UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Number 1-5540
PEOPLES ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Illinois 36-2642766
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24th Floor, 130 East Randolph Drive, Chicago, Illinois 60601-6207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:(312)240-4000
Securities registered pursuant to Section 12(b) of the Act:
Name on each exchange
Title of Each Class on which registered
Common Stock, without par value New York Stock Exchange
Chicago Stock Exchange
Pacific Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark whether the registrant (1) has
filed all reports required to be filed by Section 13 or
15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90
days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K (229.405 of this
chapter) is not contained herein, and will not be
contained, to the best of registrant's knowledge, in
definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment
to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held
by nonaffiliates of the registrant:
Approximately $1.34 billion computed on the basis of
the closing market price of $37.6875 for a share of
Common Stock on November 30, 1998.
Indicate the number of shares outstanding of each of the
issuer's classes of common stock, as of the latest
practicable date:
Common Stock, without par value, 35,474,472 shares
outstanding at November 30, 1998.
Documents Incorporated by Reference
Document Part of Form 10-K
Portions of the Company's Notice of
Annual Meeting and Proxy Statement
to be filed on or about December 28, 1998 Part III
CONTENTS
Page
Item No. No .
Part I
1. Business 3
2. Properties 7
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
Executive Officers of the Company 9
Part II
5. Market for the Company's Common Stock and Related
Stockholder Matters 11
6. Selected Financial Data 12
7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 13
7A. Quantitative and Qualitative Disclosures About
Market Risk 23
8. Financial Statements and Supplementary Data 23
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 45
Part III
10. Directors and Executive Officers of the Company 45
11. Executive Compensation 45
12. Security Ownership of Certain Beneficial Owners and
Management 45
13. Certain Relationships and Related Transactions 45
Part IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 46
Signatures 48
Exhibit Index 49
Peoples Energy Corporation
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED SEPTEMBER 30, 1998
PART I
ITEM 1. BUSINESS
GENERAL
Peoples Energy Corporation (Company) is solely a holding
Company and does not engage directly in any business of its
own. Income is derived principally from the Company's
utility subsidiaries, The Peoples Gas Light and Coke Company
(Peoples Gas) and North Shore Gas Company (North Shore Gas).
The Company also derives income from its other subsidiaries,
Peoples District Energy Corporation (Peoples District
Energy), Peoples Energy Services Corporation (Peoples Energy
Services), Peoples Energy Resources Corp. (Peoples Energy
Resources), Peoples NGV Corp. (Peoples NGV), and Peoples
Energy Ventures Corporation (Peoples Energy Ventures). The
Company and its subsidiaries had 2,834 employees at September
30, 1998.
The Company was incorporated in 1967 under the Illinois
Business Corporation Act and has its principal executive
offices at 130 East Randolph Drive, Chicago, Illinois 60601-
6207 (Telephone 312-240-4000).
Peoples Gas, an operating public utility, is engaged
primarily in the purchase, storage, distribution, sale, and
transportation of natural gas. It has approximately 833,000
residential, commercial, and industrial retail sales and
transportation customers within the City of Chicago (City).
North Shore Gas, an operating public utility, is engaged
primarily in the purchase, storage, distribution, sale, and
transportation of natural gas. It has about 143,000
residential, commercial, and industrial retail sales and
transportation customers within its service area of
approximately 275 square miles, located in Northeastern
Illinois.
Peoples District Energy, a wholly owned subsidiary of the
Company, is a 50 percent participant in a partnership that
provides district energy services to the McCormick Place
Exposition and Convention Center in Chicago, Illinois
(McCormick Place) under a long-term contract with the
Metropolitan Pier and Exposition Authority. Neither the
partnership nor its partners are regulated as a public
utility.
Peoples Energy Services provides nonregulated retail
energy sales to commercial, industrial and large residential
customers. Peoples Energy Services also offers energy
management services to large-volume gas users and other
energy related products and services to a wide variety of
customers.
Peoples Energy Resources owns and operates a plant near
Chicago that gasifies liquid propane and ethane to assist
utilities and marketers in meeting peak day demand. It is
also a 50 percent participant in the development of a gas
fired electric generation plant near Chicago. Peoples Energy
Resources is pursuing new opportunities to expand diversified
energy supply, pipeline and storage services, as well as
electric power generation.
Peoples NGV operates a fueling station for natural gas
fueled vehicles, and it is a participant in a partnership
that was formed to develop on-site fueling services for
natural gas-powered fleet vehicles. Neither the partnership
nor its partners are regulated as a public utility.
Peoples Energy Ventures, through its subsidiary Peoples
Energy Production, acquires investments in oil and gas
production and exploration properties. To date Peoples
Energy Production has purchased interests in properties in
Texas, Louisiana, Colorado and North Dakota. It is actively
pursuing additional investments of this kind. Peoples Energy
Production has also entered into a partnership with EnerVest
Management Company to jointly pursue investments in oil and
gas properties.
COMPETITION AND DEREGULATION
Peoples Gas and North Shore Gas are authorized by statute
and/or certificates of public convenience and necessity to
conduct operations in the territories they serve. In
addition, these subsidiaries operate under franchises and
license agreements granted them by the communities they
serve. Peoples Gas holds a perpetual, non-exclusive
franchise from the City. North Shore Gas' franchises with
communities within its service territory are of various terms
and expiration dates.
Absent extraordinary circumstances, potential competitors are
barred from constructing competing gas distribution systems
in the utility subsidiaries' service territories by a judicial
doctrine known as the "first in the field" doctrine. In
addition, the high cost of installing duplicate distribution
facilities would render the construction of a competing
system impractical.
Competition in varying degrees exists between natural gas
and other fuels or forms of energy available to consumers in
Peoples Gas' and North Shore Gas' service areas.
On December 16, 1997, the State of Illinois enacted
legislation to restructure the electric market in Illinois.
Under the legislation, approximately one-third of non-residential
electric customers, including customers with very large
loads, will be able to purchase electric power from the
supplier of their choice beginning on October 1, 1999. All
nonresidential customers will have this choice by December
31, 2000. All residential customers will be given the choice
by May 1, 2002. Customers who buy their electricity from a
supplier other than the local electric utility will be
required to pay transition charges to the utility through the
year 2006. These charges are intended to compensate the
electric utilities for revenues lost because of customers
buying electricity from other suppliers. The legislation
also allows an electric utility to issue bonds, in aggregate
amounts up to 50% of its Illinois jurisdictional
capitalization, to be financed by a specific charge to its
customers. An electric utility also may transfer up to 15%
of its assets to an affiliated or unaffiliated entity without
approval from the Illinois Commerce Commission (Commission).
In return for these and other benefits, electric utilities
are required to reduce their rates to residential customers.
The state's two largest electric utilities, including the
utility that serves northeastern Illinois, have reduced their
residential rates by 15% on August 1, 1998 and must reduce
rates by another 5% on May 1, 2002. The legislation does not
require electric utilities to divest their power generation
assets. However, subject to certain capacity restrictions,
electric utilities can divest assets without Commission
approval. It is too early to determine what effects this
restructuring of the electric market will have on the
competitive position of the Company's subsidiaries.
In addition to restructuring the electric market, the
legislation provides for additional funding for assistance
to low-income energy users, including customers of the
Company's utility subsidiaries. The legislation creates a
fund, financed by charges to electric and gas customers of
public utilities and participating municipal utilities and
electric co-ops, which supplements currently available
federal energy assistance.
On October 26, 1998, Peoples Gas and North Shore Gas made
filings with the Commission under which the price for natural
gas would be set at a fixed level for at least the next five
years. Under the current system, the utilities make purchases
in the open, unregulated gas market and pass those costs, as
incurred, onto customers through a monthly gas charge. While the
utilities make no profit on the gas, the market price and the
price customers pay can fluctuate significantly due to the
effects of supply and demand. Under the current system, the
customer bears the full risk of the market. The proposed
fixed-price gas charges would protect the utilities' gas
customers from the market fluctuations and from increases in
gas costs due to inflation and other market forces. The
proposals reflect a fixed gas price of 32.76 cents per therm
for customers of Peoples Gas and 34.70 cents per therm for
customers of North Shore Gas. These fixed unit prices are
comparable to the average prices paid by the utilities'
respective customers over the last two years.
By eliminating the monthly price fluctuations, Peoples Gas
and North Shore Gas could shield customers from price
increases, although gas bills would still reflect customers'
increased usage during colder weather. As the utilities
would assume and manage this risk, they would have an
opportunity to earn a profit on this initiative.
The Commission has eight months to review the filings,
during which period the utilities may update their proposals.
At the conclusion of the review, the Commission may modify
the proposals. However, the utilities have the right to
accept the outcome or reject it and continue under the
current system.
A substantial portion of the gas that Peoples Gas and North
Shore Gas deliver to their customers consists of gas that the
subsidiaries' customers purchase directly from producers and
marketers rather than from the subsidiaries. These direct
customer purchases have little effect on net income because
the utilities provide transportation service for such gas
volumes and recover margins similar to those applicable to
conventional gas sales.
A pipeline may seek to provide transportation service
directly to endusers. Such direct service by a pipeline to
an end-user would bypass the local distributor's service and
reduce the distributor's earnings. However, none of the
subsidiaries' pipeline suppliers has undertaken any service
bypassing the subsidiaries. Both utility subsidiaries have a
bypass rate approved by the Commission which allows the
utilities to renegotiate rates with customers that are
potential bypass candidates. (See Other Matters - Large-
Volume Gas Service Agreements in Item 7.)
SALES AND RATES
Peoples Gas and North Shore Gas sell natural gas having an
average heating value of approximately 1,000 British thermal
units (Btu's) per cubic foot.* Sales are made and service
rendered by Peoples Gas and North Shore Gas pursuant to rate
schedules on file with the Commission containing various
service classifications largely reflecting customers'
different uses and levels of consumption. The Gas Charge is
determined in accordance with the provisions in Rider 2, Gas
Charge, to recover the costs incurred by Peoples Gas and
North Shore Gas to purchase, transport, manufacture, and
store gas supplies. The level of the Gas Charge under both
subsidiaries' rate schedules is adjusted monthly to reflect
increases or decreases in natural gas supplier charges,
purchased storage service costs, transportation charges, and
liquefied petroleum gas costs. In addition, under the tariffs
of Peoples Gas and North Shore Gas, the difference for any
month between costs recoverable through the Gas Charge and
revenues billed to customers under the Gas Charge is refunded
to or recovered from customers. Consistent with these tariff
provisions, such difference for any month is recorded either
as a current liability or a current asset (with a contra
entry to Gas Costs). (See Note 1L of the Notes to
Consolidated Financial Statements.)
The business of the Company's utility subsidiaries is
influenced by seasonal weather conditions because a large
element of the subsidiaries' customer load consists of
space heating. Weather-related deliveries can, therefore,
have a significant positive or negative impact on net income.
(For discussion of the effect of the seasonal nature of gas
revenues on cash flow, see Liquidity in Item 7.)
The basic marketing plans of Peoples Gas and North Shore Gas
are to maintain their existing shares in all market segments and
develop opportunities emerging from changes in the utility
environment and technological equipment advances for new,
expanded, or current natural gas applications, including
cogeneration, prime movers, natural gasfueled vehicles, and
natural gas air-conditioning.
STATE LEGISLATION AND REGULATION
Peoples Gas and North Shore Gas are subject to the
jurisdiction of and regulation by the Commission, which has
general supervisory and regulatory powers over practically
all phases of the public utility business in Illinois,
including rates and charges, issuance of securities, services
and facilities, systems of accounts, investments, safety
standards, transactions with affiliated interests, as defined
in the Illinois Public Utilities Act, and other matters.
* All volumes of natural gas set forth in this report are
stated on a 1,000 Btu (per cubic foot) billing basis.
(100 cubic feet = 1 therm; 10 therms = 1 Dekatherm - Dth)
FEDERAL LEGISLATION AND REGULATION
The Company is a holding company as defined in the Public
Utility Holding Company Act of 1935 (Act). By Order entered
on December 6, 1968 (Holding Company Act Release No. 16233),
the Securities and Exchange Commission, pursuant to Section
3(a)(1) of the Act, exempted the Company and its subsidiary
companies as such from the provisions of the Act, other than
Section 9(a)(2) thereof.
Most of the gas distributed by Peoples Gas and North Shore
Gas is transported to the utilities' distribution systems by
interstate pipelines. In their provision of gas sales
services (gathering, transportation and storage services, and
gas supply) pipelines are regulated by the Federal Energy
Regulatory Commission (FERC) under the Natural Gas Act and
the Natural Gas Policy Act of 1978. (See "Sales and Rates"
and "Current Gas Supply" in Item 1.)
ENVIRONMENTAL MATTERS
The Company and its subsidiaries are subject to federal and
state environmental laws. Peoples Gas and North Shore Gas are
conducting environmental investigations and work at certain
sites that were the location of former manufactured gas plant
operations. (See Note 2A of the Notes to Consolidated
Financial Statements.) In addition, North Shore Gas has
received a demand for payment of environmental response costs
at a former mineral processing site in Denver, Colorado.
(See Note 2B of the Notes to Consolidated Financial
Statements.) Also, North Shore Gas was informed by the
Illinois Environmental Protection Agency (IEPA) that it was
not in compliance with certain provisions of the Illinois
Environmental Protection Act which prohibit water pollution
within the State of Illinois. (See Note 2C of the Notes to
Consolidated Financial Statements.)
CURRENT GAS SUPPLY
Peoples Gas and North Shore Gas have each entered into
various long-term and short-term firm gas supply contracts.
When used in conjunction with contract peaking and contract
storage, Peoples Gas' company-owned storage, and the peak-shaving
facilities of the utilities, such supply is deemed sufficient
to meet current and foreseeable peak and annual market
requirements.
Although the Company believes North American supply to be
sufficient to meet U.S. market demands for the foreseeable
future, it is unable to quantify or otherwise make specific
representations regarding national supply availability.
The following tabulation shows the expected design peak-
day availability of gas in thousands of dekatherms (MDth)
during the 19981999 heating season for Peoples Gas and North
Shore Gas:
Peoples Gas North Shore Gas
Design Peak-Day Year of Design Peak-Day Year of
Availability Contract Availability Contract
Source (MDth) Expiration (MDth) Expiration
Firm direct purchases (1) 551 1999-2001 132 1999-2001
Liquefied petroleum gas 40 40(2)
Peaking Service:
Peoples Energy Resources 60 (3)
Storage gas:
Leased (4) 563 1999-2003 125 1999-2000
Peoples-Manlove (5) 993 63 (6)
Customer-owned (7) 300 55
Total expected design
peak-day availability 2,507 415
(1)Consists of firm gas purchases from non-pipeline suppliers
delivered utilizing firm pipeline transportation. The
majority of the gas purchase contracts are negotiated
annually. The terms of the transportation contracts vary,
with the longest term being 11 years.
(2)Reflects derating of capacity, as accepted by the
Commission Staff in Docket 91-0581.
(3)The contract with Peoples Energy Resources is for an
initial term expiring November 30, 1999; the contract
continues in effect from year to year thereafter unless
canceled by either party upon 12 months' prior notice.
(4)Consists of leased storage services required to meet
design day requirements with contract lengths varying
from one to five years.
(5)Manlove Field, Peoples Gas' underground storage facility
located near Champaign, Illinois, has seasonal top-gas
inventory of approximately 27,000 MDth for system supply,
of which approximately 1,566 MDth is dedicated to North
Shore Gas. Peoples Gas also owns a liquefied natural gas
(LNG) plant at Manlove Field for the primary purpose of
supporting late-season deliverability from the storage
facility. The LNG plant has a storage capacity of 2,000
MDth and is capable of regasifying 300 MDth of gas per
day. For the 1998-99 heating season, Manlove Field
complex will have a maximum peak-day delivery capability
of approximately 1,056 MDth (including 63 MDth for the
use of North Shore Gas).
(6)The contract with Peoples Gas was for an initial term
expiring May 1, 1990. However, by its terms, the
contract continues in effect unless canceled by either
party upon 120 days notice prior to April 30 of any year
thereafter.
(7)Consists of gas supplies purchased directly from
producers and marketers by the utilities' commercial,
industrial, and larger residential customers.
The sources of gas supply (including gas transported for
customers) in MDth for Peoples Gas and North Shore Gas for
the three fiscal years ended September 30, 1998, 1997 and
1996, were as follows:
<TABLE>
<CAPTION>
Peoples Gas North Shore Gas
1998 1997 1996 1998 1997 1996
<S> <C> <C> <C> <C> <C> <C>
Gas purchases 120,531 156,097 174,552 21,837 27,226 27,940
Liquefied petroleum gas produced 8 7 114 3 20 151
Customer-owned gas-received 93,758 91,476 93,141 12,355 12,618 12,777
Underground storage-net (2,939) (3,786) 228 28 (123) 468
Exchange gas-net 4,975 (39) (4,446) 1,030 (151) (104)
Company use, franchise
requirements, and
unaccounted-for gas (3,693) (2,071) (3,169) (383) (546) (983)
Total (a) 212,640 241,684 260,420 34,870 39,044 40,249
(a) See "Gas Sold and Transported" in Item 6.
</TABLE>
ITEM 2. PROPERTIES
All of the principal plants and properties of Peoples Gas and
North Shore Gas have been maintained in the ordinary course of
business and are believed to be in satisfactory operating
condition. The distribution facilities serve the City and
other areas in Northeastern Illinois. Peoples Gas owns and
operates an underground gas storage reservoir and an LNG
plant at Manlove Field located near Champaign, Illinois.
Peoples Gas also owns a transmission system
that transports gas from Manlove Field to Chicago. The
underground storage reservoir and LNG plant also serve North
Shore Gas. General properties include a substantial
investment in office and service buildings, garages, repair
shops, and motor vehicles, together with the equipment,
tools, and fixtures necessary to conduct utility business.
Most of the principal plants and properties of Peoples Gas
and North Shore Gas, other than mains, services, meters,
regulators, and cushion gas in underground storage, are
located on property owned in fee. Substantially all gas mains
are located under public streets, alleys, and highways, or
under property owned by others under grants of easements.
Meters and house regulators in use and a portion of services
are located on premises being served. Certain storage wells
and other facilities of the Manlove Field storage reservoir,
and certain portions of the transmission system are located
on land held pursuant to leases, easements, or permits.
Substantially all of the physical properties now owned or
hereafter acquired by Peoples Gas and North Shore Gas are
subject to (a) the firstmortgage lien of each Company's
mortgage to U.S. Bank Trust, National Association, as
Trustee, to secure the principal amount of each Company's
outstanding first mortgage bonds and (b) in certain cases,
other exceptions and defects that do not interfere with the
use of the property.
Peoples Energy Resources owns and operates a plant in Will
County, Illinois that gasifies natural gas liquids to support
the sale of winter peaking services to area natural gas
utilities and marketers. The current seasonal capacity of
the plant is approximately 800,000 MMbtu. The plant is fully
paid for and no liens exist on the property.
During the current fiscal year, Peoples Energy Production
acquired, either directly or through a partnership, working
interests in various producing, proved non-producing, and
probable oil and gas reserves. Currently, these interests are
located in Texas, Louisiana, North Dakota, and Colorado. The
total investment in these properties is approximately $16
million. As of September 30, 1998, total proved oil and gas
reserves owned by Peoples Energy Production were 11,421,415
equivalent MMBtus. Reserve information on these properties
was provided by the following engineering firms: Ryder Scott
Company Petroleum Engineers, Miller & Lent, LTD -
International Oil & Gas Consultants, McCartney Engineering,
LLC, and Cawley, Gillespie & Associates, Inc. - Petroleum
Engineers.
ITEM 3. LEGAL PROCEEDINGS
See Note 2 of the Notes to Consolidated Financial
Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
EXECUTIVE OFFICERS OF THE COMPANY
The following is a list of the names, ages, and positions
of the executive officers of the Company. Executive officers
were elected to serve for a term of one year or until their
successors are duly elected and qualified, except for Ms.
Rogers, who was appointed.
<TABLE>
<CAPTION>
Age at
Name 11/30/98 Position with the Company
<S> <C> <C>
Donald M. Field 49 Executive Vice President (1998) of the
Company. Mr. Field is also Executive Vice President
and Director (1998) of Peoples Gas and North Shore
Gas. Prior to becoming Executive Vice President,
Mr. Field was Vice President of Gas Operations of
both subsidiaries. Mr. Field has been an employee
of the Company and/or its subsidiaries since 1971.
James Hinchliff 58 Senior Vice President and General
Counsel (1989) of the Company. Mr. Hinchliff
is also Senior Vice President and General Counsel
(1989) and a Director (1985) of Peoples Gas and
North Shore Gas. Prior to that, he was Vice
President and General Counsel (1984-1989) of
the Company and of both subsidiaries, and prior
to that he was Assistant General Counsel of the
Company (1979-1984) and of both subsidiaries
(1981-1984). Mr. Hinchliff has been an employee
of the Company and/or its subsidiaries since 1972.
Peter H. Kauffman 52 Assistant General Counsel and Secretary
(1998) of the Company. Mr. Kauffman is also
Assistant General Counsel and Secretary of
Peoples Gas and North Shore Gas. Mr. Kauffman
has been an employee of the Company and/or its
subsidiaries since 1972.
James M. Luebbers 52 Vice President and Controller (1998) of
the Company. Mr. Luebbers is also Vice
President and controller and Director
(1998) of Peoples Gas and North Shore
Gas. Prior to becoming Vice President
and Controller, Mr. Luebbers was Vice
President of Corporate Planning (1997).
Mr. Luebbers has been an employee
of the Company and/or its subsidiaries
since 1969.
William E. Morrow 42 Vice President of the Company. Mr.
Morrow is also Vice President of Peoples Gas
and North Shore Gas. Mr. Morrow
has been an employee of the Company
and/or its subsidiaries since 1979.
Age at
Name 11/30/98 Position with the Company
Kevin J. O'Connell 52 Vice President of the Company. Mr. O'Connell
has been an employee of the Company and/or
its subsidiaries since 1997.
Thomas M. Patrick 52 President and Chief Operating Officer (1998)
and Director (1998) of the Company. Mr.
Patrick is also President and Chief Operating
Officer (1998) and Director (1997) of
Peoples Gas and North Shore Gas. Prior
to becoming President, Mr. Patrick
was Executive Vice President (1997-
1998) of the Company and its subsidiaries
and Vice President (1989-1996) of both
subsidiaries. Mr. Patrick has been an
employee of the Company and/or its
subsidiaries since 1976.
William W. Reynolds 40 Treasurer of the Company. Mr. Reynolds
is also Treasurer of Peoples Gas and North
Shore Gas. Mr. Reynolds has been
an employee of the Company and/or its
subsidiaries since 1998.
Desiree G. Rogers 39 Vice President of the Company. Ms. Rogers
is also Vice President of Peoples Gas
and North Shore Gas. Ms. Rogers has been
an employee of the Company and/or its
subsidiaries since 1997.
Richard E. Terry 61 Chairman of the Board and Chief Executive
Officer (1990) and Director (1984) of the
Company. Mr. Terry is also Chairman of
the Board and Chief Executive Officer (1990)
and a Director (1982) of Peoples
Gas and North Shore Gas. Prior to
becoming Chairman, Mr. Terry was
President and Chief Operating Officer (1987
-1990), Executive Vice President(1984-1987),
and Vice President and General Counsel
(1981-1984) of the Company and its subsidiaries.
Mr. Terry has been an employee of the
Company and/or its subsidiaries since 1972.
</TABLE>
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The common stock of the Company is listed on the New York,
Chicago, and Pacific Stock Exchanges (trading symbol: PGL).
At November 30, 1998, there were 26,209 registered
shareholders.
The common stock price range and dividends declared per
common share by quarters for fiscal 1998 and 1997 were as follows:
Fiscal Stock Price Dividends
Quarter High Low Close Declared
Fourth $ 38-5/8 $ 32-1/8 $ 36 $0.48
Third 39 34-5/8 38-5/8 0.48
Second 39-7/8 34-5/8 36-3/8 0.48
First 39-5/8 33-11/16 39-3/8 0.47
Fourth $ 39-11/16 $36-5/8 $37-11/16 $0.47
Third 39-7/8 31-1/4 37-7/16 0.47
Second 35-5/8 32-5/8 33-1/8 0.47
First 37-3/8 33 33-7/8 0.46
<TABLE>
<CAPTION>
ITEM 6. SELECTED FINANCIAL DATA
For fiscal years ended September 30, 1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Common Stock Information
Basic and diluted earnings per share $ 2.25 $ 2.81 $ 2.96 $ 1.78 $ 2.13
Cash dividends declared per share $ 1.91 $ 1.87 $ 1.83 $ 1.80 $ 1.80
Book value per share at year-end $ 20.94 $ 20.43 $ 19.48 $ 18.38 $ 18.39
Market Price (year-end, closing) $ 36 $ 37 11/16 $ 34 $ 27 1/2 $ 26 1/4
Price-earnings ratio 16.0 13.4 11.5 15.4 12.3
Basic average shares outstanding (thousands) 35,257 35,000 34,942 34,901 34,854
Diluted average shares outstanding (thousands) 35,276 35,026 34,967 34,902 34,855
Operating Results (thousands)
Utility Operating Revenues:
Sales - Residential $ 780,188 $ 941,564 $ 883,100 $ 752,796 $ 951,037
Commercial 112,166 146,864 141,594 116,113 160,912
Industrial 20,947 28,969 32,075 24,128 41,979
Transportation (a) 120,790 133,570 128,876 122,814 110,128
Other 15,734 15,265 13,032 17,550 15,432
Diversified Energy Revenues 88,232 7,457 - - -
Total Operating Revenues 1,138,057 1,273,689 1,198,677 1,033,401 1,279,488
Less-Gas costs 526,983 615,534 529,875 457,436 669,039
-Revenue taxes 100,846 126,224 121,172 109,720 132,734
-Other (b) 7,917 - - - -
Net Operating Revenues $ 502,311 $ 531,931 $ 547,630 $ 466,245 $ 477,715
Net Income $ 79,423 $ 98,404 $ 103,438 $ 62,154 $ 74,399
Assets at Year-end (thousands)
Property, plant and equipment $ 2,209,957 $ 2,117,509 $ 2,046,156 $ 2,088,277 $2,019,379
Less-Accumulated depreciation 763,296 715,279 665,077 715,208 677,447
Net Property, Plant and Equipment $ 1,446,661 $ 1,402,230 $ 1,381,079 $ 1,373,069 $1,341,932
Total assets $ 1,904,500 $ 1,820,805 $ 1,783,750 $ 1,822,492 $1,809,286
Capital expenditures of subsidiaries $ 116,192 $ 89,404 $ 85,620 $ 95,941 $ 87,218
Capitalization at Year-end (thousands)
Common equity $ 741,361 $ 716,499 $ 681,185 $ 641,694 $ 641,378
Long-term debt of subsidiaries 516,604 527,004 527,064 621,874 626,075
Total Capitalization $ 1,257,965 $ 1,243,503 $ 1,208,249 $ 1,263,568 $1,267,453
Financial Ratios (percent)
Capitalization at Year-end:
Common equity 59 58 56 51 51
Long-term debt of subsidiaries 41 42 44 49 49
Total Capitalization 100 100 100 100 100
Return on common equity at year-end 10.7 13.7 15.2 9.7 11.6
Gas Sold and Transported (million cubic feet)
Utility Gas Deliveries:
Sales - Residential 119,206 142,837 154,128 130,571 142,876
Commercial 19,501 24,994 27,390 22,079 26,206
Industrial 4,114 5,367 6,803 5,059 7,325
Transportation (a) 104,689 107,530 112,348 106,352 102,023
Total Utility Deliveries 247,510 280,728 300,669 264,061 278,430
Diversified Energy Sales 29,732 60 - - -
Number of Customers
Utility Customers (average)
Sales - Residential 908,025 910,657 910,236 906,881 905,461
Commercial 46,639 50,914 50,719 50,872 50,955
Industrial 3,239 3,708 3,696 3,783 3,927
Transportation (a) 17,934 10,959 11,348 10,934 10,247
Total Utility Customers 975,837 976,238 975,999 972,470 970,590
Diversified Energy Customers (year-end) 19,749 52 - - -
Degree Days 5,564 6,806 7,080 5,897 6,701
Percent of normal (6,536) 85 104 108 90 103
(a) Includes commercial, industrial, and larger residential customers.
(b) See Management's Discussion and Analysis of Results of Operations and Financial Condition (MD&A) - Net Operating Revenues.
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
Net Income
In 1998, net income decreased $19.0 million, to $79.4
million, principally a result of weather that was 18 percent
warmer than the prior year. Increases in costs associated
with outside professional services and advertising expense also
contributed to the decline in net income. These effects
were offset, in part, by increased earnings from
diversified energy subsidiaries, a reduction in the
provision for uncollectible accounts, and lower group
insurance expense.
In 1997, net income decreased $5.0 million, to $98.4
million, primarily as a result of decreased gas deliveries
due to weather that was four percent warmer than in 1996
and conservation. Also hindering 1997's comparative
results were fiscal 1996's gain on the expiration of gas
storage contracts, increased computer support services
associated with the development of a new customer
information system, and increased depreciation and
amortization expense. Partially offsetting these effects
were a decrease in pension expense (see Note 6A of the
Notes to Consolidated Financial Statements), a full year's
effect of the utilities' November 1995 rate increases,
decreased net interest expense and a tax accrual
adjustment.
<TABLE>
<CAPTION>
A summary of variations affecting income between years is
presented below, with explanations of significant differences
following:
Fiscal 1998 Fiscal 1997
over 1997 over 1996
Amount Amount
(000's) Percent (000's) Percent
<S> <C> <C> <C> <C>
Net operating revenues (a) $(29,620) (5.6) $(15,699) (2.9)
Operation and maintenance expenses (3,094) (1.2) (17,538) (6.6)
Depreciation, depletion, and amortization expense 3,121 4.2 3,439 4.9
Income taxes (9,951) (18.2) (2,025) (3.6)
Other income and deductions 753 2.1 (6,163) (21.3)
Net income (18,981) (19.3) (5,034) (4.9)
(a) See Management's Discussion and Analysis of Results of Operations and Financial Condition -
Net Operating Revenues. (MD&A)
</TABLE>
Net Operating Revenues
Gross revenues of Peoples Gas and North Shore Gas are
affected by changes in the unit cost of the utilities' gas
purchases and do not include the cost of gas supplies for
customers who purchase gas directly from producers and
marketers rather than from the utilities. The direct customer
purchases have little effect on net income because the utilities
provide transportation service for such gas volumes and recover
margins similar to those applicable to conventional gas sales.
Except for the effect of customer conservation that may result from
substantial increases in the commodity cost of gas supplies, changes
in the unit cost of gas do not significantly affect net income
because the utilities' tariffs provide for dollar-for-dollar recovery
of gas costs. (See Item 1 - Competition and Deregulation
and Note 1L of the Notes to Consolidated Financial Statements.)
The utilities' tariffs also provide for dollar-for-dollar recovery
of the cost of revenue taxes and certain customer charges imposed
by the state and various municipalities.
Since income is not significantly affected by changes in
revenue from customers' gas purchases from producers or
marketers, rather than from the utility subsidiaries,
changes in gas costs (except for the effect of customer
conservation that may result from substantial increases in
the commodity cost of gas supplies) or changes
in revenue taxes and certain customer charges imposed by
the state and various municipalities, the following
discussion pertains to "net operating revenues" (operating
revenues, net of gas costs, revenue taxes and certain
customer charges). Peoples Energy (Company) considers net
operating revenues to be a more pertinent measure of
operating results than gross revenues.
