<PAGE>
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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
/x/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 2-26983
THE PEOPLES GAS LIGHT AND COKE COMPANY
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1613900
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
122 SOUTH MICHIGAN AVENUE, CHICAGO, ILLINOIS 60603
(Address of principal executive offices) (Zip Code)
(312) 431-4000
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes /x/ No / /
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 24,817,566 shares of Common
Stock, without par value, outstanding at July 31, 1994.
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<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PEOPLES GAS LIGHT AND COKE COMPANY
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<TABLE>
<CAPTION>
Three Nine Twelve
Months Ended Months Ended Months Ended
June 30, June 30, June 30,
----------------------- ------------------------ -------------------------
1994 1993 1994 1993 1994 1993
-------- -------- ---------- -------- ---------- ----------
(Thousands)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Gas sales $156,749 $173,024 $ 909,851 $878,965 $1,010,591 $ 958,102
Transportation of customer-
owned gas 19,381 19,630 83,624 90,966 98,856 108,488
Other 5,034 4,316 13,132 11,549 17,100 15,155
-------- -------- ---------- -------- ---------- ----------
Total Operating Revenues 181,164 196,970 1,006,607 981,480 1,126,547 1,081,745
-------- -------- ---------- -------- ---------- ----------
OPERATING EXPENSES:
Gas costs 79,344 89,077 532,602 508,859 578,999 546,698
Operation 42,988 45,758 144,636 141,419 191,959 183,622
Maintenance 9,057 8,141 25,774 23,272 34,922 32,253
Depreciation 14,900 13,639 43,034 40,329 57,320 53,325
Taxes -Income 33 840 41,253 43,211 30,993 30,799
-State & local revenue 20,574 22,027 111,332 108,756 123,626 119,408
-Other 4,248 4,703 13,713 13,928 18,278 18,390
-------- -------- ---------- -------- ---------- ----------
Total Operating Expenses 171,144 184,185 912,344 879,774 1,036,097 984,495
-------- -------- ---------- -------- ---------- ----------
OPERATING INCOME 10,020 12,785 94,263 101,706 90,450 97,250
-------- -------- ---------- -------- ---------- ----------
OTHER INCOME:
Interest income 1,805 774 2,748 1,208 2,942 1,982
Allowance for funds used
during construction -- -- -- -- -- 91
Miscellaneous 437 877 12,095 2,488 12,678 2,893
-------- -------- ---------- -------- ---------- ----------
Total Other Income 2,242 1,651 14,843 3,696 15,620 4,966
-------- -------- ---------- -------- ---------- ----------
GROSS INCOME 12,262 14,436 109,106 105,402 106,070 102,216
-------- -------- ---------- -------- ---------- ----------
INCOME DEDUCTIONS:
Interest on long-term debt 9,792 9,063 28,238 26,358 36,787 35,280
Other interest 281 295 2,304 2,042 2,671 2,577
Amortization of debt discount
and expense 176 161 513 462 667 612
Miscellaneous 34 14 102 35 146 53
-------- -------- ---------- -------- ---------- ----------
Total Income Deductions 10,283 9,533 31,157 28,897 40,271 38,522
-------- -------- ---------- -------- ---------- ----------
NET INCOME 1,979 4,903 77,949 76,505 65,799 63,694
-------- -------- ---------- -------- ---------- ----------
Preferred stock dividends -- 195 -- 647 71 949
-------- -------- ---------- -------- ---------- ----------
NET INCOME APPLICABLE
TO COMMON STOCK $ 1,979 $ 4,708 $ 77,949 $ 75,858 $ 65,728 $ 62,745
-------- -------- ---------- -------- ---------- ----------
-------- -------- ---------- -------- ---------- ----------
</TABLE>
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( ) Denotes red figure.
The Notes to Consolidated Financial Statements are an integral part of these
statements.
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<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30,
1994 September 30, 1993
(Unaudited) 1993 (Unaudited)
----------- ------------- -----------
(Thousands)
<S> <C> <C> <C>
PROPERTIES AND OTHER ASSETS
CAPITAL INVESTMENTS
Property, plant and equipment,
at original cost $1,742,675 $1,702,401 $1,673,143
Less -Accumulated depreciation 589,400 557,855 557,219
---------- ---------- ----------
Net property, plant and equipment 1,153,275 1,144,546 1,115,924
Gas supply advances and investments 809 825 854
Other investments 5,819 7,470 7,366
---------- ---------- ----------
TOTAL CAPITAL INVESTMENTS - NET 1,159,903 1,152,841 1,124,144
---------- ---------- ----------
CURRENT ASSETS
Cash 3,771 7,909 10,718
Cash equivalents 135,694 -- 32,192
Other temporary cash investments,
at cost that approximates market value 600 600 600
Trust fund, utility construction 44,494 -- --
Receivables -
Customers, net of allowance for
uncollectible accounts of $17,995,
$18,934, and $19,479, respectively 117,931 75,382 121,189
Other 2,563 28,274 1,701
Accrued unbilled revenues 13,269 26,199 15,292
Materials and supplies, at average cost 22,515 23,673 23,909
Gas in storage, at last-in, first-out cost 82,203 119,654 83,727
Gas costs recoverable through rate adjustments 14,208 43,047 49,293
Prepayments 2,129 2,018 2,428
---------- ---------- ----------
TOTAL CURRENT ASSETS 439,377 326,756 341,049
---------- ---------- ----------
DEFERRED CHARGES 36,582 26,510 23,595
---------- ---------- ----------
TOTAL PROPERTIES AND OTHER ASSETS $1,635,862 $1,506,107 $1,488,788
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
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The Notes to Consolidated Financial Statements are an integral part of these
statements.
