a court to grant or limit the right of specific
performance);
(iii) the provisions of the Amended Credit Agreement
that permit any Person to take action or make
determinations, or to benefit from indemnities or similar
undertakings, may be subject to requirements that such
action be taken or such determinations be made, or that any
action or inaction by such Person that may give rise to a
request for payment under such an indemnity or similar
undertaking be taken or not taken, on a reasonable basis and
in good faith;
(iv) the indemnities in the Amended Credit Agreement
may be unenforceable or limited based upon public policy
considerations or applicable law;
(v) under certain circumstances the requirement that
the provisions of the Amended Credit Agreement and the Notes
may be modified or waived only in writing or only in a
specific instance may be unenforceable to the extent that an
oral agreement has been effected or a course of dealing has
occurred modifying such provisions;
(vi) a court may modify or limit contractual awards of
attorneys' fees; and
(vii) the use of the phrase (a) "to our knowledge" is
intended to be limited to the actual knowledge of the
attorneys in this Firm who have participated in our
representation of the Borrower and (b) "after due inquiry"
is intended to be limited to a review of the subject matter
of the opinions so qualified with appropriate officers of
Borrower and a review of such documents or agreements as may
have been identified by such officers as being necessary to
be reviewed in connection with the subject matter of such
opinions.
Based upon the foregoing, we are of the opinion that:
1. The Borrower has the corporate power and
authority, and the legal right, to make, deliver and perform
the Amended Credit Agreement and the Notes and to borrow
thereunder and has taken all necessary corporate action to
authorize the borrowings on the terms and conditions of the
Amended Credit Agreement and the Notes and to authorize the
execution, delivery and performance of the Amended Credit
Agreement and the Notes. Other than the consent of the
Pennsylvania Public Utility Commission, which has not yet
been obtained but for which an application for registration
of a Securities Certificate has been submitted to the
Pennsylvania Public Utility Commission, no consent or
authorization of, filing with or other act by or in respect
of, any Official Body of the Commonwealth of Pennsylvania,
is required in connection with the execution, delivery and
performance by the Borrower of the provisions of paragraph
A. to the First Amendment, which cover amendments to the
Credit Agreement, or to make valid or enforceable the
provisions of paragraph A. to the First Amendment as to or
against the Borrower; no consent or authorization of, filing
with or other act by or in respect of, any Official Body of
the Commonwealth of Pennsylvania is required in connection
with the execution, delivery and performance by the Borrower
of the terms and provisions of the First Amendment (other
than those set forth in paragraph A. thereof) including but
not limited to paragraph H. thereof or to make valid or
enforceable the terms and provisions of the First Amendment
(other than those set forth in paragraph A. thereof)
including but not limited to paragraph H. thereof; and if
the Pennsylvania Public Utility Commission does not approve
the amendments to the Credit Agreement set forth in
paragraph A. of the First Amendment, such amendments shall
be void and shall have no force or effect and the terms and
provisions of the Credit Agreement, as in effect prior to
the First Amendment Effective Date (as such term is defined
in the First Amendment), including but not limited to such
terms and provisions relating to borrowings under the Credit
Agreement made after the First Amendment Effective Date,
shall continue to apply and be valid and enforceable for all
times on and after the First Amendment Effective Date.
2. The Amended Credit Agreement and each Note has
been duly executed and delivered on behalf of the Borrower.
Subject to the second sentence of paragraph 1 hereof, the
Amended Credit Agreement and each Note constitutes a legal,
valid and binding obligation of the Borrower enforceable
against the Borrower in accordance with its terms.
3. The execution, delivery and performance of the
Amended Credit Agreement and the Notes, the borrowings
thereunder, the use of the proceeds thereof and the other
transactions contemplated by the Amended Credit Agreement
and the Notes (i) will not violate, or conflict with, (with
or without the giving of notice or the lapse of time, or
both), (x) the Articles of Incorporation, the by-laws or the
other organizational documents, if any, of the Borrower, (y)
subject to the second sentence of paragraph 1 hereof, any
law or administrative regulation of the Commonwealth of
Pennsylvania applicable to the Borrower, or any order, writ,
judgment, injunction or decree to which the Borrower is a
party or by which it is bound or to which it is subject or
(z) to our knowledge, after due inquiry, any material
mortgage, deed of trust, lease, indenture, instrument, note
or evidence of indebtedness or other agreement binding upon
the Borrower and (ii) will not result in, or require, the
creation or imposition of any Lien on any of its properties
or revenues pursuant to any such law or administrative
regulation or any such mortgage, deed of trust, lease,
indenture, instrument, note or evidence of indebtedness or
other agreement.
4. The Borrower is not subject to regulation under
any State statute or regulation which limits its ability to
incur Indebtedness except for the provisions of the
Pennsylvania Public Utility Code.
We are admitted to practice law in the Commonwealth of
Pennsylvania and do not express any opinion herein concerning the
law of any jurisdiction except the Commonwealth of Pennsylvania.