Net operating revenues decreased $29.6 million, to
$502.3 million, in 1998. Natural gas deliveries decreased
33.2 bcf, to 247.5 bcf, due mainly to the effect of El Nino
which caused weather to be 18 percent warmer than in 1997
and 15 percent warmer than normal.
In 1997, net operating revenues decreased $15.7 million, to
$531.9 million. Natural gas deliveries decreased 20.0 bcf, to
280.4 bcf, primarily due to weather that was four percent
warmer than in 1996 and conservation. Net operating
revenues decreased approximately $24.2 million ($14.6
million after income taxes) as a result of customer
conservation measures and warmer weather. However, a full
year's effect of the utilities' rate increases improved net
operating revenues by approximately $4.5 million ($2.7
million after income taxes).
See Other Matters - Operating Statistics for details of
selected financial and operating information by gas service
classification.
Operation and Maintenance Expenses
Operation and maintenance expenses decreased $3.1
million, to $245.3 million, in 1998, due principally to
reductions in the provision for uncollectible accounts
($5.1 million), reflecting decreased revenues due to the
warmer weather, group insurance expense ($2.8 million),
environmental costs recovered through rates ($2.2 million)
and pension costs ($2.0 million). These effects were
offset in part by increases in the costs of outside
professional services ($6.3 million), advertising expenses
($1.6 million), and a prior period adjustment to costs
associated with claim settlements ($1.0 million).
In 1997, operation and maintenance expenses decreased
$17.5 million, to $248.4 million, due chiefly to an $18.6
million decrease in pension expense caused by changes in
settlement accounting attributed to employees choosing
early retirement and actuarial assumptions (see Note 6A of
the Notes to Consolidated Financial Statements), lower
reengineering expenses ($2.5 million), reductions in costs
associated with liability insurance premiums and claim
settlements ($2.3 million), and group insurance expense
($1.7 million). These decreases were partially offset by
an increase in payments for outside professional services
($3.7 million) and higher administrative and general
expenses.
Depreciation, Depletion, and Amortization Expense
Depreciation, depletion, and amortization expense
increased $3.1 million, to $77.2 million, and $3.4 million,
to $74.1 million, in 1998 and 1997, respectively, due
primarily to depreciable property additions.
Income Taxes
Income taxes, exclusive of the $480,000 included in
other income and deductions, decreased $10.0 million, to
$44.6 million, in 1998, due primarily to lower pre-tax
income.
In 1997, income taxes, exclusive of the $1.8 million
included in other income and deductions, declined $2.0
million, to $54.6 million, due to a tax accrual adjustment.
Other Income and Deductions
In 1998, other income and deductions decreased $753,000
from the prior period, due principally to an increase in
the allowance for funds used during construction, offset,
in part, by decreased miscellaneous interest revenues and
higher interest expense.
In 1997, other income and deductions increased $6.2
million from the prior year, due primarily to the prior
period's gain associated with the expiration of natural gas
storage contracts. Partially offsetting this increase were
reductions in interest expense on long-term debt, resulting
from the utility subsidiaries' early redemption of first
mortgage bonds, and on amounts refunded to customers.
Other Matters
Effect of Weather. Weather variations affect the volumes
of gas delivered for heating purposes and, therefore, can
have a significant positive or negative impact on net
income, cash position, and coverage ratios.
Accounting Standards. The Company adopted Statement of
Financial Accounting Standards (SFAS) No. 128, "Earnings
per Share," Statement of Position (SOP) 96-1,
"Environmental Remediation Liabilities," and SOP 98-5,
"Reporting on the Costs of Start-Up Activities," in fiscal
1998. (See Notes 1P and 5 of the Notes to Consolidated
Financial Statements.)
In June 1998, the Financial Accounting Standards Board
(FASB) issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement
establishes accounting and reporting standards for
derivative financial instruments, including certain
derivative instruments embedded in other contracts and for
hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the
consolidated balance sheet and measure those instruments at
fair value. The accounting for changes in the fair value
of a derivative depends on the intended use of the
derivative and resulting designation.
Changes in the fair value of derivatives must be
recognized in current period earnings, unless specific
hedge accounting criteria are met. If an entity qualifies
for hedge accounting, gains and losses on derivatives,
generally, will offset the related effects of the hedged
items in the current period's income statement. SFAS No.
133 requires that formal documentation be maintained and
that the effectiveness of the hedge be assessed quarterly.
The Company expects to designate its derivative instruments
as fair value hedges. The statement must be adopted no
later then the Company's fiscal year 2000. The Company
does not expect the adoption of this standard to have a
material effect on its financial condition or results of
operations.
Large-Volume Gas Service Agreements. Peoples Gas and North
Shore Gas have entered into gas service contracts with
certain large volume customers under specific rate
schedules approved by the Commission. These contracts were
negotiated to overcome the potential threat of bypassing
the utilities' distribution systems. The impact on the net
income of Peoples Gas and North Shore Gas as a result of
these contracts is not material.
Small-Volume Transportation Service. On June 25, 1997, the
Commission allowed Riders SVT and AGG to go into effect for
Peoples Gas, thus initiating a two-year pilot program
designed to provide transportation service to certain small-
volume industrial and commercial customers of the utility
as well as to some of its large residential customers. The
Commission also ordered a concurrent investigation of the
program to ascertain if program adjustments or revisions
are required. By order dated August 12, 1998, the
Commission found that, with the exception of one minor
modification agreed to by Peoples Gas, no revisions were
required.
Fixed Gas Charge Filing. On October 26, 1998, Peoples Gas
and North Shore Gas made filings with the Commission under
which the price for natural gas would be set at a fixed
level for at least the next five years. By eliminating the
monthly price fluctuations, Peoples Gas and North Shore Gas
could shield customers from price increases, although gas
bills would still reflect customers' increased usage during
colder weather. As Peoples Gas and North Shore Gas would
assume and manage this risk, they would have an opportunity
to earn a profit on this initiative. (See Item 1 -
Competition and Deregulation.)
Investment in Diversified Energy Businesses. The
Company has a financial goal to earn 25% of its
earnings from diversified energy businesses by the end of
2002.
In accordance with this goal, during 1998, Peoples Energy
Production entered into a commitment to invest up to $30
million in a limited partnership formed by EnerVest Energy
Partners to acquire, develop, manage, and optimize a portfolio
of U.S. and Canadian oil and gas properties and invested an
additional $15 million to acquire a portfolio of oil and gas
properties in the U.S.
Peoples Energy Resources entered into a commitment with
Dominion Energy to develop and operate a jointly-owned 600
megawatt electric generating peaking facility. The total
cost of the project is $206 million and the facility is
scheduled to be in operation by June 1999.
In fiscal 1998, Peoples Energy Services expanded its gas
marketing customer base by buying the contract portfolios of various
marketers, achieving a significant number of customers in
gas utility pilot programs and improving direct sales
efforts.
<TABLE>
<CAPTION>
Operating Statistics. The following table represents gas
distribution margin components:
For fiscal years ended September 30, 1998 1997 1996
Net Operating Revenues (thousands):
<S> <C> <C> <C>
Utility Operating Revenues
Sales Residential $ 780,188 $ 941,564 $ 883,100
Commercial 112,166 146,864 141,594
Industrial 20,947 28,969 32,075
913,301 1,117,397 1,056,769
Transportation
Residential 35,833 36,806 37,133
Commercial 47,557 47,655 51,251
Industrial 27,271 30,967 36,059
Contract Pooling 9,371 17,742 4,433
Other 758 400 -
120,790 133,570 128,876
Other 15,734 15,265 13,032
Diversified Energy Revenues 88,232 7,457 -
Total Operating Revenues 1,138,057 1,273,689 1,198,677
Less- Gas Costs 526,983 615,534 529,875
- Revenue Taxes 100,846 126,224 121,172
- Other (a) 7,917 - -
Net Operating Revenues $ 502,311 $ 531,931 $ 547,630
Utility Gas Deliveries (MDth):
Sales - Residential 119,206 142,837 154,128
Commercial 19,501 24,994 27,390
Industrial 4,114 5,367 6,803
142,821 173,198 188,321
Transportation (b)
Residential 24,854 27,909 26,521
Commercial 39,798 40,480 42,461
Industrial 40,037 38,907 43,366
Other - 234 -
104,689 107,530 112,348
Total Utility Deliveries 247,510 280,728 300,669
Diversified Energy Sales (MDth) 29,732 60 -
(a) See Management's Discussion and Analysis of Results of
Operations and Financial Condition - Net Operating
Revenues.
(b) Volumes associated with contract pooling service are
included in the respective customer classes.
</TABLE>
LIQUIDITY
Source of Funds. The Company has access to outside capital
markets and to internal sources of funds that together
provide sufficient resources to meet its capital
requirements. It does not anticipate any changes that
would materially alter its current liquidity position.
Due to the seasonal nature of gas usage, a major portion
of the utilities' cash collections occurs between December
and May. Because of timing differences in the receipt and
disbursement of cash and the level of construction
requirements, the utility subsidiaries may borrow on a
short-term basis. Short-term borrowings are repaid with
cash from operations, other short-term borrowings, or
refinanced on a permanent basis with debt or equity,
depending on capital market conditions and capital
structure considerations.
Credit Lines. The Company has lines of credit of $170.0
million. At September 30, 1998, the Company had unused
credit available from banks of $169.3 million. The utility
subsidiaries have lines of credit of $129.4 million. At
September 30, 1998, the utility subsidiaries had unused
credit available from banks of $120.4 million. (See Note
11 of the Notes to Consolidated Financial Statements.)
Cash Flow Activities. Net cash provided by operating
activities decreased $8.0 million in fiscal 1998, primarily
due to changes in deferred assets and prepayments. These
items were partially offset by changes in deferred credits
and net receivables.
In 1997, net cash provided by operating activities
increased by $69.1 million, due chiefly to changes in other
assets, gas costs refundable, and net receivables. Partially
offsetting these items were changes in accounts payable and
gas in storage.
Net cash used in investing activities for 1998 and 1997
largely represents the level of capital expenditures and
investments for both utility and diversified energy
subsidiaries in the respective years.
Both in fiscal 1998 and fiscal 1997, net cash used in
financing activities reflects dividends paid to common
stockholders and the issuance of new shares of common stock
through the direct purchase and investment plan.
Indenture Restrictions. North Shore Gas' indenture
relating to its first mortgage bonds contains provisions
and covenants restricting the payment of cash dividends and
the purchase or redemption of capital stock. At September
30, 1998, such restrictions amounted to $11.6 million of
North Shore Gas' total retained earnings of $70.0 million.
(See Note 3 of the Notes to Consolidated Financial
Statements.)
Interest Coverage. The fixed charges coverage ratios for
both Peoples Gas and North Shore Gas for fiscal 1998, 1997,
and 1996 are as follows:
1998 1997 1996
Peoples Gas 4.15 5.01 4.84
North Shore Gas 5.07 5.74 5.62
The decrease in the ratios for both companies in 1998
reflects lower pre-tax income, primarily due to warmer
weather. The increase in the ratio for fiscal year 1997
for each Company is due to lower interest expense on
amounts refundable to customers and on long-term debt. The
ratio for fiscal year 1996 for each Company reflects the
redemption of long-term debt and higher pre-tax income
resulting from colder weather and the Commission-approved
rate increases.
Debt Ratings. The Company was assigned corporate credit
ratings of A2 by Moody's Investors Service and A+ by
Standard & Poor's Corporation. The commercial paper ratings
are A-1 and P-1, respectively.
The long-term debt of both utility subsidiaries is rated
Aa2 by Moody's Investors Service and AA- by Standard &
Poor's Corporation. Moody's upgraded its ratings from Aa3
in November 1997. Standard & Poor's Corporation last
changed its ratings in 1985. The commercial paper of both
utilities has the top rating from the major rating
agencies.
Environmental Matters. The Company's utility subsidiaries
are conducting environmental investigations and work at
certain sites that were the location of former manufactured
gas operations. (See Note 2A of the Notes to Consolidated
Financial Statements.)
In 1994, North Shore Gas received a demand from a
responsible party under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended
(CERCLA), for reimbursement, indemnification and
contribution for response costs incurred at a former
mineral processing site in Denver, Colorado. North Shore
Gas filed a declaratory judgment action in the District
Court for the Northern District of Illinois asking the
court to declare that North Shore Gas is not liable for
response costs relating to the site. The defendant filed a
counterclaim for costs incurred by the defendant with
respect to the site. In 1997, the District Court granted
North Shore Gas' motion for summary judgment, declaring
that North Shore Gas is not liable for any response costs
in connection with the Denver site. On August 5, 1998, the
U.S. Court of Appeals, Seventh Circuit, reversed the
District Court's decision and remanded the case for
determination of what liability, if any, the former entity
has and therefore North Shore Gas has for activities at the
site. (See Note 2B of the Notes to Consolidated Financial
Statements.)
On November 14, 1995, the Illinois Attorney General
filed a complaint in the Circuit Court of Cook County
naming North Shore Gas and four other parties as
defendants. The complaint alleges violations of certain
provisions of the Illinois Environmental Protection Act
which prohibit water pollution within the State of
Illinois. The complaint alleges that the violations are
the result of a gasoline release that occurred in Wheeling,
Illinois, in June 1992 when a contractor who was installing
a pipeline for North Shore Gas accidentally struck a
gasoline pipeline owned by West Shore Pipeline Company.
North Shore Gas is contesting this suit. (See Note 2C of
the Notes to Consolidated Financial Statements.)
Year 2000. The Company began its efforts to assess the
Year 2000 compliance of its mainframe computer systems
in March 1996. The Company has since developed a
comprehensive Year 2000 readiness plan that incorporates
all of its information technology systems, including
computer hardware and software, and its embedded systems
equipment, including telecommunications equipment. The
plan also includes a review by the Company of the Year
2000 compliance efforts of its key suppliers and
customers and Year 2000 contingency planning. The
Company-wide Year 2000 effort includes the Company's
wholly owned subsidiaries, as well as various joint
ventures.
For all internal information technology systems
developed by the Company, Year 2000 compliance efforts
proceed through the following phases: inventory,
assessment, remediation, testing, and implementation.
Rather than completing each phase for all systems prior to
proceeding to the next phase, the Company progresses
through all phases on a system-by-system basis, gradually
implementing each fully-compliant system.
The Year 2000 compliance phases utilize a combination of
consultants and employees of the Company's subsidiaries.
Once a fully-tested application has been implemented,
Company employees follow established procedures to maintain
the compliance of the implemented systems. The Company
also has retained a quality assurance expert to ensure that
any subsequent modifications to the application do not
impact its compliant status.
As of September 30, 1998, 18 of the Company's 37
mainframe applications have been fully remediated, tested
and implemented, two are in the testing phase, and nine
have been (or are in the process of being) eliminated. The
eight remaining mainframe applications are scheduled to be
replaced by the Company's new mainframe customer
information system and are not expected to be remediated.
Additionally, 36 mainframe system modules have been
remediated and are now in the testing phase. Many of the
Company's nonmainframe applications, spreadsheets and
interfaces have also reached the implementation stage;
and most others are in the remediation phase. The Company
expects to implement all critical internal systems (other
than the customer information system to be used by Peoples
Gas and North Shore Gas) by no later than March 31, 1999;
complete implementation of all non-critical internal systems
by April 30, 1999; and complete installation and testing of
the customer information system by the end of fiscal year
1999.
As part of its Year 2000 Project, the Company has also
contacted the vendors of its licensed or purchased hardware
and software to determine the Year 2000 compliance status
of their products. As of September 30, 1998, the Company
has received responses from 85% of the vendors and is in
the process of replacing, upgrading or eliminating non-
compliant vendor products as appropriate. The Company also
plans to have certain products, such as its desktop
computer inventory, compliant-tested in order to minimize
the risks associated with reliance on vendor
representations.
The Company is in the process of determining whether its
embedded systems equipment is Year 2000 compliant. It has
completed an inventory of all equipment containing embedded
systems, including telecommunications equipment and facilities.
The Company has also contracted with a consultant that has
significant utility and engineering expertise to assist
with the embedded systems efforts. The Company is
currently in the process of determining the Year 2000
compliance status of the inventory and expects to complete
this assessment by January 1999. During the assessment
phase, the Company will also begin testing, repairing or
replacing any critical equipment identified as not Year
2000 compliant. The Company's timetable for implementing
compliant equipment will depend on the availability of
compliant equipment.
The Company currently has a written conceptual
contingency plan to address risks to the Company created by
the Company's or third parties' systems and embedded
technology that are not Year 2000 compliant. It has
engaged the consultant referenced above to assist in
developing detailed and comprehensive business continuity
and contingency plans to address possible failures in the
area of embedded systems equipment. These plans are
scheduled to be completed by December 1998. The Company
also plans to further develop its contingency plans with
respect to information technology-related failures and
critical supplier failures.
The Company has contacted key suppliers to determine
their Year 2000 compliance efforts. It has received
written assurances from many key suppliers that they are
making the necessary Year 2000 efforts, and it is in the
process of following up with other key suppliers that did
not respond to written inquiries.
Essential elements of the Company's business are
dependent on certain key third parties (for example,
pipeline suppliers, banks, electric utilities and
telecommunication companies). A material failure by any
such key third party could significantly disrupt the
Company's business. The Company is in the process of
detailing and finalizing contingency plans to address
potential disruptions that may be caused by third parties.
The Company currently estimates that it will incur
expenses of approximately $1.6 million through fiscal year
1999 to complete its Year 2000 compliance efforts, in
addition to the $4.0 million already incurred through
September 30, 1998. This estimate does not include costs
to repair or replace critical embedded systems equipment
that is non-compliant, which has yet to be determined.
Management does not expect the cost of the Company's Year
2000 compliance efforts to have a material adverse impact
on the financial position or results of operations of the
Company.
Market Risk Management. The Company uses market risk
sensitive financial instruments, including futures, forward
contracts, and derivatives such as swaps and options, to
manage its exposure to certain commodity price risks in its
operations. These risks occur because of the changing
prices of natural gas, crude oil, ethane, and propane. The
Company's policy for risk management activities stipulates
that such financial instruments are only to be used for
hedging purposes. (See Note 1N of the Notes to
Consolidated Financial Statements.) The Company monitors
and controls derivative positions using a mark-to-market
analysis. A sensitivity analysis has been prepared to
estimate the Company's price exposure to the market risk of
its natural gas commodity financial instruments. As of
September 30, 1998, a 10% adverse movement in current
prices would have reduced future earnings before income
taxes by approximately $240,000.
The Company's utility subsidiaries are not currently
exposed to market risk caused by changes in commodity
prices. This is due to current Illinois rate regulation
which allows for all reasonably incurred costs of natural
gas to be recovered from the utilities' customers through
the operation of the utilities' Gas Charges. (See Item 1 -
Competition and Deregulation and Note 1L of the Notes to
Consolidated Financial Statements.)
In connection with the Company's diversified energy
subsidiaries, investments are subject to a thorough
analysis of related market risk and an acceptable plan for
each investment is formulated to manage this risk. After a
risk management program for the investment is approved,
both operating unit and senior Company management are kept
apprised of any remaining market risk through daily mark-to-
market reports.
During fiscal year 1998, Peoples Energy Production
acquired natural gas and crude oil producing properties.
Using swaps and futures, over 50% of the first two years'
production was hedged, thereby removing market risk on that
portion of the output. Price movements in natural gas and
crude oil swaps and futures are highly correlated to any
price changes in the underlying physical commodities.
Therefore, a loss in the market value of the hedged
commodity would be substantially offset by an equal gain in
value resulting from the financial transaction. As of
September 30, 1998, the exposure from non-hedged production
was immaterial to the consolidated financial statements.
Peoples Energy Resources and Peoples Energy Services
sell fixed price and capped price products. Both companies
reduce risk through the use of fixed price supplier
contracts and storage assets. As of September 30, 1998,
exposure from these activities was not material.
The Company is also exposed to credit risk when a
hedging transaction counter party or supplier defaults upon
a contract to pay for or deliver product at an agreed-upon
price. To mitigate this risk, the Company has established
procedures to determine and monitor the creditworthiness of
counter parties.
Transactions are executed only with counter parties
having strong credit ratings. Controls are also in place
to limit dollar exposure and transaction term based upon
creditworthiness. The Company does not expect any of the
counter parties to fail to meet their contractual
obligations with these controls in place.
The Company's utility subsidiaries utilize long-term debt
as a primary source of capital. Both variable and fixed rate
debt instruments are utilized. The variable interest rate
on the debt adjusts to reflect current market conditions
annually on December 1. Subject to certain restrictions on
optional redemptions, the fixed rate debt instruments can
be refinanced at lower interest rates if the Company deems
it to be economical. (See Note 12 of the Notes to
Consolidated Financial Statements.)
CAPITAL RESOURCES
Capital Spending. Capital expenditures and investments in
diversified energy businesses (capital spending) totaled
$142.7 million in 1998, $95.7 million in 1997, and $88.4
million in 1996.
Capital spending for fiscal 1998 increased $47.0 million
from fiscal 1997. The change is primarily attributable to
$38.0 million in investments in diversified energy
projects, primarily consisting of $15.5 million for an
electric generating peaking facility and $16.0 million for
oil and gas producing properties. Another $10.0 million
increase was attributable to Peoples Gas' new customer
information system.
In fiscal 1997, capital spending increased $7.3 million
from 1996, resulting from an increase of $12.6 million for the new
customer information system.
Capital spending for fiscal 1999 is expected to be about
$199.0 million, an increase of $56.3 million from the 1998
level. The estimate of expenditures for 1999 includes
$18.7 million for the new customer information system,
$15.3 million for Peoples Gas' remote automated meter
reading project, and $84.9 million for diversified energy
projects.
Pursuant to notice given to the trustee of the City of
Joliet 1984 Series C Bonds, due October 1, 1999, which were
secured by Peoples Gas' Adjustable-Rate First and Refunding
Mortgage Bonds, Series W, these bonds were redeemed on
October 1, 1998. There are no sinking fund requirements
for long-term debt due in fiscal 1999. (See Notes 12A and
12B of the Notes to Consolidated Financial Statements.)
The Company anticipates that the utilities' future cash
needs for capital expenditures and sinking fund
requirements and maturities will be met through internally
generated funds, intercompany loans from the Company,
borrowing arrangements with banks and/or the issuance of
commercial paper on an interim basis, and periodic long-
term financing involving equity or the utilities' first
mortgage bonds.
The capital needs of the Company's diversified energy
subsidiaries have been met with periodic equity infusions.
The Company intends to increase its commitments to
diversified energy businesses. Capital needs for future
investments will be met through additional equity
investments by the Company, through loans from the Company
to its diversified energy subsidiaries and through project
financing. To fund such potential investments, the Company
has established a $150 million commercial paper program.
Forward-Looking Information. The MD&A contains statements
that may be considered forward-looking, such as the
statement of the Company's financial goal regarding
diversified energy earnings, the effect of weather on net
income, cash position and coverage ratios, the
insignificant effect on income arising from changes in
revenue from customers' gas purchases from entities other
than the utility subsidiaries, environmental matters, and
the discussion concerning Year 2000 compliant systems.
These statements speak of the Company's plans, goals,
beliefs, or expectations, refer to estimates or use similar
terms. Actual results could differ materially, because the
realization of those results is subject to many
uncertainties including:
" The future health of the U.S. and Illinois economies.
" The timing and extent of changes in energy commodity
prices and interest rates.
" Litigation concerning North Shore Gas' liability
for CERCLA response costs relating to a former mineral
processing site in Denver, Colorado.
" Regulatory developments in the U.S., or in Illinois
and other states where the Company has investments.
" Changes in the nature of the Company's competition
resulting from industry consolidation, legislative
change, regulatory change and other factors, as well
as action taken by particular competitors.
" The Company's success in identifying
diversified energy opportunities on financially
acceptable terms and generating earnings from
investments in a reasonable time.
" The ability of various vendors and others with whom
the Company interacts to complete Year 2000 systems
modification efforts on a timely basis and in a manner
that allows them to continue normal business transactions
with the Company without disruption.
Some of these uncertainties that may affect future results are
discussed in more detail under the captions "Competition and
Deregulation," "Sales and Rates," "State Legislation and
Regulation," "Federal Legislation and Regulation,"
"Environmental Matters," and "Current Gas Supply" in Item 1 -
Business. All forward-looking statements included in this
MD&A are based upon information presently available, and the
Company assumes no obligation to update any forwardlooking
statements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
Quantitative and Qualitative Disclosures About Market risk
are reported under "Management's Discussion and Analysis of
Results of Operations and Financial Condition - Market Risk
Management," and Note 1N of the Notes to Consolidated Financial
Statements.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
Statement of Management's Responsibility 24
Report of Independent Public Accountants 25
Consolidated Statements of Income for fiscal years ended
September 30, 1998, 1997, and 1996 26
Consolidated Statements of Retained Earnings for
fiscal
years ended September 30, 1998, 1997, and 1996 26
Consolidated Balance Sheets at September 30, 1998
and 1997 27
Consolidated Capitalization Statements at
September 30, 1998 and 1997 28
Consolidated Statements of Cash Flows for fiscal
years ended September 30, 1998, 1997, and 1996 29
Notes to Consolidated Financial Statements 30
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
The financial statements and other financial information
included in this report were prepared by management, who is
responsible for the integrity and objectivity of presented
data. The consolidated financial statements of the Company
and its subsidiaries were prepared in conformity with
generally accepted accounting principles and necessarily
include some amounts that are based on the best estimates
and judgments of management.
The Company maintains internal accounting systems and
related administrative controls, along with internal audit
programs, that are designed to provide reasonable assurance
that the accounting records are accurate and assets are
safeguarded from loss or unauthorized use. Consequently,
management believes that the accounting records and
controls are adequate to produce reliable financial
statements.
Arthur Andersen LLP, the Company's independent public
accountants approved by the shareholders, as a part of its
audit of the financial statements, selectively reviews and
tests certain aspects of internal accounting controls
solely to determine the nature, timing, and extent of its
audit tests. Management has made available to Arthur
Andersen LLP all of the Company's financial records and
related data and believes that all representations made to
the independent public accountants during its audit were
valid and appropriate.
The Audit Committee of the Board of Directors, comprised
of five outside directors, meets periodically with
management, the internal auditors, and Arthur Andersen LLP,
jointly and separately, to ensure that appropriate
responsibilities are discharged. These meetings include
discussion and review of accounting principles and
practices, internal accounting controls, audit results, and
the presentation of financial information in the annual
report.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Shareholders of Peoples Energy Corporation:
We have audited the accompanying consolidated balance
sheets and consolidated capitalization statements of
Peoples Energy Corporation (an Illinois corporation) and
subsidiary companies at September 30, 1998 and 1997, and the
related consolidated statements of income, retained earnings,
and cash flows for each of the three years in the period ended
September 30, 1998. These financial statements and the schedule
referred to below 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 Peoples Energy Corporation and subsidiary
companies at September 30, 1998 and 1997, and the results of
their operations and their cash flows for each of the three
years in the period ended September 30, 1998, in conformity
with generally accepted accounting principles.
Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole.