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<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, June 30,
1994 September 30, 1993
(Unaudited) 1993 (Unaudited)
----------- ------------ -----------
(Thousands, except share data)
<S> <C> <C> <C>
CAPITALIZATION AND LIABILITIES
CAPITALIZATION
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 394,189 357,686 384,053
---------- ---------- ----------
Total Common Stockholder's Equity 559,496 522,993 549,360
Redeemable cumulative preferred stock
$100 par value, exclusive of sinking
fund payments and redemptions due
within one year -- -- 1,700
Long-term debt exclusive of sinking
fund payments and maturities due
within one year 549,150 447,150 447,150
---------- ---------- ----------
TOTAL CAPITALIZATION 1,108,646 970,143 998,210
---------- ---------- ----------
CURRENT LIABILITIES
Interim loans 100 63,200 --
Accounts payable 105,746 101,682 96,649
Dividends payable on common stock 14,146 14,146 13,402
Customer gas service and credit deposits 16,809 38,493 20,706
Sinking fund payments and maturities, and
redemptions, due within one year -
Long-term debt -- -- --
Redeemable cumulative preferred stock -- 3,400 1,700
Accrued taxes 50,897 25,249 50,521
Gas sales revenue refundable through
rate adjustments 28,843 7,262 6,949
Accrued interest 8,392 8,271 7,965
Temporary LIFO liquidation credit 45,797 -- 53,957
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 270,730 261,703 251,849
---------- ---------- ----------
RESERVES AND DEFERRED CREDITS
Deferred income taxes - primarily
accelerated depreciation 191,863 180,882 166,330
Investment tax credits being amortized
over the average lives of related
property 36,236 37,478 37,839
Other 28,387 55,901 34,560
---------- ---------- ----------
TOTAL RESERVES AND DEFERRED
CREDITS 256,486 274,261 238,729
---------- ---------- ----------
TOTAL CAPITALIZATION AND
LIABILITIES $1,635,862 $1,506,107 $1,488,788
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
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The Notes to Consolidated Financial Statements are an integral part of these
statements.
-4-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
June 30,
-----------------------------
1994 1993
--------- --------
(Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 77,949 $ 76,505
Adjustments to reconcile net income to net cash:
Depreciation 43,034 40,329
Deferred income taxes and investment tax credits - net 4,921 2,688
Change in other deferred credits and reserves (22,696) (4,980)
Change in deferred charges (10,072) 2,583
Other 16 26
-------- --------
93,152 117,151
Change in certain current assets and liabilities:
Receivables - net (16,838) (65,635)
Accrued unbilled revenues 12,930 5,182
Materials and supplies 1,158 1,174
Gas in storage 37,451 32,939
Rate adjustments recoverable or refundable 50,420 (27,155)
Accounts payable 4,135 17,835
Customer gas service and credit deposits (21,684) (22,849)
Accrued taxes 25,648 34,448
Accrued interest 121 (61)
Temporary LIFO liquidation credit 45,796 53,957
Other (109) (453)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 232,180 146,533
-------- --------
INVESTING ACTIVITIES:
Capital expenditures - construction (50,089) (67,050)
Other assets (1,674) (2,696)
Other capital investments 1,650 1,096
Other temporary cash investments -- (200)
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (50,113) (68,850)
-------- --------
FINANCING ACTIVITIES:
Interim loans -net (63,100) (8,900)
Issuance of long-term debt 102,000 75,000
Trust fund, utility construction (44,494) --
Retirement of long-term debt -- (63,245)
Redemption of preferred stock (3,400) (11,400)
Preferred stock redemption expenses -- (414)
Dividends paid on preferred stock (71) (878)
Dividends paid on common stock (41,446) (37,723)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (50,511) (47,560)
-------- --------
NET INCREASE IN CASH AND CASH EQUIVALENTS 131,556 30,123
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 7,909 12,787
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $139,465 $ 42,910
-------- --------
-------- --------
</TABLE>
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( ) Denotes red figure.
The Notes to Consolidated Financial Statements are an integral part of these
statements.
-5-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The accompanying consolidated financial statements have been prepared by
The Peoples Gas Light and Coke Company (Company) 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 the Company's Annual Report on Form 10-K for the
fiscal year ended September 30, 1993.
The business of the Company is influenced by seasonal weather conditions
because a large element of the Company's 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
2(a) Revenue Recognition
Gas sales revenues for retail customers are recorded on the accrual
basis for all gas delivered during the month, including an estimate for gas
delivered but unbilled at the end of each month.
2(b) Statement of Cash Flows
For purposes of the balance sheet and the statement of cash flows,
the Company considers all short-term liquid investments with maturities of
three months or less to be cash equivalents.
-6-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
2(b) Statement of Cash Flows (Continued)
Income taxes and interest paid (excluding capitalized interest)
were as follows:
<TABLE>
<CAPTION>
For the nine months
ended June 30,
1994 1993
- - --------------------------------------------------------
(Thousands)
<S> <C> <C>
Income taxes paid $28,121 $22,203
Interest paid 30,000 28,242
</TABLE>
2(c) Income Taxes
In March 1993, the Company adopted, effective October 1, 1992, the
liability method of accounting for deferred income taxes required by the
Statement of Financial Accounting Standards (SFAS) No. 109, "Accounting for
Income Taxes." Under the liability method, deferred income taxes have been
recorded using currently enacted tax rates for the differences between the
tax basis of assets and liabilities and the basis reported in the financial
statements. Due to the effects of regulation on the Company, certain
adjustments made to deferred income taxes to reflect the adoption of SFAS
No. 109 are, in turn, debited or credited to regulatory assets or
liabilities. Such adjustments had no material impact on financial position
or results of operations of the Company.
