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 March 31, 1996
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.)
24th Floor, 130 East Randolph Drive, Chicago, Illinois 60601-6207
(Address of principal executive offices) (Zip Code)
(312) 240-4000
(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 April 30, 1996.
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Peoples Gas Light and Coke Company
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Six Twelve
Months Ended Months Ended Months Ended
------------------- ------------------- ------------------
March 31, March 31, March 31,
1996 1995 1996 1995 1996 1995
-------- -------- -------- -------- -------- --------
(Thousands)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Gas sales $387,178 $323,673 $623,499 $553,484 $841,019 $795,432
Transportation of customer-
owned gas 38,554 40,729 73,707 69,910 113,423 104,610
Other 3,383 3,746 6,537 11,433 13,417 20,514
-------- -------- -------- -------- -------- --------
Total Operating Revenues 429,115 368,148 703,743 634,827 967,859 920,556
-------- -------- -------- -------- -------- --------
OPERATING EXPENSES:
Gas costs 204,801 179,067 313,500 302,729 398,445 416,374
Operation 54,855 44,281 101,862 87,210 189,353 181,608
Maintenance 10,330 9,676 19,621 18,383 39,968 36,550
Depreciation and amortization 15,954 15,027 30,819 29,813 60,176 59,502
Taxes - Income 30,597 22,805 50,654 34,255 40,957 18,674
- State & local revenue 47,076 42,137 77,860 70,771 107,652 101,785
- Other 5,252 5,139 9,833 9,627 19,575 18,596
-------- -------- -------- -------- -------- --------
Total Operating Expenses 368,865 318,132 604,149 552,788 856,126 833,089
-------- -------- -------- -------- -------- --------
OPERATING INCOME 60,250 50,016 99,594 82,039 111,733 87,467
-------- -------- -------- -------- -------- --------
OTHER INCOME
AND (DEDUCTIONS):
Interest income 238 1,606 2,529 2,571 8,628 6,176
Interest on long-term debt (7,777) (10,182) (17,334) (20,234) (37,608) (40,170)
Other interest expense (1,332) (1,632) (2,980) (2,720) (6,338) (3,331)
Income taxes (3,385) (672) (1,068) (1,201) (3,473) (3,010)
Miscellaneous - net 4,918 333 3,676 763 3,923 1,941
-------- -------- -------- -------- -------- --------
Total Other Income
and Deductions (7,338) (10,547) (15,177) (20,821) (34,868) (38,394)
-------- -------- -------- -------- -------- --------
NET INCOME APPLICABLE
TO COMMON STOCK $ 52,912 $ 39,469 $ 84,417 $ 61,218 $ 76,865 $ 49,073
======== ======== ======== ======== ======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of these
statements.
</TABLE>
<TABLE>
The Peoples Gas Light and Coke Company
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, March 31,
1996 September 30, 1995
(Unaudited) 1995 (Unaudited)
---------- ---------- ----------
(Thousands)
<S> <C> <C> <C>
PROPERTIES AND OTHER ASSETS
- ---------------------------
CAPITAL INVESTMENTS:
Property, plant and equipment,
at original cost $1,732,525 $1,815,407 $1,784,962
Less - Accumulated depreciation 554,593 628,258 615,234
---------- ---------- ----------
Net property, plant and equipment 1,177,932 1,187,149 1,169,728
Other investments 4,632 5,027 5,865
---------- ---------- ----------
TOTAL CAPITAL INVESTMENTS - NET 1,182,564 1,192,176 1,175,593
---------- ---------- ----------
CURRENT ASSETS:
Cash 5,358 2,599 34,197
Cash equivalents 50,937 149,616 151,795
Other temporary cash investments,
at cost that approximates market value 500 600 600
Trust fund - bond redemption -- 237 --
Receivables -
Customers, net of allowance for
uncollectible accounts of $22,431,
$18,315, and $20,173, respectively 168,283 52,142 131,018
Other 46,803 2,665 4,632
Accrued unbilled revenues 58,666 18,451 38,879
Materials and supplies, at average cost 15,171 13,843 22,524
Gas in storage, at last-in, first-out cost 33,578 82,151 59,971
Gas costs recoverable through rate adjustments 48,832 2,132 7,986
Prepayments 2,747 1,927 2,847
---------- ---------- ----------
TOTAL CURRENT ASSETS 430,875 326,363 454,449
---------- ---------- ----------
OTHER ASSETS:
Regulatory assets 51,674 29,707 28,907
Deferred charges 11,432 13,235 14,278
---------- ---------- ----------
TOTAL OTHER ASSETS 63,106 42,942 43,185
---------- ---------- ----------
TOTAL PROPERTIES AND OTHER ASSETS $1,676,545 $1,561,481 $1,673,227
========== ========== ==========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
<TABLE>
The Peoples Gas Light and Coke Company
CONSOLIDATED BALANCE SHEETS
<CAPTION>
March 31, March 31,
1996 September 30, 1995
(Unaudited) 1995 (Unaudited)