The financial statement schedule listed in Item 14(a)2 is
presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic
financial statements. The financial statement schedule has
been subjected to the auditing procedures applied in the
audit 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.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois
October 30, 1998
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Peoples Energy Corporation
For fiscal years ended September 30, 1998 1997 1996
<S> <C> <C> <C>
(Thousands, except per-share amounts)
Operating Revenues:
Gas sales $ 999,066 $1,124,831 $1,056,769
Transportation 120,790 133,570 128,876
Other 18,201 15,288 13,032
Total Operating Revenues 1,138,057 1,273,689 1,198,677
Operating Expenses:
Gas costs 526,983 615,534 529,875
Operation 201,301 200,796 220,318
Maintenance 44,027 47,626 45,642
Depreciation, depletion, and amortization (see Note 1G) 77,195 74,074 70,635
Taxes- Income 44,644 54,595 56,620
- State and local revenue 100,846 126,224 121,172
- Other 29,252 21,297 22,001
Total Operating Expenses 1,024,248 1,140,146 1,066,263
Operating Income 113,809 133,543 132,414
Other Income and (Deductions):
Interest income 3,724 5,410 5,397
Allowance for funds used during construction 1,579 267 23
Interest on long-term debt of subsidiaries (35,757) (35,722) (37,826)
Other interest expense (3,435) (2,753) (5,114)
Income taxes (480) (1,840) (5,839)
Miscellaneous - net (see Note 9) (17) (501) 14,383
Total Other Income and Deductions (34,386) (35,139) (28,976)
Net Income $ 79,423 $ 98,404 $ 103,438
Earnings Per Share of Common Stock - Basic and Diluted (see Note 5) $ 2.25 $ 2.81 $ 2.96
Average Shares of Common Stock Outstanding 35,257 35,000 34,942
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
Peoples Energy Corporation
For fiscal years ended September 30, 1998 1997 1996
(Thousands)
<S> <C> <C> <C>
Balance at Beginning of Year $ 434,652 $ 403,304 $ 364,581
Add - Net Income 79,423 98,404 103,438
Deduct - Dividends declared on common stock of $1.91
$1.87, and $1.83 per share, respectively 67,373 65,460 63,954
Increase/(decrease) - Additional minimum liability for non-qualified
pension plan, net of tax 968 (1,596) (761)
Balance at End of Year $ 447,670 $ 434,652 $ 403,304
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
Peoples Energy Corporation
At September 30, 1998 1997
(Thousands)
Assets
Capital Investments:
<S> <C> <C>
Property, plant and equipment, at original cost $2,209,957 $2,117,509
Less - Accumulated depreciation 763,296 715,279
Net property, plant and equipment 1,446,661 1,402,230
Other investments 43,707 16,305
Total Capital Investments - Net 1,490,368 1,418,535
Current Assets:
Cash and cash equivalents 10,622 33,298
Temporary cash investments 4,393 15,900
Special deposit 1,443 -
Receivables -
Customers, net of allowance for uncollectible
accounts of $23,395 and $29,895, respectively 54,091 72,290
Other 27,662 39,182
Accrued unbilled revenues 23,477 22,742
Materials and supplies, at average cost 18,246 19,386
Gas in storage (see Note 1J) 90,790 77,843
Gas costs recoverable through rate adjustments 4,462 5,164
Regulatory assets of subsidiaries (see Note 1H) 7,858 15,460
Prepayments 71,114 42,902
Total Current Assets 314,158 344,167
Other Assets:
Non-current regulatory assets of subsidiaries (see Note 1H) 76,564 38,676
Deferred charges 23,410 19,427
Total Other Assets 99,974 58,103
Total Assets $1,904,500 $1,820,805
Capitalization and Liabilities
Capitalization (see Consolidated Capitalization Statements) $1,257,965 $1,243,503
Current Liabilities:
Interim loans of subsidiaries 8,900 2,810
Accounts payable 123,383 134,870
Dividends payable on common stock 16,977 16,479
Customer gas service and credit deposits 48,942 45,386
Sinking fund payments, maturities, and redemptions, due within one year -
Long-term debt of subsidiaries 10,400 -
Accrued taxes 24,983 20,645
Gas sales revenue refundable through rate adjustments 11,028 14,894
Accrued interest 10,821 10,800
Total Current Liabilities 255,434 245,884
Deferred Credits and Other Liabilities:
Deferred income taxes - primarily accelerated depreciation (see Note 7C) 270,730 249,178
Investment tax credits being amortized over
the average lives of related property 32,387 33,942
Other 87,984 48,298
Total Deferred Credits and Other Liabilities 391,101 331,418
Total Capitalization and Liabilities $1,904,500 $1,820,805
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED CAPITALIZATION STATEMENTS
At September 30, 1998 1997
(Thousands)
<S> <C> <C>
Common Stockholders' Equity:
Common stock, without par value -
Authorized 60,000,000 shares
Outstanding 35,401,992 and 35,069,517 shares, respectively $ 293,691 $ 281,847
Retained earnings (see Consolidated Statements
of Retained Earnings) 447,670 434,652
Total Common Stockholders' Equity 741,361 716,499
Long-Term Debt:
Exclusive of sinking fund payments and maturities
due within one year
The Peoples Gas Light and Coke Company
First and Refunding Mortgage Bonds -
Adjustable-Rate Series W (3.875% through
September 30, 1998 and 3.95% through
September 30, 1997), redeemed October 1, 1998 (see Note 12A) - 10,400
6.875% Series X, due March 1, 2015 50,000 50,000
7.50% Series Y, due March 1, 2015 50,000 50,000
7.50% Series Z, due March 1, 2015 50,000 50,000
8.10% Series BB, due May 1, 2020 75,000 75,000
6.37% Series CC, due May 1, 2003 75,000 75,000
5-3/4% Series DD, due December 1, 2023 75,000 75,000
Adjustable-Rate Series EE (3.90% and 3.70% through
November 30, 1998 and November 30, 1997, respectively),
due December 1, 2023 (see Note 12A) 27,000 27,000
6.10% Series FF, due June 1, 2025 50,000 50,000
North Shore Gas Company
First Mortgage Bonds -
8% Series J, due November 1, 2020 24,699 24,699
6-3/8% Series K, due October 1, 2022 24,905 24,905
6.37% Series L, due May 1, 2003 15,000 15,000
Total Long-Term Debt 516,604 527,004
Total Capitalization $1,257,965 $1,243,503
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
For fiscal years ended September 30, 1998 1997 1996
(Thousands)
Operating Activities:
<S> <C> <C> <C>
Net Income $ 79,423 $ 98,404 $103,438
Adjustments to reconcile net income to net cash:
Depreciation, depletion, and amortization 77,195 74,074 70,635
Deferred income taxes and investment tax credits - net 24,094 16,449 13,669
Change in deferred credits and other liabilities 35,589 6,076 20,324
Change in deferred charges (47,484) 1,430 (27,131)
Other - - 85
Change in current assets and liabilities:
Receivables - net 29,719 (10,398) (41,766)
Accrued unbilled revenues (735) 6,572 (8,147)
Materials and supplies 1,140 (3,258) 338
Gas in storage (12,947) (12,340) 35,044
Gas costs recoverable 702 14,756 (13,715)
Regulatory assets 7,601 26,820 (29,722)
Prepayments (28,212) (30,615) (9,985)
Accounts payable (11,487) (13,102) 45,595
Customer gas service and credit deposits 3,556 2,996 1,813
Accrued taxes 4,338 (12,177) 4,661
Gas sales revenue refundable (3,866) 973 (65,581)
Accrued interest 21 4 (2,001)
Net Cash Provided by Operating Activities 158,647 166,664 97,554
Investing Activities:
Capital expenditures of subsidiaries (116,192) (89,404) (85,620)
Other assets 225 584 11,887
Capital investments (26,479) (6,344) (2,827)
Special deposit (1,443) - -
Other temporary cash investments 11,507 (15,000) 200
Net Cash Used in Investing Activities (132,382) (110,164) (76,360)
Financing Activities:
Interim loans of subsidiaries - net 6,090 185 1,725
Trust fubond redemption - - 237
Retirement of long-term debt of subsidiaries - (60) (98,810)
Dividends paid on common stock (66,875) (65,063) (63,583)
Proceeds from issuance of common stock 11,844 3,966 768
Net Cash Used in Financing Activities (48,941) (60,972) (159,663)
Net Increase (Decrease) in Cash and Cash Equivalents (22,676) (4,472) (138,469)
Cash and Cash Equivalents at Beginning of Year 33,298 37,770 176,239
Cash and Cash Equivalents at End of Year $ 10,622 $ 33,298 $ 37,770
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
Peoples Energy Corporation
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1A Principles of Consolidation
All subsidiaries are included in the consolidated financial
statements. All significant intercompany transactions have been
eliminated in consolidation. Investments and partnerships for which
the Company's subsidiaries have at least a 20% interest, but less than
a majority ownership are accounted for under the equity method.
Certain items previously reported for years prior to 1998 have been
reclassified to conform with the current-year presentation.
1B Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent liabilities at the date of
the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ
from those estimates.
1C Concentration of Credit Risk
Peoples Gas provides natural gas service to approximately 833,000
customers within the City of Chicago. North Shore Gas provides
natural gas service to about 143,000 customers within approximately
275 square miles in northeastern Illinois. Peoples Energy Services,
the Company's retail gas marketing subsidiary, sells natural gas to
approximately 20,000 customers in northern Illinois. Credit risk for
each Company is spread over a diversified base of residential,
commercial, and industrial customers.
Peoples Gas and North Shore Gas encourage customers to participate
in their long-standing budget payment programs, which allow the cost
of higher gas consumption levels associated with the heating season to
be spread over a 12-month billing cycle. Customers' payment records
are continually monitored and credit deposits are required, when
appropriate, to minimize uncollectible write-offs.
1D Revenue Recognition
Gas sales and transportation revenues are recorded on the accrual
basis for all gas delivered during the month, including an estimate
for gas delivered but unbilled at the end of each month.
1E Property, Plant and Equipment
Property, plant and equipment is stated at original cost and
includes appropriate amounts of capitalized labor costs, payroll
taxes, employee benefit costs, administrative costs, and an allowance
for funds used during construction.
1F Accounts Payable
The Company utilizes controlled disbursement banking arrangements
under which certain bank accounts have negative book balances due to
checks in transit. The negative balances are classified as Accounts
Payable.
1G Depreciation, Depletion and Amortization
The Company's utility subsidiaries charge the cost of maintenance
and repairs of property and minor renewals and improvements of
property to maintenance expense. When depreciable property is
retired, its original cost is charged to the accumulated provision for
depreciation.
The provision for depreciation substantially reflects the systematic
amortization of the original cost of depreciable property over
estimated useful lives on the straight-line method. Additionally,
actual dismantling cost, net of salvage, is included in the provision
for depreciation in the month incurred. The amounts provided are
designed to cover not only losses due to wear and tear that are not
restored by maintenance, but also losses due to obsolescence and
inadequacy.
In the case of oil and gas producing properties, the Company is
amortizing the capitalized costs on an overall units-of-production
method based on total estimated proved oil and gas reserves. The
fiscal 1998 rate of depletion was $1.23 per equivalent Mcf unit of
production.
Other diversified energy depreciable property is amortized over its
estimated useful lives; gains and losses are recognized at the time of
sale or disposition.
The provision for depreciation, expressed as an annual percentage of
original cost of depreciable property, is as follows:
For fiscal years ended 1998 1997 1996
September 30,
Peoples Gas 3.7% 3.7% 3.6%
North Shore Gas 3.1 3.1 3.1
Diversified Energy 9.5 6.2 --
Consolidated 3.6 3.6 3.5
1H Regulated Operations
Peoples Gas' and North Shore Gas' utility operations are subject to
regulation by the Commission. Regulated operations are accounted for
in accordance with SFAS No. 71, "Accounting for the Effects of Certain
Types of Regulation." This standard controls the application of
generally accepted accounting principles for companies whose rates are
determined by an independent regulator such as the Commission.
Regulatory assets represent certain costs that are expected to be
recovered from customers through the ratemaking process. When
incurred, such costs are deferred as assets in the balance sheet and
subsequently recorded as expenses when those same amounts are
reflected in rates.
The following regulatory assets of subsidiaries were reflected in
Current Assets and Other Assets in the Consolidated Balance Sheets at
September 30, 1998 and 1997:
1998 1997
(Thousands)
Environmental costs, net of recoveries (see Note 2A) $60,675 $17,720
Transition costs from pipeline supplier - 8,343
Income tax (see Note 1I) 9,131 7,146
Discount, premium, expenses, and loss on reacquired bonds 2,660 3,022
SNG plant 11,929 17,543
Other 27 362
Total regulatory assets of subsidiaries $84,422 $54,136
1I Income Taxes
The Company follows the liability method of accounting for deferred
income taxes. Under the liability method, deferred income taxes have
been recorded using currently enacted tax rates for the differences
between the tax basis of assets and liabilities and the basis reported
in the financial statements. Due to the effects of regulation on
Peoples Gas and North Shore Gas, certain adjustments made to deferred
income taxes are, in turn, debited or credited to regulatory assets or
liabilities. (See Note 7C.)
Each utility subsidiary within the consolidated group nets its
income tax-related regulatory assets and liabilities. At September
30, 1998 and 1997, net regulatory income tax assets recorded in Other
Assets amounted to $9.1 million and $7.1 million, respectively, while
net regulatory income tax liabilities recorded in Other Liabilities
equaled $5.0 million and $5.2 million, respectively.
Investment tax credits have been deferred and are being amortized
through credits to income over the book lives of related property.
1J Gas in Storage
Storage injections are priced at the fiscal-year average of costs
of supply. Withdrawals from storage for the utilities are priced on
the last-in, first-out (LIFO) cost method. The estimated current
replacement cost of gas in inventory at September 30, 1998 and 1997
exceeded the LIFO cost by approximately $99.0 million and $112.0
million, respectively. Certain diversified energy subsidiaries
account for gas in inventory using the first-in, first-out (FIFO)
method. The volumes of gas and the associated costs involved are not
material.
1K Statement of Cash Flows
For purposes of the balance sheet and the statement of cash flows,
the Company considers all short-term liquid investments with
maturities of three months or less to be cash equivalents.
Income taxes and interest paid (excluding capitalized interest)
were as follows:
For fiscal years ended 1998 1997 1996
September 30,
(Thousands)
Income taxes paid $19,832 $55,037 $44,187
Interest paid 36,306 36,906 41,386
1L Recovery of Gas Costs
Under the tariffs of Peoples Gas and North Shore Gas, the
difference for any month between costs recoverable through the Gas
Charge and revenues billed to customers under the Gas Charge is
refunded to or recovered from customers. Consistent with these tariff
provisions, such difference for any month is recorded either as a
current liability or as a current asset (with a contra entry to Gas
Costs).
For each gas utility, the Commission conducts annual proceedings
regarding the reconciliation of revenues from the Gas Charge and
related costs incurred for gas. In such proceedings, costs recovered
by a utility through the Gas Charge are subject to challenge. Such
proceedings, regarding Peoples Gas and North Shore Gas for fiscal
years 1997 and 1998, are currently pending before the Commission.
(See Item 1 - Competition and Deregulation.)
1M Recovery of Costs of Environmental Activities Relating to Former
Manufactured Gas Operations
Peoples Gas and North Shore Gas are recovering the costs of
environmental activities relating to the utilities' former
manufactured gas operations, including carrying charges on the
unrecovered balances, under rate mechanisms approved by the
Commission. For each utility with such a rate mechanism, the
Commission conducts annual proceedings regarding the reconciliation of
revenues from the rate mechanism and related costs. In such
proceedings, costs recovered by a utility through the rate mechanism
are subject to challenge. No such proceedings are currently pending
before the Commission.
1N Hedging Activities
The Company has a formal risk management policy that monitors and
controls the execution, recording and reporting of derivative
instruments. The intent of the policy is to utilize risk management
activities solely to minimize risk, and not for any speculative
purpose. The Company may use interest rate swaps, forward rate
transactions, commodity futures contracts, options and swaps to hedge
the impact of interest rate, price and/or volume fluctuations related
to its business activities, including price risk related to the
geographic location of the commodity (basis risk).
The Company accounts for all derivative transactions through hedge
accounting. All derivatives are designated as fair value hedges.
Realized gains or losses from derivative instruments (through maturity
or termination of the hedge) are deferred until the underlying hedged
item is sold or matures. If the Company determines that any portion
of the underlying hedged item will not be purchased or sold, the
unmatched portion of the instrument is marked to market and any gain
or loss is recognized in the Consolidated Statement of Income.
Recognized gains or losses are recorded on the Consolidated Statement
of Income with the underlying hedged item. As of September 30, 1998,
the Company had open derivative financial instruments representing
hedges of natural gas production of 1.0 Bcf. At September 30, 1998,
the Company had deferred gains of $13,000 on the Consolidated Balance
Sheet.
1O Oil and Gas Exploration and Production Properties
For oil and gas activities, the Company follows the full-cost
method of accounting as prescribed by the Securities and Exchange
Commission. Under the full-cost method, all costs directly associated
with acquisition, exploration and development activities are
capitalized, with the principal limitation that such amounts not
exceed the present value of estimated future net revenues to be
derived from the production of proved oil and gas reserves (the full-
cost ceiling). If net capitalized costs exceed the full-cost ceiling
at the end of any quarter, a permanent impairment of the assets is
required to be charged to earnings in that quarter. Such a charge
would have no effect on the Company's cash flow. At September 30,
1998, there was no such charge to income.
1P Accounting Standards
The Company adopted SFAS No. 128, "Earnings per Share" in fiscal
1998. This statement simplifies the calculation of earnings per share
(EPS) and increases conformity to international standards. Under SFAS
No. 128, primary EPS is replaced by "basic" EPS, which excludes the
effects of any dilution. It is calculated by dividing net income
available to common shareholders by the weighted-average number of
common shares outstanding for the period. "Diluted" EPS reflects the
potential dilution that could occur if securities or other contracts
to issue common stock were exercised or converted into common stock.
Previous periods have been restated to reflect adoption of this
standard. (See Note 5.)
The Company also adopted SOP 96-1, "Environmental Remediation
Liabilities" and SOP 98-5, "Reporting on the Costs of Start-Up
Activities." The application of the statements did not have a
material effect on the Company's financial condition or results of
operations in fiscal 1998.
2. ENVIRONMENTAL MATTERS
2A Former Manufactured Gas Plant Operations
The Company's utility subsidiaries, their predecessors, and certain
former affiliates operated facilities in the past at multiple sites
for the purpose of manufacturing gas and storing manufactured gas
(Manufactured Gas Sites). In connection with manufacturing and
storing gas, various by-products and waste materials were produced,
some of which might have been disposed of rather than sold. Under
certain laws and regulations relating to the protection of the
environment, the subsidiaries might be required to undertake remedial
action with respect to some of these materials. Three of the
Manufactured Gas Sites are discussed in more detail below. Peoples
Gas and North Shore Gas, under the supervision of the IEPA, are
conducting investigations of an additional 31 Manufactured Gas Sites.
These investigations may require the utility subsidiaries to perform
additional investigation and remediation. The investigations are in a
preliminary stage and are expected to occur over an extended period of
time.
In 1990, North Shore Gas entered into an Administrative Order on
Consent (AOC) with the United States Environmental Protection Agency
(EPA) and the IEPA to implement and conduct a remedial
investigation/feasibility study (RI/FS) of a Manufactured Gas Site
located in Waukegan, Illinois, where manufactured gas and coking
operations were formerly conducted (Waukegan Site). The RI/FS is
comprised of an investigation to determine the nature and extent of
contamination at the Waukegan Site and a feasibility study to develop
and evaluate possible remedial actions. North Shore Gas entered into
the AOC after being notified by the EPA that North Shore Gas, General
Motors Corporation (GMC), and Outboard Marine Corporation were each a
potentially responsible party (PRP) under CERCLA with respect to the
Waukegan Site. A PRP is potentially liable for the cost of any
investigative and/or remedial work that the EPA determines is
necessary. Other parties identified as PRPs did not enter into the
AOC.
Under the terms of the AOC, North Shore Gas is responsible for the
cost of the RI/FS. North Shore Gas believes, however, that it will
recover a significant portion of the costs of the RI/FS from other
entities. GMC has agreed to share equally with North Shore Gas in
funding of the RI/FS cost, without prejudice to GMC's or North Shore
Gas' right to seek a lesser cost responsibility at a later date.
Peoples Gas has observed what appear to be gas purification wastes
on a Manufactured Gas Site in Chicago, formerly called the 110th
Street Station, and property contiguous thereto (110th Street Station
Site). Peoples Gas has fenced the 110th Street Station Site and is
conducting a study under the supervision of the IEPA to determine the
feasibility of a limited removal action.
The current owner of a site in Chicago, formerly called Pitney
Court Station, filed suit against Peoples Gas in federal district
court under CERCLA. The suit seeks recovery of the past and future
costs of investigating and remediating the site. Peoples Gas is
contesting this suit.
The utility subsidiaries are accruing and deferring the costs they
incur in connection with all of the Manufactured Gas Sites, including
related legal expenses, pending recovery through rates or from
insurance carriers or other entities. At September 30, 1998, the
total of the costs deferred by the subsidiaries, net of recoveries and
amounts billed to other entities, was $60.7 million. This amount
includes the Company's best estimate of the costs of investigating and
remediating the Manufactured Gas Sites. The estimate is based upon a
comprehensive review by the Company and its outside consultants of
potential costs associated with conducting investigative and remedial
actions at the Manufactured Gas Sites as well as the likelihood of
whether such actions will be necessary. While each subsidiary intends
to seek contribution from other entities for the costs incurred at the
sites, the full extent of such contributions cannot be determined at
this time.
Peoples Gas and North Shore Gas have filed suit against a number of
insurance carriers for the recovery of environmental costs relating to
the utilities' former manufactured gas operations. The suit asks the
court to declare, among other things, that the insurers are liable
under policies in effect between 1937 and 1986 for costs incurred or
to be incurred by the utilities in connection with five of their
Manufactured Gas Sites in Chicago and Waukegan. The utilities are
also asking the court to award damages stemming from the insurers'
breach of their contractual obligation to defend and indemnify the
utilities against these costs. At this time, management cannot
determine the timing and extent of the subsidiaries' recovery of costs
from their insurance carriers. Accordingly, the costs deferred at
September 30, 1998 have not been reduced to reflect recoveries from
insurance carriers.
The Company believes that the costs incurred by Peoples Gas and by
North Shore Gas for environmental activities relating to former
manufactured gas operations are recoverable from insurance carriers or
other entities or through rates for utility service. Accordingly,
management believes that the costs incurred by the subsidiaries in
connection with former manufactured gas operations will not have a
material adverse effect on the financial position or results of
operations of the utilities. Peoples Gas and North Shore Gas are
recovering the costs of environmental activities relating to the
utilities' former manufactured gas operations, including carrying
charges on the unrecovered balances, under rate mechanisms approved by
the Commission. At September 30, 1998, the subsidiaries had recovered
$13.8 million of such costs through rates.
2B Former Mineral Processing Site in Denver, Colorado
In 1994, North Shore Gas received a demand from the S.W. Shattuck
Chemical Company, Inc. (Shattuck), a responsible party under CERCLA,
for reimbursement, indemnification, and contribution for response
costs incurred at a former mineral processing site in Denver,
Colorado. Shattuck is a wholly owned subsidiary of Salomon, Inc.
(Salomon). The demand alleges that North Shore Gas is a successor to
the liability of a former entity that was allegedly responsible during
the period 1934-1941 for the disposal of mineral processing wastes
containing radium and other hazardous substances at the site. The
cost of the remedy at the site has been estimated by Shattuck to be
approximately $31 million. Salomon has provided financial assurance
for the performance of the remediation at the site.
North Shore Gas filed a declaratory judgment action against Salomon
in the District Court for the Northern District of Illinois. The suit
asks the court to declare that North Shore Gas is not liable for
response costs at the Denver site. Salomon filed a counterclaim for
costs incurred by Salomon and Shattuck with respect to the site. In
1997, the District Court granted North Shore Gas' motion for summary
judgment, declaring that North Shore Gas is not liable for any
response costs in connection with the Denver site.
On August 5, 1998, the U.S. Court of Appeals, Seventh Circuit,
reversed the District Court's decision and remanded the case for
determination of what liability, if any, the former entity has and
therefore North Shore Gas has for activities at the site.
North Shore Gas does not believe that it has liability for the
response costs, but cannot determine the matter with certainty. At
this time, North Shore Gas cannot reasonably estimate what range of
loss, if any, may occur. In the event that North Shore Gas incurred
liability, it would pursue reimbursement from insurance carriers,
other responsible parties, if any, and through its rates for utility
service.
2C Gasoline Release in Wheeling, Illinois
In June 1995, North Shore Gas received a letter from the IEPA
informing North Shore Gas that it was not in compliance with certain
provisions of the Illinois Environmental Protection Act which prohibit
water pollution within the State of Illinois. On November 14, 1995,
the Illinois Attorney General filed a complaint in the Circuit Court
of Cook County naming North Shore Gas and four other parties as
defendants. The complaint alleges that the violations are the result
of a gasoline release that occurred in Wheeling, Illinois, in June
1992, when a contractor who was installing a pipeline for North Shore
Gas accidentally struck a gasoline pipeline owned by West Shore
Pipeline Company. North Shore Gas is contesting this suit. The
Company believes that a substantial portion of any costs incurred by
North Shore Gas in connection with this matter are recoverable from
its insurance carrier. Accordingly, management does not believe the
outcome of this matter will have a material adverse effect on
financial position or results of operations of the Company or North
Shore Gas.
3. COVENANTS REGARDING RETAINED EARNINGS
North Shore Gas' indenture relating to its first mortgage bonds
contains provisions and covenants restricting the payment of cash
dividends and the purchase or redemption of capital stock. At
September 30, 1998, such restrictions amounted to $11.6 million of
North Shore Gas' total retained earnings of $70.0 million.
4. LONG-TERM LEASE
Peoples Gas has entered into a long-term operating lease for its
headquarters office which expires in 2008. The rental obligation
consists of a base rent of $2.3 million plus operating expenses and
taxes. The base rent escalates two percent each year through 2003.
Base rent in 2004 will be approximately $3.6 million with annual
increases of two percent each year through 2008.
Rental expenses for the headquarters office were $6.5 million, $6.4
million, and $6.5 million for fiscal years 1998, 1997, and 1996,
respectively.
5. EARNINGS PER SHARE
In fiscal 1998 the Company adopted SFAS No. 128, "Earnings Per
Share." The statement simplifies the methodology for computing both
basic and diluted earnings per share. The only difference in the two
methods for computing the Company's per share amounts is attributable
to stock options outstanding under the Long-Term Incentive
Compensation Plan (LTIC). The effect of the stock options was
determined using the treasury stock method. Consolidated net income
as reported was not affected. Shares used to compute diluted earnings
per share are as follows:
Average Common Stock Shares
Fiscal Years 1998 1997 1996
(Thousands)
As reported shares 35,257 35,000 34,942
Effects of options 19 26 25
Diluted shares 35,276 35,026 34,967
Options for which the average stock price is lower than the grant
price are considered antidilutive and, therefore, are not included in
the calculation of diluted earnings per share.
6. RETIREMENT AND POSTEMPLOYMENT BENEFITS
6A Pension Benefits
The Company and its subsidiaries participate in two defined
benefit pension plans covering substantially all employees.
These plans provide pension benefits that generally are
based on an employee's length of service, compensation
during the five years preceding retirement, and social
security benefits. Participating companies make contributions to
the plans based upon actuarial determinations and in
consideration of tax regulations and funding requirements
under federal law.
The Company also has non-qualified pension plans that
provide certain employees with pension benefits in excess of
qualified plan limits imposed by federal tax law.
Net pension cost for all plans for fiscal 1998, 1997, and
1996 included the following components:
1998 1997 1996
(Millions)
Service cost - benefits earned during year $ 11.1 $ 11.7 $13.7
Interest cost on projected benefit obligation 27.8 29.4 32.6
Actual return on plan assets (gain) (111.4) (110.0) (68.8)
Net amortization and deferral 61.5 60.2 22.1
Settlement accounting (17.7) (18.0) (7.7)
Net pension cost (credit) $(28.7) $(26.7) $(8.1)
In 1998, 1997, and 1996, the Company recognized net gains of
$17.7 million, $18.0 million, and $7.7 million, respectively,
from the settlement of portions of pension plan obligations.
In 1998 a special benefit cost of $1.2 million was
recognized to reflect the cost of an accelerated pension
payout to certain former employees.
The calculation of pension cost assumed a long-term rate
of return on assets of 9.0 percent for 1998 and 1997, and
8.5 percent for 1996. The settlement accounting cost for all
years was determined using a discount rate of 7.5 percent
and assumed future compensation increases of 4.5 percent per
year.
The following table shows the estimated funded status of the
Company's pension plans at September 30, 1998 and 1997:
1998 1997
(Millions)
Plan assets at market value $673.2 $579.0
Actuarial present value of plan benefits:
Vested 284.5 265.1
Non-vested 43.0 33.6
Accumulated benefit obligation 327.5 298.7
Effect of projected future compensation increases 94.5 81.8
Projected benefit obligation 422.0 380.5
Excess of plan assets over projected benefit obligation 251.2 198.5
Less:
Unrecognized transition asset 14.7 18.7
Unrecognized prior service cost (5.3) (5.8)
Unrecognized net gain 176.5 150.8
Non-qualified plan contributions: 7-1-98 to 9-30-98 0.3 1.5
Recognition of non-qualified plan additional minimum liability (2.9) (4.6)
Accrued pension asset $ 62.7 $ 31.7
The projected benefit obligation and plan assets at
September 30, 1998 and 1997, are based on a July 1
measurement date, using a discount rate of 7.0 percent for
1998 and 7.5 percent for 1997 and assumed future
compensation increases of 4.5 percent per year. Plan assets
consist primarily of marketable equity and fixed-income
securities.
6B Other Postretirement Benefits
The Company and its subsidiaries also provide certain
health care and life insurance benefits for retired
employees. Substantially all employees may become eligible
for such benefit coverage if they reach retirement age
while working for the companies. The plans are funded based
upon actuarial determinations and in consideration of tax
regulations. The Company accrues the expected costs of such
benefits during the employees' years of service.
Net postretirement benefit cost for all plans for fiscal
1998, 1997, and 1996 included the following components:
1998 1997 1996
(Millions)
Service cost - benefits earned during year $ 3.5 $ 3.2 $ 3.4
Interest cost on projected benefit obligation 8.6 8.6 7.8
Actual return on plan assets (gain) (9.5) (6.7) (3.1)
Amortization of transition obligation 4.9 4.9 4.9
Net amortization and deferral 4.8 3.4 1.2
Net postretirement benefit cost $12.3 $13.4 $14.2
The calculation of postretirement benefit cost assumed a
long-term rate of return on assets of 9.0 percent for 1998
and 1997, and 7.5 percent for 1996.
Of the above total postretirement costs recognized for
fiscal years 1998, 1997, and 1996, $4.4 million, $6.1 million,
and $6.2 million, respectively, were funded through trust
funds for future benefit payments.
In 1998 a special benefit charge of $132,000 was recognized
to reflect the health and life insurance costs associated with
an accelerated retirement program for certain former
employees.
The following table sets forth the estimated funded status
for the postretirement health care and life insurance plans
at September 30, 1998 and 1997:
1998 1997
(Millions)
Plan assets at market value $61.4 $47.7
Accumulated postretirement benefit obligation (APBO):
Retirees 70.6 69.2
Fully eligible active plan participants 8.3 14.2
Other active plan participants 29.8 31.9
Total APBO 108.7 115.3
Deficiency of plan assets over the APBO (47.3) (67.6)
Less:
Unrecognized transition obligation
(being amortized over 20 years) (63.0) (78.9)
Unrecognized net gain 22.8 19.7
Contributions: July 1 to September 30 7.1 7.9
Accrued postretirement benefit liability $ - $(0.5)
The total APBO and plan assets at September 30, 1998 and
1997, are based on a July 1 measurement date using a
discount rate of 7.0 percent for 1998 and 7.5 percent for
1997 and assumed future compensation increases of 4.5
percent per year. Plan assets consist primarily of
marketable equity and fixed-income securities.
For measurement purposes, a health care cost trend rate
of 7.9 percent was assumed for fiscal 1998, and that rate
thereafter will decline gradually to 4.75 percent in 2003
and subsequent years. The health care cost trend rate
assumption has a significant effect on the amounts reported.
Increasing the assumed health care cost trend rate by
one percentage point for each future year would have
increased the APBO at September 30, 1998, by $8.7 million
and the aggregate of service and interest cost components of
the net periodic postretirement benefit cost by $1.3 million
annually.
7. TAX MATTERS
7A Provision for Income Taxes
Total income tax expense as shown on the Consolidated
Statements of Income is composed of the following:
For fiscal years ended September 30, 1998 1997 1996
(Thousands)
Current:
Federal $17,276 $32,720 $40,341
State 3,819 7,266 8,534
Total current income taxes 21,095 39,986 48,875
Deferred:
Federal 20,390 14,162 12,781
State 5,236 3,846 3,551
Total deferred income taxes 25,626 18,008 16,332
Investment tax credits - net:
Federal (1,648) (1,713) (2,824)
State 52 154 161
Total investment tax credits - net (1,596) (1,559) (2,663)
Total provision for income taxes 45,125 56,435 62,544
Less - Included in operation expense - - 85
Net provision for income taxes $45,125 $56,435 $62,459
7B Tax Rate Reconciliation
The following is a reconciliation between the computed
federal income tax expense (tax rate of 35 percent times pre-
tax book income) and the total provision for federal income
tax expenses:
<TABLE>
<CAPTION>
For fiscal years ended September 30, 1998 1997 1996
Percent Percent Percent
of of of
Amount Pre-tax Amount Pre-tax Amount Pre-tax
(000's) Income (000's) Income (000's) Income
<S> <C> <C> <C> <C> <C> <C>
Computed federal income
tax expense $40,405 35.00 $50,250 35.00 $53,808 35.00
Amortization of investment
tax credits (1,648) (1.43) (1,713) (1.19) (2,824) (1.84)
Other, net (2,739) (2.38) (3,368) (2.49) (686) (0.45)
Total provision for federal
income taxes $36,018 31.19 $45,169 31.32 $50,298 32.71
</TABLE>
7C Deferred Income Taxes
Set forth in the table below are the temporary
differences which gave rise to the net deferred income tax
liabilities (see Note 1I):
At September 30, 1998 1997
(Thousands)
Deferred tax liabilities:
Property - accelerated depreciation and
other property related items $263,860 $250,447
Other 35,721 31,785
Total deferred income tax liabilities 299,581 282,232
Deferred tax assets:
Uncollectible accounts (9,414) (12,008)
Unamortized investment tax credits (12,847) (13,476)
Other (6,590) (7,570)
Total deferred income tax assets (28,851) (33,054)
Net deferred income tax liabilities $270,730 $249,178
8. ASSETS SUBJECT TO LIEN
The Indenture of Mortgage, dated January 2, 1926, as
supplemented, securing the first and refunding mortgage
bonds issued by Peoples Gas, constitutes a direct, first-
mortgage lien on substantially all property owned by Peoples
Gas. The Indenture of Mortgage, dated April 1, 1955, as
supplemented, securing the first mortgage bonds issued by
North Shore Gas, constitutes a direct, first-mortgage lien
on substantially all property owned by North Shore Gas.
