FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Exact Name of Registrant as
Specified in Charter, State of
Incorporation, Address of
Commission Principal Executive IRS Employer
File Number Office and Telephone Number Identification
Number
1-5540 PEOPLES ENERGY CORPORATION 36-2642766
(an Illinois Corporation)
130 East Randolph Drive, 24th Floor
Chicago, Illinois 60601-6207
Telephone (312) 240-4000
2-26983 THE PEOPLES GAS LIGHT AND COKE COMPANY 36-1613900
(an Illinois Corporation)
130 East Randolph Drive, 24th Floor
Chicago, Illinois 60601-6207
Telephone (312) 240-4000
2-35965 NORTH SHORE GAS COMPANY 36-1558720
(an Illinois Corporation)
130 East Randolph Drive, 24th Floor
Chicago, Illinois 60601-6207
Telephone (312) 240-4000
Indicate by check mark whether the registrants (1) have 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 shorter
period that the registrant was required to file such reports), and
(2) have been subject to such filing requirements for the past 90
days. Yes [x] No [ ]
Number of shares outstanding of each class of common stock as of
April 30, 1999:
Peoples Energy Corporation Common Stock, No par value, 35,481,303
shares outstanding
The Peoples Gas Light and Coke Company Common Stock, No par
value, 24,817,566 shares outstanding (all
of which are owned beneficially and of
record by Peoples Energy Corporation)
North Shore Gas Company Common Stock, No par value, 3,625,887
shares outstanding (all of which are
owned beneficially and of record by
Peoples Energy Corporation)
This combined Form 10-Q is separately filed by Peoples Energy
Corporation, The Peoples Gas Light and Coke Company, and North Shore
Gas Company. Information contained herein relating to any individual
company is filed by such company on its own behalf. Each company
makes no representation as to information relating to the other
companies.
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PART I. FINANCIAL INFORMATION
Item Financial Statements
Peoples Energy Corporation
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended 12 Months Ended
March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998
(Thousands, except per-share amounts)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $500,787 $424,510 $814,245 $809,660 $1,142,642 $1,128,877
OPERATING EXPENSES:
Cost of energy sold 260,798 206,625 405,491 404,648 527,826 511,588
Operation and maintenance 62,950 62,718 128,994 123,344 250,978 247,171
Depreciation, depletion and amortization 20,431 18,769 40,878 37,647 80,426 74,878
Taxes, other than income taxes 52,211 50,233 87,147 90,777 126,469 132,023
Total Operating Expenses 396,390 338,345 662,510 656,416 985,699 965,660
OPERATING INCOME 104,397 86,165 151,735 153,244 156,943 163,217
OTHER INCOME
AND (DEDUCTIONS) 3,556 (9,156) (5,864) (18,299) (21,470) (34,982)
EARNINGS BEFORE
INCOME TAXES 107,953 77,009 145,871 134,945 135,473 128,235
INCOME TAXES 41,871 29,893 56,418 52,286 49,257 47,921
NET INCOME $ 66,082 $ 47,116 $ 89,453 $ 82,659 $ 86,216 $ 80,314
Average Shares of Common
Stock Outstanding 35,481 35,213 35,467 35,175 35,402 35,100
Basic Earnings Per Share
of Common Stock $ 1.86 $ 1.34 $ 2.52 $ 2.35 $ 2.44 $ 2.29
Diluted Earnings Per Share
of Common Stock $ 1.86 $ 1.34 $ 2.52 $ 2.35 $ 2.43 $ 2.29
Dividends Declared Per Share $ 0.49 $ 0.48 $ 0.97 $ 0.95 $ 1.93 $ 1.89
The Notes to Consolidated Financial Statements are an integral part of these statements.
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<CAPTION>
Peoples Energy Corporation
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
1999 September 30, 1998
(Unaudited) 1998 (Unaudited)
(Thousands of Dollars)
PROPERTIES AND OTHER ASSETS
CAPITAL INVESTMENTS:
<S> <C> <C> <C>
Property, plant and equipment, at original cost $2,272,817 $2,209,957 $2,145,934
Less - Accumulated depreciation, depletion and amortization 796,232 763,296 739,934
Net property, plant and equipment 1,476,585 1,446,661 1,406,000
Other investments 93,355 45,150 17,717
Total Capital Investments - Net 1,569,940 1,491,811 1,423,717
CURRENT ASSETS:
Cash and cash equivalents 58,734 10,622 62,903
Trust fund (See Note 4A) 788 - -
Temporary cash investments 1,013 4,393 15,900
Receivables -
Customers, net of allowance for uncollectible accounts
of $ 23,734, $ 23,395, and $ 26,154, respectively 117,658 54,091 141,493
Other 39,500 27,662 40,388
Accrued unbilled revenues 80,493 23,477 65,031
Materials and supplies 17,629 18,246 21,415
Gas in storage 22,936 90,790 34,799
Gas costs recoverable through rate adjustments 1,792 4,462 13,181
Regulatory assets of subsidiaries 5,999 7,858 6,679
Prepayments 83,095 71,114 56,939
Total Current Assets 429,637 312,715 458,728
OTHER ASSETS:
Non-current regulatory assets of subsidiaries 58,316 76,564 36,352
Deferred charges 22,298 23,410 21,438
Total Other Assets 80,614 99,974 57,790
Total Properties and Other Assets $2,080,191 $1,904,500 $1,940,235
The Notes to Consolidated Financial Statements are an integral part of these statements.
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<TABLE>
<CAPTION>
Peoples Energy Corporation
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
1999 September 30, 1998
(Unaudited) 1998 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
<S> <C> <C> <C>
Common Stockholders' Equity:
Common stock, without par value -
Authorized 60,000,000 shares
Outstanding 35,481,303, 35,401,992, and
35,234,424 shares, respectively $ 296,653 $ 293,691 $ 287,528
Retained earnings 504,078 449,059 486,228
Accumulated other comprehensive income (See Note 6) (1,389) (1,389) (2,357)
Total Common Stockholders' Equity 799,342 741,361 771,399
Long-term debt of subsidiaries, exclusive of sinking
fund payments and maturities due within one year 521,734 516,604 527,004
Total Capitalization 1,321,076 1,257,965 1,298,403
CURRENT LIABILITIES:
Interim loans 59,855 8,900 855
Accounts payable 142,324 123,383 128,649
Dividends payable on common stock 17,386 16,977 16,911
Customer gas service and credit deposits 37,959 48,942 27,837
Sinking fund payments and maturities due within one year
Long-term debt of subsidiaries - 10,400 -
Accrued taxes 76,065 24,983 73,872
Gas sales revenue refundable through rate adjustments 4,547 11,028 227
Accrued interest 10,453 10,821 10,606
Temporary LIFO liquidation credit 25,784 - 42,203
Total Current Liabilities 374,373 255,434 301,160
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily accelerated depreciation 280,337 270,730 259,559
Investment tax credits being amortized over
the average lives of related property 31,657 32,387 33,176
Other 72,748 87,984 47,937
Total Deferred Credits and Other Liabilities 384,742 391,101 340,672
Total Capitalization and Liabilities $2,080,191 $1,904,500 $1,940,235
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
Peoples Energy Corporation
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
1999 1998
(Thousands of Dollars)
Operating Activities:
Net Income $ 89,453 $82,659
Adjustments to reconcile net income to net cash:
Depreciation, depletion, and amortization 40,878 37,647
Deferred income taxes and investment tax credits - net 7,105 8,596
Change in deferred credits and other liabilities (13,463) 658
Change in deferred charges 16,553 (2,493)
Change in current assets and liabilities:
Receivables - net (75,405) (70,408)
Accrued unbilled revenues (57,016) (42,289)
Materials and supplies 617 (2,030)
Gas in storage 67,854 43,044
Gas costs recoverable 2,670 (8,017)
Regulatory assets 1,859 8,781
Prepayments (11,981) (14,037)
Accounts payable 18,941 (6,221)
Customer gas service and credit deposits (10,983) (17,549)
Accrued taxes 51,081 53,227
Gas sales revenue refundable (6,481) (14,667)
Accrued interest (368) (193)
Temporary LIFO liquidation credit 25,784 42,203
Net Cash Provided by Operating Activities 147,098 98,911
Investing Activities:
Capital expenditures of subsidiaries - construction (53,658) (38,715)
Other assets (14,269) 127
Other capital investments (48,274) (1,435)
Other temporary cash investments 3,380 -
Net Cash Used in Investing Activities (112,821) (40,023)
Financing Activities:
Issuance of long-term debt 30,035 -
Trust fund (788) -
Interim loans - net 50,955 (1,955)
Retirement of long-term debt of subsidiaries (35,305) -
Dividends paid on common stock (34,024) (33,009)
Proceeds from issuance of common stock 2,962 5,681
Net Cash Provided by (Used in) Financing Activities 13,835 (29,283)
Net Increase in Cash and Cash Equivalents 48,112 29,605
Cash and Cash Equivalents at Beginning of Period 10,622 33,298
Cash and Cash Equivalents at End of Period $ 58,734 $62,903
The Notes to Consolidated Financial Statements are an integral part of
these statements.
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The Peoples Gas Light and Coke Company
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended 12 Months Ended
March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $362,026 $348,402 $597,006 $655,368 $849,158 $929,025
OPERATING EXPENSES:
Gas costs 158,143 158,137 249,459 302,216 325,682 388,482
Operation and maintenance 52,711 53,685 107,895 105,292 208,977 212,225
Depreciation and amortization 17,056 16,722 34,207 33,501 68,458 66,672
Taxes, other than income taxes 46,899 45,435 78,242 82,219 113,324 119,800
Total Operating Expenses 274,809 273,979 469,803 523,228 716,441 787,179
OPERATING INCOME 87,217 74,423 127,203 132,140 132,717 141,846
OTHER INCOME
AND (DEDUCTIONS) 5,065 (8,431) (3,168) (16,604) (17,652) (31,086)
EARNINGS BEFORE
INCOME TAXES 92,282 65,992 124,035 115,536 115,065 110,760
INCOME TAXES 35,747 25,593 47,907 44,712 41,383 41,276
NET INCOME APPLICABLE
TO COMMON STOCK $ 56,535 $ 40,399 $ 76,128 $ 70,824 $ 73,682 $ 69,484
The Notes to Consolidated Financial Statements are an integral part of these statements.
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<TABLE>
<CAPTION>
The Peoples Gas Light and Coke Company
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
1999 September 30, 1998
(Unaudited) 1998 (Unaudited)
(Thousands of Dollars)
PROPERTIES AND OTHER ASSETS
CAPITAL INVESTMENTS:
<S> <C> <C> <C>
Property, plant and equipment, at original cost $1,938,815 $1,888,025 $1,843,098
Less - Accumulated depreciation and amortization 680,745 654,262 635,695
Net property, plant and equipment 1,258,070 1,233,763 1,207,403
Other investments 8,820 9,745 5,290
Total Capital Investments - Net 1,266,890 1,243,508 1,212,693
CURRENT ASSETS:
Cash and cash equivalents 31,509 3,134 22,441
Temporary cash investments 500 500 15,500
Receivables -
Customers, net of allowance for uncollectible accounts
of $ 22,733, $ 22,613, and $ 25,285, respectively 105,627 50,280 128,407
Other 18,615 34,051 36,643
Accrued unbilled revenues 55,408 17,363 51,981
Materials and supplies, at average cost 11,987 12,332 15,321
Gas in storage, at last-in, first-out cost 14,787 75,767 31,318
Gas costs recoverable through rate adjustments 1,790 3,847 11,741
Regulatory assets 5,434 6,651 5,724
Prepayments 82,270 70,406 54,503
Total Current Assets 327,927 274,331 373,579
OTHER ASSETS:
Non-current regulatory assets 39,172 52,670 30,366
Deferred charges 16,772 18,933 17,412
Total Other Assets 55,944 71,603 47,778
Total Properties and Other Assets $1,650,761 $1,589,442 $1,634,050
The Notes to Consolidated Financial Statements are an integral part of these statements.
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<CAPTION>
The Peoples Gas Light and Coke Company
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
1999 September 30, 1998
(Unaudited) 1998 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
<S> <C> <C> <C>
Common Stockholder's Equity:
Common stock, without par value -
Authorized 40,000,000 shares
Outstanding 24,817,566 shares $ 165,307 $ 165,307 $ 165,307
Retained earnings 464,452 418,601 450,580
Accumulated other comprehensive income (See Note 6) (1,389) (1,389) (2,357)
Total Common Stockholder's Equity 628,370 582,519 613,530
Long-term debt, exclusive of sinking fund
payments and maturities due within one year 452,000 452,000 462,400
Total Capitalization 1,080,370 1,034,519 1,075,930
CURRENT LIABILITIES:
Interim loans 700 8,900 700
Accounts payable 90,095 100,522 105,409
Dividends payable on common stock 14,394 13,898 15,883
Customer gas service and credit deposits 34,082 43,237 24,791
Sinking fund payments and maturities, due within one year
Long-term debt - 10,400 -
Accrued taxes 70,984 25,708 67,342
Gas sales revenue refundable through rate adjustments 1,621 9,864 18
Accrued interest 8,311 8,788 8,583
Temporary LIFO liquidation credit 20,442 - 33,276
Total Current Liabilities 240,629 221,317 256,002
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily accelerated depreciation 259,271 247,959 239,241
Investment tax credits being amortized over
the average lives of related property 28,294 28,951 29,654
Other 42,197 56,696 33,223
Total Deferred Credits and Other Liabilities 329,762 333,606 302,118
Total Capitalization and Liabilities $1,650,761 $1,589,442 $1,634,050
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
The Peoples Gas Light and Coke Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
1999 1998
(Thousands of Dollars)
Operating Activities:
Net Income $76,128 $70,824
Adjustments to reconcile net income to net cash:
Depreciation and amortization 34,207 33,501
Deferred income taxes and investment tax credits - net 9,571 8,431
Change in other deferred credits and other liabilities (13,415) 1,703
Change in other assets 12,851 (2,408)
Change in current assets and liabilities:
Receivables - net (39,911) (57,561)
Accrued unbilled revenues (38,045) (31,872)
Materials and supplies 345 (2,096)
Gas in storage 60,980 36,217
Gas costs recoverable 2,057 -
Regulatory assets 1,217 7,415
Prepayments (11,864) (14,701)
Accounts payable (10,427) (8,093)
Customer gas service and credit deposits (9,155) (14,961)
Accrued taxes 45,276 48,285
Gas sales revenue refundable (8,243) (22,880)
Accrued interest (477) (180)
Temporary LIFO liquidation credit 20,442 33,276
Net Cash Provided by Operating Activities 131,537 84,900
Investing Activities:
Capital expenditures - construction (42,076) (32,608)
Other assets (13,630) (146)
Other capital investments 925 180
Net Cash Used in Investing Activities (54,781) (32,574)
Financing Activities:
Interim loans - net (8,200) -
Dividends paid on common stock (29,781) (48,394)
Retirement of long-term debt (10,400) -
Net Cash Used in Financing Activities (48,381) (48,394)
Net Increase in Cash and Cash Equivalents 28,375 3,932
Cash and Cash Equivalents at Beginning of Period 3,134 18,509
Cash and Cash Equivalents at End of Period $31,509 $22,441
The Notes to Consolidated Financial Statements are an integral part of
these statements.
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<CAPTION>
North Shore Gas Company
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended 12 Months Ended
March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998
(Thousands of Dollars)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES $60,565 $55,715 $97,813 $105,814 $136,205 $146,059
OPERATING EXPENSES:
Gas costs 31,948 29,936 49,779 58,292 64,530 73,981
Operation and maintenance 6,532 6,219 13,113 12,313 25,629 26,613
Depreciation 2,100 1,986 4,199 4,017 8,234 7,969
Taxes, other than income taxes 5,127 4,748 8,471 8,452 12,416 12,030
Total Operating Expenses 45,707 42,889 75,562 83,074 110,809 120,593
OPERATING INCOME 14,858 12,826 22,251 22,740 25,396 25,466
OTHER INCOME
AND (DEDUCTIONS) (1,189) (1,297) (2,442) (2,692) (4,525) (4,832)
EARNINGS BEFORE
INCOME TAXES 13,669 11,529 19,809 20,048 20,871 20,634
INCOME TAXES 5,347 4,492 7,705 7,800 8,029 7,871
NET INCOME APPLICABLE
TO COMMON STOCK $ 8,322 $ 7,037 $12,104 $ 12,248 $ 12,842 $ 12,763
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
<TABLE>
<CAPTION>
North Shore Gas Company
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
1999 September 30, 1998
(Unaudited) 1998 (Unaudited)
(Thousands of Dollars)
PROPERTIES AND OTHER ASSETS
CAPITAL INVESTMENTS:
<S> <C> <C> <C>
Property, plant and equipment, at original cost $310,486 $304,487 $300,249
Less - Accumulated depreciation 111,639 107,590 104,034
Net property, plant and equipment 198,847 196,897 196,215
Other investments 22 22 21
Total Capital Investments - Net 198,869 196,919 196,236
CURRENT ASSETS:
Cash and cash equivalents 12,953 4,666 6,621
Trust fund (See Note 4A) 788 - -
Receivables
Customers, net of allowance for uncollectible accounts
of $ 790, $ 705, and $ 792, respectively 12,031 3,811 13,086
Other 1,800 828 2,392
Accrued unbilled revenues 9,053 2,629 7,971
Materials and supplies, at average cost 2,551 2,729 2,910
Gas in storage, at last-in, first-out cost 2,983 9,917 2,956
Gas costs recoverable through rate adjustments 2 614 1,439
Regulatory assets 565 1,208 955
Prepayments 450 317 463
Total Current Assets 43,176 26,719 38,793
OTHER ASSETS:
Non-current regulatory assets 19,144 23,895 5,987
Deferred charges 3,179 3,730 3,418
Total Other Assets 22,323 27,625 9,405
Total Properties and Other Assets $264,368 $251,263 $244,434
The Notes to Consolidated Financial Statements are an integral part of these statements.
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<TABLE>
<CAPTION>
North Shore Gas Company
CONSOLIDATED BALANCE SHEETS
March 31, March 31,
1999 September 30, 1998
(Unaudited) 1998 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
<S> <C> <C> <C>
Common Stockholder's Equity:
Common stock, without par value -
Authorized 5,000,000 shares
Outstanding 3,625,887 shares $ 24,757 $ 24,757 $ 24,757
Retained earnings 76,468 70,020 74,214
Total Common Stockholder's Equity 101,225 94,777 98,971
Long-term debt, exclusive of sinking fund
payments and maturities due within one year 69,734 64,604 64,604
Total Capitalization 170,959 159,381 163,575
CURRENT LIABILITIES:
Accounts payable 14,409 22,953 19,723
Dividends payable on common stock 2,502 2,429 2,828
Customer gas service and credit deposits 3,877 5,705 3,046
Accrued taxes 7,992 1,305 7,198
Gas sales revenue refundable through rate adjustments 2,926 1,163 209
Accrued interest 2,143 2,034 2,024
Temporary LIFO liquidation credit 5,342 - 8,926
Total Current Liabilities 39,191 35,589 43,954
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily accelerated depreciation 21,372 23,052 20,821
Investment tax credits being amortized over
the average lives of related property 3,364 3,437 3,522
Other 29,482 29,804 12,562
Total Deferred Credits and Other Liabilities 54,218 56,293 36,905
Total Capitalization and Liabilities $264,368 $251,263 $244,434
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
North Shore Gas Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
1999 1998
(Thousands of Dollars)
Operating Activities:
Net Income $12,104 $12,248
Adjustments to reconcile net income to net cash:
Depreciation 4,199 4,017
Deferred income taxes and investment tax credits - net (2,423) 206
Change in other deferred credits and other liabilities 348 (183)
Change in other assets 5,302 (432)
Change in current assets and liabilities:
Receivables - net (9,192) (8,811)
Accrued unbilled revenues (6,424) (5,338)
Materials and supplies 179 66
Gas in storage 6,934 7,047
Gas costs recoverable 612 397
Regulatory assets 643 1,366
Prepayments (133) (217)
Accounts payable (8,544) 839
Customer gas service and credit deposits (1,828) (2,588)
Accrued taxes 6,687 5,246
Gas sales revenue refundable 1,764 (202)
Accrued interest 109 (13)
Temporary LIFO liquidation credit 5,342 8,926
Net Cash Provided by Operating Activities 15,679 22,574
Investing Activities:
Capital expenditures - construction (5,511) (5,832)
Other assets (639) 275
Net Cash Used in Investing Activities (6,150) (5,557)
Financing Activities:
Interim loans - net - (2,110)
Issuance of long-term debt 30,035 -
Dividends paid on common stock (5,584) (8,630)
Retirement of long-term debt (24,905) -
Trust fund (788) -
Net Cash Used in Financing Activities (1,242) (10,740)
Net Increase in Cash and Cash Equivalents 8,287 6,277
Cash and Cash Equivalents at Beginning of Period 4,666 344
Cash and Cash Equivalents at End of Period $12,953 $ 6,621
The Notes to Consolidated Financial Statements are an integral part of
these statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. BASIS OF PRESENTATION
This Quarterly Report on Form 10-Q is a combined report of
Peoples Energy Corporation (Peoples Energy), The Peoples Gas
Light and Coke Company (Peoples Gas) and North Shore Gas Company
(North Shore Gas). The accompanying consolidated financial
statements and Notes to the Consolidated Financial Statements
include the accounts of Peoples Energy and its wholly owned
subsidiaries, Peoples Gas, North Shore Gas, Peoples District
Energy Corporation, Peoples Energy Services Corporation, Peoples
Energy Resources Corp., Peoples Energy Ventures Corporation, and
Peoples NGV Corp., and comprise the assets, liabilities,
revenues, expenses, and underlying common stockholders' equity of
these companies. Income is principally derived from Peoples
Energy's utility subsidiaries, Peoples Gas and North Shore Gas.