2(d) Recovery of Gas Costs, Including Charges for Take-or-Pay and Transition
Costs
Under the tariffs of the Company, the difference for any fiscal
year between costs recoverable through the Gas Charge and revenues billed
to customers under the Gas Charge is refunded or recovered over a 12-month
billing cycle beginning the following January 1. 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),
and the fiscal year-end balance is amortized over the 12-month period
beginning the following January 1.
The Illinois Commerce Commission (Commission) conducts annual
proceedings regarding, for each gas utility, 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 the Company for fiscal
years 1992 and 1993 are currently pending before the Commission.
-7-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. SIGNIFICANT ACCOUNTING POLICIES (Continued)
2(d) Recovery of Gas Costs, Including Charges for Take-or-Pay
and Transition Costs (Continued)
Pursuant to Federal Energy Regulatory Commission (FERC) Order No.
500, and successor orders, pipelines were allowed to direct-bill firm sales
customers for a portion of so-called "past" take-or-pay costs. These costs
arose from the settlement of liabilities under agreements between pipelines
and producers whereby pipelines were required to pay for contracted
supplies, whether or not they were taken. The Company has recovered all
take-or-pay charges, billed by its pipeline suppliers, through the Gas
Charge. Although additional recoveries may be required in the future, any
amount is anticipated to be insignificant.
Pursuant to FERC Order No. 636 and successor orders, pipelines are
allowed to recover from their customers so-called transition costs. These
costs arise from the restructuring of pipeline service obligations required
by the 636 Orders. The Company is currently recovering pipeline charges
for transition costs through an existing provision of the Gas Charge. The
Commission entered an order on March 9, 1994, providing for the full
recovery of all such charges from customers. (See Notes 3(a) and 3(b).)
3. RATES AND REGULATION
3(a) Utility Rate Proceedings
On October 6, 1992, the Commission issued an order approving
changes in the rates of the Company that are designed to increase annual
revenues by approximately $30.6 million, exclusive of additional charges
for revenue taxes. The new rates were implemented on October 10, 1992. The
Company was allowed a 10.40 percent return on its original-cost rate base,
reflecting a 12.25 percent cost of common equity. The Commission's order
also approved a rate mechanism by which the Company will recover costs
associated with environmental activities, principally the investigation and
remediation of residues associated with past manufactured gas operations.
Consistent
-8-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. RATES AND REGULATION (Continued)
3(a) Utility Rate Proceedings (Continued)
with the order it issued in separate rate proceedings (see discussion
below), the Commission directed that such costs be recovered over a
five-year period without recovery of carrying charges on unrecovered
balances. The Company and several parties have appealed the Commission's
order to the Illinois Appellate Court. Any change made pursuant to the
Appellate Court's order on appeal would have a prospective effect only.
On September 30, 1992, the Commission issued an order in its
consolidated proceedings, initiated in March 1991, regarding the
appropriate ratemaking treatment of costs incurred by Illinois utilities,
including the Company and North Shore Gas, in connection with the
investigation and treatment of residues associated with past manufactured
gas operations ("environmental costs"). In its order, the Commission
approved rate recovery of environmental costs but required that such
recovery occur over a five-year period without recovery of carrying charges
on unrecovered balances. Reimbursements of environmental costs from
insurance carriers or other entities are to be netted against costs and
reflected in rates over a five-year period. In November 1992, several
parties, including the Company and North Shore Gas, appealed the
Commission's order to the Illinois Appellate Court. On December 29, 1993,
the Third District Appellate Court issued its opinion affirming the
Commission's order in the consolidated proceedings. On April 6, 1994, the
Illinois Supreme Court allowed an appeal of the Appellate Court's decision.
Any change made pursuant to the Supreme Court's order on appeal would have
a prospective effect only.
On September 15, 1993, the Commission entered an order initiating
an investigation into the appropriate means of recovery by Illinois gas
utilities of pipeline charges for FERC Order No. 636 transition costs. The
Commission issued a final order in this proceeding on March 9, 1994. The
order provides for the full recovery of transition costs from the Company's
sales customers and transportation customers to the extent they contract
for firm standby service. The Citizens Utility Board and State's Attorney
of Cook County filed an application for rehearing of the March 9 order with
the Commission. On May 4, 1994, the Commission granted rehearing, limited
to the question of the allocation of transition costs. (See Notes 2(d) and
3(b).)
-9-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. RATES AND REGULATION (Continued)
3(b) FERC Orders 636, 636-A, and 636-B
On April 8, 1992, the FERC issued Order No. 636, and on August 3,
1992, the FERC issued Order No. 636-A. On November 27, 1992, the FERC
issued Order No. 636-B, which substantially confirmed Order Nos. 636 and
636-A. There are numerous appeals of the 636 Orders pending before the
Federal Circuit Court of Appeal for the D.C. Circuit.
The 636 Orders required substantial restructuring of the service
obligations of interstate pipelines. Among other things, the 636 Orders
mandated "unbundling" of existing pipeline gas sales services. Mandatory
unbundling requires pipelines to sell separately the various components of
their gas sales services (gathering, transportation and storage services,
and gas supply). These components were previously combined or "bundled" in
gas services such as those purchased by the Company. To address concerns
raised by utilities about reliability of service to their service
territories, the 636 Orders required pipelines to offer a "no-notice"
transportation service under which firm transporters can receive delivery
of gas up to their contractual capacity level on any day without prior
scheduling. Further, the 636 Orders provided for mechanisms for pipelines
to recover prudently incurred transition costs associated with the
restructuring process.