---------- ---------- ----------
(Thousands of Dollars)
<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 421,360 363,001 399,094
---------- ---------- ----------
Total Common Stockholder's Equity 586,667 528,308 564,401
Long-term debt, exclusive of sinking fund
payments and maturities due within one year 462,400 549,150 549,150
---------- ---------- ----------
TOTAL CAPITALIZATION 1,049,067 1,077,458 1,113,551
---------- ---------- ----------
CURRENT LIABILITIES:
Interim loans 700 900 900
Accounts payable 175,269 87,693 93,052
Dividends payable on common stock 12,905 14,146 14,146
Customer gas service and credit deposits 16,750 35,012 25,394
Accrued taxes 87,510 26,962 65,754
Gas sales revenue refundable through
rate adjustments 20,770 68,558 58,669
Accrued interest 8,579 11,025 10,230
Temporary LIFO liquidation credit 55,104 -- 53,308
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 377,587 244,296 321,453
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily
accelerated depreciation 192,991 189,850 185,219
Investment tax credits being amortized
over the average lives of related property 32,423 34,228 35,024
Other 24,477 15,649 17,980
---------- ---------- ----------
TOTAL DEFERRED CREDITS AND
OTHER LIABILITIES 249,891 239,727 238,223
---------- ---------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $1,676,545 $1,561,481 $1,673,227
========== ========== ==========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
<TABLE>
The Peoples Gas Light and Coke Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
<CAPTION>
Six Months Ended
March 31,
--------------------
1996 1995
---------- --------
(Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 84,417 $ 61,218
Adjustments to reconcile net income to net cash:
Depreciation and amortization 30,819 29,813
Deferred income taxes and investment tax credits - net 1,966 6,420
Change in other deferred credits and other liabilities 8,199 (8,933)
Change in other assets (20,163) (2,570)
Other 28 33
Change in current assets and liabilities:
Receivables - net (160,279) (63,487)
Accrued unbilled revenues (40,215) (21,318)
Materials and supplies (1,329) (959)
Gas in storage 48,573 63,613
Gas costs recoverable (46,700) 4,038
Accounts payable 87,577 (1,975)
Customer gas service and credit deposits (18,263) (14,150)
Accrued taxes 60,548 39,063
Gas sales revenue refundable (47,789) 17,502
Accrued interest (2,446) 26
Temporary LIFO liquidation credit 55,104 53,308
Other (820) (1,199)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 39,227 160,443
-------- --------
INVESTING ACTIVITIES:
Capital expenditures - construction (31,762) (34,994)
Other assets 10,160 (1,351)
Other temporary cash investments 100 --
Other capital investments 367 337
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (21,135) (36,008)
-------- --------
FINANCING ACTIVITIES:
Retirement of long-term debt (86,750) --
Interim loans - net (200) --
Trust fund - utility construction -- 31,493
- bond redemption 237 --
Dividends paid on common stock (27,299) (28,044)
-------- --------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES (114,012) 3,449
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (95,920) 127,884
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 152,215 58,108
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 56,295 $185,992
======== ========
<FN>
The Notes to Consolidated Financial Statements are an integral part of
these statements.
</TABLE>
The Peoples Gas Light and Coke Company
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, 1995. Certain items previously
reported for the prior periods have been reclassified to conform
with the presentation in the current periods.
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
2A 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.
2B Regulated Operations
The Company's 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.
2C 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.
<TABLE>
Income taxes and interest paid (excluding capitalized
interest) were as follows:
<CAPTION>
For the six months
ended March 31, 1996 1995
--------------------------------------------------
(Thousands)
<S> <C> <C>
Income taxes paid $22,051 $10,435
Interest paid 20,577 20,989
</TABLE>
2D Income Taxes
The Company follows the liability method of accounting for
deferred income taxes. Under the liability method, deferred
income taxes have been recorded using currently enacted tax
rates for the differences between the tax basis of assets and
liabilities and the basis reported in the financial statements.