Significant intercompany balances and transactions have been
eliminated. Investments and partnerships for which Peoples
Energy's subsidiaries have at least a 20% interest but less than
a majority ownership are accounted for under the equity method.
The statements have been prepared by Peoples Energy in conformity
with the rules and regulations of the Securities and Exchange
Commission (SEC) and reflect all adjustments that are, in the
opinion of management, necessary to present fairly the results
for the interim periods herein and to prevent the information
from being misleading.
Certain footnote disclosures and other information, normally
included in financial statements prepared in accordance with
generally accepted accounting principles, have been condensed or
omitted from these interim financial statements, pursuant to SEC
rules and regulations. Therefore, the statements should be read
in conjunction with the consolidated financial statements and
related notes contained in Peoples Energy's, Peoples Gas' and
North Shore Gas' Annual Reports on Form 10-K for the fiscal year
ended September 30, 1998. Certain items previously reported for
the prior periods have been reclassified to conform with the
presentation in the current period.
The business of Peoples Energy's utility subsidiaries is
influenced by seasonal weather conditions because a large element
of the utilities' customer load consists of gas used for space
heating. Weather-related deliveries can, therefore, have a
significant positive or negative impact on net income.
Accordingly, the results of operations for the interim periods
presented are not indicative of the results to be expected for
all or any part of the balance of the current fiscal year.
2. SIGNIFICANT ACCOUNTING POLICIES
2A.Regulated Operations
Peoples Gas' and North Shore Gas' utility operations are
subject to regulation by the Illinois Commerce Commission
(Commission). Regulated operations are accounted for in
accordance with Statement of Financial Accounting Standards
(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.
2B.Statement of Cash Flows
For purposes of the balance sheet and the statement of cash
flows, Peoples Energy, Peoples Gas, and North Shore Gas consider
all short-term liquid investments with maturities of six months
or less to be cash equivalents.
Income taxes and interest paid were as follows:
For the six months Peoples Energy Peoples Gas North Shore Gas
ended March 31, 1999 1998 1999 1998 1999 1998
Income taxes paid $21,753 $16,104 $16,454 $12,190 $4,858 $3,544
Interest paid 19,226 19,052 16,024 16,314 2,458 2,723
2C.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.
2D. Oil and Gas Exploration and Production Properties
For oil and gas activities, Peoples Energy follows the full-
cost method of accounting as prescribed by the SEC. 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 Peoples Energy's cash flow. For
the periods presented, there was no such charge to income.
2E. Accounting Standards
On October 1, 1998, Peoples Energy and its subsidiaries
adopted SFAS No. 130, "Reporting Comprehensive Income." This
Statement establishes the standards for reporting and display of
comprehensive income and its components in a full set of
financial statements. The statement requires that all items that
are required to be recognized as components of comprehensive
income be reported in a financial statement with equal prominence
as the other financial statements. (See Note 6.)
In June 1998, the Financial Accounting Standards Board 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 shall be recognized
in the current period earnings, unless specific hedge accounting
criteria are met. If an entity qualifies for hedge accounting,
the derivative's gains and losses will offset the related results
of the hedged item 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.
Peoples Energy expects to designate its derivative instruments as
fair value hedges. The statement must be adopted no later than
Peoples Energy's fiscal year 2000. Peoples Energy does not expect
the adoption of this standard to have a material effect on its
financial condition or results of operations.
2F. Hedging Activities
Peoples Energy has a formal risk management policy that
establishes monitoring and control procedures for the execution,
recording and reporting of derivative financial instruments. The
intent of the policy is to utilize risk management trading solely
to minimize risk, and not for any speculative purpose. Peoples
Energy 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).
Peoples Energy is accounting for all current derivative
transactions through hedge accounting. These 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 Peoples Energy 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 March 31, 1999, Peoples Energy had open derivative
financial instruments representing hedges of natural gas
equivalent production of 3.9 Bcf. At March 31, 1999, Peoples
Energy had no deferred gain or loss on the Consolidated Balance
Sheet.
3. ENVIRONMENTAL MATTERS
3A. Former Manufactured Gas Plant Operations
Peoples Gas and North Shore Gas, 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, Peoples Gas and North Shore
Gas 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 Illinois Environmental
Protection Agency (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 the Comprehensive
Environmental Response, Compensation and Liability Act of 1980,
as amended ,(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 adjacent property (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 March 31, 1999,
the total of the costs deferred for Peoples Gas was $22.7
million; for North Shore Gas the total was $17.8 million; and for
Peoples Energy on a consolidated basis the total deferred was
$40.5 million. This amount includes management's best estimate
of the costs of investigating and remediating the Manufactured
Gas Sites. The estimate is based upon a comprehensive review by
management 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. In November 1998, the utilities reached a
settlement agreement with one of the insurance carriers. The
costs deferred at March 31, 1999 have been reduced by the
proceeds of the settlement. At this time, management cannot
determine the timing and extent of the subsidiaries' recovery of
costs from the other insurance carriers. Accordingly, the costs
deferred at March 31, 1999 have not been reduced to reflect
recoveries from other insurance carriers.
Management 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.
3B. 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 asked 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.
3C. 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. North Shore Gas
believes that a substantial portion of any costs incurred by it
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 Peoples Energy or North
Shore Gas.
4. LONG-TERM DEBT
4A. Issuance of Bonds
On December 18, 1998, the Illinois Development Finance
Authority issued $30,035,000 aggregate principal amount of 5.00%
Gas Supply Revenue Bonds, Series 1998, which were collateralized
by an equal amount of North Shore Gas' 30-year first mortgage
bonds, Series M. The net proceeds were deposited with a trustee
to be used for the redemption of long-term debt, the payment of
issuance costs and for the payment of certain construction
expenditures.
4B. Interest Rate Adjustments
The rate of interest on the $27 million principal amount of
the City of Chicago 1993 Series B Bonds, which are secured by an
equal principal amount of 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, 1998 have been
remarketed. The interest rate on the Series B Bonds will be
3.20 percent for the period December 1, 1998 through
November 30, 1999.
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, Peoples Gas has established a line of credit
with The Northern Trust Company which expires on January 31,
2001.
4C. Bonds Redeemed
On October 1, 1998, Peoples Gas redeemed, from general
corporate funds, $10.4 million aggregate principal amount of the
City of Joliet 1984 Series C Bonds, which were secured by Peoples
Gas' Adjustable-Rate First and Refunding Mortgage Bonds, Series
W. On January 19, 1999, North Shore Gas redeemed, from a portion
of the bond issuance proceeds deposited with the trustee,
$24,905,000 aggregate principal amount of the Illinois
Development Finance Authority Gas Supply Revenue Bonds, Series
1992, which were secured by North Shore Gas' First Mortgage
Bonds, Series K.
5. EARNINGS PER SHARE
Shares used to compute diluted earnings per share for Peoples
Energy are as follows:
Average Common Stock Shares (in thousands)
Three Months Six Months 12 Months
Ended Ended Ended
March 31, 1999 1998 1999 1998 1999 1998
As reported shares 35,481 35,213 35,467 35,175 35,402 35,100
Effects of options 9 24 12 22 14 25
Diluted shares 35,490 35,237 35,479 35,197 35,416 35,125
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. COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," was adopted in
fiscal 1999. This statement requires the reporting of
comprehensive income in addition to net income. Comprehensive
income is the total of net income and all other nonowner changes
in equity (other comprehensive income). Comprehensive income
includes net income plus the effect of the additional pension
liability not yet recognized as net periodic pension cost.
Peoples Energy and Peoples Gas have reported accumulated other
comprehensive income in their respective Consolidated Balance
Sheets.
<TABLE>
<CAPTION>
Comprehensive income for Peoples Energy for the three, six,
and 12 months ended March 31, 1999 and 1998 is as follows:
Three Months Ended Six Months Ended 12 Months Ended
March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net income $66,082 $47,116 $89,453 $82,659 $86,216 $80,314
Other comprehensive income
Minimum pension liability - - - - 1,604 (2,645)
Income tax (expense)/benefit - - - - (636) 1,049
Other comprehensive income, net of tax - - - - 968 (1,596)
Comprehensive Income $66,082 $47,116 $89,453 $82,659 $87,184 $78,718
</TABLE>
<TABLE>
<CAPTION>
Comprehensive income for Peoples Gas for the three, six, and
12 months ended March 31, 1999 and 1998 is as follows:
Three Months Ended Six Months Ended 12 Months Ended
March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998
<S> <C> <C> <C> <C> <C> <C>
Net income $56,535 $40,399 $76,128 $70,824 $73,682 $69,484
Other comprehensive income
Minimum pension liability - - - - 1,604 (2,645)
Income tax (expense)/benefit - - - - (636) 1,049
Other comprehensive income, net of tax - - - - 968 (1,596)
Comprehensive Income $56,535 $40,399 $76,128 $70,824 $74,650 $67,888
</TABLE>
7. ELIMINATION OF DECOMMISSIONING RESERVE
In January, 1999, Peoples Gas eliminated a $ 13.0 million
decommissioning reserve associated with the 1995 retirement of
its synthetic natural gas plant. This elimination resulted in
the recognition of $13.0 million in other income. Management has
determined that it does not expect the plant's decommissioning
costs to exceed amounts incurred to date.
Item 2. Management's Discussion and Analysis of Results of
Operations and Financial Condition
RESULTS OF OPERATIONS
PEOPLES ENERGY
Net Income
Net income increased $19.0 million, to $66.1 million, for the
current three-month period ended March 31, 1999, as a result of
weather that was colder than in the prior period. Also
contributing to the increase in net income was the elimination of
the decommissioning reserve associated with the 1995 retirement
of Peoples Gas' synthetic natural gas plant, and increased
earnings from the diversified energy subsidiaries.
Net income increased $6.8 million, to $89.5 million, and $5.9
million, to $86.2 million, for the six- and 12-month periods
ended March 31, 1999, respectively, as a result of the
elimination of the decommissioning reserve, mentioned above, and
an increase in diversified energy earnings. These beneficial
effects were partially offset by increased operation and
maintenance expenses. The 12 month period was also affected by
weather that was almost 8% warmer than the prior period.
<TABLE>
<CAPTION>
A summary of variations affecting income between periods is
presented below, with explanations of significant differences
following:
Three Months Ended Six Months Ended 12 Months Ended
March 31, 1999 March 31, 1999 March 31, 1999
Over the Prior Period Over the Prior Period Over the Prior Period
(Thousands of dollars) Amount % Amount % Amount %
<S> <C> <C> <C> <C> <C> <C>
Operating revenues $76,277 18.0 $4,585 0.6 $13,765 1.2
Cost of energy sold 54,173 26.2 843 0.2 16,238 3.2
Operation and maintenance expenses 232 0.4 5,650 4.6 3,807 1.5
Depreciation, depletion and
amortization expense 1,662 8.9 3,231 8.6 5,548 7.4
Taxes, other than income taxes 1,978 3.9 (3,630) (4.0) (5,554) (4.2)
Other income and deductions 12,712 (138.8) 12,435 (68.0) 13,512 (38.6)
Income taxes 11,978 40.1 4,132 7.9 1,336 2.8
Net income 18,966 40.3 6,794 8.2 5,902 7.3
</TABLE>
Operating Revenues
Gross revenues are affected by changes in the unit cost of the
gas purchases of Peoples Gas and North Shore Gas 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 no 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. 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 Note 2C 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 other charges
imposed by the State of Illinois and various municipalities.
Operating revenues increased $76.3 million, to $500.8 million,
for the current three-month period, due primarily to weather that
was more than 16 percent colder in the current period as well as
an increase in revenues from Peoples Energy's diversified energy
businesses. The increase in revenues was partially offset by the
effects of lower unit costs of gas at the utilities.
Operating revenues increased $4.6 million, to $814.2 million,
and $13.8 million, to $1.1 billion, for the current six- and 12-
month periods, respectively, due to increased revenues from
Peoples Energy's diversified energy businesses. These increases
were partially offset by the effects of lower unit costs of gas
at the utilities. The 12-month period also reflects weather that
was almost 8% warmer than in the prior period.
Cost of Energy Sold
Cost of energy sold increased $54.2 million, to $260.8
million, $843,000, to $405.5 million, and $16.2 million, to
$527.8 million, for the current three-, six- and 12-month
periods, respectively, due to increased operating activity from
the diversified energy businesses. The utilities experienced
lower unit costs of gas in the current periods.
Operation and Maintenance Expenses
Operation and maintenance expenses increased $232,000, to
$63.0 million, for the current three-month period, due mainly to
increases in labor costs ($1.6 million) and in environmental
costs recovered through rates ($1.0 million). Partially
offsetting these effects were a $642,000 decrease in the cost of
group insurance, a $554,000 increase in pension credits and one-
time costs associated with staff reductions in the prior period
($900,000).
Operation and maintenance expenses increased $5.7 million, to
$129.0 million, for the current six-month period, due primarily
to a $2.8 million reduction in pension credits, a $2.7 million
increase in labor costs, a $1.5 million increase in environmental
costs recovered through rates, and a $1.4 million increase in the
cost of outside professional services. These increases were
offset, in part, by decreases in the cost of group insurance
($1.7 million) and in the provision for uncollectible accounts
($1.4 million).
Operation and maintenance expenses increased $3.8 million, to
$251.0 million, for the current 12-month period, due primarily to
an increase in the cost of outside professional services ($5.1
million), an increase in environmental costs recovered through
rates ($1.6 million), an increase in labor costs ($1.6 million),
and a decrease in pension credits ($1.4 million). Partially
offsetting these effects was a decrease of $3.7 million in the
cost of group insurance and a decrease in the provision for
uncollectible accounts ($2.1 million).
Depreciation, Depletion and Amortization Expense
Depreciation, depletion and amortization expense increased
$1.7 million, to $20.4 million, $3.2 million, to $40.9 million,
and $5.5 million, to $80.4 million, for the current three-, six-
and 12-month periods, respectively, due mainly to depreciable
property additions and depletion expense attributable to new oil
and gas working interests of Peoples Energy Production, a
subsidiary of Peoples Energy Ventures.
Taxes, Other Than Income Taxes
Taxes, other than income taxes, increased $2.0 million, to
$52.2 million, for the current three-month period, mainly due to
an increase in revenue taxes associated with the increase in
operating revenues caused by colder weather and to increases in
severance taxes on oil and gas production. These taxes became
effective in April 1998. Partially offsetting the increase in
taxes was the effect on revenue and revenue taxes of lower unit
costs of gas at the utilities.
Taxes, other than income taxes, decreased $3.6 million, to
$87.1 million, and $5.6 million, to $126.5 million, for the
current six- and 12-month periods, respectively, due primarily to
a decrease in revenue
taxes related to the decline in utility operating revenues
attributable to the warmer weather (12-month period only) and
lower unit costs of gas. Somewhat offsetting this decrease in
taxes was the increase in other taxes in the current periods due
to the Supplemental Low Income Energy Assistance Charge and
Renewable Energy Resource and Coal Technology Assessment Charge.
These taxes became effective in January, 1998. Also offsetting
the decrease in taxes, other than income taxes, were higher
severance taxes applicable to oil and gas production that became
effective in April 1998.
Other Income and Deductions
Other income and deductions decreased $12.7 million, $12.4
million, and $13.5 million, for the current three-, six- and 12-
month periods, respectively, primarily due to the elimination of
a decommissioning reserve associated with the 1995 retirement of
Peoples Gas' synthetic natural gas plant. (See Note 7 of the
Notes to Consolidated Financial Statements.)
Income Taxes
Income taxes increased $12.0 million, to $41.9 million, $4.1
million, to $56.4 million, and $1.3 million, to $49.3 million,
for the current three-, six- and 12-month periods, respectively,
due primarily to higher pre-tax income. Partially offsetting the
increase in income taxes in the 12-month period was the effect of
a current period accrual adjustment.
PEOPLES GAS
Net Income
Net income increased $16.1 million, to $56.5 million, for the
current three-month period ended March 31, 1999, as a result of
weather that was more than 16% colder than the prior period.
Also contributing to the increase in net income was the
elimination of the decommissioning reserve associated with the
1995 retirement of Peoples Gas' synthetic natural gas plant.
Net income increased $5.3 million, to $76.1 million, for the
six month period ended March 31, 1999, primarily as a result of
the elimination of the decommissioning reserve mentioned above.
Partially offsetting this beneficial effect were the impacts on
net income of decreased net profits on gas deliveries, a
reduction in pension credits, higher costs of outside
professional services, and higher labor costs.
Net income increased $4.2 million, to $73.7 million, for the
12 month period ended March 31, 1999, primarily due to the
elimination of the decommissioning reserve and to lower operation
and maintenance expenses. Partially offsetting these favorable
impacts were the effects of weather that was almost 8 percent
warmer than the prior period.
Operating Revenues
Gross revenues of Peoples Gas are affected by changes in the
unit cost of gas purchases and do not include the cost of gas
supplies for customers who purchase gas directly from producers
and marketers rather than from Peoples Gas. The direct customer
purchases have no effect on net income because Peoples Gas
provides transportation service for such gas volumes and recovers
margins similar to those applicable to conventional gas sales.
Changes in the unit cost of gas do not significantly affect net
income because Peoples Gas' tariff provides for dollar-for-dollar
recovery of gas costs. (See Note 2C of the Notes to Consolidated
Financial Statements.) The tariff also provides for dollar-for-
dollar recovery of the cost of revenue taxes and certain other
charges imposed by the State of Illinois and the Ccity of
Chicago.
Operating revenues increased $13.6 million, to $362.0 million,
for the current three-month period, due primarily to weather that
was more than 16 percent colder in the current period, partially
offset by a lower unit cost of gas in the current period.
Operating revenues decreased $58.4 million, to $597.0 million,
for the six month period ended March 31, 1999, due primarily to
the lower unit cost of gas in the current period.
Operating revenues decreased $79.9 million, to $849.2
million, for the 12 months ended March 31, 1999, due to weather
that was almost 8% warmer than the prior period and to lower
unit costs of gas in the current period.
Gas Costs
Gas costs decreased $52.8 million, to $249.5 million, and
$62.8 million, to $325.7 million, for the six- and 12-month
periods, respectively, due to lower unit costs of gas in the
current periods. Also affecting the 12 month period was the
impact of weather that was almost 8% warmer than during the prior
period.
Operation and Maintenance Expenses
Operation and maintenance expenses decreased $974,000, to
$52.7 million, for the current three-month period, primarily due
to one-time charges incurred in the prior period associated with
staff reductions ($900,000), increases in pension credits in the
current period costs ($416,000), and a decrease in the cost of
group insurance ($656,000) in the current period, partially
offset by an increase in environmental costs recovered through
rates ($728,000) and higher labor costs ($484,000).