All of the opinions expressed herein are rendered as of the date
hereof. We assume no obligation to update such opinions to
reflect any facts or circumstances that may hereafter come to our
attention or any changes in the law that may hereafter occur.
This letter is furnished by us solely in connection
with the Amended Credit Agreement for your benefit and the
benefit of each Bank a party to the Amended Credit Agreement and
may not be relied upon for any other purpose, or furnished to,
used by, circulated to, quoted to or referred to by, any other
person without our prior written consent in each instance.
Very truly yours,
LeBoeuf, Lamb, Greene & MacRae
BF-21799.6:3/1/95:0011-05284
[Final on Letterhead of LeBoeuf, Lamb, Greene & MacRae]
______________, 199_
PNC Bank, Northeast PA,
as Agent for the Banks
(as defined below)
69 Public Square
Corporate Banking
Wilkes-Barre, Pennsylvania 18711
Ladies and Gentlemen:
We have acted as Pennsylvania counsel to Pennsylvania
Gas and Water Company, a Pennsylvania corporation (the
"Borrower"), in connection with the execution and delivery of the
Credit Agreement dated as of April 19, 1993 (the "Credit
Agreement"), as amended by a First Amendment to Credit Agreement
and Notes dated as of December 16, 1994 (the "First Amendment"),
among the Borrower, the banks parties thereto (the "Banks") and
PNC Bank, Northeast PA, as agent for the Banks (the "Agent") and
the execution and delivery of the Notes issued pursuant thereto;
the Credit Agreement as amended by the First Amendment is
hereinafter referred to as the "Amended Credit Agreement".
This opinion is delivered to you pursuant to paragraph
I.2 of the First Amendment. All capitalized terms used herein
and not otherwise defined herein have the respective meanings
ascribed to them in the Amended Credit Agreement.
We have acted in a limited capacity as Pennsylvania
corporate counsel, and in conjunction with said role have
examined a copy of the Securities Certificate of the Pennsylvania
Public Utility Commission adopted and registered on _________,
199_ relating to the First Amendment and hereby opine to you that
the Pennsylvania Public Utility Commission has approved the
amendments to the Credit Agreement set forth in paragraph A. of
the First Amendment.
We are admitted to practice law in the Commonwealth of
Pennsylvania and do not express any opinion herein concerning the
law of any jurisdiction except the Commonwealth of Pennsylvania.
All of the opinions expressed herein are rendered as of the date
hereof. We assume no obligation to update such opinions to
reflect any facts or circumstances that may hereafter come to our
attention or any changes in the law that may hereafter occur.
EXHIBIT "B"<PAGE>
This letter is furnished by us solely in connection
with the Amended Credit Agreement for your benefit and the
benefit of each Bank a party to the Amended Credit Agreement and
may not be relied upon for any other purpose, or furnished to,
used by, circulated to, quoted to or referred to by, any other
person without our prior written consent in each instance.
Very truly yours,
LeBoeuf, Lamb, Greene & MacRae
BF-22139.1:3/1/95:0011-05284
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THIS STATEMENT CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE BALANCE
SHEET, STATEMENTS OF INCOME AND CASH FLOW, AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000077242
<NAME> PENNSYLVANIA GAS AND WATER COMPANY
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-END> DEC-31-1994
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 569,071,000
<OTHER-PROPERTY-AND-INVEST> 6,273,000
<TOTAL-CURRENT-ASSETS> 71,184,000
<TOTAL-DEFERRED-CHARGES> 92,752,000
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 739,280,000
<COMMON> 54,567,000
<CAPITAL-SURPLUS-PAID-IN> 90,201,000
<RETAINED-EARNINGS> 71,264,000
<TOTAL-COMMON-STOCKHOLDERS-EQ> 216,032,000
1,760,000
33,615,000
<LONG-TERM-DEBT-NET> 311,725,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 3,730,000
80,000
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 173,338,000
<TOT-CAPITALIZATION-AND-LIAB> 739,280,000
<GROSS-OPERATING-REVENUE> 234,723,000
<INCOME-TAX-EXPENSE> 12,499,000
<OTHER-OPERATING-EXPENSES> 179,892,000
<TOTAL-OPERATING-EXPENSES> 192,391,000
<OPERATING-INCOME-LOSS> 42,332,000
<OTHER-INCOME-NET> 16,000
<INCOME-BEFORE-INTEREST-EXPEN> 42,348,000
<TOTAL-INTEREST-EXPENSE> 22,542,000
<NET-INCOME> 19,806,000
4,639,000
<EARNINGS-AVAILABLE-FOR-COMM> 15,167,000
<COMMON-STOCK-DIVIDENDS> 9,605,000
<TOTAL-INTEREST-ON-BONDS> 18,891,000
<CASH-FLOW-OPERATIONS> 44,094,000
<EPS-PRIMARY> 2.17
<EPS-DILUTED> 2.17
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