9. OTHER INCOME AND DEDUCTIONS - MISCELLANEOUS
For fiscal years ended September 30, 1998 1997 1996
(Thousands)
Interest on amounts recoverable from customers $142 $ 166 $ 224
Gain on expiration of gas storage contracts - - 14,810
Amortization of gain/loss on reacquired bonds (256) (253) (120)
Gain/loss on disposition of property (672) (650) -
Other 769 236 (531)
Total other income and deductions - miscellaneous $(17) $(501) $14,383
10. CAPITAL COMMITMENTS
Total contract and purchase order commitments of the
Company and its subsidiaries at September 30, 1998, amounted
to approximately $6.8 million.
11. SHORT-TERM BORROWINGS AND CREDIT LINES
At September 30, 1998 1997
(Thousands)
Bank Loans
Peoples Gas
8.50% due March 27, 1998 $ - $ 700
Commercial Paper
North Shore Gas
due October 1, 1997 $ - $ 2,110
Peoples Gas
due October 1, 1998 2,300 -
due October 23, 1998 6,600 -
Letters of Credit
Peoples Energy $ 677 $ 69
Peoples Gas 100 100
Available lines of credit
Unused bank lines $289,723 $146,421
Short-term cash needs of Peoples Gas and North Shore Gas
are met through intercompany loans from the Company, bank
loans, and/or the issuance of commercial paper. The
outstanding total amount of bank loans and commercial paper
issuances cannot at any time exceed total bank credit then
in effect.
At September 30, 1998, Peoples Energy had combined lines of
credit totaling $170.0 million. Agreements covering $150.0
million of the total at September 30, 1998 will expire on
December 13, 1998; the agreement covering the remaining
$20.0 million will expire on July 30, 1999. Such lines of
credit cover the projected short-term credit needs of the
Company. Payment for the lines of credit is by fee.
At September 30, 1998 and 1997, the utility subsidiaries
had combined lines of credit totaling $129.4 million. Of
this total, North Shore Gas could borrow up to $30.0
million. Agreements covering $92.0 million of the total at
September 30, 1998, will expire on August 29, 1999; the
agreement covering the remaining $37.4 million will expire
on January 31, 2000. Such lines of credit cover projected
short-term credit needs of the subsidiaries and support the
long-term debt treatment of Peoples Gas' adjustable-rate
mortgage bonds. (See Note 12A.) Payment for the lines of
credit is by fee.
12. LONG-TERM DEBT
12A Interest-Rate Adjustments
The rate of interest on the City of Joliet 1984 Series C
Bonds, which were secured by Peoples Gas' Adjustable-Rate
First and Refunding Mortgage Bonds, Series W, was subject to
adjustment annually on October 1. Owners of the Series C
Bonds had the right to tender such bonds at par during a
limited period prior to that date. Peoples Gas was
obligated to purchase any such bonds tendered if they could
not be remarketed. The interest rate for the Series C Bonds
for fiscal 1998 was 3.875%. All Series C Bonds were
redeemed on October 1, 1998.
The rate of interest on the City of Chicago 1993 Series B
Bonds, which are secured by Peoples Gas' Adjustable-Rate
First and Refunding Mortgage Bonds, Series EE, is subject to
adjustment annually on December 1. Owners of the Series B
Bonds have the right to tender such bonds at par during a
limited period prior to that date. Peoples Gas is obligated
to purchase any such bonds tendered if they cannot be
remarketed. All Series B Bonds that were tendered prior to
December 1, 1997, have been remarketed. The interest rate
on such bonds is 3.90% for the period December 1, 1997,
through November 30, 1998.
Peoples Gas classifies these adjustable-rate bonds as
long-term liabilities since it would refinance them on a
long-term basis if they could not be remarketed. In order
to ensure its ability to do so, on February 1, 1994, Peoples
Gas established a $37.4 million three year line of credit
with The Northern Trust Company which has since been
extended to January 31, 2000. (See Note 11.)
12B Sinking Fund Requirements and Maturities of Subsidiaries
At September 30, 1998, long-term debt sinking fund
requirements and maturities for the next five years are:
Peoples North
Fiscal Gas Shore Consolidated
Year Gas
(Thousands)
1999 $10,400 $ -- $10,400
2000 -- -- --
2001 -- -- --
2002 -- -- --
2003 75,000 15,000 90,000
12C Fair Value of Financial Instruments
At September 30, 1998, the carrying amount of the Company's
long-term debt of $527.0 million had an estimated fair value of
$561.7 million. At September 30, 1997, the carrying amount
of the Company's long-term debt of $527.0 million had an
estimated fair value of $564.6 million. The estimated fair
value of the Company's long-term debt is based on yields
for issues with similar terms and remaining maturities.
Since Peoples Gas and North Shore Gas are subject to
regulation, any gains or losses related to the difference
between the carrying amount and the fair value of financial
instruments may not be realized by the Company's
shareholders. The carrying amount of all other financial
instruments approximates fair value. The $4.4 million in
temporary cash investments approximates its fair value.
13. PREFERRED STOCK
The Company has five million shares of Preferred Stock, no
par value, authorized for issuance, of which none was issued
and outstanding at September 30, 1998.
14. COMMON STOCK
<TABLE>
<CAPTION>
For fiscal years ended September 30, 1998 1997 1996
<S> <C> <C> <C>
Shares outstanding - beginning of year 35,069,517 34,960,399 34,913,426
Shares issued:
Employee Stock Purchase Plan 15,381 16,349 21,516
Long-Term Incentive Compensation (LTIC) 41,100 106,795 110,700
Directors Deferred Compensation Plan 1,692 1,568 1,471
Direct Purchase and Investment Plan 301,142 73,898 -
Shares reacquired under LTIC (26,840) (89,492) (86,714)
Shares outstanding - end of year 35,401,992 35,069,517 34,960,399
</TABLE>
<TABLE>
<CAPTION>
Shares Reserved At September 30, 1998 1997 1996
<S> <C> <C> <C>
Direct Purchase and Investment Plan 1,124,960 1,426,102 1,500,000
Employee Stock Purchase Plan 966,267 981,648 997,997
Long-Term Incentive Compensation Plan 594,035 635,135 741,930
Directors Deferred Compensation Plan 75,025 76,717 78,285
Total shares reserved 2,760,287 3,119,602 3,318,212
</TABLE>
<TABLE>
<CAPTION>
Weighted Weighted Stock Weighted
Average Non-Qualified Average Appreciation Average
Long-Term Incentive Compensation Plan Option Price Stock Options SARs Price Rights (SARs) Fair Value
<S> <C> <C> <C> <C> <C>
Outstanding at September 30, 1995 $ 28.53 187,400 $ 28.53 187,400
Granted 27.50 90,200 27.50 90,200 $2.46
Exercised 26.79 (92,500) 26.83 (88,700)
Forfeited 27.50 (5,300) 27.50 (5,300)
Outstanding at September 30, 1996 29.04 179,800 28.87 183,600
Granted 34.20 88,200 34.20 88,200 2.90
Exercised 28.71 (97,400) 28.39 (101,200)
Forfeited 34.19 (14,000) 34.19 (14,000)
Outstanding at September 30, 1997 31.71 156,600 31.71 156,600
Granted 37.84 83,800 37.84 83,800 $6.38
Exercised 29.37 (25,300) 29.37 (25,300)
Forfeited 37.84 (3,000) 37.84 (3,000)
Outstanding at September 30, 1998 $ 34.33 212,100 $ 34.33 212,100
</TABLE>
Restricted stock awards granted to officers of the
Company during the last three fiscal years are as follows:
1998, 15,800 shares; 1997, 15,100 shares; and 1996, 18,200
shares. Forfeitures during the same period were as
follows: 1998, 0 shares; 1997, 1,260 shares; and 1996,
2,085 shares. At September 30, 1998, there were 381,935
shares available for future grant under options or
restricted stock awards. At September 30, 1998, there
were 509,050 SARs available for future grant.
The grant of a restricted stock award entitles the
recipient to vote the shares of Company common stock
covered by such award and to receive dividends thereon.
Restricted stock awards are valued at the closing market
price of the stock as of the date of the grant. The
recipient may not transfer or otherwise dispose of such
shares until the restrictions thereon lapse. Restricted
stock awards granted to date vest in equal annual
increments over a five-year period from the date of grant.
If a recipient's employment with the Company terminates,
other than by reason of death, disability, or retirement
after attaining age 65, the recipient forfeits all rights
to the unvested portion of the restricted stock award. The
Compensation-Nominating Committee of the Company's Board of
Directors (and with respect to the Chief Executive Officer,
the Compensation-Nominating Committee, subject to the approval
of the non-employee directors) may, in its sole discretion,
accelerate the vesting of any restricted stock awards
granted under the LTIC.
The grant of an option enables the recipient to purchase
Company common stock at a purchase price equal to the fair
market value of the shares on the date the option was
granted. The grant of an SAR enables the recipient to
receive, for each SAR granted, cash in an amount equal to
the excess of the fair market value of one share of Company
common stock on the date the SAR is exercised over the fair
market value of one share on the date the SAR was granted.
Before an option or SAR may be exercised, the recipient
must complete 12 months of continuous employment subsequent
to the grant of the option or SAR. Options and SARs may be
exercised within 10 years from the date of grant, subject
to earlier termination in case of death, retirement, or
termination of employment for other reasons.
The Company grants stock options, SARs, and restricted
stock awards under its LTIC. The Company also offers
employees periodic opportunities to purchase shares of
its common stock at a discount from the then current market
price under its Employee Stock Purchase Plan (ESPP).
The Company applies Accounting Principles Board (APB)
Opinion No. 25 and related Interpretations in accounting
for these plans.
The Company may sell up to 966,267 shares of common stock
to its employees under the ESPP. Under the terms of this plan,
all employees with a minimum of one year of service are
eligible to purchase shares at 90% of the stock's market
price at the date of purchase. The Company sold 15,381
shares and 16,349 shares to employees in 1998 and 1997,
respectively.
Under APB Opinion No. 25, no compensation cost has been
recognized for nonqualified stock options and shares
issued under the ESPP. The compensation cost that has
been charged against net income for restricted stock
awards was $345,000 and $452,000 for the years ended
September 30, 1998 and 1997, respectively. Had
compensation cost for stock options, SARs and shares
issued under the ESPP been determined consistent with SFAS
No. 123, "Accounting for Stock-Based Compensation," the
Company's net income and earnings per share would have
been reduced to the following pro forma amounts:
For fiscal years ended 1998 1997
September 30,
(Thousands, except per-share amounts)
Net income:
As reported $79,423 $98,404
Pro forma 78,525 98,319
Earnings per average
common share:
As reported $2.25 $2.81
Pro forma 2.23 2.81
Since the SFAS No. 123 method of accounting has not been
applied to options granted prior to October 1, 1995, the
resulting pro forma compensation costs may not be
representative of those to be expected in future years.
The fair value of each option grant used to determine pro
forma net income is estimated as of the date of grant using a
variation of the Black-Scholes option-pricing model with
the following weighted-average assumptions used for grants
in the years ended September 30, 1998 and 1997,
respectively: expected volatility of 18.72 and 15.78%;
dividend yield of 5.2 and 5.0%; risk-free interest rates of
5.78 and 6.03%, and expected lives of three and one half
years for 1998 and two years for 1997. The weighted-
average fair value of options granted was $6.38 and $2.90
for the years ended September 30, 1998 and 1997,
respectively.
15. QUARTERLY FINANCIAL DATA (UNAUDITED)
All four quarters of fiscal 1998 reflected weather that
was significantly warmer than during the comparable
quarters of fiscal 1997. The first quarter of fiscal 1998
also reflected decreased pension expense caused by changes
in settlement accounting attributed to employees choosing
early retirement and actuarial assumptions. (See Note 6A.)
The fourth quarter of fiscal 1998 reflected increased
operating revenues from diversified energy subsidiaries and
decreased operating expenses.
Earnings
Operating Operating Per
Fiscal Quarters Revenues Income Net Income Share
(Thousands, except per-share amounts)
1998
Fourth $129,087 $(3,671) $(11,243) $(0.32)
Third 199,309 16,425 8,006 0.23
Second 424,510 56,213 47,116 1.34
First 385,151 44,842 35,543 1.01
1997
Fourth $116,773 $(5,119) $(14,080) $(0.40)
Third 202,444 20,430 11,735 0.34
Second 567,314 71,480 63,258 1.81
First 387,158 46,752 37,490 1.07
Quarterly earnings-per-share amounts are based on the
weighted average common shares outstanding for each quarter
and, therefore, might not equal the amount computed for the
total year.
16. EVENT (UNAUDITED) SUBSEQUENT TO THE AUDITORS' REPORT
DATED OCTOBER 30, 1998
Environmental Matters
Former Manufactured Gas Plant Operations
The Company has filed suit against a number of insurance
carriers for the recovery of environmental costs relating
to the Company's former manufactured gas operations. In
November 1998, the Company entered into a settlement
agreement with one of its insurance carriers. Given the
regulatory treatment discussed in Note 2A, the settlement
will not have an effect on income.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
Information relating to the directors of the Company is
set forth under the caption "Information Concerning
Nominees for Election as Directors" of the Company's Proxy
Statement, to be filed with the SEC on or about December
28, 1998, and to be distributed in connection with the
Company's Annual Meeting of Shareholders to be held on
February 26, 1999. Such information is incorporated herein
by reference.
Information relating to the executive officers of the
Company is set forth in Part I of this report under the
caption "Executive Officers of the Company."
ITEM 11. EXECUTIVE COMPENSATION
Information relating to executive compensation is set
forth under the captions "Executive Compensation" and
"Report on Executive Compensation" of the Company's Proxy
Statement, to be filed with the SEC on or about December
28, 1998, and to be distributed in connection with the
Company's Annual Meeting of Shareholders to be held on
February 26, 1999. Such information is incorporated herein
by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT
Information relating to this item is set forth under
the caption "Share Ownership of Director Nominees, and
Executive Officers" of the Company's Proxy Statement, to
be filed with the SEC on or about December 28, 1998, and
to be distributed in connection with the Company's Annual
Meeting of Shareholders to be held on February 26, 1999.
Such information is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
Page
(a) 1. Financial
Statements:
See Part II, Item 8. 23
2. Financial Statement Schedules:
Schedule
Number
VIII Valuation and Qualifying Accounts 47
3. Exhibits:
See Exhibit Index on page 49.
(b) Reports on Form 8-K filed during the final quarter of fiscal
year 1998:
None
<TABLE>
<CAPTION>
Schedule VIII
Peoples Energy Corporation and Subsidiary Companies
VALUATION AND QUALIFYING ACCOUNTS
(Thousands)
Column A Column B Column C Column D Column E
Additions Deductions
Charged Charges for the
Balance to costs purpose for which the Balance
at beginning and reserves or deferred at end of
Description of period expenses credits were created period
Fiscal Year Ended September 30, 1998
<S> <C> <C> <C> <C>
RESERVES (deducted from assets in balance sheet):
Uncollectible items $ 29,857 $ 22,968 $ 29,507 $23,318
Fiscal Year Ended September 30, 1997
RESERVES (deducted from assets in balance sheet):
Uncollectible items $ 26,211 $ 27,907 $ 24,261 $29,857
Fiscal Year Ended September 30, 1996
RESERVES (deducted from assets in balance sheet):
Uncollectible items $ 19,013 $ 28,146 $ 20,948 $26,211
</TABLE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, as amended, the
registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
PEOPLES ENERGY CORPORATION
Date: December 17, 1998 By: /s/ RICHARD E. TERRY
Richard E. Terry
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange
Act of 1934, as amended, this report has been signed below
by the following persons on behalf of the registrant and
in the capacities indicated on December 17, 1998.
/s/ RICHARD E. TERRY Chairman of the Board and Chief Executive
Richard E. Terry Officer and Director (Principal Executive Officer)
/s/ JAMES M. LUEBBERS Vice President and Controller
James M. Luebbers (Principal Financial and Accounting Officer)
/s/ THOMAS M. PATRICK Director
Thomas M. Patrick
/s/ WILLIAM J. BRODSKY Director
William J. Brodsky
/s/ PASTORA SAN JUAN CAFFERTY Director
Pastora San Juan Cafferty
/s/ HOMER J. LIVINGSTON, JR. Director
Homer J. Livingston, Jr.
/s/ WILLIAM G. MITCHELL Director
William G. Mitchell
/s/ EARL L. NEAL Director
Earl L. Neal
/s/ RICHARD P. TOFT Director
Richard P. Toft
/s/ ARTHUR R. VELASQUEZ Director
Arthur R. Velasquez
Peoples Energy Corporation and Subsidiary Companies
EXHIBIT INDEX
(a) The exhibits listed below are filed herewith and made a
part hereof:
Exhibit
Number Description of Document
10(a) U.S. Shippers Service Agreement between
Peoples Gas and Northern Border Pipeline Company,
dated August 14, 1997.
10(b) U.S. Shippers Service Agreement between
Peoples Gas and Northern Border Pipeline Company,
dated October 27, 1997.
10(c) Storage Rate Schedule DSS Agreement between
Peoples Gas and Natural Gas Pipeline Company of
America, dated January 15, 1998.
10(d) Storage Rate Schedule NSS Agreement between
Peoples Gas and Natural Gas Pipeline Company of
America, dated January 15, 1998.
10(e) Transportation Rate Schedule FTS Agreement
between Peoples Gas and Natural Gas Pipeline
Company of America, dated January 15, 1998
10(f) Transportation Rate Schedule FTS LN/NB
Agreement between Peoples Gas and Natural Gas
Pipeline Company of America, dated January 15,
1998.
10(g) U.S. Shippers Service Agreement between North
Shore and Northern Border Pipeline Company, dated
August 14, 1997.
10(h) Transportation Rate Schedule FTS Agreement
between North Shore and Natural Gas Pipeline
Company of America, dated January 15, 1998.
10(i) FTS-1 Service Agreement between North Shore
and ANR Pipeline Company, dated May 28, 1998.
10(j) Severance Agreement Between the Company and
Thomas M. Patrick dated as of November 1, 1998.
21 Subsidiaries of the Registrant
23 Arthur Andersen LLP consent to incorporate by
reference in Registration Statement Nos. 2-82760,
33-6369, 333-17701, 33-63193 and 333-09993.
27 Financial Data Schedule
99 Form 11-K for the Employee Stock Purchase Plan of the
Registrant for the fiscal year ended September 30, 1997.
Peoples Energy Corporation and Subsidiary Companies
EXHIBIT INDEX (Continued)
Exhibit
Number Description of Document
(b)Exhibits listed below have been filed heretofore with
the Securities and Exchange Commission pursuant to the
Securities Act of 1933, as amended, and/or the
Securities Exchange Act of 1934, as amended, and are
incorporated herein by reference. The file number and
exhibit number of each such exhibit are stated in the
description of such exhibits.
3(e) Articles of Incorporation of the Registrant,
as amended on March 3, 1995 (Registrant Form 10-K
for the fiscal year ended September 30, 1995,
Exhibit 3(b)).
4(a) The Peoples Gas Light and Coke Company First
and Refunding Mortgage, dated January 2, 1926,
from Chicago ByProduct Coke Company to Illinois
Merchants Trust Company, Trustee, assumed by The
Peoples Gas Light and Coke Company (Peoples) by
Indenture dated March 1, 1928 (Peoples - May 17,
1935, Exhibit B-6a, Exhibit B-6b A-2 File No. 2-
2151, 1936); Supplemental Indenture dated as of
May 20, 1936, (Peoples Form 8-K for the year 1936,
Exhibit B-6f); Supplemental Indenture dated as of
March 10, 1950 (Peoples - Form 8-K for the month
of March 1950, Exhibit B-6i); Supplemental
Indenture dated as of June 1, 1951 (Peoples - File
No. 2-8989, PostEffective, Exhibit 7-4(b));
Supplemental Indenture dated as of August 15, 1967
(Peoples - File No. 2-26983, Post-Effective,
Exhibit 2-4); Supplemental Indenture dated as of
September 15, 1970 (Peoples - File No. 2-38168,
Post-Effective Exhibit 2-2); Supplemental
Indenture dated as of October 1, 1984 (Peoples -
Form 10-K for fiscal year ended September 30,
1984, Exhibit 4-3); Supplemental Indentures dated
March 1, 1985, (Peoples - Form 10-K for fiscal
year ended September 30, 1985, Exhibits 4-1, 4-2,
and 4-3, respectively); Supplemental Indenture
dated May 1, 1990 (Peoples - Form 10-K for the
fiscal year ended September 30, 1990, Exhibit 4);
Supplemental Indenture dated as of April 1, 1993
(Peoples Form 8 dated as of May 5, 1993, Exhibit
1); Supplemental Indentures dated as of December
1, 1993 (Peoples - Form 10-Q for the quarterly
period ended December 31, 1993, Exhibits 4(a) and
4(b)); Supplemental Indenture dated June 1, 1995.
(Peoples - Form 10-K for fiscal year ended
September 30, 1995.) Supplemental Indenture dated
as of June 1, 1995 (Peoples - Form 10-K for the
fiscal year ended September 30, 1995.)
4(b) North Shore Gas Company (North Shore)
Indenture, dated as of April 1, 1955, from North
Shore to Continental Bank, National Association,
as Trustee; Third Supplemental Indenture, dated as
of December 20, 1963 (North Shore - File No. 2-
35965, Exhibit 4-1); Fifth Supplemental Indenture
dated as of February 1, 1970 (North Shore - File
No. 2-35965, Exhibit 4-2); Ninth Supplemental
Indenture dated as of December 1, 1987 (North
Shore - Form 10-K for the fiscal year ended
September 30, 1987, Exhibit 4); Tenth Supplemental
Indenture dated as of November 1, 1990 (North
Shore - Form S-3 Registration Statement No. 33-
37332, Exhibit 4b); Eleventh Supplemental
Indenture dated as of October 1, 1992 (North Shore
- Form 10-K for the fiscal year ended September
30, 1992, Exhibit 4); and Twelfth Supplemental
Indenture dated as of April 1, 1993 (North Shore -
Form 8-K dated April 23, 1993, Exhibit 4).
10(n)Firm Transportation Service Agreement Under
Rate Schedule FT between Peoples Gas and Trunkline
Gas Company, dated as of December 1, 1993
(Registrant Form 10-K for the fiscal year ended
September 30, 1994, Exhibit 10(d)). Trust Under
Executive Deferred Compensation Plan and
Supplemental Retirement Benefit Plan, Part A and
Part B, of the Registrant, effective September 25,
1995. (Registrant Form 10-K for fiscal year ended
September 30, 1995, Exhibit 10(a));
Peoples Energy Corporation and Subsidiary Companies
EXHIBIT INDEX (Continued)
Exhibit
Number Description of Document
10(n)ETS Service Agreement between Peoples Gas and ANR
Pipeline Company, dated cont'd) September 21, 1994.
(Registrant Form 10-K for fiscal year ended
September 30, 1995, Exhibit 10(b)); FSS Service
Agreement between Peoples Gas and ANR Pipeline
Company, dated September 21, 1994. (Registrant
Form 10-K for fiscal year ended September 30,
1995, Exhibit 10(c)); Storage Rate Schedule NSS
Agreement between Peoples Gas and Natural Gas
Pipeline Company of America, dated October 19,
1995. (Registrant Form 10-K for fiscal year ended
September 30, 1995, Exhibit 10(d)); Transportation
Rate Schedule FTS Agreement between Peoples Gas
and Natural Gas Pipeline Company of America, dated
October 19, 1995. (Registrant Form 10-K for
fiscal year ended September 30, 1995, Exhibit 10(e));
Storage Rate Schedule DSS Agreement between Peoples
Gas and Natural Gas Pipeline Company of America, dated
December 1, 1995. (Registrant Form 10-K for fiscal year
ended September 30, 1995, Exhibit 10(f)); Transportation
Rate Schedule FTS Agreement between Peoples Gas and Natural
Gas Pipeline Company of America, dated December 1, 1995.
(Registrant Form 10-K for fiscal year ended
September 30, 1995, Exhibit 10(g)); Firm Transportation
Service Agreement Under Rate Schedule FT between Peoples Gas
and Trunkline Gas Company, dated as of April 1, 1995.
(Registrant Form 10-K for fiscal year ended
September 30, 1995, Exhibit 10(h)); Quick Notice Transportation
Service Agreement Under Rate Schedule QNT between Peoples Gas
and Trunkline Gas Company, dated as of December 1, 1995.
(Registrant Form 10-K for fiscal year ended September 30, 1995,
Exhibit 10(i)); Quick Notice Transportation Service Agreement
Under Rate Schedule QNT between Peoples Gas and Trunkline Gas
Company, dated as of December 1, 1995. (Registrant Form 10-K
for fiscal year ended September 30, 1995, Exhibit 10(j)); ETS
Service Agreement between North Shore Gas and ANR Pipeline
Company, dated September 21, 1994. (Registrant Form 10-K for
fiscal year ended September 30, 1995, Exhibit 10(k)); FSS
Service Agreement between North Shore Gas and ANR Pipeline
Company, dated September 21, 1994. (Registrant Form 10-K for
fiscal year ended September 30, 1995, Exhibit 10(l));
Transportation Rate Schedule FTS Agreement between North Shore
Gas and Natural Gas Pipeline Company of America, dated
September 22, 1995. (Registrant Form 10-K for fiscal year
ended September 30, 1995, Exhibit 10(m)); Storage Rate Schedule
NSS Agreement between North Shore Gas and Natural Gas Pipeline
Company of America, dated October 19, 1995. (Registrant Form 10-
K for fiscal year ended September 30, 1995, Exhibit 10(n));
Transportation Rate Schedule FTS Agreement between North
Shore Gas and Natural Gas Pipeline Company of America, dated
October 19, 1995. (Registrant Form 10-K for fiscal year ended
September 30, 1995, Exhibit 10(o)); Storage Rate Schedule DSS
Agreement between North Shore Gas and Natural Gas Pipeline
Company of America, dated December 1, 1995. (Registrant Form
10-K for fiscal year ended September 30, 1995, Exhibit 10(p));
Firm Transportation Service Agreement under Rate Schedule FTS1
between Peoples Gas and ANR Pipeline Company, dated as of
September 20, 1995. (Registrant form 10-K for fiscal year
ended September 30, 1996, Exhibit 10(q)); Firm Transportation
Service Agreement under Rate Schedule FTS between Peoples Gas
and Natural Gas Pipeline Company of America, dated as of
February 21, 1996. (Registrant form 10-K for fiscal year ended
September 30, 1996, Exhibit 10(r)); Firm Transportation Service
Agreement under Rate Schedule FTS between Peoples Gas and
Natural Gas Pipeline Company of America, dated as of February
21, 1996. (Registrant form 10-K for fiscal year ended
September 30, 1996, Exhibit 10(s)); Firm Transportation Service
Agreement under Rate Schedule FTS-1 between North Shore Gas and
ANR Pipeline Company, dated as of October 25, 1995.
(Registrant form 10-K for fiscal year ended September 30, 1996,
Exhibit 10(t)); Guaranty by Peoples Energy Corporation to
Northern Border Pipeline Company, dated July 25, 1997.
(Registrant Form 10-K for fiscal year ended September 30, 1997,
Exhibit 10(u)); Guaranty by Peoples Energy
Peoples Energy Corporation and Subsidiary Companies
EXHIBIT INDEX (Continued)
Exhibit
Number Description of Document
10(n)Corporation to Northern Border Pipeline Company, dated
August 1, 1997. (Registrant Form 10-K for fiscal year ended
September 30, 1997, Exhibit 10(v)); Firm Transportation Service
Agreement under Rate Schedule FTS between Peoples Gas and
Natural Gas Pipeline Company of America, dated November 13,
1996. (Registrant Form 10-K for fiscal year ended September
30, 1997, Exhibit 10(w)); Firm Transportation Service Agreement
under Rate Schedule FT-A or FT-G between Peoples Gas and
Midwestern Gas Transmission Company, dated November 1, 1997.
(Registrant Form 10-K for fiscal year ended September 30, 1997,
Exhibit 10(x)); Firm Transportation Service Agreement under
Rate Schedule FT-A between Peoples Gas and Tennessee Gas
Pipeline Company, dated November 1, 1997. (Registrant Form 10-K
for fiscal year ended September 30, 1997, Exhibit 10(y)); Firm
Transportation Service Agreement under Rate Schedule FT-A or FT-
G between North Shore and Midwestern Gas Transmission Company,
dated May 1, 1997. (Registrant Form 10-K for fiscal year ended
September 30, 1997; Exhibit 10(z)); Firm Transportation Service
Agreement under Rate Schedule FT-A between North Shore and
Tennessee Gas Pipeline Company, dated May 1, 1997. (Registrant
Form 10-K for fiscal year ended September 30, 1997, Exhibit
10(aa)); Firm Transportation Service Agreement under Rate
Schedule FT-A or FT-GS between North Shore and Midwestern Gas
Transmission Company, dated November 1, 1997. (Registrant Form
10-K for fiscal year ended September 30, 1997, Exhibit 10(ab));
Firm Transportation Service Agreement under Rate Schedule FT-A
between North Shore and Tennessee Gas Pipeline Company, dated
November 1, 1997. (Registrant Form 10-K for fiscal year ended
September 30, 1997, Exhibit 10(ac)); Firm Transportation
Service Agreement under Rate Schedule FT-A or FT-GS between
North Shore and Midwestern Gas Transmission Company, dated
April 1, 1998. (Registrant Form 10-K for fiscal year ended
September 30, 1997, Exhibit 10(ad)); Firm Transportation
Service Agreement under Rate Schedule FT-A between North Shore
and Tennessee Gas Pipeline Company, dated April 1, 1998.
(Registrant Form 10-K for fiscal year ended September 30, 1997,
Exhibit 10(ae)).
10(o)Lease dated October 20, 1993, between Prudential Plaza
Associates, as Landlord, and Peoples Gas, as Tenant (Registrant
Form 10-Q for the quarterly period ended December 31, 1993,
Exhibit 10(a)). 10(p)Construction Guaranty Agreement dated
December 16, 1992, by the Company and Trigen Energy Corporation
(Registrant Form 10-Q for the quarterly period ended December
31, 1993, Exhibit 10(f)); Service Guaranty Agreement dated
December 16, 1992, by the Company and Trigen Energy
Corporation (Registrant Form 10Q for the quarterly period
ended December 31, 1993, Exhibit 10(g)). 10(q)Short-Term
Incentive Compensation Plan of the Registrant, as amended on
December 7, 1994 (Registrant Form 10-K for the fiscal year
ended September 30, 1994, Exhibit 10(a)); Executive Deferred
Compensation Plan of the Registrant, effective October
1, 1994 (Registrant Form 10-K for the fiscal year ended
September 30, 1994, Exhibit 10(b)); Supplemental Retirement
Benefit Plan, Part A, Part B and Part C, of the Registrant,
effective December 7, 1994 (Registrant Form 10-K for the fiscal
year ended September 30, 1994, Exhibit 10(c)); Long-Term
Incentive Compensation Plan (File No. 33-63193, Form S-8 filed
on October 4, 1995).
21 Subsidiaries of the Registrant (Registrant Form 10-K for the fiscal
year ended September 30, 1982, Exhibit 22).
Exhibit 10(a)
Contract #: T1062F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
This Agreement (the "Service Agreement") is made and entered into
at Omaha, Nebraska as of August 14, 1997, by and between
NORTHERN BORDER PIPELINE COMPANY, hereinafter referred to as
"Company" and THE PEOPLES GAS LIGHT AND COKE COMPANY, a(n)
Illinois corporation, hereinafter referred to as "Shipper".