The FERC initiated individual restructuring proceedings for each
interstate pipeline. Each pipeline submitted a proposal to bring it into
compliance with the requirements of the 636 Orders. The restructured
tariffs of Natural Gas Pipeline Company of America (Natural), the principal
pipeline serving the Company, went into effect December 1, 1993. The
restructured tariffs of other pipelines serving the Company had previously
gone into effect. Several appeals of the orders approving Natural's and
other pipelines' restructured tariffs are pending before the Federal
Circuit Court of Appeal for the D.C. Circuit.
As part of the restructuring process, the Company elected necessary
levels of restructured services, including no-notice services, from the
menu of restructured services offered by the various pipelines. Also
during 1993, the Company took the steps necessary to obtain reliable gas
supply as a replacement for the bundled merchant service supply which was
no longer available from the interstate pipelines to any significant
extent.
-10-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
3. RATES AND REGULATION (Continued)
3(b) FERC Orders 636, 636-A, and 636-B (Continued)
Under the 636 Orders, pipelines must make separate rate filings to
recover transition costs. There are four categories of such costs, the
largest of which for the Company is gas supply realignment (GSR) costs.
The Company is subject to charges for transition cost recovery by two
pipelines: Midwestern Gas Transmission Company/Tennessee Gas Pipeline
Company and Natural. Contracts with Midwestern and Tennessee having been
terminated effective November 30, 1993, transition cost billings by these
companies are limited to the period September 1993 through November 1993.
Charges for Natural's transition costs commenced on January 1, 1994. While
the total amount of the transition costs expected to be billed to the
Company by Natural is uncertain at this time, such total amount is expected
to be substantial. The Company is currently recovering transition costs
through the Gas Charge. On February 1, 1994, Natural filed a Stipulation
and Agreement (S & A) with the FERC addressing GSR costs. On May 12, 1994,
the FERC issued an order approving, with modifications, the S & A. In
response to that order, Natural filed a revised S & A on July 19, 1994. If
approved by the FERC, the revised S & A would place a cap of approximately
$103 million on the amount of GSR costs recoverable by Natural from the
Company.
The 636 Orders are not expected to have a material adverse effect
on financial position or results of operations of the Company. (See Notes
2(d) and 3(a).)
4. ENVIRONMENTAL MATTERS
The Company, its predecessors, and certain former affiliates operated
facilities in the past for manufacturing gas and storing manufactured gas. In
connection with manufacturing and storing gas, various by-products and waste
materials were produced, some of which might have been disposed of on sites
where the facilities were located. Under certain laws and regulations relating
to the protection of the environment, the Company might be required to undertake
remedial action with respect to some of these materials, if found at the sites.
The current owner of a site in McCook, Illinois, near Chicago, has advised
the Company that the owner has found what appear to be wastes associated with
by-products of the gas manufacturing process under its property. The owner has
asserted that these wastes are the responsibility of the Company. The Company
is currently evaluating this claim.
-11-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. ENVIRONMENTAL MATTERS (Continued)
The Company, in cooperation with the Illinois Environmental Protection
Agency (IEPA), is conducting investigations of certain sites (a total of 29) to
determine whether remedial action might be necessary. The investigations were
initiated pursuant to an informal request by the IEPA. To the best of the
Company's knowledge, similar informal requests have been made by the IEPA to
other major Illinois gas and electric utilities. The Company has engaged
environmental consulting firms to assist in the Company's investigations. At
this time, except for one site in Chicago (discussion below), it is not known
what, if any, remedial action will be necessary at the sites or, if necessary,
what the cost of any such action would be. As discussed below, the Company may
conduct a remedial investigation/feasibility study (RI/FS) at two of these sites
under the supervision of the IEPA and, with the agreement of the IEPA, has
commenced limited work at a third site.
In August 1988, the IEPA conducted an inspection at the Company's Division
Street property in Chicago. During the inspection, the IEPA and the Company
took several soil samples for laboratory analysis. The analysis of the samples
collected by the Company indicates the presence of certain substances within the
soil of the Division Street property that could be attributable to former
manufactured gas operations. The Company may conduct an RI/FS of the property
under the supervision of the IEPA.
The current owners of a site in Chicago, formerly called Pitney Court
Station, have advised the Company that they have found what appear to be gas
manufacturing wastes underneath their property. The owners have demanded
monetary compensation from the Company because of the presence of such wastes.
The Company has rejected this demand, but may conduct an RI/FS of the site under
the supervision of the IEPA.
The Company has observed what appear to be gas purification wastes on a
site in Chicago, formerly called the 110th Street Station, and property
contiguous thereto. The Company has fenced the site and the contiguous property
and is conducting a study under the supervision of the IEPA to determine the
feasibility of a limited removal action.
The current owners at a site in Chicago, formerly called South Station,
have recently advised the Company that they have found what appear to be gas
manufacturing wastes underneath their property. The owners have demanded
monetary compensation from the Company because of the presence of such wastes.
The Company is currently evaluating this claim.
-12-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. ENVIRONMENTAL MATTERS (Continued)
The Company recently became aware of a planned residential development at a
site in Chicago, formerly called the Equitable Distribution Station. The
current owners of the site and the Company have agreed that the Company should
conduct a preliminary investigation to determine whether gas manufacturing
wastes are present at the site.
The Company is accruing and deferring the costs it incurs in connection
with all of the sites, including related legal expenses, pending recovery
through rates or from insurance carriers or other entities. As of June 30,
1994, the total of the costs deferred by the Company, net of recoveries, was
$10.1 million. The costs of remediation at the sites cannot be determined until
more is known about the nature and extent of contamination and the remedial
action, if any, to be required by the IEPA. While the Company 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.