Operation and maintenance expenses increased $2.6 million, to
$107.9 million, for the current six-month period, due mainly to
an increase in the cost of outside professional services ($1.1
million), an increase in labor costs of $1.2 million, a decrease
in pension credits ($2.8 million), and an increase in
environmental costs recovered through rates ($991,000). These
effects were partially offset by a reduction in the cost of group
insurance ($1.6 million) and by a decline in the provision for
uncollectible accounts ($1.5 million).
Operation and maintenance expenses decreased $3.2 million, to
$209.0 million, for the current 12-month period, due to a $3.4
million decline in the cost of group insurance, a $2.0 million
decrease in the provision for uncollectible accounts, a reduction
in labor costs of $1.0 million, and a reduction in the costs
associated with liability insurance premiums and claim
settlements ($651,000), and an increase in benefit costs
capitalized, partially offset by an increase in the cost of
outside professional services ($3.2 million), a reduction in
pension credits ($2.0 million) and an increase in environmental
costs recovered through rates ($906,000).
Depreciation and Amortization Expense
Depreciation and amortization expense increased $334,000, to
$17.1 million, $706,000, to $34.2 million, and $1.8 million, to
$68.5 million, for the current three-, six-, and 12-month
periods, respectively, due mainly to depreciable property
additions.
Taxes, Other Than Income Taxes
Taxes, other than income taxes increased $1.5 million, to
$46.9 million, for the current three-month period, as a result of
an increase in revenue taxes associated with the increase in
operating revenues caused by colder weather, partially offset by
the effects onin revenue and revenue taxes of a decrease in the
unit cost of gas.
Taxes, other than income taxes, decreased $4.0 million, to
$78.2 million, and $6.5 million, to $113.3 million, for the
current six- and 12-month periods, respectively, due primarily to
a decrease in revenue taxes related to the decline in operating
revenues attributable to lower unit costs of gas. In the case of
the 12 months ended March 31, 1999, warmer weather also
contributed to the decrease in revenue taxes. Somewhat
offsetting these decreases in taxes were the increases in other
taxes in the current periods due to the Supplemental Low Income
Energy Assistance Charge and Renewable Energy Resource and Coal
Technology Assessment Charge. These new taxes became effective
in January, 1998.
Other Income and Deductions
Other income and deductions decreased $13.5 million, $13.4
million, and $13.4 million, for the current three-, six- and 12-
month periods, respectively, due to the elimination of a
decommissioning reserve associated with the 1995 retirement of
Peoples Gas' synthetic natural gas plant. (See Note 7 of the
Notes to Consolidated Financial Statements.)
Income Taxes
Income taxes increased $10.2 million, to $35.7 million, $3.2
million, to $47.9 million, and $107,000, to $41.4 million, for
the current three-, six- and 12-month periods, respectively, due
primarily to higher pre-tax income. Also contributing to the 12-
month period was the effect of a current period accrual
adjustment.
NORTH SHORE GAS
Net Income
Net income increased $1.3 million, to $8.3 million, for the
three months ended March 31, 1999, due largely to weather that
was more than 16% colder than the prior quarter.
Net income decreased $144,000, to $12.1 million for the six
months ended March 31, 1999, due primarily to increases in labor
and other operation and maintenance expenses.
Net income increased $79,000, to $12.8 million, for the 12-
months ended March 31, 1999, due primarily to lower operation and
maintenance expenses, partially offset by the effects of weather
that was almost 8% warmer in the current period.
Operating Revenues
Gross revenues of North Shore Gas are affected by changes in
the unit cost of gas purchases and do not include the cost of gas
supplies for customers who purchase gas directly from producers
and marketers rather than from North Shore Gas. The direct
customer purchases have no effect on net income because North
Shore Gas provides transportation service for such gas volumes
and recovers margins similar to those applicable to conventional
gas sales. Changes in the unit cost of gas do not significantly
affect net income because North Shore Gas' tariff provides for
dollar-for-dollar recovery of gas costs. (See Note 2C of the
Notes to Consolidated Financial Statements.) The tariff also
provides for dollar-for-dollar recovery of the cost of revenue
taxes and certain other charges imposed by the State of Illinois
and various municipalities.
Operating revenues increased $4.9 million, to $60.6 million,
for the current three-month period due primarily to weather that
was more than 16 percent colder than the prior period, partially
offset by a lower unit cost of gas in the current period.
Operating revenues decreased $8.0 million, to $97.8 million,
and $9.9 million, to $136.2 million, for the current six- and 12-
month periods, respectively, due to the lower unit cost of gas in
the current periods. For the 12-month period warmer weather also
contributed to the decrease in operating revenues.
Gas Costs
Gas costs increased $2.0 million, to $31.9 million, for the
three-month period due mainly to increased sales resulting from
colder weather, partially offset by the impact of a lower unit
cost of gas.
Gas costs decreased $8.5 million, to $49.8 million, and $9.5
million, to $64.5 million, respectively, for the six- and 12-
month periods, primarily due to lower unit costs of gas. Also
impacting the 12-month period was the effect of weather that was
almost 8% warmer than the prior period.
Operation and Maintenance Expenses
Operation and maintenance expenses increased $313,000, to $6.5
million, and $800,000, to $13.1 million, respectively, for the
current three- and six-month periods, due primarily to increases
in environmental costs recovered through rates ($299,000 and
$470,000, respectively) along with increased labor costs
($102,000 and $160,000, respectively). Partially offsetting the
increases in operation and maintenance expenses for the three-
month period was an increase in pension credits ($171,000).
Partially offsetting the increase in the six-month period was the
effect of lower group insurance expenses ($221,000).
Operation and maintenance expenses decreased $984,000, to
$25.6 million, for the current 12-month period, due mainly to an
increase in pension credits ($612,000), lower group insurance
expenses ($398,000), a decrease in the cost of outside
professional services ($173,000), and decreases in information
systems costs. Increased environmental costs recovered through
rates ($686,000) and higher labor costs ($230,000) partially
offset these reductions.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $114,000, to
$2.1 million, $182,000, to $4.2 million, and $265,000, to $8.2
million, in the current three-, six-, and 12-month periods,
respectively, due mainly to depreciable property additions.
Taxes, Other Than Income Taxes
Taxes, other than income taxes increased $379,000, to $5.1
million, for the current three-month period, due largely to
increased revenue taxes associated with the increase in operating
revenues attributable to the colder weather experienced in the
current period, partially offset by the effects on revenue and
associated revenue taxes of lower unit costs of gas.
Taxes, other than income taxes, increased $386,000, to $12.4
million, for the 12-months ended March 31, 1999, primarily due to
increases in the Supplemental Low Income Energy Assistance Charge
and the Coal Technology Assessment Charge which become effective
in January, 1998 ($984,000). Partially offsetting the increase
due to the new charges was a decrease in revenue taxes resulting
from warmer weather and lower unit costs of gas.
Other Income and Deductions
Other income and deductions decreased by $108,000, $250,000
and $307,000 for the current three-, six-, and 12-month periods,
respectively, primarily due to lower interest expense on
commercial paper,
interest income accrued on the construction fund, and increased
miscellaneous interest revenues. Partially offsetting these
beneficial effects were a one-time increase in interest expense
on long-term debt and the carrying charges on the insurance
recovery applicable to environmental matters.
Other Matters
Accounting Standards. In October 1998, Peoples Energy, Peoples
Gas and North Shore Gas adopted SFAS 130, "Reporting
Comprehensive Income." (See Notes 2E and 6 of the Notes to
Consolidated Financial Statements.)
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.
On April 16, 1999, in their reply briefs, Peoples Gas and
Nnorth Shore Gas indicated their willingness to accept a fixed
gas charges based on a historical test period. On April 30,
1999, the Hhearing Eexaminer issued a Pproposed Oorders, which
accepted the proposal of Peoples Gas and North Shore Gas. The
Commission must enter its final order by June 22, 1999.
Investment in Diversified Energy Businesses. Peoples Energy has
a financial goal to derive 25% of its earnings from diversified
energy businesses by the end of 2002.
In accordance with this goal, Peoples Energy Production, as of
March 31, 1999 has invested, had an investment in EnerVest Energy
Partners and in several transactions had acquired a portfolio of
oil and gas properties in the U.S. As of March 31, 1999, Peoples
Energy Production had $20.2 million invested in a portfolio of
oil and gas properties.
Peoples Energy Resources is partnering with Dominion Energy,
Inc. to own and operate a jointly-owned 600 megawatt electric
generating peaking facility. The facility is scheduled to begin
operation in June 1999. The entire output of the facility has
been sold to two purchasers under multi-year contracts.
Additionally, Peoples Energy Resources, through its subsidiary,
Peoples Natural Gas Liquids, owns and operates a plant that
gasifies natural gas liquids to support the sale of peaking
services to area natural gas utilities and marketers. Peoples
Energy Resources' investment in diversified energy businesses
totaled $70.1 million as of March 31, 1999.
Peoples Energy Services expanded its gas marketing customer
base by buying the contract portfolios of various marketers. It
also increased the number of its customers by participating in
gas utility pilot programs and by improving its direct sales
efforts. Peoples Energy Services recently entered into an
agreement with Great Lakes Naval Training Center in Northeeastern
Illinois. The agreement provides for the company to study,
design and establish methodology to implement solutions to reduce
energy needs throughout the Great Lakes complex. The company is
preparing for participation in the power market as it opens up.
Peoples Gas operates a pipeline hub that Hub Services provides
a full range of storage and transportation services including
parks and loans and hub-to-hub services to the wholesale gas
marketing community. During the first six months ended March 31,
1999, the pipeline hubHub Services has generated gross revenues
of $3.1 million.
OPERATING STATISTICS
The following table represents margin components for Peoples Energy on a
consolidated basis:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended 12 Months Ended
March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998
Revenues (thousands):
<S> <C> <C> <C> <C>
Utility Gas Sales
Residential $317,823 $301,597 $518,644 $570,318 $ 728,514 $ 795,242
Commercial 43,140 47,593 68,437 85,602 95,002 119,719
Industrial 8,444 9,180 12,947 16,552 17,342 22,272
369,407 358,370 600,028 672,472 840,858 937,233
Utility Transportation
Residential 15,652 13,411 26,828 24,258 38,403 35,650
Commercial 19,648 16,760 33,539 31,574 49,521 46,317
Industrial 8,931 8,377 15,992 16,373 26,891 28,394
Contract Pooling 3,346 2,483 7,092 5,968 10,496 8,507
Other 301 101 550 533 774 533
47,878 41,132 84,001 78,706 126,085 119,401
Other Utility Revenues 4,827 4,176 9,803 9,060 16,475 16,414
Diversified Energy Revenues 78,675 20,832 120,413 49,422 159,224 55,829
Total Operating Revenues 500,787 424,510 814,245 809,660 1,142,642 1,128,877
Less - Cost of Energy Sold 260,798 206,625 405,491 404,648 527,826 511,588
Gross Margin $239,989 $217,885 $408,754 $405,012 $ 614,816 $ 617,289
Utility Deliveries (MDth):
Gas Sales
Residential 59,498 52,421 92,728 94,278 117,656 126,022
Commercial 8,601 9,046 13,251 15,488 17,262 21,833
Industrial 1,913 1,929 2,878 3,283 3,711 4,492
70,012 63,396 108,857 113,049 138,629 152,347
Transportation (a)
Residential 12,030 10,383 19,617 18,539 25,933 25,934
Commercial 17,926 14,819 29,591 27,460 41,929 39,149
Industrial 12,455 12,128 22,277 22,696 39,617 38,624
42,411 37,330 71,485 68,695 107,479 103,707
Total Utility Deliveries 112,423 100,726 180,342 181,744 246,108 256,054
</TABLE>
(a) Volumes associated with contract pooling revenues are included in their
respective customer classes.
The following table represents margin components for Peoples Gas:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended 12 Months Ended
March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998
Operating Revenues (thousands):
<S> <C> <C> <C> <C> <C> <C>
Gas Sales
Residential $270,372 $258,194 $442,351 $487,850 $623,312 $683,092
Commercial 35,719 40,931 56,799 73,361 79,201 103,199
Industrial 6,646 7,500 10,200 13,647 13,784 18,685
312,737 306,625 509,350 574,858 716,297 804,976
Transportation
Residential 15,172 12,950 25,979 23,464 37,067 33,910
Commercial 17,569 14,796 29,918 27,588 44,057 40,722
Industrial 7,951 7,226 14,063 13,820 23,335 23,764
Contract Pooling 3,178 2,301 6,761 5,532 10,094 7,636
Other 301 101 550 534 774 534
44,171 37,374 77,271 70,938 115,327 106,566
Other 5,118 4,403 10,385 9,572 17,534 17,483
Total Operating Revenues362,026 348,402 597,006 655,368 849,158 929,025
Less- Gas Costs 158,143 158,137 249,459 302,216 325,682 388,482
Gross Margin $203,883 $190,265 $347,547 $353,152 $523,476 $540,543
Deliveries (MDth):
Gas Sales
Residential 49,829 44,248 77,748 79,664 98,551 106,493
Commercial 6,983 7,709 10,792 13,169 14,129 18,676
Industrial 1,483 1,563 2,235 2,687 2,909 3,750
58,295 53,520 90,775 95,520 115,589 128,919
Transportation (a)
Residential 11,699 10,088 19,076 18,097 25,196 24,595
Commercial 15,635 12,722 25,765 23,405 36,523 34,053
Industrial 10,702 10,373 18,877 19,214 33,589 32,334
38,036 33,183 63,718 60,716 95,308 90,982
Total Deliveries 96,331 86,703 154,493 156,236 210,897 219,901
</TABLE>
(a) Volumes associated with contract pooling revenues are included in their
respective customer classes.
The following table represents margin components for North Shore Gas:
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended 12 Months Ended
March 31, March 31, March 31,
1999 1998 1999 1998 1999 1998
Operating Revenues (thousands):
<S> <C> <C> <C> <C> <C> <C>
Gas Sales
Residential $47,451 $43,402 $76,293 $82,468 $105,202 $112,150
Commercial 7,421 6,662 11,638 12,241 15,801 16,520
Industrial 1,798 1,680 2,747 2,905 3,558 3,587
56,670 51,744 90,678 97,614 124,561 132,257
Transportation
Residential 480 461 849 794 1,336 1,740
Commercial 2,079 1,965 3,621 3,986 5,464 5,595
Industrial 980 1,151 1,929 2,553 3,556 4,630
Contract Pooling 168 181 331 436 402 871
3,707 3,758 6,730 7,769 10,758 12,836
Other 188 213 405 431 886 966
Total Operating Revenues 60,565 55,715 97,813 105,814 136,205 146,059
Less- Gas Costs 31,948 29,936 49,779 58,292 64,530 73,981
Gross Margin $28,617 $25,779 $48,034 $47,522 $ 71,675 $ 72,078
Deliveries (MDth):
Gas Sales
Residential 9,669 8,173 14,980 14,614 19,105 19,529
Commercial 1,618 1,337 2,459 2,319 3,133 3,157
Industrial 430 366 643 596 802 742
11,717 9,876 18,082 17,529 23,040 23,428
Transportation (a)
Residential 331 295 541 442 737 1,339
Commercial 2,291 2,097 3,826 4,055 5,406 5,096
Industrial 1,753 1,755 3,400 3,482 6,028 6,290
4,375 4,147 7,767 7,979 12,171 12,725
Total Deliveries 16,092 14,023 25,849 25,508 35,211 36,153
</TABLE>
(a) Volumes associated with contract pooling revenues are included in their
respective customer classes.
LIQUIDITY AND CAPITAL RESOURCES
Bonds Issued. On December 18, 1998, the Illinois Development
Finance Authority issued $30,035,000 aggregate principal amount
of 5.00% Gas Supply Revenue Bonds, Series 1998, which were
collateralized by an equal amount of North Shore Gas' 30-year
first mortgage bonds, Series M. The net proceeds were deposited
with a trustee to be used for the redemption of long-term debt,
the payment of issuance costs, and for the payment of certain
construction expenditures. (See Note 4A of the Notes to
Consolidated Financial Statements.)
Bonds Redeemed. On October 1, 1998, Peoples Gas redeemed, from
general corporate funds, $10.4 million aggregate principal amount
of the City of Joliet 1984 Series C Bonds, which were secured by
Peoples Gas' Adjustable-Rate First and Refunding Mortgage Bonds,
Series W. (See Note 4C of the Notes to Consolidated Financial
Statements.) On January 19, 1999, North Shore Gas redeemed, from
a portion of the proceeds deposited with the trustee, $24,905,000
aggregate principal amount of the Illinois Development Finance
Authority Gas Supply Revenue Bonds, Series 1992, which were
secured by North Shore Gas' First Mortgage Bonds, Series K.
Environmental Matters. Peoples Energy's utility subsidiaries are
conducting environmental investigations and work at certain sites
that were the location of former manufactured gas operations.
(See Note 3A of the Notes to Consolidated Financial Statements.)
In 1994, North Shore Gas received a demand from a responsible
party under 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 3B 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 3C of the Notes to Consolidated Financial
Statements.)
Credit Lines. Peoples Energy has lines of credit totaling $170.0
million. At March 31, 1999, Peoples Energy had unused credit
available of $108.7 million. Peoples Gas and North Shore Gas
have lines of credit totaling $119.0 million of which North Shore
Gas may borrow up to $30 million. At March 31, 1999, Peoples Gas
and North Shore Gas had unused credit available from banks of
$118.2 million of which $30 million was available to North Shore
Gas.
Interest Coverage. The fixed charges coverage ratios for Peoples
Gas for the 12 months ended March 31, 1999, and for fiscal 1999
and 1998 were 4.40, 4.15, and 5.01, respectively. The
corresponding coverage ratios for North Shore Gas for the same
periods were 5.12, 5.07, and 5.74, respectively.
Dividends. On February 3, 1999, the Directors of Peoples Energy
voted to increase the regular quarterly dividend on Peoples
Energy's common stock to 49 cents per share from the 48 cents per
share previously in effect. The annualized dividend rate now
amounts to $1.96 per share.
Year 2000 Readiness. Peoples Energy, Peoples Gas and North Shore
Gas began their efforts to assess the Year 2000 compliance of
their mainframe computer systems in March 1996. Peoples Energy
and North Shore Gas obtain their information technology services
from Peoples Gas. The following discussion applies to Peoples
Energy, Peoples Gas and North Shore Gas.
Peoples Energy has 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 Peoples Energy of
the Year 2000 compliance efforts of its key suppliers and
customers and Year 2000 contingency planning. Peoples Energy' is
company-wide Year 2000 effort includes Peoples Energy's wholly
owned subsidiaries, as well as various joint ventures, and
utilizes a combination of consultants and employees of Peoples
Energy's subsidiaries.
For all internal information technology systems developed by
Peoples Energy, Year 2000 compliance efforts proceed through the
following phases: inventory, assessment, remediation (which
includes replacement where appropriate), testing, and
implementation. Rather than completing each phase for all
systems prior to proceeding to the next phase, Peoples Energy
progresses through all phases on a system-by-system basis,
gradually implementing each fully-compliant system.
As of March 31, 1999, 22 of Peoples Energy's 38 mainframe
applications have been fully remediated, tested and implemented,
and eight have been (or are in the process of being) eliminated.
The eight remaining mainframe applications are scheduled to be
replaced by Peoples Energy's new customer information system, but
some will be remediated for contingency planning purposes only.
Additionally, all mainframe system modules have been remediated
and tested. Many of Peoples Energy's non-mainframe applications,
spreadsheets and interfaces have also reached the implementation
stage, and most others are in the remediation phase. Once a
fully-tested application has been implemented, Peoples Energy
employees follow established procedures to maintain the
compliance of the implemented application. Peoples Energy also
has retained a quality assurance expert to ensure that any
subsequent modifications to the application do not impact its
compliant status. Peoples Energy has implemented all critical
internal applications, other than the customer information system
to be used by Peoples Gas and North Shore Gas, and all non-
critical internal applications; Peoples Energy expects to
complete installation and testing of the customer information
system by the end of fiscal year 1999.