WHEREAS, Company's investors and lenders rely on Certificates of
Public Convenience and Necessity granted by the Federal Energy
Regulatory Commission and on the Tariff for the return of and the
return on all funds invested in or loaned to the Company; and
WHEREAS, the transportation of natural gas shall be effectuated
pursuant to Part 157 or Part 284 of the Federal Energy Regulatory
Commission's Regulations; and
WHEREAS, Company recognizes that it will be a condition to the
initial effectiveness of this Service Agreement that,
notwithstanding any other provision of the Tariff or this Service
Agreement, the FERC and all other appropriate federal
governmental authorities and/or agencies in the United States
shall have issued, under terms and conditions acceptable to
Shipper, all final nonappealable authorizations and certificates;
NOW THEREFORE, in consideration of their respective covenants and
agreements hereinafter set out, the parties hereto covenant and
agree as follows:
Article 1 - Basic Receipts
Shipper shall on each day beginning with Shipper's Billing
Commencement Date, as defined in Section 1 of the General Terms
and Conditions of Company's FERC Gas Tariff, be entitled to
tender and, following tender, deliver to Company, at each of
Shipper's Points of Receipt, a quantity of gas not in excess of
the Daily Receipt Quantity for such Point of Receipt for such
day, as defined in such Section 1, and Company shall, on such
day, take receipt of the quantity of gas so tendered and
delivered by Shipper at such Point of Receipt.
Article 2 - Excess Receipts
If Shipper shall desire to tender to Company on any day beginning
with Shipper's Billing Commencement Date, at any of Shipper's
Points of Receipt, a quantity of gas in excess of Shipper's Daily
Receipt Quantity for such Point of Receipt for such day, it shall
notify Company of such desire. If Company in its sole judgment,
determines that it has available the necessary capacity to
receive and transport all or any part of such excess quantity and
make deliveries in respect thereof, and that the performance of
Company's obligations to other Shippers under their Agreements
will not be adversely affected thereby, Company may elect to
receive from Shipper said excess quantity or part thereof, and
shall so notify Shipper. Scheduling of Excess Receipts will be in
accordance with Section 10 of the General Terms and Conditions.
-1-
Contract #: T1062F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 3 - Deliveries
Company shall deliver gas to Shipper at the Point(s) of Delivery
and under the conditions specified in Exhibit A hereto and in
accordance with Section 13 of the General Terms and Conditions.
Article 4 - Payments
Shipper shall make payments to Company in accordance with Rate
Schedules T-1 and OT-1 and the other applicable terms and
provisions of this Service Agreement.
Article 5 - Change in Tariff Provisions
Upon notice to Shipper, Company shall have the right to file with
the Federal Energy Regulatory Commission any changes in the terms
of any of its Rate Schedules, General Terms and Conditions or
Form of Service Agreement as Company may deem necessary, and to
make such changes effective at such times as Company desires and
is possible under applicable law. Shipper may protest any filed
changes before the Federal Energy Regulatory Commission and
exercise any other rights it may have with respect thereto.
Article 6 - Cancellation of Prior Agreements
When this Service Agreement becomes effective, it shall
supersede, cancel and terminate the following Agreements:
- -none-
Article 7 - Term
This Service Agreement shall become effective upon its execution
and shall under all circumstances continue in effect in
accordance with the Tariff for ten (10) years after the Billing
Commencement Date, defined herein as the later of November 1,
1998, or the in-service date of the facilities certificated for
the construction and operation in a Federal Energy Regulatory
Commission proceeding prosecuted by Company in reliance upon this
Agreement, and shall continue in effect thereafter until extended
or terminated in accordance with Section 5 of the Rate Schedule T-
1. Shipper shall give Company not less than six (6) months prior
written notice of Shipper's intent to terminate this Service
Agreement. Service rendered pursuant to this Service Agreement
shall be abandoned upon termination of this Service Agreement.
This Service Agreement shall automatically terminate and be of no
further force and effect unless Shipper shall furnish a proper
security arrangement, in accordance with Subsection 9.1 of Rate
Schedule T-1, to the Company within thirty (30) days after notice
from the Company subsequent to the occurrence of any of the
following events:
- 2 -
Contract #: T1062F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
The filing by Shipper or its parent of a voluntary petition
in bankruptcy or the entry of a decree or order by a court
having jurisdiction in the premises adjudging the Shipper as
bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Shipper under the
Federal Bankruptcy Act or any other applicable federal or
state law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the
Shipper or any substantial part of its property, or the
ordering of the winding-up or liquidation of its affairs,
with said order or decree continuing unstayed and in effect
for a period of sixty (60) consecutive days.
A failure by Shipper to pay in full the undisputed amount of
any invoice rendered by Company shall continue for ten (10)
days from the date payment is due.
Termination of this Service Agreement shall not relieve Company
and Shipper of the obligation to correct any Receipt or Delivery
Imbalances hereunder, or Shipper to pay money due hereunder to
Company and shall be in addition to any other remedies that
Company may have.
Article 8 - Applicable Law and Submission to Jurisdiction
This Service Agreement and Company's Tariff, and the rights and
obligations of Company and Shipper thereunder are subject to all
relevant United States lawful statutes, rules, regulations and
orders of duly constituted authorities having jurisdiction.
Subject to the foregoing, this Service Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Nebraska. For purposes of legal proceedings, this
Service Agreement shall be deemed to have been made in the State
of Nebraska and to be performed there, and the Courts of that
State shall have jurisdiction over all disputes which may arise
under this Service Agreement, provided always that nothing herein
contained shall prevent the Company from proceeding at its
election against the Shipper in the Courts of any other state,
Province or country.
At the Company's request, the Shipper shall irrevocably appoint
an agent in Nebraska to receive, for it and on its behalf,
service of process in connection with any judicial proceeding in
Nebraska relating to this Service Agreement. Such service shall
be deemed completed on delivery to such process agent (even if
not forwarded to and received by the Shipper). If said agent
ceases to act as a process agent within Nebraska on behalf of
Shipper, the Shipper shall appoint a substitute process agent
within Nebraska and deliver to the Company a copy of the new
agent's acceptance of that appointment within 30 days.
-3-
Contract #: T1062F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 9 - Successors and Assigns
Any person which shall succeed by purchase, amalgamation, merger
or consolidation to the properties, substantially as an entirety,
of Shipper or of Company, as the case may be, and which shall
assume all obligations under Shipper's Service Agreement of
Shipper or Company, as the case may be, shall be entitled to the
rights, and shall be subject to the obligations, of its
predecessor under Shipper's Service Agreement. Either party to a
Shipper's Service Agreement may pledge or charge the same under
the provisions of any mortgage, deed of trust, indenture,
security agreement or similar instrument which it has executed,
or assign such Service Agreement to any affiliated Person (which
for such purpose shall mean any person which controls, is under
common control with or is controlled by such party). Nothing
contained in this Article 9 shall, however, operate to release
predecessor Shipper from its obligation under its Service
Agreement unless Company shall, in its sole discretion, consent
in writing to such release, which it shall not do unless it
concludes that, on the basis of the facts available to it, such
release is not likely to have a substantial adverse effect upon
other Shippers or other Persons who may become liable to provide
funds to Company to enable it to meet any of its obligations.
Company shall not release any Shipper from its obligations under
its Service Agreement without the written consent of the other
Shippers unless: (a) such release is effected pursuant to an
assignment of obligations by such Shipper, and the assumption
thereof by the assignee, and the terms of such assignment and
assumption render the obligations being assigned and assumed no
more conditional and no less absolute than those at the time
provided therein; and (b) such release is not likely to have a
substantial adverse effect upon Company or the other Shippers.
For the purposes hereof, and without limiting the generality of
the foregoing, any release of any Shipper from its obligations
under its Service Agreement shall be deemed likely to have a
substantial adverse effect upon Company or the other Shippers if
the assignee of such obligations has a credit standing which is
not at least equal to the credit standing of the assignor of such
obligations (credit standings in each case as reflected by the
ratings on outstanding debt securities by Moody's Investors
Service, Standard and Poor's Corporation or another rating
service acceptable to all Shippers to the extent available or by
other appropriate objective measures). Shipper shall, at
Company's request, execute such instruments and take such other
action as may be desirable to give effect to any such assignment
of Company's rights under such Shipper's Service Agreement or to
give effect to the right of a Person whom the Company has
specified pursuant to Section 6 of the General Terms and
Conditions of Company's FERC Gas Tariff as the Person to whom
payment of amounts invoiced by Company shall be made; provided,
however, that: (a) Shipper shall not be required to execute any
such instruments or take any such other action the effect of
which is to modify the respective rights and obligations of
either Shipper or Company under this Service Agreement; and (b)
Shipper shall be under no obligation at any time to determine the
status or amount of any payments which may be due from Company to
any Person whom the Company has specified pursuant to said
Section 6 as the Person to whom payment of amounts invoiced by
Company shall be made.
-4-
Contract #: T1062F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 10 - Loss of Governmental Authority, Gas Supply,
Transportation or Market
Without limiting its other responsibilities and obligations under
this Service Agreement, the Shipper acknowledges that it is
responsible for obtaining and assumes the risk of loss of the
following: (1) gas removal permits, (2) export and import
licenses, (3) gas supply, (4) markets and (5) transportation
upstream and downstream of the Company's pipeline system.
Notwithstanding the loss of one of the items enumerated above,
Shipper shall continue to be liable for payment to the Company of
the transportation charges as provided for in this Service
Agreement.
Article 11 - Other Operating Provisions
(This Article to be utilized when necessary to specify other
operating provisions.)
Article 12 - Exhibit A of Service Agreement, Rate Schedules and
General Terms and Conditions
Company's Rate Schedules and General Terms and Conditions, which
are on file with the Federal Energy Regulatory Commission and in
effect, and Exhibit A hereto are all applicable to this Service
Agreement and are hereby incorporated in, and made a part of,
this Service Agreement. In the event that the terms and
conditions herein are in conflict with the General Terms and
Conditions in Company's FERC Gas Tariff, the terms and conditions
of this Service Agreement are controlling.
IN WITNESS WHEREOF, The parties hereto have caused this Service
Agreement to be duly executed as of the day and year first set
forth above.
ATTEST: NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas Company,
Operator
/s/ Eva Neufeld By: /s/ Robert A. Hill
Assistant Secretary
Title: Vice President
ATTEST: THE PEOPLES GAS LIGHT AND COKE COMPANY
_____________________ By: /s/ William E. Morrow
Title: Vice President
-5-
Contract #: T1062F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT
Company: NORTHERN BORDER PIPELINE COMPANY
Company's Address: 1111 South 103rd Street
Omaha, Nebraska 68124-1000
Shipper: THE PEOPLES GAS LIGHT AND COKE COMPANY
Attn: Mr. Roulando DeLara
Shipper's Address: 130 E. Randolph Dr., 22nd Floor
Chicago, IL 60601
Maximum Minimum Maximum
Role Maximum Receipt Delivery Receipt Minimum
(Notes Quantity Pressure Pressure Temperature Tempera
Points 1 and 3) (MCF/Day) (PSIG) (PSIG) (F) ture
(F)
Harper, IA RD 200,000 -- -- -- --
TP 200,000 -- -- -- --
PD 200,000 -- 712 -- 32
DD 200,000 -- -- -- --
Iowa City, IA RD 100,000 -- -- -- --
(Secondary- TP 200,000 -- -- -- --
Note 2)
PD 100,000 -- 600 -- 32
DD 100,000 -- -- -- --
Davenport, IA RD 100,000 -- -- -- --
(Secondary- TP 200,000 -- -- -- --
Note 2)
PD 100,000 -- 650 -- 32
DD 100,000 -- -- -- --
Prophetstown, RD 50,000 -- -- -- --
IL
(Secondary- TP 200,000 -- -- -- --
Note 2)
PD 50,000 -- 600 -- 32
DD 50,000 -- -- -- --
Troy Grove, IL RD 200,000 -- -- -- --
(Secondary- TP 200,000 -- -- -- --
Note 2)
PD 200,000 -- 750 -- 32
DD 200,000 -- -- -- --
-6-
Contract #: T1062F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT (continued)
Maximum Minimum Maximum
Role Maximum Receipt Delivery Receipt Minim
(Notes Quantity Pressure Pressure Temperature um
Points 1 and 3) (MCF/Day) (PSIG) (PSIG) (F) Tempe
ratur
e
(F)
Minooka, IL RD 200,000 -- -- -- --
(Secondary- TP 200,000 -- -- -- --
Note2)
PD 200,000 -- 550 -- 32
DD 200,000 -- -- -- --
Channahon, IL RD 200,000 -- -- -- --
(Secondary- TP 200,000 -- -- -- --
Note 2)
PD 200,000 -- 850 -- 32
DD 200,000 -- -- -- --
Joliet, IL RD 200,000 -- -- -- --
(Secondary- TP 200,000 -- -- -- --
Note 2)
PD 200,000 -- 850 -- 32
DD 200,000 -- -- -- --
Manhattan, IL RD 200,000 -- -- -- --
TP 200,000 -- -- -- --
PD 200,000 -- 858 -- 32
DD 200,000 -- -- -- --
Total Maximum
Receipt 200,000
Quantity MCF
Note 1: The point role will be either PR for physical
receipts, RD for receipt by displacement, TP for
transfer points, PD for physical deliveries, and DD for
delivery by displacement.
Note 2: Should nominations at secondary receipt and delivery
points be received which exceed available capacity,
volumes will be scheduled in accordance with Northern
Border's nomination and scheduling procedures.
-7-
Contract #: T1062F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT (continued)
Note 3:For receipt or delivery of gas by displacement, Company
cannot and does not have an obligation to physically
deliver or receive gas at these points. Volumes will be
delivered or received at these point(s) only to the
extent that corresponding equal or greater volumes are
received or delivered by other parties at these points on
the same day. These corresponding volumes will be used to
displace volumes nominated for delivery or receipt by
Shipper.
Note 4:Gas volumes which are nominated/scheduled at a sub
primary receipt or delivery point(s) have priority over
gas volumes of shipper utilizing such point on a
corresponding basis as a secondary receipt or delivery
point. Shipper's rights and obligations regarding the use
of sub primary points are governed by Subsection 17.1 of
the General Terms and Conditions of the Tariff.
This Exhibit A is made and entered into as of August 14, 1997 .
On the effective date designated by the Federal Energy Regulatory
Commission, it shall supersede the Exhibit A dated as of N/A .
The effective date of this Exhibit A is August 14, 1997 .
ATTEST: NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas
Company,
Operator
/s/ Eva Neufeld By: /s/ Robert A. Hill
Assistant Secretary
Title: Vice President
ATTEST: THE PEOPLES GAS LIGHT AND COKE COMPANY
______________________ By: /s/ William E. Morrow
Title: Vice President
-8-
Amendment
#2
#1495
AMENDMENT TO PRECEDENT AGREEMENT
BETWEEN
NORTHERN BORDER PIPELINE COMPANY
AND
THE PEOPLES GAS LIGHT AND COKE COMPANY
DATED AUGUST 10, 1995
This Amendment is entered into as of this 15th day of July,
1997, by and between NORTHERN BORDER PIPELINE COMPANY, and THE
PEOPLES GAS LIGHT AND COKE COMPANY.
The parties hereby agree as follows:
Article 5(iii) of the Precedent Agreement concerning
termination rights and required notice, shall be amended to
read as follows:
STRIKE "July 1, 1997" and substitute
"August 1, 1997"; and
STRIKE "July 15, 1997" and substitute
"August 15, 1997"
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the day and year set forth above.
NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas Company,
Operator
By: /s/ Robert A. Hill
Title: Vice President
ATTEST: THE PEOPLES GAS LIGHT AND COKE COMPANY
/s/ Thomas M. Patrick
/s/ Thomas W. Harwig By: Thomas M. Patrick
Assistant Secretary
Title: Executive Vice President
ATTEST: By: _____________________________
________________________ Title: __________________________
Exhibit 10(b)
Contract #: T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
This Agreement (the "Service Agreement") is made and entered into
at Omaha, Nebraska as of October 27, 1997 , by and between
NORTHERN BORDER PIPELINE COMPANY, hereinafter referred to as
"Company" and THE PEOPLES GAS LIGHT AND COKE COMPANY, an
Illinois corporation, hereinafter referred to as "Shipper".
WHEREAS, Company's investors and lenders rely on Certificates of
Public Convenience and Necessity granted by the Federal Energy
Regulatory Commission and on the Tariff for the return of and the
return on all funds invested in or loaned to the Company; and
WHEREAS, the transportation of natural gas shall be effectuated
pursuant to Part 157 or Part 284 of the Federal Energy Regulatory
Commission's Regulations; and
WHEREAS, Enron Capital & Trade Resources Corp. has elected to
permanently release to its Designated Replacement Shipper, The
Peoples Gas Light and Coke Company, a portion of its capacity
under its U.S. Shippers Service Agreement #T1061F dated August
15, 1997, as amended; and
WHEREAS, Shipper and Company intend that the Amendment of U.S.
Shippers Service Agreement T1061F will become effective on
November 1, 1998.
WHEREAS, Company recognizes that it will be a condition to the
initial effectiveness of this Service Agreement that,
notwithstanding any other provision of the Tariff or this Service
Agreement, the FERC and all other appropriate federal
governmental authorities and/or agencies in the United States
shall have issued, under terms and conditions acceptable to
Shipper, all final nonappealable authorizations and certificates;
NOW THEREFORE, in consideration of their respective covenants and
agreements hereinafter set out, the parties hereto covenant and
agree as follows:
Article 1 - Basic Receipts
Shipper shall on each day beginning with Shipper's Billing
Commencement Date, as defined in Section 1 of the General Terms
and Conditions of Company's FERC Gas Tariff, be entitled to
tender and, following tender, deliver to Company, at each of
Shipper's Points of Receipt, a quantity of gas not in excess of
the Daily Receipt Quantity for such Point of Receipt for such
day, as defined in such Section 1, and Company shall, on such
day, take receipt of the quantity of gas so tendered and
delivered by Shipper at such Point of Receipt.
-1-
Contract #: T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 2 - Excess Receipts
If Shipper shall desire to tender to Company on any day beginning
with Shipper's Billing Commencement Date, at any of Shipper's
Points of Receipt, a quantity of gas in excess of Shipper's Daily
Receipt Quantity for such Point of Receipt for such day, it shall
notify Company of such desire. If Company in its sole judgment,
determines that it has available the necessary capacity to
receive and transport all or any part of such excess quantity and
make deliveries in respect thereof, and that the performance of
Company's obligations to other Shippers under their Agreements
will not be adversely affected thereby, Company may elect to
receive from Shipper said excess quantity or part thereof, and
shall so notify Shipper. Scheduling of Excess Receipts will be in
accordance with Section 10 of the General Terms and Conditions.
Article 3 - Deliveries
Company shall deliver gas to Shipper at the Point(s) of Delivery
and under the conditions specified in Exhibit A hereto and in
accordance with Section 13 of the General Terms and Conditions.
Article 4 - Payments
Shipper shall make payments to Company in accordance with Rate
Schedules T-1 and OT-1 and the other applicable terms and
provisions of this Service Agreement.
Article 5 - Change in Tariff Provisions
Upon notice to Shipper, Company shall have the right to file with
the Federal Energy Regulatory Commission any changes in the terms
of any of its Rate Schedules, General Terms and Conditions or
Form of Service Agreement as Company may deem necessary, and to
make such changes effective at such times as Company desires and
is possible under applicable law. Shipper may protest any filed
changes before the Federal Energy Regulatory Commission and
exercise any other rights it may have with respect thereto.
Article 6 - Cancellation of Prior Agreements
When this Service Agreement becomes effective, it shall
supersede, cancel and terminate the following Agreements:
- - none -
-2-
Contract #: T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 7 - Term
This Service Agreement shall become effective upon its execution
and shall under all circumstances continue in effect in
accordance with the Tariff for ten (10) years, five (5) months,
and one (1) day after the Billing Commencement Date, defined
herein as the later of November 1, 1998, or the in-service date
of the facilities certificated for the construction and operation
in a Federal Energy Regulatory Commission proceeding prosecuted
by Company in reliance upon this Agreement, and shall continue in
effect thereafter until extended or terminated in accordance with
Section 5 of the Rate Schedule T-1. Shipper shall give Company
not less than six (6) months prior written notice of Shipper's
intent to terminate this Service Agreement. Service rendered
pursuant to this Service Agreement shall be abandoned upon
termination of this Service Agreement.
This Service Agreement shall automatically terminate and be of no
further force and effect unless Shipper shall furnish a proper
security arrangement, in accordance with Subsection 9.1 of Rate
Schedule T-1, to the Company within thirty (30) days after notice
from the Company subsequent to the occurrence of any of the
following events:
The filing by Shipper or its parent of a voluntary petition
in bankruptcy or the entry of a decree or order by a court
having jurisdiction in the premises adjudging the Shipper as
bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Shipper under the
Federal Bankruptcy Act or any other applicable federal or
state law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the
Shipper or any substantial part of its property, or the
ordering of the winding-up or liquidation of its affairs,
with said order or decree continuing unstayed and in effect
for a period of sixty (60) consecutive days.
A failure by Shipper to pay in full the undisputed amount of
any invoice rendered by Company shall continue for ten (10)
days from the date payment is due.
Termination of this Service Agreement shall not relieve Company
and Shipper of the obligation to correct any Receipt or Delivery
Imbalances hereunder, or Shipper to pay money due hereunder to
Company and shall be in addition to any other remedies that
Company may have.
-3-
Contract #: T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 8 - Applicable Law and Submission to Jurisdiction
This Service Agreement and Company's Tariff, and the rights and
obligations of Company and Shipper thereunder are subject to all
relevant United States lawful statutes, rules, regulations and
orders of duly constituted authorities having jurisdiction.
Subject to the foregoing, this Service Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Nebraska. For purposes of legal proceedings, this
Service Agreement shall be deemed to have been made in the State
of Nebraska and to be performed there, and the Courts of that
State shall have jurisdiction over all disputes which may arise
under this Service Agreement, provided always that nothing herein
contained shall prevent the Company from proceeding at its
election against the Shipper in the Courts of any other state,
Province or country.
At the Company's request, the Shipper shall irrevocably appoint
an agent in Nebraska to receive, for it and on its behalf,
service of process in connection with any judicial proceeding in
Nebraska relating to this Service Agreement. Such service shall
be deemed completed on delivery to such process agent (even if
not forwarded to and received by the Shipper). If said agent
ceases to act as a process agent within Nebraska on behalf of
Shipper, the Shipper shall appoint a substitute process agent
within Nebraska and deliver to the Company a copy of the new
agent's acceptance of that appointment within 30 days.
Article 9 - Successors and Assigns
Any person which shall succeed by purchase, amalgamation, merger
or consolidation to the properties, substantially as an entirety,
of Shipper or of Company, as the case may be, and which shall
assume all obligations under Shipper's Service Agreement of
Shipper or Company, as the case may be, shall be entitled to the
rights, and shall be subject to the obligations, of its
predecessor under Shipper's Service Agreement. Either party to a
Shipper's Service Agreement may pledge or charge the same under
the provisions of any mortgage, deed of trust, indenture,
security agreement or similar instrument which it has executed,
or assign such Service Agreement to any affiliated Person (which
for such purpose shall mean any person which controls, is under
common control with or is controlled by such party). Nothing
contained in this Article 9 shall, however, operate to release
predecessor Shipper from its obligation under its Service
Agreement unless Company shall, in its sole discretion, consent
in writing to such release, which it shall not do unless it
concludes that, on the basis of the facts available to it, such
release is not likely to have a substantial adverse effect upon
other Shippers or other Persons who may become liable to provide
funds to Company to enable it to meet any of its obligations.
Company shall not release any Shipper from its obligations under
its Service Agreement without the written consent of the other
Shippers unless: (a) such release
-4-
Contract #: T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
is effected pursuant to an assignment of obligations by such
Shipper, and the assumption thereof by the assignee, and the
terms of such assignment and assumption render the obligations
being assigned and assumed no more conditional and no less
absolute than those at the time provided therein; and (b) such
release is not likely to have a substantial adverse effect upon
Company or the other Shippers. For the purposes hereof, and
without limiting the generality of the foregoing, any release of
any Shipper from its obligations under its Service Agreement
shall be deemed likely to have a substantial adverse effect upon
Company or the other Shippers if the assignee of such obligations
has a credit standing which is not at least equal to the credit
standing of the assignor of such obligations (credit standings in
each case as reflected by the ratings on outstanding debt
securities by Moody's Investors Service, Standard and Poor's
Corporation or another rating service acceptable to all Shippers
to the extent available or by other appropriate objective
measures). Shipper shall, at Company's request, execute such
instruments and take such other action as may be desirable to
give effect to any such assignment of Company's rights under such
Shipper's Service Agreement or to give effect to the right of a
Person whom the Company has specified pursuant to Section 6 of
the General Terms and Conditions of Company's FERC Gas Tariff as
the Person to whom payment of amounts invoiced by Company shall
be made; provided, however, that: (a) Shipper shall not be
required to execute any such instruments or take any such other
action the effect of which is to modify the respective rights and
obligations of either Shipper or Company under this Service
Agreement; and (b) Shipper shall be under no obligation at any
time to determine the status or amount of any payments which may
be due from Company to any Person whom the Company has specified
pursuant to said Section 6 as the Person to whom payment of
amounts invoiced by Company shall be made.
Article 10 - Loss of Governmental Authority, Gas Supply,
Transportation or Market
Without limiting its other responsibilities and obligations under
this Service Agreement, the Shipper acknowledges that it is
responsible for obtaining and assumes the risk of loss of the
following: (1) gas removal permits, (2) export and import
licenses, (3) gas supply, (4) markets and (5) transportation
upstream and downstream of the Company's pipeline system.
Notwithstanding the loss of one of the items enumerated above,
Shipper shall continue to be liable for payment to the Company of
the transportation charges as provided for in this Service
Agreement.
-5-
Contract #: T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 11 -Other Operating Provisions
(This Article to be utilized when necessary to specify other
operating provisions.)
Article 12 - Exhibit A of Service Agreement, Rate Schedules and
General Terms and Conditions
Company's Rate Schedules and General Terms and Conditions, which
are on file with the Federal Energy Regulatory Commission and in
effect, and Exhibit A hereto are all applicable to this Service
Agreement and are hereby incorporated in, and made a part of,
this Service Agreement. In the event that the terms and
conditions herein are in conflict with the General Terms and
Conditions in Company's FERC Gas Tariff, the terms and conditions
of this Service Agreement are controlling.
IN WITNESS WHEREOF, The parties hereto have caused this Service
Agreement to be duly executed as of the day and year first set
forth above.
ATTEST: NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas Company,
Operator
/s/ Eva Neufeld By: /s/ Robert A. Hill
Assistant Secretary
Title: Vice President
ATTEST: THE PEOPLES GAS LIGHT AND COKE COMPANY
/s/ Thomas W. Harwig By: /s/ William E. Morrow
Assistant Secretary
Title: Vice President
-6-
Contract #: T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT
Company: NORTHERN BORDER PIPELINE COMPANY
Company's Address: 1111 South 103rd Street
Omaha, Nebraska 68124-1000
Shipper: THE PEOPLES GAS LIGHT AND COKE COMPANY
Attn: Mr. Raulando C. de Lara
Shipper's Address: 130 E. Randolph Dr.
Gas Supply Administration
22nd Floor
Chicago, IL 60601
Maximum Minimum Maximum
Role Maximum Receipt Delivery Receipt Minimu
(Notes Quantity Pressure Pressure Temperature m
Points 1 and 3) (MCF/Day) (PSIG) (PSIG) (F) Temper
ature
(F)
Ventura, IA RD 15,000 -- -- -- --
TP 15,000 -- -- -- --
DD 15,000 -- -- -- --
Grundy Center, IA RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 800 -- 32
DD 15,000 -- -- -- --
Beaman, IA RD 5,100 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 5,100 -- 839 -- 32
DD 5,100 -- -- -- --
Tama, IA RD 880 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 880 -- 816 -- 32
DD 880 -- -- -- --
Amana, IA RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 783 -- --
DD 15,000 -- -- -- --
-7-
Contract #: T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT (continued)
Maximum Minimum Maximum
Role Maximum Receipt Delivery Receipt Minimu
(Notes Quantity Pressure Pressure Temperature m
Points 1 and 3) (MCF/Day) (PSIG) (PSIG) (F) Temper
ature
(F)
Harper, IA RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 712 -- 32
DD 15,000 -- -- -- --
Iowa City, IA RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 600 -- 32
DD 15,000 -- -- -- --
Davenport, IA RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 650 -- 32
DD 15,000 -- -- -- --
Prophetstown, IL RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 600 -- 32
DD 15,000 -- -- -- --
Troy Grove, IL RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 750 -- 32
DD 15,000 -- -- -- --
Minooka, IL RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 550 -- 32
DD 15,000 -- -- -- --
Channahon, IL RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 850 -- 32
DD 15,000 -- -- -- --
Joliet, IL RD 15,000 -- -- -- --
(Secondary-Note 2) TP 15,000 -- -- -- --
PD 15,000 -- 850 -- 32
DD 15,000 -- -- -- --
-8-
Contract #: T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT (continued)
Maximum Minimum Maximum
Role Maximum Receipt Delivery Receipt Mini
(Notes Quantity Pressure Pressure Temperature mum
Points 1 and 3) (MCF/Day) (PSIG) (PSIG) (F) Temp
erat
ure
(F)
Manhattan, IL RD 15,000 -- -- -- --
TP 15,000 -- -- -- --
PD 15,000 -- 858 -- 32
DD 15,000 -- -- -- --
Total Maximum
Receipt Quantity 15,000
MCF
Note 1:The point role will be either PR for physical receipts,
RD for receipt by displacement, TP for transfer points,
PD for physical deliveries, and DD for delivery by
displacement.
Note 2:Should nominations at secondary receipt and delivery'
points be received which exceed available capacity,
volumes will be scheduled in accordance with Northern
Border's nomination and scheduling procedures.
Note 3:For receipt or delivery of gas by displacement, Company
cannot and does not have an obligation to physically
deliver or receive gas at these points. Volumes will be
delivered or received at these point(s) only to the
extent that corresponding equal or greater volumes are
received or delivered by other parties at these points on
the same day. These corresponding volumes will be used to
displace volumes nominated for delivery or receipt by
Shipper.
-9-
Contract # T1105F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT (continued)
Note 3:For receipt or delivery of gas by displacement. Company
cannot and does not have an obligation to physically
deliver or receive gas at these points. Volumes will be
delivered or received at these point(s) only to the
extent that corresponding equal or greater volumes are
received or delivered by other parties at these points on
the same day. These corresponding volumes will be used to
displace volumes nominated for delivery or receipt by
Shipper.
Note 4:Gas volumes which are nominated/scheduled at a sub
primary receipt or delivery point(s) have priority over
gas volumes of shipper utilizing such point on a
corresponding basis as a secondary receipt or delivery
point. Shipper's rights and obligations regarding the use
of sub primary points are governed by Subsection 17.1 of
the General Terms and Conditions of the Tariff.
This Exhibit A is made and entered into as of October 27,1997. On
the effective date designated by the Federal Energy Regulatory
Commission, it shall supersede the Exhibit A dated as of - .
The effective date of this Exhibit A is October 27, 1997 .