The Company has filed suit against a number of insurance carriers for the
recovery of costs associated with the investigation and remediation of residues
from its former manufactured gas operations. The suit asks the court to declare
that the insurers are liable under policies in effect between 1938 and 1985 for
costs incurred or to be incurred by the Company in connection with its former
manufactured gas sites. The Company is also asking the court to award damages
stemming from the insurers' breach of their contractual obligation to defend and
indemnify the Company against these costs. At this time, management cannot
determine the timing and extent of the Company's recovery of costs from its
insurance carriers. Accordingly, the costs deferred as of June 30, 1994 have
not been reduced to reflect recoveries from insurance carriers.
Costs incurred by the Company for environmental activities relating to the
sites of former manufactured gas operations will be recovered from insurance
carriers or other entities or through rates for utility service. Accordingly,
management believes that the costs incurred by the Company in connection with
the sites will not have a material adverse effect on financial position or
results of operations. The Company is authorized to recover the costs of
environmental activities relating to its former manufactured gas operations
under a rate mechanism approved by the Commission in its October 1992 order. As
of June 30, 1994, it had recovered $164,000 of such costs through rates. (See
Note 3(a) for a discussion of proceedings regarding the recovery of these costs
through utility rates.)
-13-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. GAS OVER-PRESSURE CONDITION
On January 17, 1992, an over-pressure condition occurred in the gas mains
of the Company serving an approximately one-square-mile area of the Near
Northwest Side of the City of Chicago. The over-pressure condition caused a
major explosion and numerous fires. The Company is aware of four deaths and 14
personal injuries allegedly resulting from the explosion and fires. The Company
also has been informed that damage occurred in an estimated 28 buildings. There
was also damage, such as broken windows, wall cracks, and water damage, to
additional buildings.
A number of lawsuits have been filed against the Company as a result of the
over-pressure condition. The lawsuits include wrongful-death claims and several
class actions that seek to certify as a class those persons who suffered bodily
harm and/or property damage. All of the suits allege negligence and seek
compensatory damages. Some of the lawsuits also seek punitive damages. These
suits have not quantified the alleged damages except for certain amounts that
are not material.
In January 1993, the National Transportation Safety Board (NTSB) completed
its report regarding its investigation of the over-pressure incident that
occurred on January 17, 1992. In its report, the NTSB stated that "the probable
cause of the over-pressure accident and the resulting losses was the failure of
Peoples Gas Light Coke Company to adequately train its gas operations section
employees in recognizing and correctly responding to abnormal situations, which
consequently led to the failure of the gas operations section crew to properly
monitor and control the pressure of the gas being supplied to the low-pressure
gas system during a routine inspection."
In June 1993, the Staff of the Illinois Commerce Commission (Commission
Staff) released its report concerning the over-pressure incident. In its
report, the Commission Staff concluded that employee error was the probable
cause of the over-pressurization. The report was critical of the Company's
training of its personnel in its gas operations section and of some of the
Company's practices at the time of the incident.
The Company strongly disagrees with the criticisms by the NTSB and the
Commission Staff of the training given by the Company to personnel in its gas
operations section. The Company also disagrees with some of the findings and
conclusions of the Commission Staff, including several of the Commission Staff's
findings and its theory, analysis, and conclusions pertaining to the probable
cause of the over-pressurization.
-14-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. GAS OVER-PRESSURE CONDITION (Continued)
The Company carries substantial insurance coverage. If liability were
found on the part of the Company, management believes that any costs incurred
for damages will be adequately covered by insurance. However, the Company's
primary insurance carrier has asserted that under Illinois law, liability for
punitive damages is not insurable. The Company has advised the insurance
carrier that it disagrees and intends to assert all of its rights against the
carrier including its right to obtain recovery for punitive damages, if any.
Management is not aware of any conduct on its part or by employees of the
Company that would give rise to punitive damages under Illinois law.
Accordingly, management believes that the incident will not have a material
adverse effect on financial position or results of operations of the Company.
6. TAX MATTERS
On September 30, 1993, the Company received notification from the Internal
Revenue Service (IRS) that settlement of past income tax returns had been
reached for fiscal years 1978 through 1990. The IRS settlement resulted in a
March 1994 payment of principal and interest to the Company in total amount of
approximately $25 million, or $19 million after income taxes. The Company has
received regulatory authorization to defer the recording of the settlement
amount in income for fiscal year 1993, and to record its portion of the
settlement amount in income for fiscal years 1994 and 1995. The Company has
represented to the Commission that, having received this accounting
authorization, it will not file a request for an increase in base rates before
December 1994. The regulatory treatment of the IRS settlement having been
resolved in November 1993, the Company included $12.6 million, or $9.7 million
after income taxes, in income for that month; the amount after income taxes is
included in Other Income -Miscellaneous. At June 30, 1994, approximately
$12 million is included in Reserves and Deferred Credits -Other. The Company
will amortize its remaining portion of the settlement amount in income in fiscal
year 1995, the effect of which will be to offset increases in costs that the
utility will incur during that year.
-15-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. ISSUANCE OF BONDS
On December 22, 1993, the City of Chicago issued $102 million, in
aggregate principal amount, of gas supply revenue bonds ($75 million 5 3/4%
Series A and $27 million adjustable-rate Series B), which were collateralized by
an equal amount of the Company's 30-year first mortgage bonds. The proceeds
were lent to the Company for the purpose of financing the construction of
certain facilities within the City. The proceeds are being held in a trust fund
until drawn down by the Company for reimbursement of construction expenditures.
In accordance with provisions of the Internal Revenue Code and regulations
thereunder, any arbitrage income must be paid to the federal government.