As part of its Year 2000 Project, Peoples Energy 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 March 31, 1999, Peoples Energy has received
responses from 88% of the vendors and is in the process of
replacing, upgrading or eliminating non-compliant vendor products
as appropriate. Peoples Energy also has tested its desktop
computer inventory and believes that its mission critical desktop
hardware and software is Year 2000 ready in all material
respects.
Peoples Energy has completed an inventory of all equipment
containing embedded systems, including telecommunications
equipment and facilities. It has also contracted with a
consultant that has significant utility and engineering expertise
to assist with the embedded systems efforts. Peoples Energy has
assessed the Year 2000 compliance status of its embedded systems,
and it is testing, repairing or replacing any critical equipment
identified as not Year 2000 ready. Peoples Energy's timetable
for implementing Year 2000 ready equipment will depend on a
variety of factors, including the
availability of compliant equipment, the relative importance of
such systems to Peoples Energy's businesses, and seasonal
maintenance schedules. Peoples Energy expects to complete
remediation, testing and implementation of all embedded systems
by the end of fiscal year 1999.
Peoples Energy currently has a written conceptual contingency
plan to address risks to Peoples Energy created by Peoples
Energy'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. Peoples Energy has completed its
contingency plans for mission-critical processes and such plans
will be maintained and adjusted as necessary on an ongoing basis.
Peoples Energy has contacted key suppliers to determine their
Year 2000 compliance efforts. It is in the process of following
up with certain critical suppliers for contingency planning
purposes. Peoples Energy has also contacted certain of its major
customers to determine their Year 2000 readiness.
Essential elements of Peoples Energy's business are dependent
on certain key third parties (for example, interstate pipeline
companies, natural gas suppliers, banks, electric utilities and
telecommunication companies). A material failure by any such key
third party could significantly disrupt Peoples Energy's
business. With respect to operations over which it has direct
control, management perceives that the most significant potential
risks in the event that its Year 2000 readiness efforts are not
completed timely (which is not expected to occur) to be an
adverse effect on the ability of the utility subsidiaries to use
information systems and electronic devices to respond
appropriately to customers requests for information and
assistance. Peoples Energy is in the process of detailing and
finalizing contingency plans to address these potential
disruptions and risks .
Peoples Energy currently estimates that it will incur expenses
of approximately $1.2 million through fiscal Year 1999 to
complete its Year 2000 compliance efforts, in addition to the
$5.6 million already incurred through March 31, 1999. 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 Peoples
Energy's Year 2000 compliance efforts to have a material adverse
impact on the financial position or results of operations of
Peoples Energy.
Market Risk Management. Peoples Energy 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
subsidiaries' operations. These risks occur because of the
changing prices of natural gas, crude oil, ethane, and propane.
Peoples Energy's policy for risk management activities stipulates
that such financial instruments are only to be used for hedging
purposes. (See Note 2F of the Notes to Consolidated Financial
Statements.) Peoples Energy monitors and controls derivative
positions using a mark-to-market analysis. A sensitivity
analysis has been prepared to estimate Peoples Energy's price
exposure to the market risk of its natural gas commodity
financial instruments. As of March 31, 1999, a 10% adverse
movement in current prices would have reduced future earnings
before income taxes by approximately $467,000.
Peoples Energy'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. However, Peoples Energy entered into contracts to
fix prices for less than 1% of its utility gas supplies. Any
gains or losses from financial trades are deferred until they can
be offset by related physical purchases. As of March 31, 1999,
Peoples Energy had no open financial positions related to this
strategy.
Investments by Peoples Energy's diversified energy
subsidiaries 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 Peoples Energy's
senior management are kept apprised of any remaining market risk
through daily mark-to-market reports.
Peoples Energy Production has working interests in natural gas
and crude oil producing properties. Using swaps and futures,
approximately two-thirds of calendar years 1999 and 2000's
production is 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 March 31, 1999, 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 March 31, 1999, exposure from these
activities was not material.
Peoples Energy is also exposed to credit risk when a hedging
transaction counterparty or supplier defaults on a contract to
pay for or deliver product at an agreed-upon price. To mitigate
this risk, Peoples Energy has established procedures to determine
and monitor the creditworthiness of counterparties. Transactions
are executed only with counterparties having strong credit
ratings. Controls are also in place to limit dollar exposure and
transaction term based upon creditworthiness. Peoples Energy
does not expect any of the counterparties to fail to meet their
contractual obligations with these controls in place.
Peoples Energy'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 Peoples Energy deems it to be economical.
(See Note 4B of the Notes to Consolidated Financial Statements.)
Forward-Looking Information. Management's Discussion and
Analysis of Results of Operations and Financial Condition (MD&A)
contains statements that may be considered forward-looking, such
as the statement of Peoples Energy's financial goal regarding
earnings from diversified businesses, 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
readiness of information systems. These statements speak of
Management'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's liability for CERCLA
response costs relating to a former mineral processing site in
Denver, Colorado.
" Regulatory developments in the U.S., Illinois and other
states where Peoples Energy has investments.
"
Changes in the nature of Peoples Energy's competition
resulting from industry consolidation, legislative
change, regulatory change and other factors, as well
as action taken by particular competitors.
" Peoples Energy's success in identifying diversified energy
investments on financially acceptable terms and generating
earnings from those investments in a reasonable time.
" The ability of various vendors and others with whom Peoples
Energy and its subsidiaries electronically 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 Peoples Energy and its subsidiaries without disruption.
Some of these uncertainties that may affect future results are
discussed in more detail in the sections of "Item 1 - Business"
of the Peoples Energy Annual Report on Form 10-K captioned
"Competition," "Sales and Rates," "State Legislation and
Regulation," "Federal Legislation and Regulation," "Environmental
Matters," and "Current Gas Supply." All forward-looking
statements included in this MD&A are based upon information
presently available, and Peoples Energy assumes no obligation to
update any forward-looking statements.
Item 3. 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 2F of the Notes to Consolidated Financial Statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 3 of the Notes to Consolidated Financial Statements
for a discussion pertaining to environmental matters.
Item 4. Submission of Matters to a Vote of Security Holders
Peoples Energy Corporation:
a. Peoples Energy held its Annual Meeting of Shareholders on
February 26, 1999.
b. The following matters were voted upon at the Annual
Meeting of Shareholders.
There were no broker non-votes with respect to any
matters voted upon.
1. The election of nominees for directors who will serve
for a one-year term or until their respective successors
shall be duly elected. The nominees, all of whom were
elected, were as follows: James R. Boris, William J.
Brodsky, Pastora San Juan Cafferty, Homer J. Livingston,
Jr., Lester H. McKeever, Jr., William G. Mitchell, Thomas M.
Patrick, Richard E. Terry, Richard P. Toft, and Arthur R.
Velasquez. The Inspectors of Election certified the
following vote tabulations:
FOR WITHHELD
James R. Boris . . . . . .29,754,470 333,128
William J. Brodsky . . . 29,790,374 333,128
Pastora San Juan Cafferty 29,732,880 333,128
Homer J. Livingston, Jr. .29,769,020 333,128
Lester H. McKeever, Jr. . 29,341,510 333,128
William G. Mitchell . . ..29,706,996 333,128
Thomas M. Patrick . . . ..29,793,280 333,128
Richard E. Terry . . . . .29,746,812 333,128
Richard P. Toft . . . . ..29,758,198 333,128
Arthur R. Velasquez . . . 29,743,183 333,128
2. A proposal to ratify the recommendation of the Audit
Committee and the appointment by the Board of Directors of
Arthur Andersen LLP as the independent public accountants
for Peoples Energy and its subsidiaries for the fiscal year
ending September 30, 1999. The Inspectors of Election
certified the following vote tabulations:
FOR AGAINST ABSTAIN
30,120,253 301,603 230,653
The Peoples Gas Light and Coke Company:
a. On March 25, 1999, the following persons were elected
Directors of Peoples Gas and comprise the entire Board of
Directors of Peoples Gas: Donald M. Field, James Hinchliff,
James M. Luebbers, Thomas M. Patrick, and Richard E. Terry.
b. The following matter was voted upon at the Annual Meeting
of Shareholders.
There were no broker non-votes with respect to any
matters voted upon.
1. The election of nominees for directors who will serve
for a one-year term or until their respective successors
shall be duly elected. The nominees, all of whom were
elected, were as follows: Donald M. Field, James Hinchliff,
James M. Luebbers, Thomas M. Patrick, and Richard E. Terry.
The Secretary of Peoples Gas certified the following vote
tabulations:
FOR WITHHELD
Donald M. Field . . . . .. . 24,817,566 0
James Hinchliff . . . . .. . 24,817,566 0
James M. Luebbers . . . . . 24,817,566 0
Thomas M. Patrick . . . . . 24,817,566 0
Richard E. Terry . . . . . . 24,817,566 0
North Shore Gas Company:
a. On March 25, 1999, the following persons were elected
Directors of North Shore Gas and comprise the entire Board of
Directors of North Shore Gas: Donald M. Field, James Hinchliff,
James M. Luebbers, Thomas M. Patrick, and Richard E. Terry.
b. The following matter was voted upon at the Annual Meeting
of Shareholders.
There were no broker non-votes with respect to any
matters voted upon.
1. The election of nominees for directors who will serve
for a one-year term or until their respective successors
shall be duly elected. The nominees, all of whom were
elected, were as follows: Donald M. Field, James Hinchliff,
James M. Luebbers, Thomas M. Patrick, and Richard E. Terry.
The Secretary of North Shore Gas certified the following
vote tabulations:
FOR WITHHELD
Donald M. Field . . . . . . 3,625,887 0
James Hinchliff . . . . . . 3,625,887 0
James M. Luebbers . . . . 3,625,887 0
Thomas M. Patrick . . . . . 3,625,887 0
Richard E. Terry . . . . . . 3,625,887 0
Item 6. Exhibits and Reports on Form 8-K
Peoples Energy Corporation:
a. Exhibits
Exhibit
Number
Description of Document
3(a)Amendment to the By-Laws of the Registrant
dated February 26, 1999
3(b)By-Laws of the Registrant, as amended,
dated February 26, 1999
27 Financial Data Schedule
b. Reports on Form 8-K filed during the quarter ended
March 31, 1999
None
The Peoples Gas Light and Coke Company:
a. Exhibits
Exhibit
Number
Description of Document
27 Financial Data Schedule
b. Reports on Form 8-K filed during the quarter ended
March 31, 1999
None
North Shore Gas Company:
a. Exhibits
Exhibit
Number
Description of Document
4 Supplemental Indenture dated December
1, 1998
27 Financial Data Schedule
b. Reports on Form 8-K filed during the quarter ended
March 31, 1999
None
SIGNATURE
Pursuant to the requirements 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
(Registrant)
May 13, 1999 By: /s/ J. M. LUEBBERS
(Date) J. M. Luebbers
Vice President and Controller
(Same as above)
Principal Accounting
Officer
Pursuant to the requirements 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.
The Peoples Gas Light and
Coke Company
(Registrant)
May 13, 1999 By: /s/ J. M. LUEBBERS
(Date) J. M. Luebbers
Vice President and Controller
(Same as above)
Principal Accounting
Officer
Pursuant to the requirements 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.
North Shore Gas Company
(Registrant)
May 13, 1999 By: /s/ J. M. LUEBBERS
(Date) J. M. Luebbers
Vice President and Controller
(Same as above)
Principal Accounting
Officer
Exhibit 3(a)
Peoples Energy Corporation
12-02-98
RESOLVED, That, effective as
of election of directors at the Annual
Meeting of Shareholders to be held on
February 26, 1999, Section 3.1 of
Article III of the By-Laws of the
Company be, and it hereby is, amended
by deleting said Section in its
entirety and substituting the following
in lieu thereof:
ARTICLE III
Directors and Committees
SECTION 3.1. Number and
Election. The business and affairs of
the Company shall be managed and
controlled by a Board of Directors, ten
(10) in number, none of whom need to be
a shareholder, which number may be
altered from time to time by amendment
of these by-laws, but shall never be
less than three (3). Except as
provided in the Articles of
Incorporation, the directors shall be
elected by the shareholders entitled to
vote at the annual meeting of such
shareholders and each director shall be
elected to serve for a term of one (1)
year and thereafter until a successor
shall be elected and shall qualify.
Only persons who are nominated in
accordance with the procedures set
forth in this section shall be eligible
to be nominated as directors at any
meeting of the shareholders of the
Company. At any meeting of the
shareholders of the Company,
nominations of persons for election to
the Board of Directors may be made (1)
by or at the direction of the Board of
Directors or (2) by any shareholder of
the Company who is a holder of record
at the time of giving the notice
provided for in this section, who shall
be entitled to vote at the meeting, and
who complies with the notice procedures
set forth in this section. For a
nomination to be properly brought
before a shareholders' meeting by a
shareholder, timely written notice
shall be made to the Secretary of the
Company. The shareholder's notice
shall be delivered to, or mailed and
received at, the principal office of
the Company no less than 60 days nor
more than 90 days prior to the meeting;
provided, however, in the event that
less than 70 days notice or prior
public disclosure of the date of the
meeting is given or made to
shareholders, notice by the shareholder
to be timely must be received not later
than the close of business on the tenth
day following the day on which the
notice of the date of the meeting was
mailed or the public disclosure was
made; provided further, however, notice
by the shareholder to be timely must be
received in any event not later than
the close of business on the seventh
day preceding the day on which the
meeting is to be held. The
shareholder's notice shall set forth
(1) as to each person whom the
shareholder proposes to nominate for
election or reelection as a director,
all information relating to such person
that is required to be disclosed in
solicitations of proxies for election
of directors, or is otherwise required
by applicable law (including the
person's written consent to being named
as a nominee and to serving as a
director if elected), and (2) (a) the
name and address, as they appear on the
Company's books, of the shareholder,
(b) the class and number of shares of
capital stock of the Company owned by
the shareholder, and (c) a description
of all arrangements or understandings
between the shareholder and each
nominee and any other person or persons
(naming such person or persons)
pursuant to which the nomination or
nominations are to be made by the
shareholder. The shareholder shall
also comply with all applicable
requirements of the Securities Exchange
Act of 1934, as amended and the rules
and regulations thereunder with respect
to the matters set forth in this
section. If the chairman of the
meeting shall determine and declare at
the meeting that a nomination was not
made in accordance with the procedures
prescribed by this section, the
nomination shall not be accepted.
Exhibit 3(b)
BY-LAWS
OF
PEOPLES ENERGY CORPORATION
AMENDED FEBRUARY 26, 1999
PEOPLES ENERGY CORPORATION
BY-LAWS
ARTICLE I - Offices
ARTICLE II - Meetings of Shareholders
ARTICLE III - Directors and Committees
ARTICLE IV - Officers
ARTICLE V - Indemnification of Directors,
Officers, Employees and
Agents
ARTICLE VI - Certificates of Stock and
Their
Transfer
ARTICLE VII - Miscellaneous (Contracts)
ARTICLE VIII - Amendment or Repeal of By-
Laws
PEOPLES ENERGY CORPORATION
INDEX
PAGE
A
Amendment of By-Laws 18
Appointment of Officers 10
Assistant Controller, Duties of 13
Assistant General Counsel, Duties of 13
Assistant Secretary, Duties of 13
Assistant Treasurer, Duties of 13
Assistant Vice President, Duties of 12
B
Board of Directors 5
C
Certificates of Stock and Their Transfer 15
Chairman of the Board, Duties of 11
Chairman of the Executive Committee 8
Committees
Executive 8
Other 9
Controller, Duties of 13
Contracts, Execution of 17
D
Directors and Committees 5
E
Election of Directors 5
Election of Officers 10
Executive Committee 8
F
Fees and Compensation 9
PEOPLES ENERGY CORPORATION
PAGE
G
General Counsel, Duties of 13
I
Indemnification of Directors, Officers, Employees
and Agents 14
M
Meetings
Directors 7
Action Without Meeting 9
Shareholders 1
N
Notice of Meetings
Directors 7
Shareholders 2
O
Officers
Appointed 10
Elected 10
Offices, Two or More Held By One Person 10
P
President, Duties of 11
Presiding Officer
Board Meetings 8
Shareholders Meetings 5
Proxies 4
PEOPLES ENERGY CORPORATION
PAGE
Q
Quorum
Board 7
Shareholders 4
S
Secretary, Duties of 12
Signatures to Checks, Drafts, etc. 17
Stock, Certificates of and their Transfer 15
T
Treasurer, Duties 12
V
Vice President, Duties of 12
Voting
Shareholders 4
Stock Owned by Company 18
BY-LAWS
OF
PEOPLES ENERGY CORPORATION
ARTICLE I
Offices
SECTION 1.1. Principal Office. The principal office of
the Company shall be in the City of Chicago, County of Cook and
State of Illinois.
SECTION 1.2. Other Offices. The Company may also have
offices at such other places both within and without the State of
Illinois as the Board of Directors may from time to time
determine or the business of the Company may require.
ARTICLE II
Meetings of Shareholders
SECTION 2.1. Annual Meeting. The annual meeting of the
shareholders shall be held on the fourth Friday of the month of
February in each year, if not a legal holiday, or, if a legal
holiday, then on the next succeeding business day, for the
purpose of electing directors and for the transaction of such
other business as may come before the meeting. If the election
of directors shall not be held on the day herein designated for
the annual meeting, or at any adjournment thereof, the Board of
Directors shall cause such election to be held at a special
meeting of the shareholders as soon thereafter as convenient.
SECTION 2.2. Special Meetings. Except as otherwise
prescribed by statute, special meetings of the shareholders for
any purpose or purposes, may be called by the Chairman of the
Board, the Vice Chairman of the Executive Committee, the Executive
Committee or the President. Such request shall state the purpose
or purposes of the proposed meeting.
SECTION 2.3. Place of Meetings. Each meeting of the
shareholders for the election of the directors shall be held at
the principal office of the Company in the City of Chicago,
Illinois, unless the Board of Directors shall by resolution
designate another place as the place of such meeting. Meetings
of shareholders for any other purpose may be held at such place,
and at such time as shall be determined by the Chairman of the
Board, or the President, or in their absence, by the Secretary,
and stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
SECTION 2.4. Notice of Meetings. Written or printed
notice stating the place, date and hour of each annual or special
meeting of the shareholders, and, in the case of a special
meeting, the purpose or purposes for which the meeting is called,
shall be given not less than 10 nor more than 60 days before the
date of the meeting, except as otherwise provided in this section
or by statute. Notice of any meeting of the shareholders may be
waived by any shareholder. At any meeting of the shareholders of
the Company, only such business shall be conducted as shall have
been brought before the meeting (1) by or at the direction of the
Board of Directors or (2) by any shareholder of the Company who
is a holder of record at the time of giving the notice provided
for in this section, who shall be entitled to vote at the
meeting, and who complies with the notice procedures set forth in
this section. For business to be properly brought before a
shareholders' meeting by a shareholder, timely written notice
shall be made to the Secretary of the Company. The shareholder's
notice shall be delivered to, or mailed and received at, the
principal office of the Company not less than 60 days nor more
than 90 days prior to the meeting; provided, however, in the
event that less than 70 days notice or prior public disclosure of
the date of the meeting is given or made to shareholders, notice
by the shareholder to be timely must be received not later than
the close of business on the tenth day following the day on which
the notice of the date of the meeting was mailed or the public
disclosure was made; provided further however, notice by the
shareholder to be timely must be received in any event not later
than the close of business on the seventh day preceding the day
on which the meeting is to be held. The shareholder's notice
shall set forth (1) a brief description of the business desired
to be brought before the meeting and the reasons for considering
the business, and (2) (a) the name and address, as they appear on
the Company's books, of the shareholder, (b) the class and number
of shares of capital stock of the Company owned by the
shareholder, and (c) any material interest of the shareholder in
the proposed business. The shareholder shall also comply with
all applicable requirements of the Securities Exchange Act of
1934 (the "1934 Act") and the rules and regulations thereunder
with respect to the matters set forth in this section. If the
chairman of the meeting shall determine and declare at the
meeting that the proposed business was not brought before the
meeting in accordance with the procedures prescribed by this
section, the business shall not be considered. The notice
procedures set forth in this section 2.4 do not change or limit
any procedures the Company may require in accordance with
applicable law with respect to the inclusion of matters in the
Company's proxy statement.