Due to the effects of regulation on the Company, certain
adjustments made to deferred income taxes are, in turn, debited
or credited to regulatory assets or liabilities.
2E Recovery of Gas Costs, Including Charges for Transition Costs
Pursuant to Federal Energy Regulatory Commission (FERC)
Order 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 the Gas Charge. (See Notes 3A and 3B.)
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 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 through 1996 are currently
pending before the Commission.
3. RATES AND REGULATION
3A Utility Rate Proceedings
Rate Order. On November 8, 1995, the Commission issued an order
approving changes in rates of the Company that are designed to
increase annual revenues by approximately $30.8 million, exclusive
of additional charges for revenue taxes. The Company was allowed a
rate of return on original-cost rate base of 9.19 per cent, which
reflects an 11.10 per cent cost of common equity. The new rates
were implemented on November 14, 1995. A group of industrial
transportation customers has appealed the Commission's order to the
Illinois Appellate Court. Any change made by the Appellate Court
would have a prospective effect only.
FERC Order 636 Cost Recovery. 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 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 gas service 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.
In its orders on rehearing, the Commission continued to provide for
full recovery of transition costs, but directed that, effective
November 1, 1994, gas supply realignment (GSR) costs (one of the
four categories of transition costs) be recovered on a uniform
volumetric basis from all transportation and sales customers. In
December 1994, a group of industrial transportation customers of
Illinois utilities appealed the Commission's orders on rehearing to
the Illinois Appellate Court. The Illinois Appellate Court, on
September 21, 1995, affirmed the Commission's order. A group of
industrial transportation customers of Illinois utilities filed a
petition for leave to appeal the Appellate Court's order to the
Illinois Supreme Court. If the Illinois Supreme Court accepts the
appeal, any change made by it to the Commission's order would have
a prospective effect only. (See Notes 2E and 3B.)
3B FERC Orders 636, 636-A, and 636-B
FERC Order 636 and successor orders require pipelines to make
separate rate filings to recover transition costs. There are four
categories of such costs, the largest of which for the Company is
GSR costs. The Company is subject to charges for transition cost
recovery by Natural Gas Pipeline Company of America (Natural).
Charges by Natural for transition costs commenced on January 1,
1994. On September 29, 1994, the FERC approved a Stipulation and
Agreement (Agreement) filed by Natural. The Agreement places a cap
on the amount of GSR costs recoverable by Natural from the Company.
For the Company, that cap is approximately $103 million. However,
subject to this cap, the level of costs that the Company will incur
is dependent primarily upon the future market price of natural gas
and pipeline negotiations with producers. The Company is currently
recovering transition costs through the Gas Charge. At March 31,
1996, the Company has made payments of $57.4 million and has
accrued an additional $6.1 million toward the cap.
The 636 Orders are not expected to have a material adverse
effect on financial position or results of operations of the
Company. (See Notes 2E and 3A.)
4. ENVIRONMENTAL MATTERS
The Company, their predecessors, and certain former affiliates
operated facilities in the past at sites for the purpose of
manufacturing gas and storing manufactured gas (Manufactured Gas
Sites). In connection with manufacturing and storing gas, various
by-products and waste materials were produced, some of which might
have been disposed of rather than sold. Under certain laws and
regulations relating to the protection of the environment, the
Company might be required to undertake remedial action with respect
to some of these materials. At this time, except for the 110th
Street Station Site (discussed below), it is not known what, if
any, remedial action will be necessary at the Manufactured Gas
sites or, if necessary, what the cost of any such action would be.
The Company, in cooperation with the Illinois Environmental
Protection Agency (IEPA), is conducting investigations of over 25
Manufactured Gas Sites to determine whether remedial action might
be necessary. The investigations were initiated pursuant to a
request by the IEPA. To the best of the Company's knowledge,
similar requests have been made by the IEPA to other major Illinois
gas and electric utilities.