Additionally, all assets financed through this arrangement must be depreciated
on a straight-line basis for tax purposes.
8. INTEREST-RATE ADJUSTMENTS
The rate of interest on the City of Joliet 1984 Series C Bonds, which are
secured by the Company's Adjustable-Rate Bonds, Series W, is subject to
adjustment annually on October 1. Owners of the Series C Bonds have the right
to tender such bonds at par during a limited period prior to that date. The
Company is obligated to purchase any such bonds tendered if they cannot be
remarketed. All Series C Bonds that were tendered prior to October 1, 1993,
have been remarketed. The interest rate on such bonds is 3 percent for the
period October 1, 1993, through September 30, 1994.
The rate of interest on the City of Chicago 1993 Series B Bonds, which are
secured by the Company's Adjustable-Rate Bonds, Series EE, currently 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.
The Company is obligated to purchase any such bonds tendered if they cannot be
remarketed. The interest rate on such bonds is 2.55 percent for the period
December 1, 1993, through November 30, 1994.
-16-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
9. RETIREMENT AND OTHER POSTEMPLOYMENT BENEFITS
In December 1990, the Financial Accounting Standards Board (FASB) issued
SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions." The Company adopted SFAS No. 106 effective October 1, 1993. SFAS
No. 106 requires the accrual of the expected costs of such benefits during the
employees' years of service. The Accumulated Postretirement Benefit Obligation
as of October 1, 1993, was approximately $101.9 million. The unfunded
obligation will be amortized over 20 years. The cost for fiscal 1994 is
approximately $14.6 million.
In October 1992, the Company was granted rates by the Commission that
included its estimated postretirement benefit costs determined on the accrual
basis of accounting. (See Note 3(a).) The financial reporting for
postretirement benefit costs is consistent with the related rate treatment. Due
to regulatory treatment, the adoption of SFAS No. 106 will not have a material
effect on financial position or results of operations.
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This statement requires the accrual of certain
benefits provided to former or inactive employees after employment but before
retirement. Adoption of SFAS No. 112 is required by the Company no later than
fiscal 1995. The Company does not expect the adoption of SFAS No. 112 to have a
material effect on financial position or results of operations.
-17-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET INCOME
Net income applicable to common stock decreased $2.7 million, to
$2.0 million, for the three-month period ended June 30, 1994, from the results
of last year's third quarter. The current quarter was adversely affected by
lower gas deliveries resulting from weather that was 13 percent warmer than the
prior year's similar quarter and, to a lesser extent, from customer conservation
measures.
Net income applicable to common stock for the nine-and 12-month periods
rose $2.1 million, to $77.9 million and $3.0 million, to $65.7 million,
respectively, from the results of last year's like periods. Results for the
current nine-and 12-month periods include the recording of one-half of the IRS
settlement, in income, increasing net income by $9.7 million. (See Note 6 of
the Notes to Consolidated Financial Statements.) In addition to the IRS
settlement, the current nine-and 12-month periods benefited from weather that
was 2 percent colder than the respective year-ago periods, while the current
12-month period also was aided by the Company's rate increase that went into
effect on October 10, 1992. (See Note 3(a) of the Notes to Consolidated
Financial Statements.) However, the current nine-and 12-month results were
partially offset by higher operating expenses, including increases in labor
costs, depreciation expense, and the provision for uncollectible accounts.
Customer conservation measures and an increase in the federal income tax rate
also negatively impacted both current periods.
A summary of variations affecting income between periods is presented
below, with explanations of significant differences following:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended 12 Months Ended
June 30, June 30, June 30,
1994 Over 1993 1994 Over 1993 1994 Over 1993
-------------------- -------------------- -------------------
(Thousands of dollars) Amount % Amount % Amount %
- - -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Net operating revenues* $(4,620) (5.4) $(1,192) (0.3) $8,283 2.0
Operation and
maintenance expenses (1,854) (3.4) 5,719 3.5 11,006 5.1
Depreciation expense 1,261 9.2 2,705 6.7 3,995 7.5
Income taxes (807) (96.1) (1,958) (4.5) 194 0.6
Other income 591 35.8 11,147 301.6 10,654 214.5
Income deductions 750 7.9 2,260 7.8 1,749 4.5
Net Income Applicable
to Common Stock (2,729) (58.0) 2,091 2.8 2,983 4.8
</TABLE>
- - --------------------------------------------------------------------------------
( ) Denotes red figure.
* Operating revenues, net of gas costs and revenue taxes.
-18-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
RESULTS OF OPERATIONS (Continued)
NET OPERATING REVENUES
Gross revenues of the Company have been affected in recent years by
customers who purchase gas directly from producers and marketers, rather than
from the Company, and also by changes in the unit cost of the Company's gas
purchases. These direct customer purchases have no effect on net income because
the Company 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 the Company's
tariffs provide for dollar-for-dollar recovery of gas costs. (See Note 2(d) of
Notes to Consolidated Financial Statements.) The Company's tariffs also provide
for dollar-for-dollar recovery of the cost of revenue taxes imposed by the State
and the City.
Since income is not significantly affected by changes in revenue from
customers' direct gas purchases rather than from the Company, changes in gas
costs, or changes in revenue taxes, the discussion below pertains to "net
operating revenues" (operating revenues, net of gas costs and revenue taxes).
The Company considers net operating revenues to be a more pertinent measure of
operating results than gross revenues.
Net operating revenues decreased $4.6 million, to $81.2 million and
$1.2 million, to $362.7 million, for the current three-and nine-month periods,
respectively. The three-month period included weather that was 13 percent
warmer than the similar year-ago quarter ; the nine-month period included
weather that was 2 percent colder than the like year-ago period. Both current
periods were adversely affected by customer conservation measures.