SECTION 2.5. Quorum. The holders of a majority of the
shares issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall be requisite
for, and shall constitute, a quorum at all meetings of the
shareholders of the Company for the transaction of business,
except as otherwise provided by statute or these by-laws. If a
quorum shall not be present or represented at any meeting of the
shareholders, the shareholders entitled to vote thereat, present
in person or represented by proxy, shall have power to adjourn
the meeting from time to time, without notice other than
announcement at the meeting if the adjournment is for thirty days
or less or unless after that adjournment a new record date is
fixed, until a quorum shall be present or represented. At such
adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been
transacted at the meeting as originally noticed.
SECTION 2.6. Proxies. At every meeting of the
shareholders, each shareholder having the right to vote thereat
shall be entitled to vote in person or by proxy. Such proxy
shall be appointed by an instrument in writing subscribed by such
shareholder and bearing a date not more than eleven months prior
to such meeting, unless such proxy provides for a longer period,
and shall be filed with the Secretary of the Company before, or
at the time of, the meeting.
SECTION 2.7. Voting. At each meeting of the
shareholders, each shareholder shall be entitled to one vote for
each share of stock entitled to vote thereat which is registered
in the name of such shareholder on the books of the Company. At
all elections of directors of the Company, the holders of shares
of stock of the Company shall be entitled to cumulative voting.
When a quorum is present at any meeting of the shareholders, the
vote of the holders of a majority of the shares present in person
or represented by proxy and entitled to vote at the meeting shall
be sufficient for the transaction of any business, unless
otherwise provided by statute, the Articles of Incorporation or
these by-laws.
SECTION 2.8. Presiding Officer. The presiding officer of
any meeting of the shareholders shall be the Chairman of the
Board or, in the case of the absence of the Chairman of the
Board, the President.
ARTICLE III
Directors and Committees
SECTION 3.1. Number and Election. The business and
affairs of the Company shall be managed and controlled by a Board
of Directors, ten (10) in number, none of whom need to be a
shareholder, which number may be altered from time to time by
amendment of these by-laws, but shall never be less than three
(3). Except as provided in the Articles of Incorporation, the
directors shall be elected by the shareholders entitled to vote
at the annual meeting of such shareholders and each director
shall be elected to serve for a term of one (1) year and
thereafter until a successor shall be elected and shall qualify.
Only persons who are nominated in accordance with the procedures
set forth in this section shall be eligible to be nominated as
directors at any meeting of the shareholders of the Company. At
any meeting of the shareholders of the Company, nominations of
persons for election to the Board of Directors may be made (1) by
or at the direction of the Board of Directors or (2) by any
shareholder of the Company who is a holder of record at the time
of giving the notice provided for in this section, who shall be
entitled to vote at the meeting, and who complies with the notice
procedures set forth in this section. For a nomination to be
properly brought before a shareholders' meeting by a shareholder,
timely written notice shall be made to the Secretary of the
Company. The shareholder's notice shall be delivered to, or
mailed and received at, the principal office of the Company no
less than 60 days nor more than 90 days prior to the meeting;
provided, however, in the event that less than 70 days notice or
prior public disclosure of the date of the meeting is given or
made to shareholders, notice by the shareholder to be timely must
be received not later than the close of business on the tenth day
following the day on which the notice of the date of the meeting
was mailed or the public disclosure was made; provided further,
however, notice by the shareholder to be timely must be received
in any event not later than the close of business on the seventh
day preceding the day on which the meeting is to be held. The
shareholder's notice shall set forth (1) as to each person whom
the shareholder proposes to nominate for election or reelection
as a director, all information relating to such person that is
required to be disclosed in solicitations of proxies for election
of directors, or is otherwise required by applicable law
(including the person's written consent to being named as a
nominee and to serving as a director if elected), and (2) (a) the
name and address, as they appear on the Company's books, of the
shareholder, (b) the class and number of shares of capital stock
of the Company owned by the shareholder, and (c) a description of
all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person
or persons) pursuant to which the nomination or nominations are
to be made by the shareholder. The shareholder shall also comply
with all applicable requirements of the 1934 Act and the rules
and regulations thereunder with respect to the matters set forth
in this section. If the chairman of the meeting shall determine
and declare at the meeting that a nomination was not made in
accordance with the procedures prescribed by this section, the
nomination shall not be accepted.
SECTION 3.2. Regular Meetings. A regular meeting of the
Board of Directors shall be held immediately, or as soon as
practicable, after the annual meeting of the shareholders in each
year for the purpose of electing officers and for the transaction
of such other business as may be deemed necessary, and regular
meetings of the Board shall be held at such date and time and at
such place as the Board of Directors may from time to time
determine. Not less than two days' notice of all regular
meetings of the Board, except the meeting to be held after the
annual meeting of shareholders which shall be held without other
notice than this by-law, shall be given to each director
personally or by mail or telegram.
SECTION 3.3. Special Meetings. Special meetings of the
Board may be called at any time by the Chairman of the Board, the
President, or by any two directors, by causing the Secretary to
mail to each director, not less than three days before the time
of such meeting, a written notice stating the time and place of
such meeting. Notice of any meeting of the Board may be waived
by any director.
SECTION 3.4. Quorum. At each meeting of the Board of
Directors, the presence of not less than a majority of the total
number of directors specified in Section 3.1 hereof shall be
necessary and sufficient to constitute a quorum for the
transaction of business, and the act of a majority of the
directors present at any meeting at which there is a quorum shall
be the act of the Board of Directors, except as may be otherwise
specifically provided by statute. If a quorum shall not be
present at any meeting of directors, the directors present
thereat may adjourn the meeting from time to time, without notice
other than announcement at the meeting, until a quorum shall be
present. In determining the presence of a quorum at a meeting of
the directors or a committee thereof for the purpose of
authorizing a contract or transaction between the Company and one
or more of its directors, or between the Company and any other
corporation, partnership, association, or other organization in
which one or more of the directors of this Company are directors
or officers, or have a financial interest in such other
organization, such interested director or directors may be
counted in determining a quorum.
SECTION 3.5. Presiding Officer. The presiding officer of
any meeting of the Board of Directors shall be the Chairman of
the Board. In the case of the absence of the Chairman of the
Board, for reasons other than provided in Section 4.3, the
President shall act in his place and stead. In the case of the
temporary absence of both the Chairman of the Board and the
President, the Vice Chairman of the Executive Committee or, in
his absence, any other director elected by vote of a majority of
the directors present at the meeting, shall act as chairman of
the meeting.
SECTION 3.6. Executive Committee. The Executive
Committee of the Board of Directors shall consist of the Chairman
of the Board who shall be the Chairman of the Executive
Committee, and each of the nonmanagement directors. The Chairman
of the Board shall select a Vice Chairman of the Executive
Committee subject to the approval of the Board of Directors of
the Company. The Executive Committee shall, in the recess of the
Board, have all the powers of the Board except those powers
which, under the law of the State of Illinois, may not be
exercised by such Committee and shall keep a record of its
proceedings and report the same to the Board. The Executive
Committee may meet at any place whenever required by a member of
the Committee and may act by the consent of a majority of its
members, although not formally convened.
SECTION 3.7. Other Committees. The Board may appoint
other committees, standing or special, from time to time from
among its own members or otherwise, and may confer such powers on
such committees as the Board may determine and may revoke such
powers and terminate the existence of such committees at its
pleasure.
SECTION 3.8. Action Without Meeting. Any action required
or permitted to be taken at any meeting of the Board of
Directors, or any committee thereof, may be taken without a
meeting if all members of the Board or of such committee, as the
case may be, consent thereto in writing and such writing or
writings are filed with the minutes of the proceedings of the
Board or such committee.
SECTION 3.9. Fees and Compensation of Directors.
Directors shall not receive any stated salary for their services
as such; but, by resolution of the Board of Directors, reasonable
fees, with or without expenses of attendance, may be allowed.
Members of the Board shall be allowed their reasonable traveling
expenses when actually engaged in the business of the Company, to
be audited and allowed as in other cases of demands against the
Company. Members of standing or special committees may be
allowed fees and expenses for attending committee meetings.
Nothing herein contained shall be construed to preclude any director from
serving the Company in any other capacity and receiving
compensation therefor.
ARTICLE IV
Officers
SECTION 4.1. Election of Officers. There shall be
elected by the Board of Directors in each year the following
officers: a Chairman of the Board; a President; such number of
Senior Vice Presidents, such number of Executive Vice Presidents,
such number of Vice Presidents and such number of Assistant Vice
Presidents as the Board at the time may decide upon; a Secretary;
such number of Assistant Secretaries as the Board at the time may
decide upon; a Treasurer; such number of Assistant Treasurers as
the Board at the time may decide upon; a Controller; and such
number of Assistant Controllers as the Board at the time may
decide upon; a General Counsel; and such number of Assistant
General Counsel as the Board at the time may decide upon. Any
two or more offices may be held by one person, except that the
offices of President and Secretary may not be held by the same
person. All officers shall hold their respective offices during
the pleasure of the Board.
SECTION 4.2. Appointment of Officers. The Board of
Directors, the Executive Committee, the Chairman of the Board, or
the President may from time to time appoint such other officers
as may be deemed necessary, including one or more Vice
Presidents, one or more Assistant Vice Presidents, one or more
Assistant Secretaries, one or more Assistant Treasurers, one or
more Assistant Controllers and one or more Assistant General
Counsel, and such other agents and employees of the Company as
may be deemed proper. Such officers, agents and employees shall
have such authority, perform such duties and receive such
compensation as the Board of Directors, the Executive Committee
or, in the case of appointments made by the Chairman of the Board
or the President, as the Chairman of the Board or the President,
may from time to time prescribe and determine. The Board of
Directors or the Executive Committee may from time to time
authorize any officer to appoint and remove agents and employees,
to prescribe their powers and duties and to fix their
compensation therefor.
SECTION 4.3. Duties of Chairman of the Board. The
Chairman of the Board shall be the chief executive officer of the
Company and shall have control and direction of the management
and affairs of the Company and may execute all contracts, deeds,
assignments, certificates, bonds or other obligations for and on
behalf of the Company, and sign certificates of stock and records
of certificates required by law to be signed by the Chairman of
the Board. When present, the Chairman of the Board shall preside
at all meetings of the Board and of the shareholders. In the
absence of the Chairman of the Board, due to his permanent
disability, death, resignation or removal from office, the Vice
Chairman of the Executive Committee shall promptly convene the
Executive Committee to select a nominee for that office and
submit said nominee's name to the Board of Directors for their
consideration.
SECTION 4.4. Duties of President. Subject to the Control
and direction of the Chairman of the Board, and to the control of
the Board, the President shall have general management of all the
business of the Company, and he shall have such other powers and
perform such other duties as may be prescribed for him by the
Board or be delegated to him by the Chairman of the Board. He
shall possess the same power as the Chairman of the Board to sign
all certificates, contracts and other instruments of the Company.
In case of the absence or disability of the President, or in case
of his death, resignation or removal from office, the powers and
duties of the President shall devolve upon the Chairman of the
Board during absence or disability, or until the vacancy in the
office of President shall be filled.
SECTION 4.5. Duties of Vice President. Each of the
Senior Vice Presidents, Executive Vice Presidents, Vice
Presidents and Assistant Vice Presidents shall have such powers
and duties as may be prescribed for him by the Board, or be
delegated to him by the Chairman of the Board or by the
President. Each of such officers shall possess the same power as
the President to sign all certificates, contracts and other
instruments of the Company.
SECTION 4.6. Duties of Secretary. The Secretary shall
have the custody and care of the corporate seal, records and
minute books of the Company. He shall attend the meetings of the
Board, of the Executive Committee, and of the shareholders, and
duly record and keep the minutes of the proceedings, and file and
take charge of all papers and documents belonging to the general
files of the Company, and shall have such other powers and duties
as are commonly incident to the office of Secretary or as may be
prescribed for him by the Board, or be delegated to him by the
Chairman of the Board or by the President.
SECTION 4.7. Duties of Treasurer. The Treasurer shall
have charge of, and be responsible for, the collection, receipt,
custody and disbursement of the funds of the Company, and shall
deposit its funds in the name of the Company in such banks, trust
companies or safety deposit vaults as the Board may direct. He
shall have the custody of the stock record books and such other
books and papers as in the practical business operations of the
Company shall naturally belong in the office or custody of the
Treasurer, or as shall be placed in his custody by the Board, the
Chairman of the Board, the President, or any Vice President, and
shall have such other powers and duties as are commonly incident
to the office of Treasurer, or as may be prescribed for him by
the Board, or be delegated to him by the Chairman of the Board or
by the President.
SECTION 4.8. Duties of Controller. The Controller shall
have control over all accounting records pertaining to moneys,
properties, materials and supplies of the Company. He shall have
Charge of the bookkeeping and accounting records and functions,
the related accounting information systems and reports and
executive supervision of the system of internal accounting
controls, and such other powers and duties as are commonly
incident to the office of Controller or as may be prescribed by
the Board, or be delegated to him by the Chairman of the Board or
by the President.
SECTION 4.9. Duties of General Counsel. The General
Counsel shall have full responsibility for all legal advice,
counsel and services for the Company and its subsidiaries
including employment and retaining of attorneys and law firms as
shall in his discretion be necessary or desirable and shall have
such other powers and shall perform such other duties as from
time to time may be assigned to him by the Board, the Chairman of
the Board or the President.
SECTION 4.10. Duties of Assistant Secretary, Assistant
Treasurer, Assistant Controller and Assistant General Counsel.
The Assistant Secretary, Assistant Treasurer, Assistant
Controller and Assistant General Counsel shall assist the
Secretary, Treasurer, Controller, and General Counsel,
respectively, in the performance of the duties assigned to each
and shall for such purpose have the same powers as his principal.
He shall also have such other powers and duties as may be
prescribed for him by the Board, or be delegated to him by the
Chairman of the Board or by the President.
ARTICLE V
Indemnification of Directors, Officers, Employees and Agents
SECTION 5.1. Indemnification of Directors, Officers and
Employees. The Company shall indemnify, to the fullest extent
permitted under the laws of the State of Illinois and any other
applicable laws, as they now exist or as they may be amended in
the future, any person who was or is a party, or is threatened to
be made a party, to any threatened, pending or completed action,
suit or proceeding, whether civil, criminal, administrative or
investigative (including, without limitation, an action by or in
the right of the Company), by reason of the fact that he or she
is or was a director, officer or employee of the Company, or is
or was serving at the request of the Company as a director,
officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise
against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred
by such person in connection with such action, suit or
proceeding.
SECTION 5.2. Advancement of Expenses to Directors,
Officers and Employees. Expenses incurred by such a director,
officer or employee in defending a civil or criminal action, suit
or proceeding shall be paid by the Company in advance of the
final disposition of such action, suit or proceeding to the
fullest extent permitted under the laws of the State of Illinois
and any other applicable laws, as they now exist or as they may
be amended in the future.
SECTION 5.3. Indemnification and Advancement of Expenses
to Agents. The board of directors may, by resolution, extend the
provisions of this Article V regarding indemnification and the
advancement of expenses to any person who was or is a party or is
threatened to be made a party to any threatened, pending or
completed action, suit or proceeding by reason of the fact he or
she is or was an agent of the Company or is or was serving at the
request of the Company as a director, officer, employee or agent
of another corporation, partnership, joint venture, trust,
employee benefit plan or other enterprise.
SECTION 5.4. Rights Not Exclusive. The rights provided
by or granted under this Article V are not exclusive of any other
rights to which those seeking indemnification or advancement of
expenses may be entitled.
SECTION 5.5. Continuing Rights. The indemnification and
advancement of expenses provided by or granted under this Article
V shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of the
heirs, executors and administrators of that person.
ARTICLE VI
Certificates of Stock and Their Transfer
SECTION 6.1. Certificates of Stock. The certificates of
stock of the Company shall be in such form as may be determined
by the Board of Directors, shall be numbered and shall be entered
in the books of the Company as they are issued. They shall
exhibit the holder's name and number of shares and shall be
signed by the Chairman of the Board, the President or a Vice
President and also by the Treasurer or an Assistant Treasurer or
the Secretary or an Assistant Secretary and shall bear the
corporate seal or a facsimile thereof. If a certificate is
countersigned by a transfer agent or registrar, other than the
Company itself or its employee, any other signature or
countersignature on the certificate may be facsimiles. In case
any officer of the Company, or any officer or employee of the
transfer agent or registrar, who has signed or whose facsimile
signature has been placed upon such certificate ceases to be an
officer of the Company, or an officer or employee of the transfer
agent or registrar, before such certificate is issued, said
certificate may be issued with the same effect as if the officer
of the Company, or the officer or employee of the transfer agent
or registrar, had not ceased to be such at the date of issue.
SECTION 6.2. Transfer of Stock. Upon surrender to the
Company of a certificate for shares duly endorsed or accompanied
by proper evidence of succession, assignment or authority to
transfer, and upon payment of applicable taxes with respect to
such transfer, it shall be the duty of the Company, subject to
such rules and regulations as the Board of Directors may from
time to time deem advisable concerning the transfer and
registration of certificates for shares of stock of the Company,
to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
SECTION 6.3. Shareholders of Record. The Company shall
be entitled to treat the holder of record of any share or shares
of stock as the holder in fact thereof and, accordingly, shall
not be bound to recognize any equitable or other claim to or
interest in such share or shares on the part or any other person,
whether or not it shall have express or other notice thereof,
except as otherwise provided by statute.
SECTION 6.4. Lost, Destroyed or Stolen Certificates. The
Board of Directors, in individual cases or by general resolution,
may direct a new certificate or certificates to be issued by the
Company as a replacement for a certificate or certificates for a
like number of shares alleged to have been lost, destroyed or
stolen, upon the making of an affidavit of that fact by the
person claiming the certificate or certificates of stock to be
lost, destroyed or stolen. When authorizing such issue of a new
certificate or certificates, the Board of Directors may, in its
discretion and as a condition precedent to the issuance thereof,
require the owner of such lost, destroyed or stolen certificate
or certificates, or his legal representative, to give the Company
a bond in such form and amount as it may direct as indemnity
against any claim that may be made against the Company with
respect to the certificate or certificates alleged to have been
lost, destroyed or stolen.
ARTICLE VII
Miscellaneous
SECTION 7.1. Contracts and Other Instruments. All
contracts or obligations of the Company shall be in writing and
shall be signed either by the Chairman of the Board, the
President, or any Vice President and, unless the Board shall
otherwise determine and direct, the seal of the Company shall be
attached thereto, duly attested by the Secretary or an Assistant
Secretary, except contracts entered into in the ordinary course
of business where the amount involved is less than Five Hundred
Thousand Dollars ($500,000), and except contracts for the
employment of servants or agents, which contracts so excepted may
be entered into by the Chairman of the Board, the President, any
Vice President, or by such officers or agents as the Chairman of
the Board or the President may designate and authorize. Unless
the Board shall otherwise determine and direct, all checks or
drafts and all promissory notes shall be signed by two officers
of the Company. When prescribed by the Board, bonds, promissory
notes, and other obligations of the Company may bear the
facsimile signature of the officer who is authorized to sign such
instruments and, likewise, may bear the facsimile signature of
the Secretary or an Assistant Secretary.
SECTION 7.2. Voting Stock Owned by Company. Any or all
shares owned by the Company in any other corporation, and any or
all voting trust certificates owned by the Company calling for or
representing shares of stock of any other corporation, may be
voted by the Chairman of the Board, the President, any Vice
President, the Secretary or the Treasurer, either in person or by
written proxy given to any person in the name of the Company at
any meeting of the shareholders of such corporation, or at any
meeting of voting trust certificate holders, upon any question
that may be presented at any such meeting. Any such officer, or
anyone so representing him by written proxy, may on behalf of the
Company waive any notice of any such meeting required by any
statute or by-law and consent to the holding of such meeting
without notice.
ARTICLE VIII
Amendment or Repeal of By-Laws
These by-laws may be added to, amended or repealed at any
regular or special meeting of the Board by a vote of a majority
of the membership of the Board.