ATTEST: NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas Company,
Operator
/s/ Eva Neufeld By: /s/ Robert A. Hill
Assistant Secretary
Title: Vice President
ATTEST: THE PEOPLES GAS LIGHT AND COKE COMPANY
/s/ Thomas W. Harwig By: /s/ William E. Morrow
Assistant Secretary
Title: Vice President
-10-
Exhibit 10(c)
Contract No. 113416
NATURAL GAS PIPELINE COMPANY OF AMERICA (NATURAL)
STORAGE RATE SCHEDULE DSS
AGREEMENT
DATED January 15, 1998
1. SHIPPER is: THE PEOPLES GAS LIGHT AND COKE COMPANY, a LOCAL
DISTRIBUTION COMPANY.
2. (a) MDQ totals: 248,000 MMBtu per day.
(b) MSV totals: 12,400,000 MMBtu.
(c) The primary Delivery Point(s) and associated MDQ(s) are
contained in Exhibit B attached hereto and are a part of this
Agreement.
3. TERM: April 01, 1998 through April 30, 2003.
4. [ ] This Agreement supersedes and cancels a __________ Agreement
dated __________
[ ] Capacity rights for this Agreement were released from
Natural's Transportation Rate Schedule Agreement (KT #) dated and
are subject to any recall/return provisions in Natural's Capacity
Release Package ID #.
[X] Service and reservation charges commence the latter of:
(a) April 01, 1998, and
(b) the date capacity to provide the service hereunder is
available on Natural's System.
[ ] Other: _____________________________________
5. SHIPPER'S ADDRESSES NATURAL'S ADDRESSES
General Correspondence:
THE PEOPLES GAS LIGHT AND COKE COMPANY NATURAL GAS PIPELINE COMPANY
OF AMERICA
WILLIAM MORROW ATTENTION: GAS TRANSPORTATION SERVICES
130 E. RANDOLPH ST - 23RD FLOOR 3200 SOUTHWEST FREEWAY 77027-7523
CHICAGO, IL 60601-6207 P.O. BOX 283 77001-0283
HOUSTON, TEXAS
Statements/Invoices/Accountinq Related Materials:
THE PEOPLES GAS LIGHT AND COKE COMPANY NATURAL GAS PIPELINE COMPANY
OF AMERICA
PATRICIA GARCIA ATTENTION: ACCOUNT SERVICES
130 E. RANDOLPH ST- 23RD FLOOR 701 EAST 22ND STREET
CHICAGO, IL 60601-6207 LOMBARD, ILLINOIS 60148
Payments:
NATURAL GAS PIPELINE COMPANY OF AMERICA
P.O. BOX 2910
CAROL STREAM, ILLINOIS 60132-2910
FOR WIRE TRANSFER OR ACH:
DEPOSITORY INSTITUTION: CITIBANK N.A.
ABA ROUTING #: 021000089
ACCOUNT #: 4067-6195
6. The above-stated Rate Schedule, as revised from time to time,
controls this Agreement and is incorporated herein. NATURAL AND
SHIPPER ACKNOWLEDGE THAT THIS AGREEMENT IS SUBJECT TO THE
PROVISIONS OF NATURAL'S FERC GAS TARIFF AND APPLICABLE FEDERAL
LAW. TO THE EXTENT THAT STATE LAW IS APPLICABLE, NATURAL AND
SHIPPER EXPRESSLY AGREE THAT THE LAWS OF THE STATE OF ILLINOIS
SHALL GOVERN THE VALIDITY, CONSTRUCTION, INTERPRETATION AND
EFFECT OF THIS CONTRACT, EXCLUDING, HOWEVER, ANY CONFLICT OF LAWS
RULE WHICH WOULD APPLY THE LAW OF ANOTHER STATE. This Agreement
states the entire agreement between the parties and no waiver,
representation, or agreement shall affect this Agreement unless
it is in writing.
AGREED TO BY:
NATURAL GAS PIPELINE COMPANY OF AMERICA THE PEOPLES GAS LIGHT AND
COKE COMPANY
"Natural" "Shipper"
By: /s/ Stephen G. Weiman By: /s/ William E. Morrow
Name: Stephen G. Weiman Name: William E. Morrow
Title: Senior Vice President Title: Vice President
Contract No. 113416
EXHIBIT B
DATED January 15, 1998
EFFECTIVE DATE: April 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113416
DELIVERY POINT/S
County/Parish PIN MDQ
Name/Location Area State No. Zone (MMBtu/d)
PRIMARY DELIVERY POINT/S
1. NO SHORE/NGPL GRAYSLAKE LAKE LAKE IL I 06 53,637
INTERCONNECT WITH NORTH SHORE GAS
COMPANY LOCATED IN SEC. 12-T44N-R10E,
LAKE COUNTY, ILLINOIS.
2. PGLC/NGPL OAKTON STREET COOK COOK IL 4174 06 194,363
INTERCONNECT WITH THE PEOPLES GAS
LIGHT AND COKE COMPANY ON TRANSPORTER'S
HOWARD STREET LINE IN SEC. 26-T41N-R13E,
COOK COUNTY, ILLINOIS.
SECONDARY DELIVERY POINT/S
All secondary delivery points, and the related priorities and
volumes, as provided under the Tariff provisions governing this
Agreement.
DELIVERY PRESSURE, ASSUMED ATMOSPHERIC PRESSURE
Natural gas to be delivered by Natural to Shipper, or for Shipper's
account, at the Delivery Point/s shall be at the pressure available in
Natural's pipeline facilities from time to time. The measuring party
shall use or cause to be used an assumed atmospheric pressure
corresponding to the elevation at such Delivery Point/s.
B-1
Exhibit 10(d)
Contract No. 113417
NATURAL GAS PIPELINE COMPANY OF AMERICA (NATURAL)
STORAGE RATE SCHEDULE NSS
AGREEMENT
DATED January 15, 1998
1. SHIPPER is: THE PEOPLES GAS LIGHT AND COKE COMPANY, a LOCAL
DISTRIBUTION COMPANY.
2. (a) MDQ totals: 132,583 MMBtu per day.
(b) MSV totals: 9,943,725 MMBtu.
3. TERM: April 01, 1998 through March 31, 2000.
4. [ ] This Agreement supersedes and cancels an __________ Agreement
dated _______________
[ ] Capacity rights for this Agreement were released from Natural's
Transportation Rate Schedule Agreement (KT #) dated and are subject to
any recall/return provisions in Natural's Capacity Release Package ID
#.
[ ] Service and reservation charges commence the latter of:
(a) April 01, 1998, and
(b) the date capacity to provide the service hereunder is
available on Natural's System.
[ ] Other: ________________________________________
5. SHIPPER'S ADDRESSES NATURAL'S ADDRESSES
General Correspondence:
THE PEOPLES GAS LIGHT AND COKE COMPANY NATURAL GAS PIPELINE COMPANY OF
AMERICA
WILLIAM MORROW ATTENTION: GAS TRANSPORTATION SERVICES
130 E. RANDOLPH ST - 23RD FLOOR 3200 SOUTHWEST FREEWAY 77027-7523
CHICAGO, IL 60601-6207 P.O. BOX 283 77001-0283
HOUSTON, TEXAS
Statements/Invoices/Accounting Related Materials:
THE PEOPLES GAS LIGHT AND COKE COMPANY NATURAL GAS PIPELINE COMPANY OF
AMERICA
PATRICIA GARCIA ATTENTION: ACCOUNT SERVICES
130 E RANDOLPH ST - 23RD FLOOR 701 EAST 22ND STREET
CHICAGO, IL 60601-6207 LOMBARD, ILLINOIS 60148
Payments: NATURAL GAS PIPELINE COMPANY OF AMERICA
P.O. BOX 2910
CAROL STREAM, ILLINOIS 60132-2910
FOR WIRE TRANSFER OR ACH:
DEPOSITORY INSTITUTION: CITIBANK N.A.
ABA ROUTING #: 021000089
ACCOUNT #: 4067-6195
6. The above-stated Rate Schedule, as revised from time to time, controls
this Agreement and is incorporated herein. NATURAL AND SHIPPER
ACKNOWLEDGE THAT THIS AGREEMENT IS SUBJECT TO THE PROVISIONS OF
NATURAL'S FERC GAS TARIFF AND APPLICABLE FEDERAL LAW. TO THE EXTENT
THAT STATE LAW IS APPLICABLE, NATURAL AND SHIPPER EXPRESSLY AGREE THAT
THE LAWS OF THE STATE OF ILLINOIS SHALL GOVERN THE VALIDITY,
CONSTRUCTION, INTERPRETATION AND EFFECT OF THIS CONTRACT, EXCLUDING,
HOWEVER, ANY CONFLICT OF LAWS RULE WHICH WOULD APPLY THE LAW OF
ANOTHER STATE. This Agreement states the entire agreement between the
parties and no waiver, representation, or agreement shall affect this
Agreement unless it is in writing.
AGREED TO BY:
NATURAL GAS PIPELINE COMPANY OF AMERICA THE PEOPLES GAS LIGHT AND COKE
COMPANY
"Natural" "Shipper"
By: /s/ Stephen G. Weiman By: /s/ William E. Morrow
Name: Stephen G. Weiman Name: William E. Morrow
Title: Senior Vice President Title: Vice President
Contract No. 113417
Exhibit 10(e)
Contract No. 113418
NATURAL GAS PIPELINE COMPANY OF AMERICA (Natural)
TRANSPORTATION RATE SCHEDULE FTS AGREEMENT DATED January 15, 1998
UNDER SUBPART G OF PART 284 OF THE FERC'S REGULATIONS
1. SHIPPER is: THE PEOPLES GAS LIGHT AND COKE COMPANY, a LOCAL
DISTRIBUTION COMPANY.
2. (a) MDQ totals: 105,071 MMBTU per day.
(b) Service option selected (check any or all):
[ ] LN [ ] SW [ ] NB
3. TERM: Service under FTS Agreement No. 113418 shall commence on the
next calendar day following the termination of Peoples Gas FTS
Agreement No. 110381 dated December 1, 1995, and shall continue
through the last day of the month in which twelve complete months of
service have been provided under the FTS Agreement.
4. Service will be ON BEHALF OF: [X ] Shipper or [ ] Other:.
5. The ULTIMATE END USERS are customers within any state in the
continental U.S.; or (specify state)
__________________________________________________________________
6. [ ] This Agreement supersedes and cancels a __________ Agreement
dated ______
[ ] Capacity rights for this Agreement were released from Natural's
Transportation Rate Schedule Agreement (KT #) dated and are subject to
any recall/return provisions in Natural's Capacity Release Package ID
#.
[X] Service and reservation charges commence the latter of:
(a) December 01, 1998, and
(b) the date capacity to provide the service hereunder is
available on Natural's System.
[ ] Other: ____________________________________
7. SHIPPER'S ADDRESSES NATURAL'S ADDRESSES
General Correspondence:
THE PEOPLES GAS LIGHT AND COKE COMPANY NATURAL GAS PIPELINE COMPANY OF
AMERICA
WILLIAM MORROW ATTENTION: GAS TRANSPORTATION SERVICES
130 E. RANDOLPH ST- 23RD FLOOR 3200 SOUTHWEST FREEWAY 77027-7523
CHICAGO, IL 60601-6207 P.O. BOX 283 77001-0283
HOUSTON, TEXAS
Statements/Invoices/Accounting Related Materials:
THE PEOPLES GAS LIGHT AND COKE COMPANY NATURAL GAS PIPELINE COMPANY OF
AMERICA
PATRICIA GARCIA ATTENTION: ACCOUNT SERVICES
130 E. RANDOLPH ST - 23RD FLOOR 701 EAST 22ND STREET
CHICAGO, IL 60601-6207 LOMBARD, ILLINOIS 60148
Payments:
NATURAL GAS PIPELINE COMPANY OF AMERICA
P.O. BOX 2910
CAROL STREAM, ILLINOIS 60132-2910
FOR WIRE TRANSFER OR ACH:
DEPOSITORY INSTITUTION: CITIBANK N.A.
ABA ROUTING#: 021000089
ACCOUNT #: 4067-6195
8. The above stated Rate Schedule, as revised from time to time, controls
this Agreement and is incorporated herein. The attached Exhibits A, B, and
C (for firm service only) are a part of this Agreement. NATURAL AND SHIPPER
ACKNOWLEDGE THAT THIS AGREEMENT IS SUBJECT TO THE PROVISIONS OF NATURAL'S
FERC GAS TARIFF AND APPLICABLE FEDERAL LAW. TO THE EXTENT THAT STATE LAW IS
APPLICABLE, NATURAL AND SHIPPER EXPRESSLY AGREE THAT THE LAWS OF THE STATE
OF ILLINOIS SHALL GOVERN THE VALIDITY, CONSTRUCTION, INTERPRETATION AND
EFFECT OF THIS CONTRACT, EXCLUDING, HOWEVER, ANY CONFLICT OF LAWS RULE
WHICH WOULD APPLY THE LAW OF ANOTHER STATE. This Agreement states the
entire agreement between the parties and no waiver, representation, or
agreement shall affect this Agreement unless it is in writing. Shipper
shall provide the actual end user purchaser name(s) to Natural if Natural
must provide them to FERC.
AGREED TO BY:
NATURAL GAS PIPELINE COMPANY OF AMERICA THE PEOPLES GAS LIGHT AND COKE
COMPANY
"Natural" "Shipper"
By: /s/ Stephen G. Weiman By: /s/ William E. Morrow
Name: Stephen G. Weiman Name: William E. Morrow
Title: Senior Vice President Title: Vice President
113418
EXHIBIT A
DATED: January 15, 1998
EFFECTIVE DATE: December 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113418
RECEIPT POINT/S
County/Parish PIN MDQ
Name/Location Area State No. Zone (MMBtu/d)
PRIMARY RECEIPT POINT/S
1. NGPL/TPC GAGE GAGE NE 2900 07 105,071
INTERCONNECT WITH TRAILBLAZER PIPELINE
IN SEC. 15-T4N-R6E, GAGE COUNTY,
NEBRASKA.
SECONDARY RECEIPT POINT/S
All secondary receipt point, and the related priorities and volumes, as
provided under the Tariff provisions governing this Agreement.
RECEIPT PRESSURE, ASSUMED ATMOSPHERIC PRESSURE
Natural gas to be delivered to Natural at the Receipt Point/s shall be
at a delivery pressure sufficient to enter Natural's pipeline facilities at
the pressure maintained from time to time, but Shipper shall not deliver
gas at a pressure in excess of the Maximum Allowable Operating Pressure
(MAOP) stated for each Receipt Point. The measuring party shall use or
cause to be used an assumed atmospheric pressure corresponding to the
elevation at such Receipt Point/s.
RATES
Except as provided to the contrary in any written agreement(s) between
the parties in effect during the term hereof, Shipper shall pay Natural the
maximum rate and all other lawful charges as specified in Natural's
applicable rate schedule.
FUEL GAS AND GAS LOST AND UNACCOUNTED FOR PERCENTAGE (%)
Shipper will be assessed the applicable percentage for Fuel Gas and Gas
Lost and Unaccounted For.
TRANSPORTATION OF LIQUIDS
Transportation of liquids may occur at permitted points identified in
Natural's current Catalog of Receipt and Delivery Points, but only if the
parties execute a separate liquids agreement.
A-1
EXHIBIT B
DATED January 15, 1998
EFFECTIVE DATE: December 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113418
DELIVERY POINT/S
County/Parish PIN MDQ
Name/Location Area State No. Zone (MMBtu/d)
PRIMARY DELIVERY POINT/S
1. NO SHORE/NGPL GRAYSLAKE LAKELAKE IL 1 06 50,000
INTERCONNECT WITH NORTH SHORE GAS
COMPANY LOCATED IN SEC. 12-T44N-R10E,
LAKE COUNTY, ILLINOIS.
2. PGLC/NGPL OAKTON STREET COOKCOOK IL 4174 06 55,071
INTERCONNECT WITH THE PEOPLES GAS
LIGHT AND COKE COMPANY ON TRANSPORTER'S
HOWARD STREET LINE IN SEC. 26-T41N-R13E,
COOK COUNTY, ILLINOIS.
SECONDARY DELIVERY POINT/S
All secondary delivery points, and the related priorities and volumes,
as provided under the Tariff provisions governing this Agreement.
DELIVERY PRESSURE, ASSUMED ATMOSPHERIC PRESSURE
Natural gas to be delivered by Natural to Shipper, or for Shipper's
account, at the Delivery Point/s shall be at the pressure available in
Natural's pipeline facilities from time to time. The measuring party shall
use or cause to be used an assumed atmospheric pressure corresponding to
the elevation at such Delivery Point/s.
B-1
EXHIBIT C
DATED January 15, 1998
EFFECTIVE DATE: December 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113418
Pursuant to Natural's tariff, an MDQ exists for each primary
transportation path segment and direction under the Agreement. Such MDQ is
the maximum daily quantity of gas which Natural is obligated to transport
on a firm basis along a primary transportation path segment.
A primary transportation path segment is the path between a primary
receipt, delivery, or node point and the next primary receipt, delivery, or
node point. A node point is the point of interconnection between two or
more of Natural's pipeline facilities.
A segment is a section of Natural's pipeline system designated by a
segment number whereby the Shipper under the terms of their agreement based
on the points within the segment identified on Exhibit C has throughput
capacity rights.
The segment numbers listed on Exhibit C reflect this Agreement's path
corresponding to Natural's most recent Pipeline System Map which identifies
segments and their corresponding numbers. All information provided in this
Exhibit C is subject to the actual terms and conditions of Natural's
Tariff.
C-1
EXHIBIT C
DATED January 15, 1998
EFFECTIVE DATE: December 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113418
Segment Upstream Forward/Backward Flow Through
Number Segment Haul (Contractual) Capacity
12 0 F 0
13 12 F 105,071
14 13 F 105,071
29 14 F 50,000
30 14 F 55,071
37 29 F 50,000
39 37 F 50,000
C-2
Exhibit 10(f)
Contract No. 113419
NATURAL GAS PIPELINE COMPANY OF AMERICA (Natural)
TRANSPORTATION RATE SCHEDULE FTS LN/NB AGREEMENT DATED January 15, 1998
UNDER SUBPART G OF PART 284 OF THE FERC'S REGULATIONS
1. SHIPPER is: THE PEOPLES GAS LIGHT AND COKE COMPANY, a LOCAL
DISTRIBUTION COMPANY.
2. (a) MDQ totals: 90,000 MMBTU per day.
(b) Service option selected (check any or all):
[X] LN [ ] SW IX] NB
3. TERM: April 01, 1998 through March 31, 2000.
4. Service will be ON BEHALF OF: IX ] Shipper or [ ] Other:.
5. The ULTIMATE END USERS are customers within any state in the
continental U.S.; or (specify state)
_____________________________________________________________
6. [ ] This Agreement supersedes and cancels a __________ Agreement
dated _______
[ ] Capacity rights for this Agreement were released from Natural's
Transportation Rate Schedule Agreement (KT #) dated and are subject to
any recall/return provisions in Natural's Capacity Release Package ID
#.
[X] Service and reservation charges commence the latter of:
(a) April 01, 1998, and
(b) the date capacity to provide the service hereunder is
available on Natural's System.
[ ] Other: __________________________________________________
7. SHIPPER'S ADDRESSES NATURAL'S ADDRESSES
General Correspondence:
THE PEOPLES GAS LIGHT AND COKE COMPANY NATURAL GAS PIPELINE COMPANY OF
AMERICA
WILLIAM MORROW ATTENTION: GAS TRANSPORTATION SERVICES
130 E. RANDOLPH ST- 23RD FLOOR 3200 SOUTHWEST FREEWAY 77027-7523
CHICAGO, IL 60601-6207 P.O. BOX 283 77001-0283
HOUSTON, TEXAS
Statements/Invoices/Accounting Related Materials:
THE PEOPLES GAS LIGHT AND COKE COMPANY NATURAL GAS PIPELINE COMPANY OF
AMERICA
PATRICIA GARCIA ATTENTION: ACCOUNT SERVICES
130 E. RANDOLPH ST- 23RD FLOOR 701 EAST 22ND STREET
CHICAGO, IL 60601-6207 LOMBARD, ILLINOIS 60148
Payments:
NATURAL GAS PIPELINE COMPANY OF AMERICA
P.O. BOX 2910
CAROL STREAM, ILLINOIS 60132-2910
FOR WIRE TRANSFER OR ACH:
DEPOSITORY INSTITUTION: CITIBANK N.A.
ABA ROUTING #: 021000089
ACCOUNT #: 4067-6195
8. The above stated Rate Schedule, as revised from time to time, controls
this Agreement and is incorporated herein. The attached Exhibits A, B,
and C (for firm service only) are a part of this Agreement. NATURAL
AND SHIPPER ACKNOWLEDGE THAT THIS AGREEMENT IS SUBJECT TO THE
PROVISIONS OF NATURAL'S FERC GAS TARIFF AND APPLICABLE FEDERAL LAW. TO
THE EXTENT THAT STATE LAW IS APPLICABLE, NATURAL AND SHIPPER EXPRESSLY
AGREE THAT THE LAWS .OF THE STATE OF ILLINOIS SHALL GOVERN THE
VALIDITY, CONSTRUCTION, INTERPRETATION AND EFFECT OF THIS CONTRACT,
EXCLUDING, HOWEVER, ANY CONFLICT OF LAWS RULE WHICH WOULD APPLY THE
LAW OF ANOTHER STATE. This Agreement states the entire agreement
between the parties and no waiver, representation, or agreement shall
affect this Agreement unless it is in writing. Shipper shall provide
the actual end user purchaser name(s) to Natural if Natural must
provide them to FERC.
AGREED TO BY:
NATURAL GAS PIPELINE COMPANY OF AMERICA THE PEOPLES GAS LIGHT AND COKE
COMPANY
"Natural" "Shipper"
By: /s Stephen G. Weiman By: /s/ William E. Morrow
Name: Stephen G. Weiman Name: William E. Morrow
Title: Senior Vice President Title: Vice President
113419
EXHIBIT A
DATED: January 15, 1998
EFFECTIVE DATE: April 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113419
RECEIPT POINT/S
County/Parish PIN MDQ
Name/Location Area State No. Zone (MMBtu/d)
PRIMARY RECEIPT POINT/S
1. NGCENRGY/NGPL MAUD MILLER MILLER AR 3844 08 90,000
INTERCONNECT WITH NGC ENERGY ON TRANSPORTER'S
MAUD LATERAL IN SEC. 33-T17S-R28W,
MILLER COUNTY, ARKANSAS.
SECONDARY RECEIPT POINT/S
All secondary receipt point, and the related priorities and volumes, as
provided under the Tariff provisions governing this Agreement.
RECEIPT PRESSURE, ASSUMED ATMOSPHERIC PRESSURE
Natural gas to be delivered to Natural at the Receipt Point/s shall be
at a delivery pressure sufficient to enter Natural's pipeline facilities at
the pressure maintained from time to time, but Shipper shall not deliver
gas at a pressure in excess of the Maximum Allowable Operating Pressure
(MAOP) stated for each Receipt Point. The measuring party shall use or
cause to be used an assumed atmospheric pressure corresponding to the
elevation at such Receipt Point/s.
RATES
Except as provided to the contrary in any written agreement(s) between
the parties in effect during the term hereof, Shipper shall pay Natural the
maximum rate and all other lawful charges as specified in Natural's
applicable rate schedule.
FUEL GAS AND GAS LOST AND UNACCOUNTED FOR PERCENTAGE (%)
Shipper will be assessed the applicable percentage for Fuel Gas and Gas
Lost and Unaccounted For.
TRANSPORTATION OF LIQUIDS
Transportation of liquids may occur at permitted points identified in
Natural's current Catalog of Receipt and Delivery Points, but only if the
parties execute a separate liquids agreement.
A-1
EXHIBIT B
DATED January 15, 1998
EFFECTIVE DATE: April 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113419
DELIVERY POINT/S
County/Parish PIN MDQ
Name/Location Area State No. Zone (MMBtu/d)
PRIMARY DELIVERY POINT/S
1. NO SHORE/NGPL GRAYSLAKE LAKE LAKE IL 1 06 45,000
INTERCONNECT WITH NORTH SHORE GAS
COMPANY LOCATED IN SEC. 12-T44N-R10E,
LAKE COUNTY, ILLINOIS.
2. PGLC/NGPL OAKTON STREET COOK COOK IL 4174 06 45,000
INTERCONNECT WITH THE PEOPLES GAS
LIGHT AND COKE COMPANY ON TRANSPORTER'S
HOWARD STREET LINE IN SEC. 26-T41N-R13E,
COOK COUNTY, ILLINOIS.
SECONDARY DELIVERY POINT/S
All secondary delivery points, and the related priorities and volumes,
as provided under the Tariff provisions governing this Agreement.
DELIVERY PRESSURE, ASSUMED ATMOSPHERIC PRESSURE
Natural gas to be delivered by Natural to Shipper, or for Shipper's
account, at the Delivery Point/s shall be at the pressure available in
Natural's pipeline facilities from time to time. The measuring party shall
use or cause to be used an assumed atmospheric pressure corresponding to
the elevation at such Delivery Point/s.
B-1
EXHIBIT C
DATED January 15, 1998
EFFECTIVE DATE: April 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113419
Pursuant to Natural's tariff, an MDQ exists for each primary
transportation path segment and direction under the Agreement. Such MDQ is
the maximum daily quantity of gas which Natural is obligated to transport
on a firm basis along a primary transportation path segment.
A primary transportation path segment is the path between a primary
receipt, delivery, or node point and the next primary receipt, delivery, or
node point. A node point is the point of interconnection between two or
more of Natural's pipeline facilities.
A segment is a section of Natural's pipeline system designated by a
segment number whereby the Shipper under the terms of their agreement based
on the points within the segment identified on Exhibit C has throughput
capacity rights.
The segment numbers listed on Exhibit C reflect this Agreement's path
corresponding to Natural's most recent Pipeline System Map which identifies
segments and their corresponding numbers. All information provided in this
Exhibit C is subject to the actual terms and conditions of Natural's Tariff
C-1
EXHIBIT C
DATED January 15, 1998
EFFECTIVE DATE: April 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113419
Segment Upstream Forward/Backward Flow Through
Number Segment Haul (Contractual) Capacity
27 0 F 0
28 27 F 90,000
30 28 F 45,000
39 40 F 45,000
40 28 F 45,000
C-2
EXHIBIT D - (NB Service Option)
DATED January 15, 1998
EFFECTIVE DATE: April 01, 1998
COMPANY: THE PEOPLES GAS LIGHT AND COKE COMPANY
CONTRACT: 113419
FTS-NB DELIVERY POINT/S
NB
Service
County/Parish PIN MDQ
Name/Location Area State No. Zone (MMBTU)
1. NO SHORE/NGPL GRAYSLAKE LAKE LAKE IL 1 06 45,000
INTERCONNECT WITH NORTH SHORE GAS
COMPANY LOCATED IN SEC. 12-T44N-R10E,
LAKE COUNTY, ILLINOIS.
2. PGLC/NGPL OAKTON STREET COOK COOK IL 4174 06 45,000
INTERCONNECT WITH THE PEOPLES GAS
LIGHT AND COKE COMPANY ON TRANSPORTER'S
HOWARD STREET LINE IN SEC. 26-T41N-R13E,
COOK COUNTY, ILLINOIS.
NGPL STORAGE AGREEMENTS DEDICATED TO FTS-NB SERVICE:
113417
THIRD PARTY STORAGE PROVIDER/POINT NO.
County/Parish PIN
Name/Location Area State No. Zone
SPSSO Agreement No.* (none)
*FTS-NB Service utilizing a Third Party Storage Point (as such term is
defined in Natural's Tariff) is expressly contingent upon the continuing
existence of a valid SPSSO Agreement and Operational Balancing Agreement at
such point.
D-1
Exhibit 10(g)
Contract #: T1066F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
This Agreement (the "Service Agreement") is made and entered into
at Omaha, Nebraska as of August 14, 1997, by and between
NORTHERN BORDER PIPELINE COMPANY, hereinafter referred to as
"Company" and NORTH SHORE GAS COMPANY, a(n) Illinois
corporation, hereinafter referred to as "Shipper".
WHEREAS, Company's investors and lenders rely on Certificates of
Public Convenience and Necessity granted by the Federal Energy
Regulatory Commission and on the Tariff for the return of and the
return on all funds invested in or loaned to the Company; and
WHEREAS, the transportation of natural gas shall be effectuated
pursuant to Part 157 or Part 284 of the Federal Energy Regulatory
Commission's Regulations; and
WHEREAS, Company recognizes that it will be a condition to the
initial effectiveness of this Service Agreement that,
notwithstanding any other provision of the Tariff or this Service
Agreement, the FERC and all other appropriate federal
governmental authorities and/or agencies in the United States
shall have issued, under terms and conditions acceptable to
Shipper, all final nonappealable authorizations and certificates;
NOW THEREFORE, in consideration of their respective covenants and
agreements hereinafter set out, the parties hereto covenant and
agree as follows:
Article 1 - Basic Receipts
Shipper shall on each day beginning with Shipper's Billing
Commencement Date, as defined in Section 1 of the General Terms
and Conditions of Company's FERC Gas Tariff, be entitled to
tender and, following tender, deliver to Company, at each of
Shipper's Points of Receipt, a quantity of gas not in excess of
the Daily Receipt Quantity for such Point of Receipt for such
day, as defined in such Section 1, and Company shall, on such
day, take receipt of the quantity of gas so tendered and
delivered by Shipper at such Point of Receipt.
Article 2 - Excess Receipts
If Shipper shall desire to tender to Company on any day beginning
with Shipper's Billing Commencement Date, at any of Shipper's
Points of Receipt, a quantity of gas in excess of Shipper's Daily
Receipt Quantity for such Point of Receipt for such day, it shall
notify Company of such desire. If Company in its sole judgment,
determines that it has available the necessary capacity to
receive and transport all or any part of such excess quantity and
make deliveries in respect thereof, and that the performance of
Company's obligations to other Shippers under their Agreements
will not be adversely affected thereby, Company may elect to
receive from Shipper said excess quantity or part thereof, and
shall so notify Shipper. Scheduling of Excess Receipts will be in
accordance with Section 10 of the General Terms and Conditions.
-1-
Contract #: T1066F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 3 - Deliveries
Company shall deliver gas to Shipper at the Point(s) of Delivery
and under the conditions specified in Exhibit A hereto and in
accordance with Section 13 of the General Terms and Conditions.
Article 4 - Payments
Shipper shall make payments to Company in accordance with Rate
Schedules T-1 and OT-1 and the other applicable terms and
provisions of this Service Agreement.
Article 5 - Change in Tariff Provisions
Upon notice to Shipper, Company shall have the right to file with
the Federal Energy Regulatory Commission any changes in the terms
of any of its Rate Schedules, General Terms and Conditions or
Form of Service Agreement as Company may deem necessary, and to
make such changes effective at such times as Company desires and
is possible under applicable law. Shipper may protest any filed
changes before the Federal Energy Regulatory Commission and
exercise any other rights it may have with respect thereto.
Article 6 - Cancellation of Prior Agreements
When this Service Agreement becomes effective, it shall
supersede, cancel and terminate the following Agreements:
- -none-
Article 7 - Term
This Service Agreement shall become effective upon its execution
and shall under all circumstances continue in effect in
accordance with the Tariff for ten (10) years after the Billing
Commencement Date, defined herein as the later of November 1,
1998, or the in-service date of the facilities certificated for
the construction and operation in a Federal Energy Regulatory
Commission proceeding prosecuted by Company in reliance upon this
Agreement, and shall continue in effect thereafter until extended
or terminated in accordance with Section 5 of the Rate Schedule T-
1. Shipper shall give Company not less than six (6) months prior
written notice of Shipper's intent to terminate this Service
Agreement. Service rendered pursuant to this Service Agreement
shall be abandoned upon termination of this Service Agreement.