Net operating revenues increased $8.3 million, to $423.9 million, for the
current 12-month period, due principally to the impact of the October 1992 rate
increase for the Company (increasing net operating revenues by $9.8 million, or
$6.0 million after income taxes). The 12-month period also was affected by a
rise in customer conservation measures, partially offset by weather that was
2 percent colder than the prior 12-month period.
OPERATION AND MAINTENANCE
Operation and maintenance expenses decreased $1.9 million, to
$52.0 million, for the current three-month period, due mainly to lower employee
benefits expenses for group insurance and pensions.
Operation and maintenance expenses increased $5.7 million, to
$170.4 million and $11.0 million, to $226.9 million, for the current nine-and
12-month periods, respectively, due primarily to increases in labor costs
associated with this year's extreme winter conditions and the provision for
uncollectible accounts.
-19-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
RESULTS OF OPERATIONS (Continued)
DEPRECIATION EXPENSE
Depreciation expense increased $1.3 million, to $14.9 million,
$2.7 million, to $43.0 million, and $4.0 million, to $57.3 million, for the
current three-, nine-, and 12-month periods, respectively, due primarily to
depreciable property additions.
INCOME TAXES
Income taxes decreased $807,000, to $33,000, in the current three-month
period, due principally to lower pre-tax income, offset in part, by decreased
adjustments to deferred taxes.
Income taxes, exclusive of the $2.9 million included in other income
related to the IRS settlement, (see Note 6 of the Notes to Consolidated
Financial Statements), decreased $2.0 million, to $41.3 million, for the current
nine-month period, due mainly to lower pre-tax income, offset in part, by the
federal income tax rate change from 34 percent to 35 percent effective
January 1, 1993, and decreased adjustments to deferred taxes.
Income taxes, exclusive of the $2.9 million included in other income
related to the IRS settlement, increased $194,000, to $31.0 million, for the
current 12-month period, due primarily to the aforementioned federal income tax
rate change and decreased adjustments to deferred taxes, partially offset by
lower pre-tax income.
OTHER INCOME
Other income increased $591,000, to $2.2 million, for the current
three-month period, due mainly to increased interest income resulting from
larger cash balances available for investment and from the proceeds being held
in a trust fund generated from the Company's December 1993 issuance of bonds.
(See Note 7 of the Notes to Consolidated Financial Statements.)
Other income increased $11.1 million, to $14.8 million and $10.7 million,
to $15.6 million, for the respective current nine-and 12-month periods, due
primarily to recording the IRS settlement of approximately $9.7 million after
income taxes. (See Note 6 of the Notes to Consolidated Financial Statements.)
In addition, both the nine-and 12-month periods include $1.1 million of interest
income resulting from the aforementioned trust fund.
-20-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
RESULTS OF OPERATIONS (Continued)
INCOME DEDUCTIONS
Income deductions increased $750,000, to $10.3 million, $2.3 million, to
$31.2 million, and $1.7 million, to $40.3 million, for the current three-,
nine-, and 12-month periods, respectively, due chiefly to increased interest on
long-term debt reflecting additional debt issued.
OTHER MATTERS
Weather variations affect the volumes of gas delivered for heating
purposes and, therefore, can have a significant positive or negative impact on
net income.
On September 30, 1993, the Company received notification from the IRS that
settlement of past income tax returns had been reached for fiscal years 1978
through 1990. The IRS settlement resulted in a March 1994 payment of principal
and interest to the Company in total amount of approximately $25 million, or
$19 million after income taxes. (See Note 6 of the Notes to Consolidated
Financial Statements.)
In March 1993, the Company adopted, effective October 1, 1992, the
liability method of accounting for deferred income taxes required by SFAS
No. 109. (See Note 2(c) of the Notes to Consolidated Financial Statements.)
In November 1992, the FASB issued SFAS No. 112, "Employers' Accounting for
Postemployment Benefits." This statement requires the accrual of certain
benefits provided to former or inactive employees after employment but before
retirement. SFAS No. 112 requires adoption by the Company no later than fiscal
1995. (See Note 9 of the Notes to Consolidated Financial Statements.)
Effective October 1, 1993, the Company adopted SFAS No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions." This statement
requires the accrual of the expected costs of such benefits during the
employees' years of service. (See Note 9 of the Notes to Consolidated Financial
Statements.)
-21-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
RESULTS OF OPERATIONS (Continued)
OTHER MATTERS (Continued)
In 1992, the FERC issued Order No. 636 and successor orders that require
substantial restructuring of the service obligations of interstate pipelines.
(See Notes 2(d), 3(a), and 3(b) of the Notes to Consolidated Financial
Statements.)
On September 15, 1993, the Commission entered an order initiating an
investigation into the appropriate means of recovery by Illinois gas utilities
of pipeline charges for FERC Order No. 636 transition costs. The Commission
issued a final order in this proceeding on March 9, 1994. (See Notes 2(d),
3(a), and 3(b) of the Notes to Consolidated Financial Statements.)
On May 1, 1994, a Chicago city ordinance imposing a use tax on natural gas
became effective. Under the ordinance, the use or consumption of natural gas in
Chicago is taxed at a rate of 1.5 cents per therm. The use tax does not apply
to gas used or consumed by a governmental body, a purchaser exempt from the
municipal utility tax, a gas public utility, or a person using natural gas as
vehicle fuel. To prevent multiple taxation, the use tax also does not apply to
the use of gas by persons who are charged for a state or municipal tax with
respect to the purchase of such gas. Because the Company is subject to such
state and municipal taxes and recovers the cost of such taxes from its
customers, the use tax does not apply to the use of gas which is purchased from
the Company. Rather, the tax is directed at users who are transportation
customers of the Company; these users have been avoiding local taxation on
purchases of gas by purchasing gas from out-of-state sellers. The Company is
collecting the tax for the City and is paid a fee of three percent of the taxes
collected. The Company will not be liable for failure of users to pay the use
tax.