Exhibit 4
North Shore Gas Company
to
U.S. Bank Trust National Association,
as successor trustee to Continental Bank, National Association
Trustee
___________________
Thirteenth
Supplemental Indenture
___________________
Dated as of December 1, 1998
___________________
Supplementing the Indenture
Dated as of April 1, 1955
and
Creating First Mortgage
5.0% Bonds, Series M
This instrument was
prepared by and
Mail Subsequent Tax Bills to: when recorded return to:
Peter H. Kauffman, Secretary R. William Hunter
Peoples Energy Corporation Chapman and Cutler
130 East Randolph Drive 111 West Monroe Street
Chicago, Illinois 60601 Chicago, Illinois 60603
Thirteenth Supplemental Indenture, dated as of the 1st day
of December, 1998, by and between North Shore Gas Company, a
corporation duly organized on October 7, 1963, and existing under
and by virtue of the laws of the State of Illinois (hereinafter
sometimes called the "Company") and U.S. Bank Trust National
Association, as successor trustee to Continental Bank, National
Association, a national banking association organized and
existing under the laws of the United States of America and
having its office and place of business in the City of Chicago,
Illinois (hereinafter sometimes called the "Trustee"),
Witnesseth:
Whereas, North Shore Gas Company (hereinafter called "North
Shore") heretofore executed and delivered to the Trustee its
Indenture (hereinafter called the "Original Indenture"), dated as
of April 1, 1955, whereby North Shore granted, bargained, sold,
transferred, assigned, pledged, mortgaged, warranted and
conveyed, unto the Trustee and to its successors in said trust,
all property, real, personal and mixed, then owned or thereafter
acquired by it (other than property expressly excepted from the
lien thereof) to be held by said Trustee in trust in accordance
with the provisions of the Original Indenture for the equal
proportionate benefit and security of all bonds issued and to be
issued thereunder in accordance with the provisions thereof, and
said Original Indenture provided for the issuance of a series of
bonds designated "First Mortgage 3 1/2% Bonds, Series A"; and
Whereas, North Shore has heretofore executed and delivered
to the Trustee its First Supplemental Indenture, dated as of
July 1, 1957, providing for the issuance under the Original
Indenture of a series of bonds designated "First Mortgage 4 3/4%
Bonds, Series B" and its Second Supplemental Indenture, dated as
of December 1, 1961, providing for the issuance under the
Original Indenture of a series of bonds designated "First
Mortgage 5% Bonds, Series C"; and
Whereas, Lake Gas Company, having acquired on December 20,
1963, the name of North Shore Gas Company (hereinafter called the
"Company") and, subject to the lien of the Original Indenture,
all of its property then subject to said lien, thereafter, in
accordance with the provisions of Article XIV of the Original
Indenture, executed and delivered to the Trustee an indenture
entitled "Third Supplemental Indenture," dated as of December 20,
1963, whereby, among other things, the Company assumed and agreed
to pay the principal and interest of all bonds issued or to be
issued under the Original Indenture and secured thereby, and to
perform and fulfill all of the terms, covenants and conditions of
the Original Indenture binding upon North Shore, and in and by
said Third Supplemental Indenture the Company subjected to the
lien of the Original Indenture, subject to the exclusions and
exceptions set forth in said Third Supplemental Indenture, all of
the property then owned by the Company or thereafter acquired by
it (other than property of a character which is excluded from the
lien of the Original Indenture), all as more fully set forth in
said Third Supplemental Indenture; and by virtue of all of the
things done as in this paragraph recited, the Company has become
the successor corporation under the Original Indenture subject to
all of the terms, conditions and restrictions thereof, and, in
accordance with the provisions of Section 2 of Article XIV of the
Original Indenture, may issue bonds under the Original Indenture;
and
Whereas, the Company has heretofore executed and delivered
to the Trustee its Fourth Supplemental Indenture dated as of
May 1, 1964, amending and supplementing the Original Indenture,
and the First and Second Supplemental Indentures and providing
for the issuance under the Original Indenture of a series of
bonds designated "First Mortgage 4.8% Bonds, Series D"; and
Whereas, the Company has heretofore executed and delivered
to the Trustee its Fifth Supplemental Indenture dated as of
February 1, 1970, amending and supplementing the Original
Indenture and providing for the issuance under the Original
Indenture of a series of bonds designated "First Mortgage 9 1/2%
Bonds, Series E"; and
Whereas, the Company has heretofore executed and delivered
to the Trustee its Sixth Supplemental Indenture dated as of
October 1, 1973, supplementing the Original Indenture and
providing for the issuance under the Original Indenture of a
series of bonds designated "First Mortgage 8 3/8% Bonds,
Series F"; and
Whereas, the Company has heretofore executed and delivered
to the Trustee its Seventh Supplemental Indenture dated as of
February 15, 1977, supplementing the Original Indenture and
providing for the issuance under the Original Indenture of a
series of bonds designated "First Mortgage 8 3/8% Bonds,
Series G"; and
Whereas, the Company has heretofore executed and delivered
to the Trustee its Eighth Supplemental Indenture dated as of
September 15, 1980, supplementing the Original Indenture and
providing for the issuance under the Original Indenture of a
series of bonds designated "First Mortgage 12% Bonds, Series H";
and
Whereas, the Company has heretofore executed and delivered
to the Trustee its Ninth Supplemental Indenture dated as of
December 1, 1987, amending and supplementing the original
Indenture and providing for the issuance under the Original
Indenture of a series of bonds designated "First Mortgage 10.20%
Bonds, Series I"; and
Whereas, the Company has heretofore executed and delivered
to the Trustee its Tenth Supplemental Indenture dated as of
November 1, 1990, supplementing the Original Indenture and
providing for the issuance under the Original Indenture of a
series of bonds designated "First Mortgage Adjustable-Rate Bonds,
Series J"; and
Whereas, the Company has heretofore executed and delivered
to the Trustee its Eleventh Supplemental Indenture dated as of
October 1, 1992, supplementing the Original Indenture and
providing for the issuance under the Original Indenture of a
series of bonds designated "First Mortgage 6 3/8% Bonds,
Series K"; and
Whereas, the Company has heretofore executed and delivered
to the Trustee its Twelfth Supplemental Indenture dated as of
April 1, 1993, supplementing the Original Indenture and providing
for the issuance under the Original Indenture of a series of
bonds designated "First Mortgage Bonds, Series L Medium Term
Notes"; and
Whereas, it is provided in the Original Indenture, as
amended and supplemented by the aforesaid supplemental
indentures, (said Original Indenture, as so amended and
supplemented, collectively referred to hereinafter as the
"Indenture"), that bonds of any series may from time to time be
issued thereunder by the Company in an aggregate principal amount
equal to 66 2/3% of the amount of net expenditures for unfunded
bondable property as defined in the Indenture; and
Whereas, the Company has duly determined to create an
additional series of its bonds to be issued under the Indenture,
as supplemented by this Thirteenth Supplemental Indenture,
designated "First Mortgage 5.0% Bonds, Series M" (hereinafter
sometimes referred to as "bonds of Series M"), and to issue an
aggregate of $30,035,000 principal amount of said bonds, all of
which shall contain such provisions as are set forth in this
Thirteenth Supplemental Indenture; and
Whereas, the Illinois Development Finance Authority will
issue $30,035,000 in aggregate principal amount of its Gas Supply
Revenue Bonds (North Shore Gas Company Project), Series 1998,
which will be collateralized by an equal aggregate principal
amount of bonds of Series M, and lend the proceeds to the Company
for the purpose of financing the construction of certain gas
distribution and transmission facilities within Lake and Cook
Counties, Illinois; and
Whereas, the Company desires in and by this Thirteenth
Supplemental Indenture to set forth the description of, confirm
unto the Trustee and give further assurance to it with respect
to, certain property heretofore acquired by the Company and now
subject to the lien of the Indenture but not heretofore
specifically described herein; and
Whereas, the form of registered bond of Series M and the
form of the Trustee's Certificate to appear on all bonds of
Series M shall be substantially as follows:
(Form of Series M Registered Bond without Coupons)
No. R ___ $__________
North Shore Gas Company
First Mortgage ____% Bond, Series M
Due December 1, 2028
North Shore Gas Company, an Illinois corporation
(hereinafter called the "Company"), for value received, hereby
promises to pay to___________________________ ___________________
or registered assigns, the principal sum of ____________________
Dollars on the first day of December, 2028 and to pay to the
registered owner interest on said sum from the date hereof, at
the rate of 5.0% per annum, until said principal sum is paid.
Interest to the maturity of this bond will be payable
semi-annually on the first day of June and the first day of
December in each year, the first interest payment date being
June 1, 1999. The interest so payable on any interest payment
date (June 1 or December 1, as the case may be) will, so long as
there is no existing default in the payment of interest and
except for the payment of defaulted interest, be paid to the
person in whose name this bond is registered at the close of
business on the respective May 15 or November 15, as the case may
be, next preceding such interest payment date (the "Record
Date"), or, if such day is not a Business Day (as defined in the
Indenture), then the Business Day next preceding such day.
Defaulted interest shall be paid to the person in whose name this
bond is registered at the close of business on a subsequent
Record Date, which shall not be less than five (5) days prior to
the date of payment of such defaulted interest, established by
notice given by mail by or on behalf of the Company to the person
in whose name this bond is then registered and to the Trustee, as
hereinafter defined, not less than ten (10) days preceding such
subsequent Record Date. The principal of, premium, if any, and
the interest on the bonds of Series M shall be payable at the
principal corporate office of the Company in the City of Chicago,
State of Illinois, in any coin or currency of the United States
of America which at the time of payment is legal tender for
public and private debts.
This bond is continued on the reverse side hereof and the
additional provisions therein set forth shall for all purposes
have the same effect as if set forth at this place.
____________________
This bond is one of the bonds issued and to be issued from
time to time under and in accordance with and all secured by the
Indenture dated as of April 1, 1955, as supplemented and amended
by Supplemental Indentures dated as of July 1, 1957, December 1,
1961, December 20, 1963, May 1, 1964, February 1, 1970,
October 1, 1973, February 15, 1977, September 15, 1980,
December 1, 1987, November 1, 1990, October 1, 1992, April 1,
1993, and December 1, 1998 respectively (collectively referred to
herein as the "Indenture"), executed and delivered by the Company
to U.S. Bank Trust National Association, as successor trustee to
Continental Bank, National Association, as Trustee (the
"Trustee"). Reference to the Indenture is hereby made for a
description of the property mortgaged and pledged (except that
certain property described in the Indenture has been released
from the lien of the Indenture pursuant to the terms thereof),
the nature and extent of the security and the rights of the
holders and registered owners of said bonds and of the Trustee
and of the Company in respect of such security. By the terms of
the Indenture, the bonds to be secured thereby are issuable in
series which may vary as to date, amount, date of maturity, rate
of interest, redemption provisions, medium of payment and in
other respects as in the Indenture provided.
At the option of the Company, the bonds of Series M are
redeemable upon the notice and in the manner and with the effect
provided in the Indenture, in whole at any time or in part on any
interest payment date, beginning on December 1, 2005, at the
redemption prices (expressed as percentages of the principal
amount thereof) set forth below, plus accrued interest thereon,
if any, to the date of redemption:
Redemption
Redemption Dates (Inclusive) Prices
December 1, 2005 through November 30, 2006 102%
December 1, 2006 through November 30, 2007 101%
December 1, 2007 and thereafter 100%
The bonds of Series M are subject to mandatory redemption in
whole, upon the notice and on the manner and with the effect
provided in the Indenture, at a redemption price equal to 100% of
the principal amount thereof, plus accrued interest, if any, to
the redemption date in the event that all or substantially all of
the mortgaged property shall be sold or taken by the power of
eminent domain or otherwise.
The bonds of Series M are subject to mandatory redemption at
100% of the principal amount thereof, plus accrued interest, if
any, to the redemption date, in whole (or in part as provided
below) on any day within one hundred and twenty (120) days after
the Company receives written notice from a registered owner or
former registered owner of the Gas Supply Revenue Bonds (as
defined in the Indenture) or the Revenue Bond Trustee (as defined
in the Indenture) of a final determination by the Internal
Revenue Service or a court of competent jurisdiction that, as a
result of a failure by the Company to perform any of its
agreements in the Loan Agreement (as defined in the Indenture) or
the inaccuracy of any of its representations in the Loan
Agreement or any certificate submitted pursuant to the Revenue
Bond Indenture (as defined in the Indenture), the interest paid
or to be paid on any Gas Supply Revenue Bond (except to a
"substantial user" of the project or a "related person" within
the meaning of Section 147(a) of the Code (as defined in the
Indenture) is or was includible in the gross income of the
registered owner or former registered owner for federal income
tax purposes. For purposes of this paragraph, the "registered
owner" of a Gas Supply Revenue Bond includes the beneficial owner
(i.e., the actual purchaser as recorded on the records of the
Direct and Indirect Participants (as defined in the Indenture))
of such Bond. No such determination will be considered final
unless the registered owner or former registered owner involved
in the determination gives the Company, the Revenue Bond Trustee
and the Trustee prompt written notice of the commencement of the
proceedings resulting in the determination and offers the
Company, subject to the Company's agreeing to pay all expenses of
the proceeding and to indemnify the registered owner or former
registered owner against all liabilities that might result from
it, the opportunity to control the defense of the proceeding, and
either the Company does not agree within thirty (30) days to pay
the expenses, indemnify the registered owner or former registered
owner and control the defense or the Company exhausts or chooses
not to exhaust available procedures to contest or obtain review
of the result of the proceedings. Fewer than all the bonds of
Series M may be redeemed in the manner provided in the Indenture
if the redemption of fewer than all of the Gas Supply Revenue
Bonds would result in the interest payable on the Gas Supply
Revenue Bonds remaining outstanding being not includible for
federal income tax purposes in the gross income of any owner
other than a "substantial user" or "related person."
All of the outstanding bonds of Series M shall be redeemed
by the Company as soon as practicable, but not more than sixty
(60) days, after the Trustee receives written notice from the
Revenue Bond Trustee stating that the principal on the Gas Supply
Revenue Bonds has been declared to be immediately due and payable
as a result of an event of default under the Revenue Bond
Indenture. The redemption price for any such redemption shall be
100% of the principal amount of the bonds of Series M so to be
redeemed, plus accrued interest, if any, to the redemption date.
On December 1 of each year commencing December 1, 2000, the
Company will be required to redeem, upon notice from the Revenue
Bond Trustee, up to $25,000 in principal amount of the bonds of
Series M per registered owner of a Gas Supply Revenue Bond, upon
the death of any registered owner, following receipt by the
Revenue Bond Trustee of a request therefor from such registered
owner's personal representative or surviving joint tenant(s).
The Company will not be required to redeem more than $600,000 in
aggregate principal amount of bonds of Series M pursuant to such
redemptions in any twelve-month period. The redemption price for
any such redemption shall be 100% of the principal amount of the
bonds of Series M so to be redeemed, plus accrued interest, if
any, to the redemption date.
The death of a person who, during his or her lifetime, was
entitled to substantially all of the beneficial interest of
ownership of a Gas Supply Revenue Bond will be deemed the death
of a registered owner, regardless of the registered owner, if
such beneficial interest can be established to the satisfaction
of the Revenue Bond Trustee. Such beneficial interest shall be
deemed to exist in typical cases of street name or nominee
ownership, ownership under the Uniform Gifts to Minors Act,
community property or other joint ownership arrangements between
the husband and wife, and trust and certain other arrangements
where one person has substantially all of the beneficial
ownership interest in the Gas Supply Revenue Bond during his or
her lifetime. In the case of Gas Supply Revenue Bonds registered
in the name of banks, trust companies or broker-dealers who are
members of a national securities exchange or the National
Association of Securities Dealers, Inc. ("Qualified
Institutions"), the redemption limitations described above apply
to each beneficial owner of Gas Supply Revenue Bonds held by any
Qualified Institution. In connection with a redemption request,
such Qualified Institution must submit evidence, satisfactory to
the Revenue Bond Trustee, that it holds the Gas Supply Revenue
Bonds subject to request on behalf of such beneficial owner and
must certify the aggregate amount of redemption requests made on
behalf of such beneficial owner.
Except as is otherwise provided in the Indenture, notice of
any redemption of bonds of Series M shall be given by mailing,
postage prepaid, at least thirty (30) days and not more than
sixty (60) days prior to the redemption date, to the holders of
all such bonds to be redeemed at their last addresses that shall
appear upon the registry book, all as more fully provided in the
Indenture. Notice of redemption having been duly given, the
bonds called for redemption shall become due and payable upon the
redemption date and, if the redemption price shall have been
deposited with the Trustee, interest thereon shall cease to
accrue on or after the redemption date, and whenever the
redemption price thereof shall have been deposited with the
Trustee and notice of redemption shall have been duly given or
provision therefor made, such bonds shall no longer be entitled
to any lien or benefit of the Indenture.
In case of certain events of default specified in the
Indenture, the principal of bonds of Series M may be declared or
may become due and payable in the manner and with the effect
provided in the Indenture. No recourse shall be had for the
payment of the principal of or interest on this bond, or for any
claim based hereon, or otherwise in respect hereof, or of the
Indenture, to or against any incorporator, shareholder, officer
or director, past, present or future, of the Company, or of any
predecessor or successor corporation, either directly or through
the Company, or such predecessor or successor corporation, under
any constitution or statute or rule of law, or by the enforcement
of any assessment or penalty, or otherwise, all such liability of
incorporators, shareholders, directors and officers being waived
and released by the registered owner hereof by the acceptance of
this bond and being likewise waived and released by the terms of
the Indenture. This bond is transferable by the registered owner
hereof, in person or by attorney duly authorized, at the office
or place of business of the Trustee under the Indenture upon the
surrender and cancellation of this bond and, upon any such
transfer, a new registered bond or bonds, without coupons, of the
same series and maturity date and for the same aggregate
principal amount will be issued to the transferee in exchange
herefor.
This bond shall not be valid or become obligatory for any
purpose unless and until it shall have been authenticated by the
execution by the Trustee or its successor in trust under the
Indenture of the certificate endorsed hereon.
In Witness Whereof, the Company has caused this bond to be
executed in its name by its President, or one of its Executive
Vice Presidents or Vice Presidents, manually or in facsimile, and
its corporate seal to be impressed or imprinted hereon and
attested by its Secretary or one of its Assistant Secretaries,
manually or in facsimile.
Dated:
North Shore Gas Company
By:__________________________
President
Attest:
_____________________
Secretary
(Form of Trustee's Certificate)
This bond is one of the bonds of the series designated
therein, referred to and described in the within mentioned
Indenture.
U.S. Bank Trust National
Association, as successor
trustee to Continental Bank,
National Association, as
Trustee,
By: ___________________________
Authorized Officer
and
Whereas, all acts and things necessary to make the bonds of
Series M, when authenticated by the Trustee and issued as in the
Indenture and in this Thirteenth Supplemental Indenture provided,
the valid, binding and legal obligations of the Company entitled
in all respects to the security of the Indenture have been done
and performed, and the creation, execution and delivery of this
Thirteenth Supplemental Indenture have in all respects been duly
authorized;
Now, Therefore, This Thirteenth Supplemental Indenture
Witnesseth, that, in order further to secure the payment of the
principal of and interest on all bonds at any time issued and
outstanding under the Indenture according to their tenor, purport
and effect, and to secure the performance and observance of all
the covenants and conditions therein and in the Indenture
contained and for and in consideration of the premises and of the
mutual covenants herein contained and of the purchase and
acceptance of the bonds of Series M by the holders thereof, and
of the sum of $1.00 duly paid to the Company by the Trustee at or
before the ensealing and delivery hereof, and for other valuable
considerations, the receipt whereof is hereby acknowledged, the
Company has executed and delivered this Thirteenth Supplemental
Indenture, and by these presents does grant, bargain, sell,
release, convey, assign, transfer, mortgage, pledge, set over and
confirm and warrant unto the Trustee, the properties (other than
properties of the character embraced within the definition of
excepted property as set forth in the Indenture) which are
described in Exhibit A which is annexed hereto and hereby
expressly made a part hereof;
To Have and to Hold all of said properties and all and
singular the lands, properties, estates, rights, franchises and
privileges hereby mortgaged, conveyed, pledged or assigned, or
intended so to be, by the Indenture, and this Thirteenth
Supplemental Indenture, together with all appurtenances thereunto
appertaining, unto the Trustee and its successors and assigns
forever;
Subject, however, to permitted encumbrances and liens (as
defined in the Indenture) and to the exceptions set forth in the
granting and pledging clauses of the Indenture, and, as to any
property hereafter acquired by the Company, to any liens thereon
existing, and to any liens for unpaid portions of the purchase
price placed thereon at the time of such acquisition, but only to
the extent that such liens are permitted by the Indenture.