The Company has observed what appear to be gas purification
wastes on a Manufactured Gas Site in Chicago, formerly called the
110th Street Station, and property contiguous thereto (110th Street
Station Site). The Company 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 Company is accruing and deferring the costs it incurs 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, 1996, the total
of the costs deferred by the Company, net of recoveries and amounts
billed to other entities, was $10 million. This amount includes an
estimate of the costs of the investigations initiated at the
request of the IEPA at the other sites referred to above. The
amount also includes an estimate of the costs of remediation at the
110th Street Station Site in Chicago, at the minimum amount of the
current estimated range of such costs. The costs of remediation at
the other 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 EPA or 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 environmental costs relating to 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 certain Manufactured Gas Sites in Chicago.
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 their insurance carriers. Accordingly, the
costs deferred at March 31, 1996 have not been reduced to reflect
recoveries from insurance carriers.
Costs incurred by the Company for environmental activities
relating to 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 former manufactured gas
operations will not have a material adverse effect on the financial
position or results of operations of the Company. The Company is
recovering the costs of environmental activities relating to its
former manufactured gas operations, including carrying charges on
the unrecovered balances, under rate mechanisms approved by the
Commission. At March 31, 1996, it had recovered $1.8 million of
such costs through rates.
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.
A number of lawsuits, some of which included wrongful-death
claims, were filed against the Company as a result of the
over-pressure condition. All of the lawsuits alleging
wrongful-death claims have been settled. While property damage
cases are still pending, management believes that any liability
that may arise from such cases 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 payments of principal and interest
to the Company in 1994 in total amount of approximately $25
million, or $19.4 million after income taxes. The Company has
received regulatory authorization to defer the recognition of the
settlement amount in income for fiscal year 1993, and to recognize
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 would 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 $12.7 million, or $9.7 million
after income taxes, in income in 1994. The amount after income
taxes was included in Other Income - Miscellaneous. At September
30, 1994, approximately $12.7 million was included in Deferred
Credits and Other Liabilities - Other.
As a result of the Commission's accounting authorization, the
fiscal year 1995 portion of the settlement amount for the Company
was amortized (credited) to operation expense. The effect was to
offset increases in costs that the Company would incur during the
year. In fiscal 1995, the Company amortized approximately $12.7
million, or $9.7 million after income taxes.
7. SNG PLANT CLOSING
The Company has closed its synthetic gas-making plant located
near Joliet, Illinois. The decision was effected after a
cost-benefit analysis was performed, which showed that, as of
December 1, 1995, it would not be cost-effective to use the plant
as a source of gas, given new, more economical supply arrangements
to become effective on that date. Those supply arrangements were
the result of initiatives undertaken by the Company to restructure
its gas supply portfolio in response to FERC Order 636. The rates
approved by the Commission in the Company's most recent rate case
reflect the annual effect of a five-year amortization of the
undepreciated investment in the plant and decommissioning expenses.
The plant closing did not have a material effect on financial
position or results of operations of the Company.
8. EXPIRATION OF STORAGE CONTRACTS
The Company had certain natural gas storage contracts with
Natural that expired on or before December 1, 1995. Associated with
the expiration of the contracts, the Company realized a gain, after
taxes, of approximately $3 million in the second quarter of fiscal
1996.
9. BONDS REDEEMED
On November 14, 1995, the Company notified the trustee of the
City of Joliet 1984 Gas Supply Revenue Refunding Bonds, Series A
and B, which were secured by the Company's Series U and V First
Mortgage Bonds, of its intention to redeem approximately $87
million aggregate principal amount of the bonds. The redemption,
from general corporate funds, was completed on December 29, 1995.
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 increased $13.4 million,
to $52.9 million, for the three months ended March 31, 1996, from
the results of last year's like quarter, due mainly to increased
gas deliveries largely resulting from weather that was 12 per cent
colder than last year's period. In addition, net income benefited
from a rate increase that went into effect for the Company on
November 14, 1995. (See Note 3A of the Notes to Consolidated
Financial Statements.) Also, the current quarter was aided by a
gain associated with the expiration of certain natural gas storage
contracts. (See Note 8 of the Notes to Consolidated Financial
Statements.) These increases were partly offset by higher
operating expenses and the effect of last year's federal income tax
settlement (see Note 6 of the Notes to Consolidated Financial
Statements).
Net income applicable to common stock increased $23.2 million,
to $84.4 million, and $27.8 million, to $76.9 million, for the
current six- and 12-month periods, from the results of the prior
similar periods, due principally to higher gas deliveries, mostly
the result of weather that was 20 per cent and 19 per cent colder
than the previous respective periods. Both current periods also
benefited from the aforementioned rate increase and the gain
associated with the expiration of certain natural gas storage
contracts. These increases were offset, in part, by higher
operating expenses plus the prior periods' recognition of the
federal income tax settlement and gains from the sale of certain
oil and gas rights.