On June 10, five customers of the Company filed a complaint in the Cook
County Circuit Court asserting that the use tax is invalid on constitutional
grounds and naming the City of Chicago, the Chicago Director of Revenue, and the
Company as defendants. Under the collection agreement between the Company and
the City, if the use tax were found invalid, the Company would not be
responsible for making any refunds to customers and would not be required to
refund any fees to the City.
The Company is undertaking a major project to reengineer its operations
with the goal of increasing efficiency, responsiveness to customer needs and
cost effectiveness. The project is expected to commence in September, 1994
and to continue for at least two years.
-22-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
LIQUIDITY AND CAPITAL RESOURCES
INTEREST COVERAGE. The Company's fixed charges coverage ratios for the 12
months ended June 30, 1994, and for fiscal 1993 and 1992 were 3.49, 3.57, and
3.18, respectively. The current 12-month period ratio reflects the recording of
the Company's fiscal 1994 portion of the IRS settlement in income. (See Note 6
of the Notes to Consolidated Financial Statements.) In addition, the increase
in the current 12-month period and fiscal 1993 ratios as compared to fiscal 1992
is primarily attributable to the benefit of the rate increase approved in
October 1992 and decreased fixed charges, partially offset by increased
operating expenses.
ENVIRONMENTAL MATTERS. The Company is conducting environmental investigations
and work at certain sites that were the location of former manufactured gas
operations. (See Note 4 of the Notes to Consolidated Financial Statements.)
REGULATORY ACTIONS. On September 30, 1992, the Commission issued an order in
its consolidated proceedings, initiated in March 1991, regarding the appropriate
ratemaking treatment of environmental costs incurred by Illinois utilities,
including the Company. In its order, the Commission approved rate recovery of
environmental costs but required that such recovery occur over a five-year
period without recovery of carrying charges on unrecovered balances. (See Note
3(a) of the Notes to Consolidated Financial Statements.)
OVER-PRESSURE CONDITION. On January 17, 1992, an over-pressure condition
occurred in the gas mains of the Company serving an approximately
one-square-mile area of the Near Northwest Side of the City of Chicago. The
over-pressure condition caused a major explosion and numerous fires. Four
deaths, 14 personal injuries, and extensive property damage allegedly resulted
from the explosion and fires. (See Note 5 of the Notes to Consolidated
Financial Statements.)
BONDS ISSUED. On December 22, 1993, the City of Chicago issued $102 million, in
aggregate principal amount, of gas supply revenue bonds, which were
collateralized by an equal amount of the Company's 30-year first mortgage bonds.
The proceeds were lent to the Company for the purpose of financing the
construction of certain facilities within the City. (See Note 7 of the Notes to
Consolidated Financial Statements.)
CREDIT LINES. On February 1, 1994, the Company reduced its lines of credit to
approximately $154 million from $184 million in effect since November 1, 1993.
Such lines of credit cover projected short-term credit needs of the Company and
North Shore Gas and support the long-term debt treatment of the Company's
adjustable-rate mortgage bonds. (See Note 8 of the Notes to Consolidated
Financial Statements.) North Shore Gas was authorized to borrow up to
$20 million of the aggregate $154 million. On July 1, 1994, the Company reduced
its lines of credit to approximately $131 million of which North Shore Gas may
borrow up to $30 million. (See Note 8 of the Notes to Consolidated Financial
Statements.)
-23-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART I. FINANCIAL INFORMATION (CONTINUED)
JUNE 30, 1994
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION (Continued)
LIQUIDITY AND CAPITAL RESOURCES (Continued)
OTHER MATTERS. In February 1994, MidCon Corp. (MidCon) paid Peoples Energy
approximately $7.3 million. The payment relates to unitary tax issues and the
reorganization of Peoples Energy that occurred in November 1981. Prior to the
reorganization, MidCon and its subsidiaries were subsidiaries of Peoples Energy.
Peoples Energy and MidCon agreed to allocate state income tax liabilities for
certain years ending prior to October 1, 1982. The $7.3 million payment, $7.1
million of which relates to the state income tax liabilities of the Company, was
made pursuant to such agreement. Payment was delayed until MidCon was assured
of appropriate federal income tax treatment.
-24-
<PAGE>
THE PEOPLES GAS LIGHT AND COKE COMPANY
PART II. OTHER INFORMATION
JUNE 30, 1994
ITEM 1. LEGAL PROCEEDINGS
See Note 4 of the Notes to Consolidated Financial Statements for a
discussion pertaining to environmental matters.
See Note 5 of the Notes to Consolidated Financial Statements for a
discussion of an over-pressure condition that occurred on January 17, 1992, in
the Company's gas mains on the Near Northwest Side of the City of Chicago.
See Management's Discussion and Analysis of Results of Operations and
Financial Condition, Results of Operations -Other Matters for a discussion
pertaining to the Chicago Gas Use Tax.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a. Exhibits
None
b. Reports on Form 8-K filed during the quarter ended June 30, 1994
None
-25-
<PAGE>
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.
The Peoples Gas Light and Coke Company
--------------------------------------
(Registrant)
August 12, 1994 By: /s/ K. S. BALASKOVITS
- - -------------------- ----------------------------
(Date) K. S. Balaskovits
Vice President and Controller
(Same as above)
----------------------------
Principal Accounting Officer
-26-