This Service Agreement shall automatically terminate and be of no
further force and effect unless Shipper shall furnish a proper
security arrangement, in accordance with Subsection 9.1 of Rate
Schedule T-1, to the Company within thirty (30) days after notice
from the Company subsequent to the occurrence of any of the
following events:
-2-
Contract #: T1066F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
The filing by Shipper or its parent of a voluntary petition
in bankruptcy or the entry of a decree or order by a court
having jurisdiction in the premises adjudging the Shipper as
bankrupt or insolvent, or approving as properly filed a
petition seeking reorganization, arrangement, adjustment or
composition of or in respect of the Shipper under the
Federal Bankruptcy Act or any other applicable federal or
state law, or appointing a receiver, liquidator, assignee,
trustee, sequestrator (or other similar official) of the
Shipper or any substantial part of its property, or the
ordering of the winding-up or liquidation of its affairs,
with said order or decree continuing unstayed and in effect
for a period of sixty (60) consecutive days.
A failure by Shipper to pay in full the undisputed amount of
any invoice rendered by Company shall continue for ten (10)
days from the date payment is due.
Termination of this Service Agreement shall not relieve Company
and Shipper of the obligation to correct any Receipt or Delivery
Imbalances hereunder, or Shipper to pay money due hereunder to
Company and shall be in addition to any other remedies that
Company may have.
Article 8 - Applicable Law and Submission to Jurisdiction
This Service Agreement and Company's Tariff, and the rights and
obligations of Company and Shipper thereunder are subject to all
relevant United States lawful statutes, rules, regulations and
orders of duly constituted authorities having jurisdiction.
Subject to the foregoing, this Service Agreement shall be
governed by and interpreted in accordance with the laws of the
State of Nebraska. For purposes of legal proceedings, this
Service Agreement shall be deemed to have been made in the State
of Nebraska and to be performed there, and the Courts of that
State shall have jurisdiction over all disputes which may arise
under this Service Agreement, provided always that nothing herein
contained shall prevent the Company from proceeding at its
election against the Shipper in the Courts of any other state,
Province or country.
At the Company's request, the Shipper shall irrevocably appoint
an agent in Nebraska to receive, for it and on its behalf,
service of process in connection with any judicial proceeding in
Nebraska relating to this Service Agreement. Such service shall
be deemed completed on delivery to such process agent (even if
not forwarded to and received by the Shipper). If said agent
ceases to act as a process agent within Nebraska on behalf of
Shipper, the Shipper shall appoint a substitute process agent
within Nebraska and deliver to the Company a copy of the new
agent's acceptance of that appointment within 30 days.
-3-
Contract #: T1066F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 9 - Successors and Assigns
Any person which shall succeed by purchase, amalgamation, merger
or consolidation to the properties, substantially as an entirety,
of Shipper or of Company, as the case may be, and which shall
assume all obligations under Shipper's Service Agreement of
Shipper or Company, as the case may be, shall be entitled to the
rights, and shall be subject to the obligations, of its
predecessor under Shipper's Service Agreement. Either party to a
Shipper's Service Agreement may pledge or charge the same under
the provisions of any mortgage, deed of trust, indenture,
security agreement or similar instrument which it has executed,
or assign such Service Agreement to any affiliated Person (which
for such purpose shall mean any person which controls, is under
common control with or is controlled by such party). Nothing
contained in this Article 9 shall, however, operate to release
predecessor Shipper from its obligation under its Service
Agreement unless Company shall, in its sole discretion, consent
in writing to such release, which it shall not do unless it
concludes that, on the basis of the facts available to it, such
release is not likely to have a substantial adverse effect upon
other Shippers or other Persons who may become liable to provide
funds to Company to enable it to meet any of its obligations.
Company shall not release any Shipper from its obligations under
its Service Agreement without the written consent of the other
Shippers unless: (a) such release is effected pursuant to an
assignment of obligations by such Shipper, and the assumption
thereof by the assignee, and the terms of such assignment and
assumption render the obligations being assigned and assumed no
more conditional and no less absolute than those at the time
provided therein; and (b) such release is not likely to have a
substantial adverse effect upon Company or the other Shippers.
For the purposes hereof, and without limiting the generality of
the foregoing, any release of any Shipper from its obligations
under its Service Agreement shall be deemed likely to have a
substantial adverse effect upon Company or the other Shippers if
the assignee of such obligations has a credit standing which is
not at least equal to the credit standing of the assignor of such
obligations (credit standings in each case as reflected by the
ratings on outstanding debt securities by Moody's Investors
Service, Standard and Poor's Corporation or another rating
service acceptable to all Shippers to the extent available or by
other appropriate objective measures). Shipper shall, at
Company's request, execute such instruments and take such other
action as may be desirable to give effect to any such assignment
of Company's rights under such Shipper's Service Agreement or to
give effect to the right of a Person whom the Company has
specified pursuant to Section 6 of the General Terms and
Conditions of Company's FERC Gas Tariff as the Person to whom
payment of amounts invoiced by Company shall be made; provided,
however, that: (a) Shipper shall not be required to execute any
such instruments or take any such other action the effect of
which is to modify the respective rights and obligations of
either Shipper or Company under this Service Agreement; and (b)
Shipper shall be under no obligation at any time to determine the
status or amount of any payments which may be due from Company to
any Person whom the Company has specified pursuant to said
Section 6 as the Person to whom payment of amounts invoiced by
Company shall be made.
-4-
Contract #: T1066F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
Article 10 - Loss of Governmental Authority, Gas Supply,
Transportation or Market
Without limiting its other responsibilities and obligations under
this Service Agreement, the Shipper acknowledges that it is
responsible for obtaining and assumes the risk of loss of the
following: (1) gas removal permits, (2) export and import
licenses, (3) gas supply, (4) markets and (5) transportation
upstream and downstream of the Company's pipeline system.
Notwithstanding the loss of one of the items enumerated above,
Shipper shall continue to be liable for payment to the Company of
the transportation charges as provided for in this Service
Agreement.
Article 11 - Other Operating Provisions
(This Article to be utilized when necessary to specify other
operating provisions.)
Article 12 - Exhibit A of Service Agreement, Rate Schedules and
General Terms and Conditions
Company's Rate Schedules and General Terms and Conditions, which
are on file with the Federal Energy Regulatory Commission and in
effect, and Exhibit A hereto are all applicable to this Service
Agreement and are hereby incorporated in, and made a part of,
this Service Agreement. In the event that the terms and
conditions herein are in conflict with the General Terms and
Conditions in Company's FERC Gas Tariff, the terms and conditions
of this Service Agreement are controlling.
IN WITNESS WHEREOF, The parties hereto have caused this Service
Agreement to be duly executed as of the day and year first set
forth above.
ATTEST: NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas Company,
Operator
/s/ Eva Neufeld By: /s/ Robert A. Hill
Assistant Secretary
Title: Vice President
ATTEST: NORTH SHORE GAS COMPANY
_________________________ By: /s/ William E. Morrow
Title: Vice President
-5-
Contract #: T1066F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT
Company: NORTHERN BORDER PIPELINE COMPANY
Company's Address: 1111 South 103rd Street
Omaha, Nebraska 68124-1000
Shipper: NORTH SHORE GAS COMPANY
Attn: Mr. Roulando DeLara
Shipper's Address: 130 E. Randolph Dr., 22nd Floor
Chicago, IL 60601
Maximum Minimum Maximum
Role Maximum Receipt Delivery Receipt Minimum
(Notes Quantity Pressure Pressure Temperature Temperature
Points 1 and 3) (MCF/Day) (PSIG) (PSIG) (F) (F)
Harper, IA RD 40,000 -- -- -- --
TP 40,000 -- -- -- --
PD 40,000 -- 712 -- 32
DD 40,000 -- -- -- --
Iowa City, IA RD 40,000 -- -- -- --
(Secondary- TP 40,000 -- -- -- --
Note 2)
PD 40,000 -- 600 -- 32
DD 40,000 -- -- -- --
Davenport, IA RD 40,000 -- -- -- --
(Secondary- TP 40,000 -- -- -- --
Note 2)
PD 40,000 -- 650 -- 32
DD 40,000 -- -- -- --
Prophetstown,IL RD 40,000 -- -- -- --
(Secondary- TP 40,000 -- -- -- --
Note 2)
PD 40,000 -- 600 -- 32
DD 40,000 -- -- -- --
Troy Grove,IL RD 40,000 -- -- -- --
(Secondary- TP 40,000 -- -- -- --
Note 2)
PD 40,000 -- 750 -- 32
DD 40,000 -- -- -- --
-6-
Contract #: T1066F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT (continued)
Maximum Minimum Maximum
Role Maximum Receipt Delivery Receipt Minimum
(Notes Quantity Pressure Pressure Temperature Temperature
Points 1 and 3) (MCF/Day) (PSIG) (PSIG) (F) (F)
Minooka, IL RD 40,000 -- -- -- --
(Secondary- TP 40,000 -- -- -- --
Note2)
PD 40,000 -- 550 -- 32
DD 40,000 -- -- -- --
Channahon, IL RD 40,000 -- -- -- --
(Secondary- TP 40,000 -- -- -- --
Note 2)
PD 40,000 -- 850 -- 32
DD 40,000 -- -- -- --
Joliet, IL RD 40,000 -- -- -- --
(Secondary- TP 40,000 -- -- -- --
Note 2)
PD 40,000 -- 850 -- 32
DD 40,000 -- -- -- --
Manhattan, IL RD 40,000 -- -- -- --
TP 40,000 -- -- -- --
PD 40,000 -- 858 -- 32
DD 40,000 -- -- -- --
Total Maximum
Receipt Quantity 40,000 MCF
Note 1: The point role will be either PR for physical receipts,
RD for receipt by displacement, TP for transfer points,
PD for physical deliveries, and DD for delivery by
displacement.
Note 2: Should nominations at secondary receipt and delivery
points be received which exceed available capacity,
volumes will be scheduled in accordance with Northern
Border's nomination and scheduling procedures.
-7-
Contract #: T1066F
NORTHERN BORDER PIPELINE COMPANY
U.S. SHIPPERS SERVICE AGREEMENT
EXHIBIT A TO U.S. SHIPPERS SERVICE AGREEMENT (continued)
Note 3:For receipt or delivery of gas by displacement, Company
cannot and does not have an obligation to physically
deliver or receive gas at these points. Volumes will be
delivered or received at these point(s) only to the
extent that corresponding equal or greater volumes are
received or delivered by other parties at these points on
the same day. These corresponding volumes will be used to
displace volumes nominated for delivery or receipt by
Shipper.
Note 4:Gas volumes which are nominated/scheduled at a sub
primary receipt or delivery point(s) have priority over
gas volumes of shipper utilizing such point on a
corresponding basis as a secondary receipt or delivery
point. Shipper's rights and obligations regarding the use
of sub primary points are governed by Subsection 17.1 of
the General Terms and Conditions of the Tariff.
This Exhibit A. is made and entered into as of August 14,
1997. On the effective date designated by the Federal Energy
Regulatory Commission, it shall supersede the Exhibit A dated as
of N/A .
The effective date of this Exhibit A is August 14, 1997 .
ATTEST: NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas Company,
Operator
/s/ Eva Neufeld By: /s/ Robert A. Hill
Assistant Secretary
Title: Vice President
ATTEST: NORTH SHORE GAS COMPANY
__________________________ By: /s/ William E. Morrow
Title: Vice President
-8-
Amendment #2
#2295
AMENDMENT TO PRECEDENT AGREEMENT
BETWEEN
NORTHERN BORDER PIPELINE COMPANY
AND
NORTH SHORE GAS COMPANY
DATED AUGUST 10, 1995
This Amendment is entered into as of this 15th day of July,
1997, by and between NORTHERN BORDER PIPELINE COMPANY, and NORTH
SHORE GAS COMPANY,
The parties hereby agree as follows:
Article 5(iii) of the Precedent Agreement concerning
termination rights and required notice, shall be amended to
read as follows:
STRIKE "July 1, 1997" and substitute
"August 1, 1997"; and
STRIKE "July 15, 1997" and substitute
"August 15, 1997"
IN WITNESS WHEREOF, the parties hereto have caused this Amendment
to be duly executed as of the day and year set forth above.
NORTHERN BORDER PIPELINE COMPANY
By: Northern Plains Natural Gas Company,
Operator
By: /s/ Robert A. Hill
Title: Vice President
ATTEST: NORTH SHORE GAS COMPANY
/s/ Thomas M. Patrick
/s/ Thomas W. Harwig By: Thomas M. Patrick
Assistant Secretary
Title: Executive Vice President
ATTEST:
___________________________ By: ___________________________
Title:_________________________
Exhibit 10(h)
Contract .No. 113421
NATURAL GAS PIPELINE COMPANY OF AMERICA (Natural)
TRANSPORTATION RATE SCHEDULE FTS AGREEMENT DATED January 15, 1998
UNDER SUBPART G OF PART 284 OF THE FERC'S REGULATIONS
1. SHIPPER is: NORTH SHORE GAS COMPANY, a LOCAL DISTRIBUTION COMPANY.
2. (a) MDQ totals: 8,929 MMBTU per day.
(b) Service option selected (check any or all):
[ ] LN [ ] SW [ ] NB
3. TERM: Service under FTS Agreement No. 113421 shall commence on the
next calendar day following the termination of North Shore's FTS
Agreement No. 110522 dated September 22, 1995, and shall continue
through the last day of the month in which twelve complete calendar
months of service have been provided under the FTS Agreement.
4. Service will be ON BEHALF OF: [X ] Shipper or [ ] Other:.
5. The ULTIMATE END USERS are customers within any state in the
continental U.S.; or (specify state)
_______________________________________________________________
6. [ ] This Agreement supersedes and cancels a __________ Agreement
dated __________
[ ] Capacity rights for this Agreement were released from Natural's
Transportation Rate Schedule Agreement (KT #) dated and are subject to
any recall/return provisions in Natural's Capacity Release Package ID
#.
[X] Service and reservation charges commence the latter of:
(a) December 01, 1998, and
(b) the date capacity to provide the service hereunder is
available on Natural's System.
[ ] Other: _______________________________________________________
7. SHIPPER'S ADDRESSES NATURAL'S ADDRESSES
General Correspondence:
NORTH SHORE GAS COMPANY NATURAL GAS PIPELINE COMPANY OF AMERICA
WILLIAM MORROW ATTENTION: GAS TRANSPORTATION SERVICES
130 E. RANDOLPH DR., 23RD FLOOR 3200 SOUTHWEST FREEWAY 77027-7523
CHICAGO, IL 60601-6207 P.O. BOX 283 77001-0283
HOUSTON, TEXAS
Statements/Invoices/Accountinq Related Materials:
NORTH SHORE GAS COMPANY NATURAL GAS PIPELINE COMPANY OF AMERICA
WILLIAM MORROW ATTENTION: ACCOUNT SERVICES
130 E. RANDOLPH DR., 23RD FLOOR 701 EAST 22ND STREET
CHICAGO, IL 60601-6207 LOMBARD, ILLINOIS 60148
Payments:
NATURAL GAS PIPELINE COMPANY OF AMERICA
P. O. BOX 2910
CAROL STREAM, ILLINOIS 60132-2910
FOR WIRE TRANSFER OR ACH:
DEPOSITORY INSTITUTION: CITIBANK N.A.
ABA ROUTING #: 021000089
ACCOUNT #: 4067-6195
8. The above stated Rate Schedule, as revised from time to time, controls this
Agreement and is incorporated herein. The attached Exhibits A, B, and
C (for firm service only) are a part of this Agreement. NATURAL AND
SHIPPER ACKNOWLEDGE THAT THIS AGREEMENT IS SUBJECT TO THE PROVISIONS
OF NATURAL'S FERC GAS TARIFF AND APPLICABLE FEDERAL LAW. TO THE EXTENT
THAT STATE LAW IS APPLICABLE, NATURAL AND SHIPPER EXPRESSLY AGREE THAT
THE LAWS OF THE STATE OF ILLINOIS SHALL GOVERN THE VALIDITY,
CONSTRUCTION, INTERPRETATION AND EFFECT OF THIS CONTRACT, EXCLUDING,
HOWEVER, ANY CONFLICT OF LAWS RULE WHICH WOULD APPLY THE LAW OF
ANOTHER STATE. This Agreement states the entire agreement between the
parties and no waiver, representation, or agreement shall affect this
Agreement unless it is in writing. Shipper shall provide the actual
end user purchaser name(s) to Natural if Natural must provide them to
FERC.
AGREED TO BY:
NATURAL GAS PIPELINE COMPANY OF AMERICA NORTH SHORE GAS COMPANY
"Natural" "Shipper"
By: /s/ Stephen G. Weiman By: /s/ William E. Morrow
Name: Stephen G. Weiman Name: William E. Morrow
Title: Senior Vice President Title: Vice President
113421
EXHIBIT A
DATED: January 15, 1998
EFFECTIVE DATE: December 01, 1998
COMPANY: NORTH SHORE GAS COMPANY
CONTRACT: 113421
RECEIPT POINT/S
County/Parish PIN MDQ
Name/Location Area State No. Zone (MMBtu/d)
PRIMARY RECEIPT POINT/S
1. NGPL/TPC GAGE GAGE NE 2900 07 8,929
INTERCONNECT WITH TRAILBLAZER PIPELINE
IN SEC. 15-T4N-R6E, GAGE COUNTY,
NEBRASKA.
SECONDARY RECEIPT POINT/S
All secondary receipt point, and the related priorities and volumes, as
provided under the Tariff provisions governing this Agreement.
RECEIPT PRESSURE, ASSUMED ATMOSPHERIC PRESSURE
Natural gas to be delivered to Natural at the Receipt Point/s shall be
at a delivery pressure sufficient to enter Natural's pipeline facilities at
the pressure maintained from time to time, but Shipper shall not deliver
gas at a pressure in excess of the Maximum Allowable Operating Pressure
(MAOP) stated for each Receipt Point. The measuring party shall use or
cause to be used an assumed atmospheric pressure corresponding to the
elevation at such Receipt Point/s.
RATES
Except as provided to the contrary in any written agreement(s) between
the parties in effect during the term hereof, Shipper shall pay Natural the
maximum rate and all other lawful charges as specified in Natural's
applicable rate schedule.
FUEL GAS AND GAS LOST AND UNACCOUNTED FOR PERCENTAGE (%)
Shipper will be assessed the applicable percentage for Fuel Gas and Gas
Lost and Unaccounted For.
TRANSPORTATION OF LIQUIDS
Transportation of liquids may occur at permitted points identified in
Natural's current Catalog of Receipt and Delivery Points, but only if the
parties execute a separate liquids agreement.
A-1
EXHIBIT B
DATED January 15, 1998
EFFECTIVE DATE: December 01, !998
COMPANY: NORTH SHORE GAS COMPANY
CONTRACT: 113421
RECEIPT POINT/S
County/Parish PIN MDQ
Name/Location Area State No. Zone (MMBtu/d)
PRIMARY DELIVERY POINT/S
1. NO SHORE/NGPL GRAYSLAKE LAKE LAKE IL 1 06 8,929
INTERCONNECT WITH NORTH SHORE GAS
COMPANY LOCATED IN SEC. 12-T44N-R10E,
LAKE COUNTY, ILLINOIS.
SECONDARY DELIVERY POINT/S
All secondary delivery points, and the related priorities and volumes,
as provided under the Tariff provisions governing this Agreement.
DELIVERY PRESSURE, ASSUMED ATMOSPHERIC PRESSURE
Natural gas to be delivered by Natural to Shipper, or for Shipper's
account, at the Delivery Point/s shall be at the pressure available in
Natural's pipeline facilities from time to time. The measuring party shall
use or cause to be used an assumed atmospheric pressure corresponding to
the elevation at such Delivery Point/s.
B-1
EXHIBIT C
DATED January 15, 1998
EFFECTIVE DATE: December 01, 1998
COMPANY: NORTH SHORE GAS COMPANY
CONTRACT: 113421
Pursuant to Natural's tariff, an MDQ exists for each primary
transportation path segment and direction under the Agreement. Such MDQ is
the maximum daily quantity of gas which Natural is obligated to transport
on a firm basis along a primary transportation path segment.
A primary transportation path segment is the path between a primary
receipt, delivery, or node point and the next primary receipt, delivery, or
node point. A node point is the point of interconnection between two or
more of Natural's pipeline facilities.
A segment is a section of Natural's pipeline system designated by a
segment number whereby the Shipper under the terms of their agreement based
on the points within the segment identified on Exhibit C has throughput
capacity rights.
The segment numbers listed on Exhibit C reflect this Agreement's path
corresponding to Natural's most recent Pipeline System Map which identifies
segments and their corresponding numbers. All information provided in this
Exhibit C is subject to the actual terms and conditions of Natural's
Tariff.
C-1
EXHIBIT C
DATED January 15, 1998
EFFECTIVE DATE: December 01, 1998
COMPANY: NORTH SHORE GAS COMPANY
CONTRACT: 113421
Segment Upstream Forward/Backward Flow Through
Number Segment Haul (Contractual) Capacity
12 0 F 0
13 12 F 8,929
14 13 F 8,929
29 14 F 8,929
37 29 F 8,929
39 37 F 8,929
C-2
Exhibit 10(i)
Date: May 28, 1998 Contract No.: 101471
FTS - 1 SERVICE AGREEMENT
This AGREEMENT is entered into by ANR PIPELINE COMPANY
(Transporter) and
NORTH SHORE GAS COMPANY (Shipper).
WHEREAS, Shipper has requested Transporter to transport Gas on
its behalf and Transporter represents that it is willing to
transport Gas under the terms and conditions of this Agreement.
NOW, THEREFORE, Transporter and Shipper agree that the terms
below, together with the terms and conditions of Transporter's
applicable Rate Schedule and General Terms and Conditions of
Transporter's FERC Gas Tariff constitute the transportation
service to be provided and the rights and obligations of Shipper
and Transporter.
1. AUTHORITY FOR TRANSPORTATION SERVICE:
(284B = Section 311; 284G = Blanket)
284G
2. RATE SCHEDULE: Firm Transportation Service (FTS - 1)
3. CONTRACT QUANTITIES:
Primary Route- See Exhibit attached hereto
Such contract quantities shall be reduced for scheduling
purposes, but not for billing purposes, by the Contract
Quantities that Shipper has released through Transporter's
capacity release program for the period of any release.
4. TERM OF AGREEMENT:
Nov 01, 1998 to
Oct 31, 2003
5. RATES:
Maximum rates, charges, and fees shall be applicable for the
entitlements and quantities delivered pursuant to this
Agreement unless Transporter has advised Shipper in writing
or by GEMStm that it has agreed otherwise.
1
Date: May 28, 1998 Contract No.: 101471
It is further agreed that Transporter may seek authorization
from the Commission and/or other appropriate body at any
time and from time to time to change any rates, charges or
other provisions in the applicable Rate Schedule and General
Terms and Conditions of Transporter's FERC Gas Tariff, and
Transporter shall have the right to place such changes in
effect in accordance with the Natural Gas Act. This
Agreement shall be deemed to include such changes and any
changes which become effective by operation of law and
Commission order. Nothing contained herein shall be
construed to deny Shipper any rights it may have under the
Natural Gas Act, including the right to participate fully in
rate or other proceedings by intervention or otherwise to
contest changes in rates in whole or in part.
6. INCORPORATION BY REFERENCE:
The provisions of Transporter's applicable Rate Schedule and
the General Terms and Conditions of Transporter's FERC Gas
Tariff are specifically incorporated herein by reference and
made a part hereof.
7. NOTICES:
All notices can be given by telephone or other electronic
means, however, such notices shall be confirmed in writing
at the addresses below or through GEMStm. Shipper and
Transporter may change the addresses below by written notice
to the other without the necessity of amending this
Agreement:
TRANSPORTER:
ANR PIPELINE COMPANY
500 Renaissance Center
Detroit, Michigan 48243
Attentions: Gas Control (Nominations)
Volume Management (Statements)
Cash Control (Payments)
Customer Administration (All Other Matters)
2
Date: May 28, 1998 Contract No.: 101471
SHIPPER:
NORTH SHORE GAS COMPANY
C/O PEOPLES GAS LIGHT & COKE
130 E RANDOLPH 22ND FLR.
CHICAGO, IL 60601-6207
Attention: JEROME SLECHTA
Telephone: 312-240-4362
Fax: 312-240-4211
INVOICES AND STATEMENTS:
NORTH SHORE GAS COMPANY
C/O PEOPLES GAS LIGHT & COKE
130 E RANDOLPH 23RD FLR.
CHICAGO, IL 60601-6207
Attention: PATTY GARCIA
Telephone: 312-240-4275
Fax: 312-240-3865
NOMINATIONS:
NORTH SHORE GAS COMPANY
C/O PEOPLES GAS LIGHT & COKE
130 E RANDOLPH 22ND FLR.
CHICAGO, IL 60601-6207
Attention: JEROME SLECHTA
Telephone: 312-240-4362
Fax: 312-240-4211
3
Date: May 28, 1998 Contract No.: 101471
ALL OTHER MATTERS:
NORTH SHORE GAS COMPANY
C/O PEOPLES GAS LIGHT & COKE
130 E RANDOLPH 22ND FLR.
CHICAGO, IL 60601-6207
Attention: JEROME SLECHTA
Telephone: 312-240-4362
Fax: 312-240-4211
8 FURTHER AGREEMENT:
A. For all quantities of gas transported on the Primary
Route up to the Primary Route MDQ under this Agreement,
Shipper will be charged a Reservation Charge of $0.10
per dth on a 100% load factor basis inclusive of
Volumetric Buyout/Buydown, Dakota and Transition Costs.
In addition, for all quantities of gas transported,
Shipper will be charged the Minimum Commodity Charge,
ACA and fuel. Shipper shall not be responsible for GRI
surcharges, unless and to the extent that Transporter
is required to collect and/or remit such charges to
GRI.
B. All quantities associated with Secondary Receipt
Points, Secondary Delivery Points and Secondary Routes
under this Agreement will be Maximum Tariff Rates plus
all other related fees, surcharges and fuel unless
mutually agreed to otherwise.
C. The term of service under this Agreement shall begin on
the later of November 1, 1998 or the date on which the
Racine Lateral, as defined in the Letter Agreements
dated September 25, 1997 and November 4, 1997, is
placed into service.
D. Consistent with provisions of its Tariff, Transporter
is willing to contract on Shipper's behalf for capacity
required on third party transporters, or for other
services to effectuate Shipper's receipt of gas on
third party facilities and delivery of gas to
Transporter's facilities.
Shipper has advised Transporter of its desire to have
Transporter act in such a capacity.
4
Date: May 28, 1998 Contract No.: 101471
Shipper agrees to pay all charges related to such
third party transportation arrangements pursuant to
Transporter's Tariff.
E. To the extent Shipper desires to utilize
receipt/delivery points pursuant to Part 284B (Section
311 of the NGPA and Section 284.102 of the Commission's
regulations), Shipper must execute a separate agreement
with Transporter and Shipper must also certify that the
transportation of gas will be on behalf of either an
"intrastate pipeline" or a "local distribution
company".
9. OPERATIONAL FLOW ORDERS:
Shipper hereby guarantees to Transporter that each contract
it has entered into in connection with the Gas to be
transported under this Agreement contains a provision that
permits Transporter to issue an effective Operational Flow
Order pursuant to Section 8 of the General Terms and
Conditions, of Transporter's FERC Gas Tariff.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be signed by their respective Officers or Representatives
there unto duly authorized to be effective as of the date stated
above.
SHIPPER: NORTH SHORE GAS COMPANY
By: /s/ William E. Morrow
Title: Vice President
Date: June 29, 1998
TRANSPORTER: ANR PIPELINE COMPANY
By: /s/ Richard H. Leehr
Title: Vice President
Date: 7-16-98
5
PRIMARY ROUTE EXHIBIT Contract No: 101471
To Agreement Between Rate Schedule FTS-1
ANR PIPELINE COMPANY (Transporter) Contract Date: May 28, 1998
AND NORTH SHORE GAS COMPANY (Shipper) Amendment Date:
Receipt Delivery Annual Winter Summer
Number Number MDQ MDQ MDQ
Name Name (DTH) (DTH) (DTH)
246067 40000 0 0
WILL COUNTY INT RACINE LATERAL
DELIVERY POINT
FROM: Nov 01, 1998 TO: Oct 31, 2003
1
Exhibit 10(j)
- 16 -
SEVERANCE AGREEMENT
BETWEEN
PEOPLES ENERGY CORPORATION
AND
THOMAS M. PATRICK
President and Chief Operating Officer
THIS AGREEMENT, effective as of November 1, 1998, by
and between Peoples Energy Corporation, an Illinois corporation
and Thomas M. Patrick, President and Chief Operating Officer (the
"Executive").
WITNESSETH
WHEREAS, the Executive is a valuable employee of the
Company and an integral part of the management of the Company;
and
WHEREAS, the Company wishes to encourage the Executive
to continue his career and services with the Company for the
period during and after an actual or threatened Change in
Control; and
WHEREAS, the Board of Directors of PEC, at its meeting
on December 4, 1996, determined that it would be in the best
interests of the Company and its shareholders to assure
continuity in the management of the Company's administration and
operations in the event of a Change in Control by entering into
an Agreement with the Executive (the "1996 Severance Agreement");
and
WHEREAS, the Board of Directors of PEC at its meeting
on October 7, 1998, determined that it would be in the best
interests of the Company and its shareholders for the company and
the Executive to terminate the 1996 Severance Agreement and enter
into a new Severance Agreement to reflect the election of
Executive to the Office of President and Chief Operating Officer
of the Company, effective as of November 1, 1998.
NOW THEREFORE, in consideration of the termination of
the 1996 Severance Agreement, it is hereby agreed by and between
the parties hereto as follows:
1. Definitions.
"AAA" shall have the meaning set forth in paragraph 5
of this Agreement.
"Affiliate" shall mean the subsidiaries of PEC and
other entities controlled by such subsidiaries.
"Agreement" shall mean this Severance Agreement.
"Benefit Service" shall mean the Benefit Service as
defined in the PEC Retirement Plan.
"Board" shall mean the Board of Directors of PEC.
"Cause" shall mean the Executive's fraud or dishonesty
which has resulted in or is likely to result in material economic
damage to the Company as determined in good faith by a vote of at
least two-thirds of the non-employee directors of PEC at a
meeting of the Board at which the Executive is provided an
opportunity to be heard.