<TABLE>
A summary of variations affecting income between periods is
presented below, with explanations of significant differences
following:
<CAPTION>
Three Months Ended Six Months Ended 12 Months Ended
March 31, 1996 March 31, 1996 March 31, 1996
Increase/(Decrease) Increase/(Decrease) Increase/(Decrease)
from Prior Period from Prior Period from Prior Period
----------------- ----------------- -----------------
(Thousands of dollars) Amount % Amount % Amount %
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net operating revenues (a) $ 30,294 20.6 $ 51,056 19.5 $ 59,365 14.8
Operation and
maintenance expenses 11,228 20.8 15,890 15.0 11,163 5.1
Depreciation and
amortization expense 927 6.2 1,006 3.4 674 1.1
Income taxes 7,792 34.2 16,399 47.9 22,283 119.3
Other income and deductions (3,209) (30.4) (5,644) (27.1) (3,526) (9.2)
Net Income Applicable
to Common Stock 13,443 34.1 23,199 37.9 27,792 56.6
<FN>
(a) Operating revenues, net of gas costs and revenue taxes.
</TABLE>
Net Operating Revenues
Gross revenues of the Company are affected by changes in the
unit cost of the Company's gas purchases and do not include the
cost of gas supplies for customers who purchase gas directly from
producers and marketers rather than from the Company. The 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 2E of the 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 City.
Since income is not significantly affected by changes in revenue
from customers' gas purchases from producers or marketers 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 increased $30.3 million, to $177.2
million, $51.1 million, to $312.4 million, and $59.4 million, to
$461.8 million, for the current three-, six-, and 12-month
periods, respectively, reflecting increased gas deliveries, mainly
caused by colder weather in each of the more recent periods. The
aforementioned rate increase for the Company improved net operating
revenues in the current three-month period by about $10.7 million,
or $6.4 million after income taxes. Rate increases benefited net
operating revenues in both the current six- and 12-month periods by
about $15.8 million, and net income by $9.6 million.
See Other Matters - Operating Statistics for details of selected
financial and operating information by gas service classification.
Operation and Maintenance Expenses
Operation and maintenance expenses increased $11.2 million, to
$65.2 million, and $15.9 million, to $121.5 million, for the
current three- and six-month periods, due mainly to the recognition
of an IRS settlement of $5.6 million and $9.5 million in the
respective prior periods. (See Note 6 of the Notes to Consolidated
Financial Statements.) Also the prior six-month period included
$3.3 million from the sale of certain oil and gas rights. In
addition, both current periods were affected by increases in the
provision for uncollectible accounts, due primarily to increased
revenues, the amortization of environmental costs, reengineering
expenses, and labor charges. These increases were partially offset
by decreased pension and group insurance expenses.
Operation and maintenance expenses increased $11.2 million, to
$229.3 million, in the current 12-month period, due principally to
a decreased credit of $6.3 million between periods for the timing
difference in recognizing an IRS settlement and the recognition in
the prior 12-month period of $3.3 million from the sale of certain
oil and gas rights. In addition, the current period was impacted
by increases in reengineering costs, the amortization of
environmental costs, and labor charges. These increases were
offset, in part, by decreases in the provision for uncollectible
accounts and pension and group insurance expenses.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $927,000, to $16
million, $1 million, to $30.8 million, and $674,000 to $60.2
million, for the current three-, six-, and 12-month periods, due
primarily to depreciable property additions and the amortization of
costs associated with the closing of the SNG Plant (see Note 7 of
the Notes to Consolidated Financial Statements).
Income Taxes
Income taxes, exclusive of income taxes included in other income
and deductions, increased $7.8 million, to $30.6 million, $16.4
million, to $50.7 million, and $22.3 million, to $41 million, for
the current three-, six-, and 12-month periods, due principally to
higher pre-tax income.
Other Income and Deductions
Other income and deductions decreased $3.2 million, $5.6
million, and $3.5 million, for the current three-, six-, and
12-month periods, respectively, due primarily to the gain of $3
million, after income taxes, associated with the expiration of
certain natural gas storage contracts. (See Note 8 of the Notes to
Consolidated Financial Statements.) In addition, all three periods
benefited from decreased interest on long-term debt reflecting less
debt outstanding. The current 12-month period also includes
increased other interest expense on amounts refundable to customers
largely offset by increased interest income.