In Trust, Nevertheless, upon the terms and trusts in the
Indenture and in this Thirteenth Supplemental Indenture set
forth, for the equal and proportionate use, benefit, security and
protection of those who from time to time shall hold the bonds
and coupons authenticated and delivered under the Indenture and
as supplemented by this Thirteenth Supplemental Indenture and as
may hereafter be further amended and supplemented, and duly
issued by the Company, without any discrimination, preference or
priority of any bond or coupon over any other by reason of
priority in time of issue, sale or negotiation thereof or
otherwise, except as provided in the Indenture, so that, subject
to said provisions, each and all of said bonds and coupons shall
have the same right, lien and privilege under the Indenture and
any indenture supplemental thereto and shall be equally secured
thereby (except as any sinking, amortization, improvement,
renewal or other fund, established in accordance with the
provisions of the Indenture or any indenture supplemental
thereto, may afford additional security for the bonds of any
particular series), and in trust for enforcing the payment of the
principal of the bonds and of the interest thereon according to
the tenor, purport and effect of the bonds and coupons and of the
Indenture and for enforcing the terms, provisions, covenants and
stipulations in the Indenture, and in this Thirteenth
Supplemental Indenture and in the bonds set forth.
Upon Condition that, until the happening of an Event of
Default (as defined in Section 1 of Article X of the Indenture),
the Company shall be suffered and permitted to possess, use and
enjoy said properties, except as limited in respect of money,
securities and other personal property pledged or deposited with
or required to be pledged or deposited with the Trustee, and to
receive and use the rents, issues, income, revenues, earnings and
profits therefrom.
Article I
Bonds of Series M
Section 1.01. There is hereby created and authorized a series of
bonds limited to the aggregate principal amount of $30,035,000
designated First Mortgage 5.0% Bonds, Series M, due December 1,
2028. All bonds of Series M shall be registered bonds without
coupons and shall be dated as provided in Section 1 of Article II
of the Indenture and so long as there is no existing default in
the payment of interest upon the bonds of Series M, any bond of
Series M issued after the close of business on any Record Date,
as hereinafter defined, with respect to any interest payment date
(June 1 or December 1, as the case may be) and prior to such
interest payment date shall be dated as of such interest payment
date; provided, however, that if and to the extent that the
Company shall default in the payment of interest due on such
interest payment date, then any such bond of Series M shall bear
interest from the June 1 or December 1, as the case may be, being
the interest payment date for bonds of Series M to which interest
has previously been paid or made available for payment on the
outstanding bonds of said series, or if the Company shall default
in the payment of interest on the first interest payment date for
bonds of Series M, then from the date of the commencement of the
first interest period of such bonds of Series M, which date shall
be June 1, 1999. Except as aforesaid and subject to the
following sentence, all bonds of Series M shall bear interest
from their date at the rate of 5.0% per annum, payable
semi-annually on June 1 and December 1 in each year, the first
interest payment date being June 1, 1999, and shall mature on
December 1, 2028.
So long as there is no existing default in the payment of
interest on the bonds of Series M, the interest payable on any
interest payment date shall be paid to the person in whose name
any bond of Series M is registered at the close of business on
the Record Date with respect to such interest payment date, and
such person shall be entitled to receive the interest payable on
such interest payment date notwithstanding the cancellation of
any such bond of Series M on any exchange or transfer of
registration thereof subsequent to the Record Date and prior to
such interest payment date, except as and to the extent the
Company shall default in the payment of interest due on such
interest payment date, in which event such defaulted interest
shall be paid to the person in whose name each bond of Series M
is registered on the close of business on a subsequent Record
Date, which shall not be less than five (5) days prior to the
date of payment of such defaulted interest, established by notice
given by mail by or on behalf of the Company to the persons in
whose names such bonds of Series M are registered and to the
Trustee not less than ten (10) days preceding such subsequent
Record Date.
The principal of, premium, if any, and the interest on the
bonds of Series M shall be payable at the principal corporate
office of the Company in the City of Chicago, State of Illinois,
in any coin or currency of the United States of America which at
the time of payment is legal tender for public and private debts.
As used in this Section 1.01, the term "Business Day" means
any day which is not a Sunday or a legal holiday or a day
(including Saturday) on which banking institutions in the city
where the principal corporate trust office of the Trustee is
located are authorized by law or executive order to close (and
the Trustee is in fact closed).
As used in this Section 1.01, the term "Record Date" means,
with respect to any interest payment date (June 1, or December 1,
as the case may be), the fifteenth day of May or the fifteenth
day of November, as the case may be, next preceding such interest
payment date, or, if such fifteenth day of May or fifteenth day
of November is not a Business Day, the Business Day next
preceding such fifteenth day of April or fifteenth day of
October, or with respect to the payment of defaulted interest,
the date established by the Company as hereinabove provided.
As used in this Section 1.01, the term "default in the
payment of interest" means failure to pay interest on the
applicable interest payment date disregarding any period of grace
permitted by the Indenture, as amended and supplemented.
Section 1.02. A. At the option of the Company, the bonds
of Series M shall be redeemable in the manner hereinafter
provided, in whole at any time or in part on any interest payment
date, beginning December 1, 2005, at the redemption prices
(expressed as percentages of the principal amount thereof) set
forth below, plus accrued interest thereon, if any, to the date
of redemption:
Redemption
Redemption Dates (Inclusive) Prices
December 1, 2005 through November 30, 2006 102%
December 1, 2006 through November 30, 2007 101%
December 1, 2007 and thereafter 100%
B. The bonds of Series M are subject to mandatory redemption
at 100% of the principal amount thereof, plus accrued interest,
if any, to the redemption date in whole (or in part as provided
below) on any day within one hundred and twenty (120) days after
the Company receives written notice from a registered owner or
former registered owner of the Gas Supply Revenue Bonds or the
Revenue Bond Trustee of a final determination by the Internal
Revenue Service or a court of competent jurisdiction that, as a
result of a failure by the Company to perform any of its
agreements in the Loan Agreement or the inaccuracy of any of its
representations in the Loan Agreement or any certificate
submitted pursuant to the Revenue Bond Indenture, the interest
paid or to be paid on any Gas Supply Revenue Bond (except to a
"substantial user" of the project or a "related person" within
the meaning of Section 147(a) of the Code) is or was includible
in the gross income of the registered owner or former registered
owner for federal income tax purposes. For purposes of this
paragraph, the "registered owner" of a Gas Supply Revenue Bond
includes the beneficial owner (i.e., the actual purchaser as
recorded on the records of the Direct and Indirect Participants)
of such Gas Supply Revenue Bond. No such determination will be
considered final unless the registered owner or former registered
owner involved in the determination gives the Company, the
Revenue Bond Trustee and the Trustee prompt written notice of the
commencement of the proceedings resulting in the determination
and offers the Company, subject to the Company's agreeing to pay
all expenses of the proceeding and to indemnify the registered
owner or former registered owner against all liabilities that
might result from it, the opportunity to control the defense of
the proceeding, and either the Company does not agree within 30
days to pay the expenses, indemnify the registered owner or
former registered owner and control the defense or the Company
exhausts or chooses not to exhaust available procedures to
contest or obtain review of the result of the proceedings. Fewer
than all the bonds of Series M may be redeemed if redemption of
fewer than all of the Gas Supply Revenue Bonds would result in
the interest payable on the Gas Supply Revenue Bonds remaining
outstanding being not includible for federal income tax purposes
in the gross income of any registered owner other than a
"substantial user" or "related person." If this redemption occurs
in accordance with the terms of this Section 1.02.B, the failure
by the Company to perform any of its agreements in the Loan
Agreement or inaccuracy of any of its representations in the Loan
Agreement or any certificate submitted pursuant to the Indenture
shall not in and of itself constitute an event of default under
the Indenture, the Thirteenth Supplemental Indenture or the
Revenue Bond Indenture. Any such redemption shall be at a price
equal to 100% of the principal amount of the bonds of Series M so
to be redeemed, plus accrued interest, if any, to the redemption
date.
C. The bonds of Series M are subject to mandatory redemption
in whole, upon the notice and in the manner and with the effect
provided in the Indenture, at a redemption price equal to 100% of
the principal amount thereof, plus accrued interest, if any, to
the redemption date in the event that all or substantially all of
the mortgaged property shall be sold or taken by the power of
eminent domain or otherwise.
D. All of the outstanding bonds of Series M shall be
redeemed by the Company as soon as practicable, but not more than
sixty (60) days, after the Trustee receives written notice from
the Revenue Bond Trustee stating that the principal on the Gas
Supply Revenue Bonds has been declared to be immediately due and
payable as a result of an event of default under the Revenue Bond
Indenture. The redemption price for any such redemption shall be
100% of the principal amount of the bonds of Series M so to be
redeemed, plus accrued interest, if any, to the redemption date.
E. On December 1 of each year commencing December 1, 2000,
the Company will be required to redeem, upon notice from the
Revenue Bond Trustee, up to $25,000 in principal amount of the
bonds of Series M per registered owner of a Gas Supply Revenue
Bond, upon the death of any registered owner, following receipt
by the Revenue Bond Trustee of a request therefor from such
registered owner's personal representative or surviving joint
tenant(s). The Company will not be required to redeem more than
$600,000 in aggregate principal amount of bonds of Series M
pursuant to such redemptions in any twelve-month period. The
bonds of Series M subject to redemption as described above may be
presented for redemption by delivering to the Trustee (i) a
written request for redemption from the Revenue Bond Trustee in
form satisfactory to the Trustee, and (ii) the bond(s) to be
redeemed. Any such redemption shall be at a price equal to 100%
of the principal amount of the bonds so to be redeemed, plus
accrued interest to the redemption date.
The death of a person who, during his or her lifetime, was
entitled to substantially all of the beneficial interest of
ownership of a Gas Supply Revenue Bond will be deemed the death
of a registered owner, regardless of the registered owner, if
such beneficial interest can be established to the satisfaction
of the Revenue Bond Trustee. Such beneficial interest shall be
deemed to exist in typical cases of street name or nominee
ownership, ownership under the Uniform Transfers to Minors Act,
community property or other joint ownership arrangements between
the husband and wife, and trust and certain other arrangements
where one person has substantially all of the beneficial
ownership interest in the Gas Supply Revenue Bond during his or
her lifetime. In the case of Gas Supply Revenue Bonds registered
in the name of banks, trust companies or broker-dealers who are
members of a national securities exchange or the National
Association of Securities Dealers, Inc. ("Qualified
Institutions"), the redemption limitations described above apply
to each beneficial owner of Gas Supply Revenue Bonds held by any
Qualified Institution. In connection with the redemption
request, such Qualified Institutions must submit evidence,
satisfactory to the Revenue Bond Trustee, that it holds the Gas
Supply Revenue Bonds subject to request on behalf of such
beneficial owner and must certify the aggregate amount of
redemption requests made on behalf of such beneficial owner.
Requests for redemption in excess of $25,000 per deceased
holder in a period may be honored by the Company in its sole
discretion. If the Company honors such a request, the amount by
which the redemption exceeds the $25,000 limitation will not be
included in the computation of the aggregate $600,000 limitation.
Any redemption requests not honored because of the $600,000
aggregate limitation will be carried over into the next and
succeeding periods.
F. Bonds of Series M shall be redeemable upon the notice
provided for in Section 1.03 of this Article I.
Section 1.03. The provisions of Section 2 of Article VI of the
Indenture shall not be applicable to the bonds of Series M.
Otherwise, the provisions of Article VI of the Indenture shall
apply to any redemption of the bonds of Series M under
Section 1.02 hereof.
Section 1.04. Upon the execution and delivery of this Thirteenth
Supplemental Indenture and upon compliance with the applicable
provisions of the Indenture, as supplemented by this Thirteenth
Supplemental Indenture, the Company shall execute and deliver to
the Trustee and the Trustee shall authenticate and deliver to or
upon the written order of the President, or an Executive Vice
President or a Vice President of the Company, bonds of Series M
in an aggregate principal amount of $30,035,000. All bonds of
Series M shall be executed on behalf of the Company by the manual
or facsimile signature of its President, or an Executive Vice
President or a Vice President of the Company and its corporate
seal shall be impressed or imprinted and attested by its
Secretary or one of its Assistant Secretaries, manually or in
facsimile, and be authenticated by the manual execution by the
Trustee of the certificate endorsed on said bonds of Series M.
Section 1.05. Bonds of Series M shall bear the following legend:
"This Bond may not be sold, transferred, pledged or hypothecated
except as required to effect assignment to the Revenue Bond
Trustee and to any successor trustee."
Section 1.06. In this Supplemental Indenture, the following terms
shall have the meanings specified in this Section 1.06, unless
the context otherwise requires:
"Loan Agreement" means the Loan Agreement executed by and
between the IDFA and the Company dated as of December 1, 1998, as
from time to time amended and supplemented.
"Direct Participant" means any broker-dealer, bank or other
financial institution for which DTC holds Gas Supply Revenue
Bonds from time to time as a securities depository.
"DTC" means The Depository Trust Company, a New York
corporation, and its successors and assigns.
"Gas Supply Revenue Bonds" means the Gas Supply Revenue
Bonds (North Shore Gas Company Project), Series 1998, issued by
the IDFA in the aggregate principal amount of $30,035,000.
"IDFA" means the Illinois Development Finance Authority.
"Indirect Participant" means any person on behalf of whom a
Direct Participant holds an interest in the Gas Supply Revenue
Bonds.
"Code" means the Internal Revenue Code of 1986, as amended,
and all regulations promulgated thereunder.
"Opinion of Tax Counsel" means a written opinion of counsel
who is acceptable to the Revenue Bond Trustee, which counsel may
be an employee of or counsel to the IDFA, the Revenue Bond
Trustee or the Company, and which counsel shall be experienced in
matters relating to the tax exemption of interest on obligations
issued by states and their political subdivisions and
instrumentalities thereof.
"Person" means any individual, corporation, partnership,
joint venture, joint-stock company, trust, unincorporated
organization or government or any agency or political subdivision
thereof.
"Project" means the land, structures, machinery, equipment,
systems or processes, or any portion thereof, which are described
in Exhibit A to the Loan Agreement, as said Exhibit A may from
time to time be amended.
"Revenue Bond Indenture" means that certain Indenture of
Trust executed by and between the IDFA and the Revenue Bond
Trustee, dated as of November 1, 1998, and any amendments or
supplements thereto.
"Revenue Bond Trustee" means The First National Bank of
Chicago, and any successor trustee appointed pursuant to Section
8.08 or 8.09 of the Revenue Bond Indenture at the time serving as
successor trustee thereunder and shall include any co-trustee
serving as such thereunder.
Section 1.07. The Company reserves the right, without any consent
or other action by holders of the bonds of Series M, or any
subsequent series of bonds, to amend the Indenture by inserting
the following language as Section 4 of Article XVI immediately
following current Section 3 of Article XVI of the Indenture:
"Section 4. Anything in Section 1 of this
Article XVI to the contrary notwithstanding, with
the consent of the holders and registered owners
of not less than sixty per centum (60%) in
aggregate principal amount of all the bonds then
outstanding (determined as provided in Section 2
of Article XVII of this Indenture) or their
attorneys-in-fact duly authorized, or, if the
rights of the holders of one or more, but not all,
series then outstanding are affected, the consent
of the holders and registered owners of not less
than sixty per centum (60%) in aggregate principal
amount of all the bonds then outstanding
(determined as provided in Section 2 of
Article XVII of this Indenture) of all affected
series, taken together, and of any other series,
the Company, when authorized by resolution of its
Board of Directors, and the Trustee from time to
time and at any time, subject to the restrictions
in this Indenture contained, may enter into an
indenture or indentures supplemental hereto for
the purpose of adding any provisions to or
changing in any manner or eliminating any of the
provisions of this Indenture or of any
supplemental indenture or modifying the rights and
obligations of the Company and the rights of the
holders of any of the bonds and coupons; provided,
however, that no such supplemental indenture shall
(1) extend the maturity of any of the bonds or
reduce the rate or extend the time of payment of
interest thereon, or reduce the amount of the
principal thereof, or reduce any premium payable
on the redemption thereof or change the coin or
currency in which any bond or interest thereon is
payable, without the consent of the holder or
registered owner of each bond so affected, or
(2) permit the creation of any lien, not otherwise
permitted, prior to or on a parity with the lien
of the Indenture, without the consent of the
holders and registered owners of all the bonds
then outstanding, or (3) reduce the aforesaid
percentage of the aggregate principal amount of
bonds the holders and registered owners of which
are required to approve any such supplemental
indenture, without the consent of the holders of
all the bonds then outstanding. For the purposes
of this Section 4, bonds shall be deemed to be
affected by a supplemental indenture if, in the
opinion of the Trustee, such supplemental
indenture would adversely affect or diminish the
rights of holders thereof against the Company or
against its property.
Upon the written request of the Company,
accompanied by a resolution of its Board of
Directors authorizing the execution of any such
supplemental indenture, and upon the filing with
the Trustee of evidence of the consent of
bondholders as aforesaid (the instrument or
instruments evidencing such consent to be dated
within one year of such request), the Trustee
shall join with the Company in the execution of
such supplemental indenture unless such
supplemental indenture affects the Trustee's own
rights, duties or immunities under this Indenture
or otherwise, in which case the Trustee may in its
discretion, but shall not be obligated to, enter
into such supplemental indenture. The Trustee
shall be entitled to receive and, subject to
Section 1 of Article XV hereof, may rely upon, an
opinion of counsel as conclusive evidence that any
such supplemental indenture is authorized or
permitted by the provisions of this Section 4.
It shall not be necessary for the consent of
the bondholders under this Section to approve the
particular form of any proposed supplemental
indenture, but it shall be sufficient if such
consent shall approve the substance thereof.
The Company and the Trustee, if they so
elect, and either before or after such 60% or
greater consent has been obtained, may require the
holder or registered owner of any bond consenting
to the execution of any such supplemental
indenture to submit his bond to the Trustee or to
such bank, banker or trust company as may be
designated by the Trustee for the purpose, for the
notation thereon of the fact that the holder or
registered owner of such bond has consented to the
execution of such supplemental indenture, and in
such case such notation, in form satisfactory to
the Trustee, shall be made upon all bonds so
submitted, and such bonds bearing such notation
shall forthwith be returned to the persons
entitled thereto. All subsequent holders and
registered owners of bonds bearing such notation
shall be deemed to have consented to the execution
of such supplemental indenture, and consent, once
given or deemed to be given, may not be withdrawn.
Prior to the execution by the Company and the
Trustee of any supplemental indenture pursuant to
the provisions of this Section 4, the Company
shall publish a notice, setting forth in general
terms the substance of such supplemental
indenture, at least once in one daily newspaper of
general circulation in each city in which the
principal of any of the bonds shall be payable,
or, if all bonds outstanding shall be registered
bonds without coupons or coupon bonds registered
as to principal, such notice shall be sufficiently
given if mailed, first class, postage prepaid, and
registered if the Company so elects, to each
registered holder of bonds at the last address of
such holder appearing on the registry books, such
publication or mailing, as the case may be, to be
made not less than thirty (30) days prior to such
execution. Any failure of the Company to give
such notice, or any defect therein, shall not,
however, in any way impair or affect the validity
of any such supplemental indenture."
Article II
Additional Covenants
Section 2.01. The Company covenants that, so long as any bonds of
Series M are outstanding, the Company will comply with and
observe the covenants, terms and provisions contained in
Section 10 of Article IV of the Indenture which covenants, terms
and provisions shall remain in effect and shall be for the
benefit of the holders of the bonds of Series M as well as the
bonds of Series J, the bonds of Series K, and the bonds of Series
L.