"Change in Control" shall mean:
(i) either (A) receipt by PEC of a report on Schedule
13D, or an amendment to such a report, filed with the Securities
and Exchange Commission ("SEC") pursuant to Section 13(d) of the
Securities Exchange Act of 1934 (the "1934 Act") disclosing that
any person (as such term is used in Section 13(d) of the 1934
Act) ("Person"), is the beneficial owner, directly or indirectly,
of twenty (20) percent or more of the outstanding stock of PEC,
or (B) actual knowledge by PEC of facts, on the basis of which
any Person is required to file such a report on Schedule 13D, or
to make an amendment to such a report, with the SEC (or would be
required to file such a report or amendment upon the lapse of the
applicable period of time specified in Section 13 (d) of the 1934
Act) disclosing that such Person is the beneficial owner,
directly or indirectly, of twenty (20) percent or more of the
outstanding stock of PEC;
(ii) purchase by any Person, other than PEC or a wholly-
owned subsidiary of the Company, of shares pursuant to a tender
or exchange offer to acquire any stock of PEC (or securities
convertible into stock) for cash, securities or any other
consideration provided that, after consummation of the offer,
such Person is the beneficial owner (as defined in Rule 13d-3
under the 1934 Act), directly or indirectly, of twenty (20)
percent or more of the outstanding stock of PEC (calculated as
provided in paragraph (d) of Rule 13d-3 under the 1934 Act in the
case of rights to acquire stock);
(iii) approval by the shareholders of PEC of (a) any
consolidation or merger of PEC in which PEC is not the continuing
or surviving corporation or pursuant to which shares of stock of
PEC would be converted into cash, securities or other property,
other than a consolidation or merger of PEC in which holders of
its stock immediately prior to the consolidation or merger have
substantially the same proportionate ownership of common stock of
the surviving corporation immediately after the consolidation or
merger as immediately before, or (b) any consolidation or merger
in which PEC is the continuing or surviving corporation, but in
which the common shareholders of PEC immediately prior to the
consolidation or merger do not hold at least ninety (90) percent
of the outstanding common stock of the continuing or surviving
corporation (except where such holders of common stock hold at
least ninety (90) percent of the common stock of the corporation
which owns all of the common stock of PEC), or (c) any sale,
lease, exchange or other transfer (in one transaction or a series
of related transactions) of all or substantially all the assets
of PEC (Transfer Transaction), (except where (A) PEC owns all of
the outstanding stock of the transferee entity or (B) the holders
of PEC's common stock immediately prior to the Transfer
Transaction own at least ninety (90) percent of the outstanding
stock of the transferee entity, immediately after the Transfer
Transaction), or (d) any consolidation or merger of PEC where,
after the consolidation or merger, one Person owns one hundred
(100) percent of the shares of stock of PEC (except where the
holders of PEC's common stock immediately prior to such merger or
consolidation own at least ninety (90) percent of the outstanding
stock of such Person immediately after such consolidation or
merger); or
(iv) a change in the majority of the members of the
Board within a twenty-four (24) month period, unless the election
or nomination for election by PEC's shareholders of each new
director was approved by the vote of at least two-thirds of the
directors then still in office who were in office at the
beginning of the twenty-four (24) month period.
"Code" shall mean the United States Internal Revenue
Code of 1986, as amended, or any successor thereto.
"Company" shall mean PEC and include any Affiliate and
successor or successors to PEC.
"Compensation" shall mean the sum of (i) the
Executive's annual rate of salary on the last day the Executive
was an employee of the Company, including any elective
contributions made by the Company on behalf of the Executive that
are not includable in the gross income of the Executive under
Section 125 or 402(a)(8) of the Code or any successor provision
thereto, and including any amount of salary that has been
deferred by the Executive, (ii) an award equal to the average of
the amounts awarded to the Executive under the PEC STIC during
the three years preceding termination of employment, and (iii)
the economic equivalent value of any awards received by Executive
under the PEC LTIC in the calendar year preceding termination of
employment (as determined in good faith by the PEC Directors'
Compensation- Nominating Committee).
"Computed Award" shall mean Computed Award as defined
in the PEC STIC.
"Constructive Discharge" shall mean a good faith
determination by the Executive that there has been any (i)
material change by the Company of the Executive's functions,
duties or responsibilities which change would cause the
Executive's position with the Company to become of less dignity,
responsibility, importance, prestige or scope, including, without
limitation, the assignment to the Executive of duties and
responsibilities inconsistent with his position, (ii) assignment
or reassignment by the Company of the Executive, without the
Executive's consent, to another place of employment more than
fifty (50) miles from the Executive's current place of
employment, (iii) liquidation, dissolution, consolidation or
merger of PEC, or transfer of all or substantially all of its
assets, other than a transaction or series of transactions in
which the resulting or surviving transferee entity has, in the
aggregate, a net worth at least equal to that of PEC immediately
before such transaction and such resulting or surviving
transferee entity expressly assumes this Agreement and all
obligations and undertakings hereunder, or (iv) reduction, which
is more than de minimis, in the Executive's total compensation
(Compensation, perquisites and benefits). It is understood and
agreed by all parties hereto that a reduction in (a) the amount
the Executive receives under PEC STIC, (b) the awards received by
the Executive under the PEC LTIC, or (c) the prerequisites or
benefits of the Executive shall not be deemed a reduction if such
amount received under the PEC STIC, awards received under the PEC
LTIC, or such prerequisites or benefits are with respect to the
PEC STIC, PEC LTIC and prerequisites greater than that received
by any Company officer of lesser rank and with respect to
benefits, no less than that received by any Company officer of
lesser rank. An event shall not be considered Constructive
Discharge unless the Executive provides written notice to PEC
specifying the event relied upon for Constructive Discharge
within six months after the occurrence of such event. Within
thirty days of receiving such written notice from the Executive,
the Company may cure or cause to be cured the event upon which
the Executive claims a Constructive Discharge and no Constructive
Discharge shall have been considered to have occurred with
respect to such event. PEC and the Executive, upon mutual
written agreement, may waive any of the foregoing provisions
which would otherwise constitute a Constructive Discharge.
"Coverage Period" shall mean the period commencing with
the month in which termination of employment as described in
paragraph 3.a. of this Agreement shall have occurred, and ending
thirty-six (36) months thereafter.
"Effective Date" shall mean November 1, 1998.
"PEC" shall mean Peoples Energy Corporation, an
Illinois corporation.
"PEC Directors' Compensation-Nominating Committee"
shall mean the Peoples Energy Corporation Board of Directors'
Compensation-Nominating Committee.
"PEC LTIC" shall mean the Peoples Energy Corporation
Long Term Incentive Compensation Plan as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC Retirement Plan" shall mean the Peoples Energy
Corporation Retirement Plan as in effect on the Effective Date,
as amended from time to time or any successor plan.
"PEC SRB" shall mean the Peoples Energy Corporation
Supplemental Retirement Benefit Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC STIC" shall mean the Peoples Energy Corporation
Short Term Incentive Compensation Plan, as in effect on the
Effective Date, as amended from time to time or any successor
plan.
"PEC TAP" shall mean the Peoples Energy Corporation
Termination Allowance Plan as in effect on the Effective Date, as
amended from time to time and as enhanced as described in that
certain PEC brochure for nonunion employees titled, "Career
Transition Opportunities", dated November 1996.
"Plan Year" shall mean the Plan Year as defined under
the PEC STIC.
"Present Value Amount" shall mean the amount calculated
by the PEC Directors' Compensation-Nominating Committee as of the
date of the termination of the Executive's employment as
described in paragraph 3.a., using as a mortality basis the
mortality basis used by the PEC Retirement Plan for determining
benefits, or if such mortality basis is not available, a
mortality basis determined by the PEC Retirement Plan's
consulting actuaries, and assuming a discount rate equal to the
average of the yield on Thirty (30) year United States Treasury
Bonds for the second calendar month preceding the Executive's
termination of employment as described in paragraph 3.a.
"Rule of Eighty-Five" shall mean the Rule of Eighty-
Five as defined under the PEC Retirement Plan.
"SARs" shall mean SARs as defined under the PEC LTIC.
"Stock Options" shall mean Options as defined under the
PEC LTIC.
"Term" shall mean the term of this Agreement as set
forth in paragraph 2.
"Trust" shall mean the Trust under Peoples Energy
Corporation Executive Deferred Compensation Plan and Supplemental
Retirement Benefit Plan, Part A and Part B, dated September 22,
1995, as amended July 1, 1996, in effect on the Effective Date,
as amended from time to time.
2. Term.
This Agreement shall be effective as of the
Effective Date and shall continue thereafter until the later of:
(i) thirty-six (36) full calendar months following the date on
which occurs any of the events described in subparagraphs (i),
(ii) or (iv) of the definition of Change in Control in paragraph
1; or (ii) twenty-four (24) full calendar months following the
date on which the transaction that was the subject of shareholder
approval pursuant to subparagraph (iii) of the definition of
Change in Control in paragraph 1 has been completed.
3. Severance Benefit.
a. If, during the period commencing on the date of
a Change in Control and ending on the last day of the Term, the
Executive's employment hereunder is terminated by the Company for
any reason, other than Cause, death, or disability, or is
terminated by the Executive in the event of a Constructive
Discharge, then, within five (5) business days after such
termination, PEC shall pay to the Executive (if the Executive has
died before receiving all payments to which he has become
entitled hereunder to the beneficiary or estate of the Executive
as described in paragraph 14) the sum of (i) accrued but unpaid
salary and accrued but unused paid time off under the Company's
"Paid Time Off Bank" policy for all nonunion employees, effective
January 1, 1997, or any successor plan, (ii) severance pay in a
lump sum cash amount equal to three (3) years of the Executive's
Compensation, and (iii) the amount determined pursuant to
paragraph 3.e. The Executive (if the Executive has died before
receiving all payment to which he becomes entitled hereunder, the
beneficiary or the estate of the Executive as described in
paragraph 14) will be paid in cash within ten (10) business days
after termination as described in paragraph 3.a., the Present
Value Amount of the benefits accrued by the Executive under the
PEC SRB, Part A and Part B on the date of termination of
employment as described in this paragraph 3.a., determined as if
the Executive had received credit for an additional three (3)
years of Benefit Service. For purposes of determining the
Executive's accrued benefits under the preceding sentence, such
benefits shall be determined as full benefits, without actuarial
reduction, as if the Executive qualified for the Rule of Eighty-
Five under the PEC Retirement Plan and PEC SRB (regardless of
whether the Executive so qualifies). All non-vested Options and
SARs awarded to the Executive under the PEC LTIC shall be deemed
vested as of the earlier of the date of a Change in Control as
defined in this Agreement or Change in Control as defined in the
PEC LTIC. The Company shall treat the Executive as employed by
the Company for purposes of exercising Stock Options and SARs
during the Coverage Period. All non-vested restricted stock
awarded to the Executive under the PEC LTIC shall be deemed
vested and owned by the Executive as of the earlier of the date
of a Change in Control as defined in this Agreement or a Change
in Control as defined in the PEC LTIC and such stock shall be
delivered to the Executive within five (5) business days after
the date of such Change in Control. The Executive's termination
of employment with the Company to become an employee of a
corporation which directly or indirectly owns one hundred percent
(100%) of or which is owned one hundred percent (100%) by the
Company shall not be considered a termination of employment for
purposes of this Agreement. The subsequent termination of the
Executive's employment from such corporation, without employment
at a company that is wholly-owned by such corporation, shall be
considered a termination of employment for purposes of this
Agreement.
b. During the longer of: (i) the Coverage Period or
(ii) the period commencing with the date of the Executive's
termination of employment as described in paragraph 3a and ending
on the last day of the first month in which the Executive may
retire under the PEC Retirement Plan and be eligible to receive a
retirement annuity thereunder without actuarial reduction, the
Executive shall be entitled to all benefits under the Company's
welfare benefit plans (within the meaning of Section 3(1) of the
Employee Retirement Income Security Act of 1974, as amended), as
if the Executive were still employed during such period, at the
same level of benefits and at the same dollar cost to the
Executive as is available to all of the Company's executives
generally and if and to the extent that equivalent benefits shall
not be payable or provided under any such plans, the Company
shall pay or provide equivalent benefits on an individual basis;
provided, however, that PEC's obligations under this paragraph
3.b. shall cease upon the date following the termination of the
Executive's employment as described in paragraph 3.a. that the
Executive is eligible to receive benefits under welfare benefit
plans (within the meaning of Section 3(1) of the Employee
Retirement Income Security Act of 1974, as amended) provided by
an employer of the Executive other than the Company.
c. (i) If Independent Tax Counsel shall determine that
the aggregate payments made to the Executive pursuant to this
Agreement and any other payments to the Executive from the
Company which constitute "parachute payments" as defined in
Section 280G of the Code (or any successor provision thereto)
("Parachute Payments") would be subject to the excise tax imposed
by Section 4999 of the Code (the "Excise Tax"), then the
Executive shall be entitled to receive an additional payment (a
"Gross-Up Payment") in an amount calculated at the highest
marginal tax rate applicable to the Executive for the tax year in
which such payments were paid to the Executive (determined by
Independent Tax Counsel) such that after payment by the Executive
of all federal, state and other taxes (including any Excise Tax)
imposed upon the Gross-Up Payment and any interest or penalties
imposed with respect to such taxes, the Executive retains from
the Gross-Up Payment an amount equal to the Excise Tax imposed
upon the payments. For purposes of this paragraph 3.c.,
"Independent Tax Counsel" shall mean a lawyer, a certified public
accountant with a nationally recognized accounting firm, or a
compensation consultant with a nationally recognized actuarial
and benefits consulting firm, with expertise in the area of
executive compensation tax law, who shall be selected by the
Executive and shall be reasonably acceptable to PEC, and whose
fees and disbursements shall be paid by PEC.
(ii) If Independent Tax Counsel shall determine
that no Excise Tax is payable by the Executive, it shall furnish
the Executive with a written opinion that the Executive has
substantial authority not to report any Excise Tax on the
Executive's Federal income tax return. If the Executive is
subsequently required to make a payment of any Excise Tax, then
the Independent Tax Counsel shall determine in the same manner as
a Gross-up Payment the amount (the amount of such additional
payments are referred herein as "Gross-Up Underpayment") of such
payment and any such Gross-Up Underpayment shall be promptly paid
by PEC to or for the benefit of the Executive. The fees and
disbursements of the Independent Tax Counsel shall be paid by
PEC.
(iii) The Executive shall notify PEC in writing
within 15 days of any claim by the Internal Revenue Service that,
if successful, would require the payment by PEC of a Gross-Up
Payment. If PEC notifies the Executive in writing that it
desires to contest such claim and that it will bear the costs and
provide the indemnification as required by this subparagraph
(iii) of paragraph 3.c., the Executive shall:
(A) give the Company any information reasonably
requested by the Company relating to such claim,
(B) take such action in connection with
contesting such claim as the Company shall reasonably request in
writing from time to time, including, without limitation,
accepting legal representation with respect to such claim by an
attorney selected by the Company,
(C) cooperate with the Company in good faith in
order to effectively contest such claim, and
(D) permit the Company to participate in any
proceedings relating to such claim; provided, however, that the
Company shall bear and pay directly all costs and expenses
(including additional interest and penalties) incurred in
connection with such contest and shall indemnify and hold the
Executive harmless, on an after-tax basis calculated at the
highest marginal tax rate applicable to the Executive, for any
Excise Tax or federal and state income tax or other taxes,
including interest and penalties with respect thereto, imposed as
a result of such representation and payment of costs and
expenses. The Company shall control all proceedings taken in
connection with such contest; provided, however, that if the
Company directs the Executive to pay such claim and sue for a
refund, PEC shall advance the amount of such payment to the
Executive, on an interest-free basis and shall indemnify and hold
the Executive harmless, on an after-tax basis calculated at the
highest marginal tax rate applicable to the Executive, from any
Excise Tax or federal and state income tax or other taxes,
including interest or penalties with respect thereto, imposed
with respect to such advance or with respect to any imputed
income with respect to such advance.
(iv) If, after the receipt by the Executive of
an amount advanced by PEC pursuant to subparagraph (iii) of
paragraph 3.c., the Executive becomes entitled to receive any
refund with respect to such claim, the Executive shall within 10
days pay to the Company the amount of such refund (together with
any interest paid or credited thereon after taxes applicable
thereto).
d. In the event of any termination of the Executive's
employment as described in paragraph 3.a., the Executive shall be
under no obligation to seek other employment, and there shall be
no offset against amounts due the Executive under this Agreement
on account of any remuneration attributable to any subsequent
employment.
e. The Executive shall be paid the following described
amounts pursuant to subparagraph (iii) of paragraph 3.a. If the
Executive has not received an award under the STIC for the Plan
Year in which his employment is terminated the PEC Directors'
Compensation-Nominating Committee shall determine in good faith,
specifically considering the Executive's Computed Award under the
STIC for such Plan Year, an award amount equal to a prorated
award for the portion of the Plan Year that the Executive was
employed by the Company. If the Executive has not yet received
payment of his award amount under the STIC for the Plan Year
preceding the Executive's termination, the PEC Directors'
Compensation-Nominating Committee shall determine in good faith,
specifically considering the Executive's Computed Award under the
STIC for such Plan Year, an award amount under the STIC for such
Plan Year.
4. Source of Payments.
All payments provided for in paragraph 3 shall be
paid in cash from the general funds of PEC; provided, however,
that such payments shall be reduced by the amount of any payments
made to the Executive or his dependents, beneficiaries or estate
from any trust or special or separate fund established or
utilized by PEC to assure such payments. The Company shall not
be required to establish a special or separate fund or other
segregation of assets to assure such payments, and, if the
Company shall make any investments to aid it in meeting its
obligations hereunder, the Executive shall have no right, title
or interest whatever in or to any such investments except as may
otherwise be expressly provided in a separate written instrument
relating to such investments. Nothing contained in this
Agreement, and no action taken pursuant to its provisions, shall
create or be construed to create a trust of any kind, or a
fiduciary relationship between the Company and the Executive or
any other person. To the extent that any person acquires a right
to receive payments from the Company such right shall be no
greater than the right of an unsecured creditor of the Company.
5. Litigation Expenses: Arbitration.
a. PEC's obligation to make the payments provided
for in this Agreement and otherwise to perform its obligations
hereunder shall not be affected by any set-off, counterclaim,
recoupment, defense or other claim, right or action which the
Company may have against the Executive or others, except as set
forth in paragraph 7. In no event shall the Executive be
obligated to seek other employment or take any other action by
way of mitigation of the amounts payable to the Executive under
any of the provisions of this Agreement. PEC agrees to pay, upon
written demand therefor by the Executive, all legal fees and
expenses which the Executive may reasonably incur as a result of
any dispute or contest (regardless of the outcome thereof) by or
with the Company or others regarding the validity or
enforceability of, or liability under, any provision of this
Agreement, plus in each case interest at the Federal long-term
rate in effect under Section 1274(d) of the Code, compounded
monthly. In any such action brought by the Executive for damages
or to enforce any provisions of this Agreement, the Executive
shall be entitled to seek both legal and equitable relief and
remedies, including, without limitation, specific performance of
the Company's obligations hereunder, in his sole discretion. The
obligation of the Company under this paragraph 5. shall survive
the termination for any reason of this Agreement (whether such
termination is by the Company, by the Executive, upon the
expiration of this Agreement or otherwise).
b. In the event of any dispute or difference
between the Company and the Executive with respect to the subject
matter of this Agreement and the enforcement of rights hereunder,
the Executive may, in his sole discretion by written notice to
PEC, require such dispute or difference to be submitted to
arbitration. The arbitrator or arbitrators shall be selected by
agreement of the parties or, if they cannot agree on an
arbitrator or arbitrators within 30 days after the Executive had
notified PEC of his desire to have the question settled by
arbitration, then the arbitrator or arbitrators shall be selected
by the American Arbitration Association (the "AAA") in Illinois
upon the application of the Executive. The determination reached
in such arbitration shall be final and binding on both parties
without any right of appeal of further dispute. Execution of the
determination by such arbitrator may be sought in any court of
competent jurisdiction. The arbitrators shall not be bound by
judicial formalities and may abstain from following the strict
rules of evidence and shall interpret this Agreement as an
honorable engagement and not merely as a legal obligation.
Unless otherwise agreed by the parties, any such arbitration
shall take place in Illinois, and shall be conducted in
accordance with the Rules of the AAA.
6. Tax Withholding.
The Company may withhold from any payments made
under this Agreement all federal, state or other taxes, including
excise taxes as shall be required pursuant to any law or
governmental regulation or ruling.
7. Waiver and Releases.
a. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, the
Executive hereby waives, releases and forever discharges the
Company from any and all claims he has or may have against the
Company arising out of or relating to the following: (a) The PEC
TAP, upon receipt by the Executive of all amounts due or owing to
the Executive under this Agreement; and (b) The PEC SRB, Part A
and Part B, provided that the amount paid to the Executive
pursuant to the second and third sentences of paragraph 3.a.
exceeds the amount of the Executive's accrued benefits under the
PEC SRB, Part A and Part B as of the date of the Executive's
termination of employment as described in paragraph 3.a.
b. In consideration of the covenants under this
Agreement, including, but not limited to, paragraphs 3 and 5, and
as a condition precedent to receiving any payments under this
Agreement, the Executive agrees to execute after the date of his
termination as described in paragraph 3.a., a release
substantially in the form of Exhibit A attached hereto and by
this reference made a part hereof.
8. Amendment of Trust and Deposit of Assets.
On or before December 31, 1998, PEC shall amend the
Trust to provide that within ten (10) business days after the
date of a Change in Control, PEC shall deposit cash into the
Trust, in an amount equal to the following: (a) the payment
obligations of PEC under the Peoples Energy Corporation's
Executive Deferred Compensation Plan as in effect on the
Effective Date, as amended from time to time or any successor
plan, and (b) the accrued benefits of the participants, as of the
date of the Change in Control, under the PEC SRB, Part A and Part
B.
9. Outplacement Services.
Unless PEC offers outplacement services to the
Executive during the Coverage Period, PEC shall reimburse the
Executive for the costs of outplacement services incurred by the
Executive up to a maximum amount of Seven Thousand Dollars
($7,000).
10. Entire Understanding.
This Agreement contains the entire understanding
between the Company and the Executive with respect to the subject
matter hereof and supersedes any prior severance agreement
between the Company and the Executive, except that this Agreement
shall not affect or operate to reduce any benefit or compensation
inuring to the Executive of any kind elsewhere provided and not
expressly provided for in this Agreement.
11. Severability.
If, for any reason, any one or more of the
provisions or part of a provision contained in this Agreement
shall be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall
not affect any other provision or part of a provision of this
Agreement not held so invalid, illegal or unenforceable, and each
other provision or part of a provision shall to the full extent
consistent with law continue in full force and effect.
12. Consolidation, Merger, or Sale of Assets.
If PEC consolidates or merges into or with, or
transfers all or substantially all of its assets to, another
corporation the term "the Company" as used herein shall include
such other corporation and this Agreement shall continue in full
force and effect.
13. Notices.
All notices, requests, demands and other
communications required or permitted hereunder shall be given in
writing and shall be deemed to have been duly given if delivered
or mailed, postage prepaid, first class with return receipt as
follows:
a. to PEC:
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
Attention: Secretary
b. to the Executive:
Thomas M. Patrick
President and Chief Operating Officer
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
or to such other address as either party shall have previously
specified in writing to the other.
14. No attachment.
Except as required by law and as expressly provided
in his paragraph 14, no right to receive payments under this
Agreement shall be subject to anticipation, commutation,
alienation, sale, assignment, encumbrance, charge, pledge or
hypothecation or to execution, attachment, levy or similar
process or assignment by operation of law, and any attempt,
voluntary or involuntary, to effect any such action shall be
null, void and of no effect. Notwithstanding the preceding
sentence, the Executive may, by giving notice to PEC during the
Executive's lifetime, designate a beneficiary or beneficiaries to
whom the severance benefits described in paragraph 3.a. shall be
transferred in the event of the Executive's death. Any such
designation may be revoked or changed by the Executive at any
time and from time to time by similar notice. If there is no
such designated beneficiary living upon the death of the
Executive or if all such designated beneficiaries die prior to
the receipt by the Executive of the referenced severance
benefits, such severance benefits shall be transferred to the
Executive's surviving spouse or, if none, then such severance
benefits will be transferred to the estate or personal
representative of the Executive. If the Company, after
reasonable inquiry, is unable to determine within twelve months
after the Executive's death whether any designated beneficiary of
the Executive did in fact survive the Executive, such beneficiary
shall be conclusively presumed to have died prior to the
Executive's death.
15. Binding Agreement.
This Agreement shall be binding upon, and shall
inure to the benefit of, the Executive and the Company and their
respective permitted successors and assigns.
16. Modification and Waiver.
This Agreement may not be modified or amended
except by an instrument in writing signed by the parties hereto.
No term or condition of this Agreement shall be deemed to have
been waived, nor shall there be any estoppel against the
enforcement of any provision of this Agreement except by written
instrument signed by the party charged with such waiver or
estoppel. No such written waiver shall be deemed a continuing
waiver unless specifically stated therein, and each such waiver
shall operate only as to the specific term or condition waived
and shall not constitute a waiver of such term or condition for
the future or as to any act other than that specifically waived.
17. Headings of No Effect.
The paragraph headings contained in this Agreement
are included solely for convenience of reference and shall not in
any way affect the meaning or interpretation of any of the
provisions of this Agreement.
18. Governing Law.
This Agreement and its validity, interpretation,
performance, and enforcement shall be governed by the laws of the
State of Illinois without giving effect to the choice of law
provisions in effect in such State.
19. Termination of 1996 Agreement
The 1996 Severance Agreement is hereby terminated
and no longer in effect as of the Effective Date.
IN WITNESS WHEREOF, PEC has caused this Agreement
to be executed, and the Executive has signed this Agreement, as
of the Effective Date.
PEOPLES ENERGY CORPORATION
By: /s/ EARL L. NEAL Earl L.
Neal
Director and Chairma?the
Compensation-Nominating Committee
of the Board of Directors
By: /s/ THOMAS M. PATRICK
Thomas M. Patrick
President and Chief Operating Officer
EXHIBIT A
TO SEVERANCE AGREEMENT
BETWEEN PEOPLES ENERGY CORPORATION AND
EXECUTIVE, DATED NOVEMBER 1, 1998
RELEASE AGREEMENT
This Agreement is entered into on this ____ day of
_______________, between Thomas M. Patrick, President and Chief
Operating Officer ("Executive") and Peoples Energy Corporation on
behalf of Peoples Energy Corporation and any affiliate and
successor or successors to Peoples Energy Corporation.
1. In consideration of the benefits to be paid and
provided to the Executive under that certain Severance Agreement
between Peoples Energy Corporation ("PEC") and the Executive,
dated as of November 1, 1998, ("Severance Agreement") Executive
waives, releases and forever discharges PEC (including its
current and former affiliated companies, and their current and
former officers, directors, employees and agents) from all claims
which he may have against PEC (including its current and former
affiliated companies, and their current and former officers,
directors, employees and agents) arising out of the Americans
With Disabilities Act, the Age Discrimination in Employment Act,
Title VII of the Civil Rights Act of 1964, the Illinois Human
Rights Act, or any other federal, state or local statute,
regulation, ordinance, or doctrine of common law prohibiting
discrimination on the basis of disability or age or race or
gender or on any other substantially similar basis.
2. The Executive acknowledges that, prior to his execution
of this Agreement, he was encouraged to review it with counsel or
anyone else of his choosing. Executive states that he
understands its meaning and that he knowingly, freely and
voluntarily executes it.
The Company encourages the Executive to consult with an
attorney regarding this Agreement, accordingly, the offer
contained in the Severance Agreement will remain open for twenty-
one (21) days. If after review, the Executive wishes to accept,
he should sign this document and return it to the Secretary of
Peoples Energy Corporation. This Release will not become
effective until seven days thereafter, and if the Executive
changes his mind within that period, he may revoke this Release
by notifying the Secretary of Peoples Energy Corporation. The
Executive understands and agrees that no benefits will be paid or
provided to the Executive under the Severance Agreement prior to
the receipt by PEC of this release executed by the Executive.
PEOPLES ENERGY CORPORATION:
By: ___________________________________ _______________________
Date
By: ___________________________________ ________________________
Thomas M. Patrick Date
Exhibit 21
Peoples Energy Corporation
Subsidiaries of the Registrant
Date of State of
Company Incorporation Incorporation
Peoples District Energy Corporation 05/12/92 Illinois
Peoples Energy Resources Corp. 01/26/96 Illinois
Peoples Energy Services Corporation 07/21/94 Illinois
Peoples NGV Corp. 09/09/93 Illinois
The Peoples Gas Light and Coke Company 2/12/1855 Illinois
North Shore Gas Company 10/07/63 Illinois
Peoples Energy Ventures Corporation 10/23/97 Delaware
Exhibit 23
ARTHUR ANDERSEN LLP
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the
incorporation by reference of our report, dated October 30, 1998,
included in this Form 10-K, into Peoples Energy Corporation's
previously filed Registration Statement File Nos. 2-82760, 33-
6369, 333-17701, 33-63193 and 333-09993.
/s/ Arthur Andersen LLP
ARTHUR ANDERSEN LLP
Chicago, Illinois,
December 18, 1997
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS, AND CONSOLIDATED
STATEMENTS OF CASH FLOWS, AND QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-START> OCT-01-1997
<PERIOD-END> SEP-30-1998
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,446,661
<OTHER-PROPERTY-AND-INVEST> 43,707
<TOTAL-CURRENT-ASSETS> 314,158
<TOTAL-DEFERRED-CHARGES> 23,410
<OTHER-ASSETS> 76,564
<TOTAL-ASSETS> 1,904,500
<COMMON> 293,691
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 447,670
<TOTAL-COMMON-STOCKHOLDERS-EQ> 741,361
0
0
<LONG-TERM-DEBT-NET> 516,604
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 8,900
<LONG-TERM-DEBT-CURRENT-PORT> 10,400
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 627,235
<TOT-CAPITALIZATION-AND-LIAB> 1,904,500
<GROSS-OPERATING-REVENUE> 1,138,057
<INCOME-TAX-EXPENSE> 44,644
<OTHER-OPERATING-EXPENSES> 979,604
<TOTAL-OPERATING-EXPENSES> 1,024,248
<OPERATING-INCOME-LOSS> 113,809
<OTHER-INCOME-NET> 4,806
<INCOME-BEFORE-INTEREST-EXPEN> 118,615
<TOTAL-INTEREST-EXPENSE> 39,192
<NET-INCOME> 79,423
0
<EARNINGS-AVAILABLE-FOR-COMM> 79,423
<COMMON-STOCK-DIVIDENDS> 66,875
<TOTAL-INTEREST-ON-BONDS> 35,757
<CASH-FLOW-OPERATIONS> 158,647
<EPS-PRIMARY> 2.25
<EPS-DILUTED> 2.25
</TABLE>
Exhibit 99
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 11-K
[X] ANNUAL REPORT PURSUANT TO SECTION 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 15(d) OF THE
SECURITIES
EXCHANGE ACT OF 1934
Commission file number 2-82760
A. Full title of the plan and address of the plan, if different
from that of the issuer
named below:
Peoples Energy Corporation
Employee Stock Purchase Plan
B. Name of issuer of the securities held pursuant to the plan and
the address of its
principal executive office:
Peoples Energy Corporation
130 East Randolph Drive
Chicago, Illinois 60601
This Form 11-K is being filed for informational purposes only.
ITEM 1. An audited statement of financial condition as of the
end of the latest two
fiscal years of the plan.
Not applicable. Employees' payments for Company stock are
neither segregated nor held for investment.
ITEM 2. An audited statement of income and changes in plan
equity for each of the
latest three fiscal years of the plan.
Not applicable. See above.
SIGNATURE
Pursuant to the requirements of the Securities Exchange
Act of 1934, Peoples Energy Corporation has duly caused this
annual report to be signed on its behalf by the undersigned
hereunto duly authorized.
Peoples Energy Corporation
Employee Stock Purchase Plan
(Name of Plan)
Date: December 17, 1998 By /s/ James M.Luebbers
(Signature)
James M. Luebbers
Vice President and Controller
Peoples Energy Corporation