Other Matters
Effect of Weather. Weather variations affect the volumes of gas
delivered for heating purposes and, therefore, can have a
significant positive or negative impact on net income and coverage
ratios.
FERC Order 636 Costs. In 1992, the FERC issued Order No. 636 and
successor orders that required substantial restructuring of the
service obligations of interstate pipelines. (See Notes 2E, 3A,
and 3B 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 Illinois Appellate Court affirmed the
Commission's order on rehearing on September 21, 1995. (See Notes
2E, 3A, and 3B of the Notes to Consolidated Financial Statements.)
Reengineering Study. The Company has undertaken a major project to
reengineer its business processes with the goal of increasing
efficiency, responsiveness to customer needs, and cost
effectiveness.
Large Volume Gas Service Agreements. The Company has entered into
gas service contracts with three large volume customers under a
specific rate schedule approved by the Commission. These contracts
were negotiated to overcome the potential threat of bypassing the
utility's distribution system. The impact on the net income of the
Company as a result of these contracts is not material.
<TABLE>
Operating Statistics. The following table represents gas
distribution margin components:
<CAPTION>
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
------------------ ---------------- -------------------
1996 1995 1996 1995 1996 1995
-------- -------- ------ ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues (thousands):
Gas sales
Residential $316,972 $267,744 $517,507 $462,767 $703,502 $667,116
Commercial 57,115 46,117 86,561 75,185 112,812 105,450
Industrial 13,091 9,812 19,431 15,532 24,705 22,866
------- ------- ------- ------- ------- -------
387,178 323,673 623,499 553,484 841,019 795,432
------- ------- ------- ------- ------- -------
Transportation
Residential 11,895 14,178 23,840 24,285 36,172 35,587
Commercial 16,502 17,094 30,981 28,798 45,642 41,950
Industrial 10,157 9,457 18,886 16,827 31,609 27,073
------- ------- ------- ------- ------- -------
38,554 40,729 73,707 69,910 113,423 104,610
------- ------- ------- ------- ------- -------
Other 3,383 3,746 6,537 11,433 13,417 20,514
------- ------- ------- ------- ------- -------
Total Operating Revenues 429,115 368,148 703,743 634,827 967,859 920,556
Less - Gas Costs 204,801 179,067 313,500 302,729 398,445 416,374
- Revenues Taxes 47,076 42,137 77,860 70,771 107,652 101,785
------- ------- ------- ------- ------- -------
Net Operating Revenues $177,238 $146,944 $312,383 $261,327 $461,762 $402,397
======= ======= ======= ======= ======= =======
Deliveries (MDth):
Gas Sales
Residential 60,923 51,752 101,683 83,220 129,973 108,133
Commercial 11,796 9,161 18,186 14,174 23,217 18,735
Industrial 2,810 2,094 4,369 3,141 5,584 4,475
------- ------- ------- ------- ------- -------
75,529 63,007 124,238 100,535 158,774 131,343
------- ------- ------- ------- ------- -------
Transportation
Residential 9,521 10,507 18,174 17,442 24,964 23,510
Commercial 14,536 15,154 26,379 24,772 37,738 35,343
Industrial 11,932 10,262 22,324 18,628 37,218 30,464
------- ------- ------- ------- ------- -------
35,989 35,923 66,877 60,842 99,920 89,317
------- ------- ------- ------- ------- -------
Total Gas Sales
and Transportation 111,518 98,930 191,115 161,377 258,694 220,660
======= ======= ======= ======= ======= =======
Margin per Dth
delivered $1.59 $1.49 $1.63 $1.62 $1.78 $1.82
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Regulatory Actions. On November 8, 1995, the Commission issued
orders approving changes in rates of the Company. (See Note 3A of
the Notes to Consolidated Financial Statements.)
On September 29, 1995, the Company filed a petition with the
Commission for approval of a performance-based rate program (PBR
Program) for gas costs. The objectives of the PBR Program are to
provide incentives to minimize gas supply and capacity costs in a
changing market and to pursue innovative gas supply-related
opportunities. Under specified conditions and up to certain
limits, the Company would share equally with gas sales customers
the savings or costs from the program. The PBR Program would be
for a pilot period covering April 1, 1996 through fiscal year 1998
and was filed pursuant to a new provision of the Illinois Public
Utilities Act which allows experiments in performance-based rates.