Section 2.02. So long as any bonds of Series M are outstanding,
the Company will not declare or pay any dividends (other than
dividends payable solely in its common stock) or make any
distribution of any kind on, or make any expenditures to
purchase, redeem or retire (other than by exchange for other
shares, or through the application of the net cash proceeds of
the sale of other shares, exchanged or sold after the date of the
initial issuance of any bonds of Series M), any shares of its
common stock if:
(a) after giving effect to the dividend, distribution,
or expenditure concerned, the aggregate amount thereof
(except to the extent hereinbefore in this section excepted
from the effect hereof) shall be in excess of the sum of
$500,000 plus (or, in the event such accumulated surplus
earnings shall be a negative amount, minus) the surplus
earnings of the Company, determined in accordance with
generally accepted accounting principles, accumulated
subsequent to September 30, 1980; or
(b) any event of default hereunder shall then exist or
thereby occur or an event shall have occurred or a situation
shall then exist which by lapse of time alone would become
an event of default hereunder.
"Surplus earnings" for purposes of this Section 2.02 shall
be deemed to mean net earnings, as defined in paragraph 12 of
Article I of the Indenture, less all applicable interest charges
and less all taxes on income not deducted in computing said net
earnings.
Section 2.03. The term "default" or "event of default" wherever
used in this Thirteenth Supplemental Indenture shall mean any one
or more of the events set forth in Article X of the Indenture.
Article III
Miscellaneous
Section 3.01. For all purposes of this Thirteenth Supplemental
Indenture, all terms herein contained shall, except as the
context may otherwise require or as provided herein, have the
meanings given to such terms in the Indenture.
Section 3.02. The recitals contained in this Thirteenth
Supplemental Indenture are made by the Company and not by the
Trustee; and all of the provisions contained in the Indenture in
respect of the rights, privileges, immunities, powers and duties
of the Trustee shall be applicable in respect hereof as fully and
with like effect as set forth herein in full.
Section 3.03. This Thirteenth Supplemental Indenture may be
executed in any number of counterparts and each of such
counterparts shall for all purposes be deemed to be an original
and shall constitute but one and the same instrument.
In Witness Whereof, the Company has caused this instrument
to be executed in its corporate name by its President, or an
Executive Vice President or a Vice President and its corporate
seal to be hereunto affixed and to be attested by its Secretary
or an Assistant Secretary, and said U.S. Bank Trust National
Association, as successor trustee to Continental Bank, National
Association, to evidence its acceptance of its trust hereby
created, has caused this instrument to be executed in its
corporate name by an Executive Vice President or one of its Vice
Presidents and its corporate seal to be hereunto affixed and to
be attested by an Assistant Secretary, in several counterparts,
all as of the day and year first above written.
North Shore Gas Company
By: /s/ James M. Luebbers
______________________
Vice President
Attest:
/s/ Peter Kauffman
__________________
Secretary
U.S. Bank Trust National
Association, as successor
trustee to Continental Bank,
National Association
By: /s/ Frank Sgaraglino
_____________________
Vice President
Attest:
/s/ B. W. Lord
________________
Assistant Secretary
State of Illinois )
) SS.
County of Cook )
I, Gloria A. Rodriguez , a Notary public in and
for said County, in the State aforesaid, Do Hereby Certify that
J. M. Luebbers and P. Kauffman , personally known to me
to be the same persons whose names are subscribed to the
foregoing instrument, and personally known to me to be the duly
qualified and acting Vice President and Secretary, respectively,
of North Shore Gas Company, appeared before me this day in
person, and acknowledged that they signed, sealed and delivered
the said instrument as their free and voluntary acts as such Vice
President and Secretary, respectively, and as the free and
voluntary act of said North Shore Gas Company, for the uses and
purposes therein set forth.
In Witness Whereof, I have hereunto set my hand and have
affixed my Notarial Seal this 17 day of December, 1998.
/s/ Gloria A. Rodriguez
_________________
Notary Public
My commission expires May 16 , 2001 .
State of Illinois )
) SS.
County of Cook )
I, Remonia Jamison , a Notary public in and for said
County, in the State aforesaid, Do Hereby Certify that Frank
Sgaraglino and B. W. Lord , personally known to me
to be the same persons whose names are subscribed to the
foregoing instrument, and personally known to me to be the duly
elected, qualified and acting Vice President and Assistant
Secretary, respectively, of U.S. Bank Trust National Association,
as successor trustee to Continental Bank, National Association,
appeared before me this day in person, and acknowledged that they
signed, sealed and delivered the said instrument as their free
and voluntary acts as such Vice President and Assistant
Secretary, respectively, and as the free and voluntary act of
said U.S. Bank Trust National Association, as successor trustee
to Continental Bank, National Association, for the uses and
purposes therein set forth.
In Witness Whereof, I have hereunto set my hand and have
affixed my Notarial Seal this 16 day of December, 1998.
/s/ Remonia Jamison
_________________
Notary Public
My commission expires December 2 , 2000 .
Exhibit A
1. All rights of way, easements, franchises, licenses,
permit, privileges, leases, Leaseholds and other authority
granted to the Company for the purpose of constructing,
installing, operating, using, maintaining, renewing, replacing or
relocating gas mains, pipelines, services and other facilities
on, over or in private property owned by others and situated in
the Counties of Cook and Lake in the State of Illinois,
including, without limiting the generality of the foregoing,
those certain easements granted to the Company by the grantors
hereinafter named and filed for record and recorded as
hereinafter set forth to wit.
NSG Easements EXHIBIT A
12/11/98
<TABLE>
<CAPTION>
EXHIBIT A
All rights of way, easements, franchises, licenses, permit, privileges,
leases, leaseholds and other authority granted to the Company for the purpose
of constructing, installing, operating, using, maintaining, renewing, replacing
or relocating gas mains, pipelines, services and other facilities on, over or
in private property owned by others and situated in the Counties of Cook and
Lake in the State of Illinois, including without limiting the generality of
the foregoing, those certain easements granted to the Company by the grantors
hereinafter named and filed for record and recorded as hereinafter set forth
to wit.
<C> <C> <S> <C> <S> <C> <S>
Grantor PIN Number Common Address Document Number County
LaSalle National Trust, N.A.
(Trustee) 04-04-101-029,030,032 Downey's Cook County Home Addition 94869886 Cook
LaSalle State Real Estate Trust 04-02-101-021-0000 One Northbrook Place, Northbrook, IL 95377760 Cook
Commonwealth Edision Company Lake-Cook Road & Metra 04022436 Cook
Potomac Corp. 03-23-202-018 100 W. Willow Road, Wheeling, IL 93664650 Cook
Village of Wheeling 03-23-202-019 100 W. Willow Road, Wheeling, IL 93713364 Cook
Allstate Insurance Company 03-23-401-012 1600 S. Wolf Road, Wheeling, IL 93664651 Cook
E-Z POR, Division of
Packaging Corp. of America 03-23-202-025 1500 S. Wolf Road, Wheeling, IL 93664649 Cook
Independent Trust Corp. (Trustee) 03-21-203-005 40555 Goldenrod Lane, Wadsworth, IL 3447779 Lake
Factory Outlet Mall Associates 08-21-423-008 20 South Utica Street, Waukegan, IL Not Recorded Lake
Chicago Title and Trust (Trustee) 04-18-208-001 & 002 Westside Hills Subdivision, Zion, IL 3486660 Lake
American National Bank and Trust
Co. of Waukegan (Trustee) Willow Woods Condo, Beach Park, IL 3437343 Lake
John Matthew Mauser and John
Michael Mauser 03-04-300-034 43216 N. Country Lane, Zion, IL 3486657 Lake
Russell E. Lasco, Jr. 02-01-400-008 19047 W. Stateline Road, Antioch, IL 3407352 Lake
Bank of Waukegan (Trustee) 08-19-100-041 3130-3170 Monroe Street, Waukegan, IL 3495245 Lake
Frank A. Bonora and Marjorie
Bonora 04-08-100-030 42674 Kenosha Road, Zion, IL 3450313 Lake
Harold A., Jean A., Sue J.,
and Sandra M. Damrow 02-01-400-010 19241 W. Stateline Road, Antioch, IL 3411493 Lake
Dewayne R. Bookwalter and
Georgia W. Bookwalter 02-01-400-011 19375 W. Stateline Road, Antioch, IL 3411494 Lake
Charles V. & Joeseph F. Dugo,
Margaret Ray and Mary Leone 12-18-400-20 & 21 12295-12355 W. Quassey Avenue, Lake Bluff, IL 3495244 Lake
Dewayne R. Bookwalter and
Marsha Bookwalter 02-01-400-012 19375 W. Stateline Road, Antioch, IL 3411491 Lake
Donald Behlke and Patricia J.
Behlke 02-01-300-011 19505 W. Stateline Road, Antioch, IL 3407353 Lake
Commonwealth Edision Company Lorelei Drive, Zion, IL Not Recorded Lake
Joseph and Barbara Dooper 03-04-300-001 16975 W. Stateline Road, Zion, IL 3323710 Lake
Robert G Shaw 06-01-100-003 Carmen Court, Lindenhurst, IL 3311303 Lake
Buffalo Grove Park District 15-34-117-027 Candlewood Creek East Subdivision Not Recorded Lake
Bank of Waukegan (Trustee) 03-35-301-004 38355 Chicago Avenue, Wadsworth, IL 3346467 Lake
Albany Bank and Trust Company
(Trustee) 16-15-308-003 thru 007 980-988 Half Day Road, Highland Park, IL 3362510 Lake
Joseph and Barbara Dooper 03-04-400-001 43460 N. Skokie Hwy., Zion, IL 3323705 Lake
Joseph and Barbara Dooper 03-04-300-011 16527 W. Stateline Road, Zion, IL 3233705 Lake
Joseph and Barbara Dooper 03-04-300-036 16575 W. Stateline Road, Zion, IL 3323706 Lake
Joseph and Barbara Dooper 03-04-300-036 West Stateline Road, Zion, IL 3323707 Lake
Daniel J. Burke and Abbe L.
Burke 02-01-400-005 19145 W. Stateline Road, Antioch, IL 3437345 Lake
Joseph and Barbara Dooper 03-04-300-003 16825 W. Stateline Road, Zion, IL 3323709 Lake
Chevy Chase Business Park
Limited Partnership 15-35-300-178 & 179 Chevy Chase Business Park 3559678 Lake
Joseph and Barbara Dooper 03-05-400-018 17023 W. Stateline Road, Zion, IL 3323711 Lake
Joseph and Barbara Dooper 03-04-300-005 16611 W. Stateline Road, Zion, IL 3366662 Lake
Concept 1, Inc. 10-36-202-040 thru 046 19425 thru 19449 Forest Lane, Mundelein, IL 3371175 Lake
Robert M. Buege 04-28-300-016 3410 Gabriel Avenue, Zion, IL 3399672 Lake
American National Bank and
Trust Co. of Chicago (Trustee) 15-07-200-003 Old Grove Farm Subdivision 3190587 Lake
American National Bank and
Trust Co. of Chicago (Trustee) 15-07-200-009 Old Grove Farm Subdivision 3190587 Lake
American National Bank and
Trust Co. of Chicago (Trustee) 15-07-200-011 Old Grove Farm Subdivision 3190587 Lake
American National Bank and
Trust Co. of Chicago (Trustee) 15-07-200-012 Old Grove Farm Subdivision 3190587 Lake
Joseph and Barbara Dooper 03-04-300-036 16943 Stateline Road, Zion, IL 3323708 Lake
Gerald E. and Sara D. Mahler 12-18-100-020 29820 N. Hwy. 41, Lake Bluff, IL 3964303 Lake
Grand National Bank 07-14-305-004 749 N. Milwaukee Avenue, Gurnee, IL 3783990 Lake
Deerfied State Bank (Trustee) 16-33-101-005 750 Waukegan Road, Deerfield, IL 3804766 Lake
G.B. Properties, Inc. 07-19-100-050 347512 N. Hwy. 45, Lake Villa, IL 3815510 Lake
Abbott Laboratories 11-12-400-001 Waukegan Road, Lake County, IL 3836543 Lake
Teachers Insurance and Annuity
Association of America 07-25-311-001 901 Lakehurst Road, Waukegan, IL 3864879 Lake
American National Bank and Trust
Company of Chicago (Trustee) 08-18-324-009 & 010 Greenbay Rd. & Grand Avenue, Waukegan, IL 3864878 Lake
Mary Weil (Trustee) 03-04-300-025 16650 Russell Road, Zion, IL 3874149 Lake
Village of Gurnee 07-18-400-010 & 011 Almond Road at Bittersweet Drive, Gurnee, IL 3378255 Lake
LaSalle National Trust N.A.
(Trustee) 11-18-105-016 801 Technology Way, Libertyville, IL 3891546 Lake
City of Lake Forest 16-07-207-001 Everett Road & Telegraph Road, Lake Forest, IL 3725697 Lake
Bank of Waukegan (Trustee) 11-16-300-022 134 Lake Street, Libertyville, IL 3954552 Lake
Vulcan Lands, Inc. 06-35-400-027,028,020 875 S. Hwy. 83, Grayslake, IL 4041549 Lake
10-02-200-014 875 S. Hwy. 83, Grayslake, IL 4041549 Lake
Nehi Royal Crown Corporation 07-12-101-019 2217 Delany Road, Waukegan, IL 4098605 Lake
Ebsco Industries, Inc. 07-12-101-021 2245 Delany Road, Waukegan, IL 4098606 Lake
Candlewood Chicago, IL-
Libertyville, LLC 11 -18-103-031 USG Drive, Libertyville, IL 4104848 Lake
Fred Gust and Martin A. Gust 08-18-402-017 & 018 2869 Glen Flora, Waukegan, IL 4180170 Lake
LaSalle National Trust N.A.
(Trustee) 11-18-105-023 801 Technology Way, Libertyville, IL 3891545 Lake
Commonwealth Edision Company Knowles Road, Gurnee, IL Not Recorded Lake
American National Bank and
Trust Co. of Waukegan (Trustee) Calmarin Gardens, Zion, IL 3437344 Lake
American National Bank &
Trust Co. of Chicago (Trustee) 03-27-300-021 Wadsworth Rd. & Route 41, Wadsworth, IL 4222231 Lake
First Midwest Trust Company,
N.A. (Trustee) 08-21-418-034 25 N. County Street, Waukegan, IL 3564798 Lake
Village of Gurnee 07-18-400-011 Dada Drive Not Recorded Lake
Northern Trust Bank/Lake Forest
(Trustee) 12-19-200-040 407 Skokie Highway, Lake Bluff, IL 3580025 Lake
Lake County Public Water District 04-15-200-005 500 17th Street, Zion, IL 3572654 Lake
John K. Burgess and Judy Burgess 04-08-300-014 4625 10th Street, Zion IL 3597543 Lake
LaSalle National Trust, N.A.
(Trustee) 11-18-100-016 700 N. Hwy 45, Libertyville, IL 3715024 Lake
Commonwealth Edision Company Vinyard Drive, Gurnee, IL Not Recorded Lake
Commonwealth Edison Company Route 120, Waukegan, IL 3737692 Lake
John A. Ronan and Mary A. Ronan 07-29-404-036 33057 N. Ashley Drive, Grayslake, IL 3652239 Lake
American National Bank & Trust
Co. of Chicago (Trustee) 16-35-305-017 1567 County Line Road, Highland Park, IL 3652238 Lake
American National Bank & Trust
Co. of Chicago (Trustee) 15-01-202-046 & 051 Conway Farms Phase 1, Lake Forest, IL 3407351 Lake
American National Bank & Trust
Co. of Chicago (Trustee) 16-35-305-017 1567 County Line Road, Highland Park, IL 3652238 Lake
Ghasem Sariri and Sharareh 04-18-400-035 & 037 3905 Route 173, Zion, IL 3703699 Lake
City of Lake Forest 12-32-201-008 500 E. Deerpath, Lake Forest, IL 3717929 Lake
Cole Taylor Bank (Trustee) 12-32-201-015 500 N. Golf Lane, Lake Forest, IL 3709370 Lake
Cole Taylor Bank (Trustee) 12-19-209-010 305 Waukegan Rd. Lake Bluff, IL 3311304 Lake
State of Illinois Department
of Conservation Illinois Beach State Park 3597544 Lake
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
EXHIBIT 27
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>
<CIK> 0000077385
<NAME> PEOPLES ENERGY CORPORATION
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,476,585
<OTHER-PROPERTY-AND-INVEST> 93,355
<TOTAL-CURRENT-ASSETS> 429,637
<TOTAL-DEFERRED-CHARGES> 22,298
<OTHER-ASSETS> 58,316
<TOTAL-ASSETS> 2,080,191
<COMMON> 296,653
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 502,689
<TOTAL-COMMON-STOCKHOLDERS-EQ> 799,342
0
0
<LONG-TERM-DEBT-NET> 521,734
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 59,855
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 699,260
<TOT-CAPITALIZATION-AND-LIAB> 2,080,191
<GROSS-OPERATING-REVENUE> 814,245
<OTHER-OPERATING-EXPENSES> 662,510
<TOTAL-OPERATING-EXPENSES> 662,510
<OPERATING-INCOME-LOSS> 151,735
<OTHER-INCOME-NET> 14,764
<INCOME-BEFORE-INTEREST-EXPEN> 166,499
<TOTAL-INTEREST-EXPENSE> 20,628
<INCOME-TAX-EXPENSE> 56,418
<NET-INCOME> 89,453
0
<EARNINGS-AVAILABLE-FOR-COMM> 89,453
<COMMON-STOCK-DIVIDENDS> 34,024
<TOTAL-INTEREST-ON-BONDS> 17,713
<CASH-FLOW-OPERATIONS> 147,098
<EPS-PRIMARY> 2.52
<EPS-DILUTED> 2.52
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
EXHIBIT 27
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>
<CIK> 0000077388
<NAME> THE PEOPLES GAS LIGHT AND COKE COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,258,070
<OTHER-PROPERTY-AND-INVEST> 8,820
<TOTAL-CURRENT-ASSETS> 327,927
<TOTAL-DEFERRED-CHARGES> 16,772
<OTHER-ASSETS> 39,172
<TOTAL-ASSETS> 1,650,761
<COMMON> 165,307
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 463,063
<TOTAL-COMMON-STOCKHOLDERS-EQ> 628,370
0
0
<LONG-TERM-DEBT-NET> 452,000
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 700
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 569,691
<TOT-CAPITALIZATION-AND-LIAB> 1,650,761
<GROSS-OPERATING-REVENUE> 597,006
<OTHER-OPERATING-EXPENSES> 469,803
<TOTAL-OPERATING-EXPENSES> 469,803
<OPERATING-INCOME-LOSS> 127,203
<OTHER-INCOME-NET> 14,258
<INCOME-BEFORE-INTEREST-EXPEN> 141,461
<TOTAL-INTEREST-EXPENSE> 17,426
<INCOME-TAX-EXPENSE> 47,907
<NET-INCOME> 76,128
0
<EARNINGS-AVAILABLE-FOR-COMM> 76,128
<COMMON-STOCK-DIVIDENDS> 29,781
<TOTAL-INTEREST-ON-BONDS> 15,283
<CASH-FLOW-OPERATIONS> 131,537
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
EXHIBIT 27
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>
<CIK> 0000110101
<NAME> NORTH SHORE GAS COMPANY
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 198,847
<OTHER-PROPERTY-AND-INVEST> 22
<TOTAL-CURRENT-ASSETS> 43,176
<TOTAL-DEFERRED-CHARGES> 3,179
<OTHER-ASSETS> 19,144
<TOTAL-ASSETS> 264,368
<COMMON> 24,757
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 76,468
<TOTAL-COMMON-STOCKHOLDERS-EQ> 101,225
0
0
<LONG-TERM-DEBT-NET> 69,734
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 93,409
<TOT-CAPITALIZATION-AND-LIAB> 264,368
<GROSS-OPERATING-REVENUE> 97,813
<OTHER-OPERATING-EXPENSES> 75,562
<TOTAL-OPERATING-EXPENSES> 75,562
<OPERATING-INCOME-LOSS> 22,251
<OTHER-INCOME-NET> 200
<INCOME-BEFORE-INTEREST-EXPEN> 22,451
<TOTAL-INTEREST-EXPENSE> 2,642
<INCOME-TAX-EXPENSE> 7,705
<NET-INCOME> 12,104
0
<EARNINGS-AVAILABLE-FOR-COMM> 12,104
<COMMON-STOCK-DIVIDENDS> 5,584
<TOTAL-INTEREST-ON-BONDS> 2,430
<CASH-FLOW-OPERATIONS> 15,679
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