The Commission has commenced hearings on the PBR Program proposals,
and an order is expected during the third quarter of fiscal 1996.
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.)
Bonds Redeemed. On November 14, 1995, the Company notified the
trustee of the City of Joliet 1984 Gas Supply Revenue Refunding
Bonds, Series A and B, which were secured by the Company's Series U
and V First Mortgage Bonds, of its intention to redeem
approximately $87 million aggregate principal amount of the bonds.
The redemption, from general corporate funds, was completed on
December 29, 1995. (See Note 9 of the Notes to Consolidated
Financial Statements.)
Credit Lines. The Company has lines of credit of approximately
$131.1 million of which North Shore Gas may borrow up to $30
million. Agreements covering $93.7 million of the total will
expire on June 26, 1996. The agreement covering the remaining
$37.4 million will expire on January 31, 1998. 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.
Interest Coverage. The fixed charges coverage ratios for the
Company for the 12-months ended March 31, 1996, and for fiscal 1995
and 1994 were 3.76, 2.76, and 3.28, respectively.
PART II. OTHER INFORMATION
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.
Item 4. Submission of Matters to a Vote of Security Holders
a. On March 28, 1996, the following persons were elected
Directors of the Company by written consent and
comprise the entire Board of Directors of the
Company: Kenneth S. Balaskovits, J. Bruce Hasch,
James Hinchliff, Michael S. Reeves, and Richard E.
Terry.
b. The following matter was voted upon by written consent
in lieu of an annual meeting of shareholders:
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: Kenneth S. Balaskovits, J. Bruce
Hasch, James Hinchliff, Michael S. Reeves, and
Richard E. Terry. The Secretary of the Company
certified the following vote tabulations:
<TABLE>
<CAPTION>
FOR WITHHELD
----------- ----------
<S> <C> <C>
Kenneth S. Balaskovits 24,817,566 0
J. Bruce Hasch 24,817,566 0
James Hinchliff 24,817,566 0
Michael S. Reeves 24,817,566 0
Richard E. Terry 24,817,566 0
</TABLE>
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits
Exhibit
Number Description of Document
--------- -------------------------------
27 Financial Data Schedule
b. Reports on Form 8-K filed during the quarter ended March
31, 1996
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.
The Peoples Gas Light and Coke Company
---------------------------------------
(Registrant)
May 13, 1996 By: /s/ K. S. BALASKOVITS
- ---------------- -------------------------------
(Date) K. S. Balaskovits
Vice President and Controller
(Same as above)
-----------------------------
Principal Accounting Officer
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM CONSOLIDATED
STATEMENTS OF INCOME, CONSOLIDATED BALANCE SHEETS, AND CONSOLIDATED STATEMENTS
OF CASH FLOWS, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> MAR-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,177,932
<OTHER-PROPERTY-AND-INVEST> 4,632
<TOTAL-CURRENT-ASSETS> 430,875
<TOTAL-DEFERRED-CHARGES> 11,432
<OTHER-ASSETS> 51,674
<TOTAL-ASSETS> 1,676,545
<COMMON> 165,307
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 421,360
<TOTAL-COMMON-STOCKHOLDERS-EQ> 586,667
0
0
<LONG-TERM-DEBT-NET> 462,400
<SHORT-TERM-NOTES> 700
<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> 626,778
<TOT-CAPITALIZATION-AND-LIAB> 1,676,545
<GROSS-OPERATING-REVENUE> 703,743
<INCOME-TAX-EXPENSE> 50,654
<OTHER-OPERATING-EXPENSES> 553,495
<TOTAL-OPERATING-EXPENSES> 604,149
<OPERATING-INCOME-LOSS> 99,594
<OTHER-INCOME-NET> 5,137
<INCOME-BEFORE-INTEREST-EXPEN> 104,731
<TOTAL-INTEREST-EXPENSE> 20,314
<NET-INCOME> 84,417
0
<EARNINGS-AVAILABLE-FOR-COMM> 84,417
<COMMON-STOCK-DIVIDENDS> 27,299
<TOTAL-INTEREST-ON-BONDS> 17,050
<CASH-FLOW-OPERATIONS> 39,227
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
