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, 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 July 31, 1996.
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
The Peoples Gas Light and Coke Company
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
<CAPTION>
Three Nine Twelve
Months Ended Months Ended Months Ended
June 30, June 30, June 30,
------------- ------------- --------------
1996 1995 1996 1995 1996 1995
----- ----- ----- ----- ----- -----
(Thousands)
<S> <C> <C> <C> <C> <C> <C>
OPERATING REVENUES:
Gas sales $187,395 $136,909 $810,894 $690,393 $891,506 $775,591
Transportation of customer-
owned gas 25,313 23,022 99,019 92,932 115,713 108,251
Other 3,730 3,795 10,267 15,227 13,352 19,276
-------- -------- -------- -------- --------- --------
Total Operating Revenues 216,438 163,726 920,180 798,552 1,020,571 903,118
-------- -------- -------- -------- --------- --------
OPERATING EXPENSES:
Gas costs 93,886 58,260 407,386 360,990 434,072 395,290
Operation 47,275 43,474 149,136 130,683 193,154 182,093
Maintenance 10,568 10,152 30,189 28,535 40,384 37,644
Depreciation and amortization 16,134 14,308 46,953 44,121 62,002 58,911
Taxes - Income 4,910 (324) 55,564 33,930 46,190 19,111
- State & local revenue 21,508 19,015 99,368 89,786 110,144 100,227
- Other 4,960 4,963 14,793 14,590 19,572 19,311
-------- -------- -------- -------- -------- --------
Total Operating Expenses 199,241 149,848 803,389 702,635 905,518 812,587
-------- -------- -------- -------- -------- --------
OPERATING INCOME 17,197 13,878 116,791 95,917 115,053 90,531
-------- -------- -------- ------- -------- --------
OTHER INCOME
AND (DEDUCTIONS):
Interest income 795 3,222 3,325 5,793 6,201 7,594
Interest on long-term debt (7,777) (10,194) (25,111) (30,428) (35,191) (40,396)
Other interest expense (669) (1,861) (3,649) (4,581) (5,146) (4,911)
Income taxes (1,907) (1,272) (2,975) (2,473) (4,108) (3,488)
Miscellaneous - net 4,266 46 7,941 809 8,143 1,583
-------- -------- -------- -------- -------- --------
Total Other Income
and Deductions (5,292) (10,059) (20,469) (30,880) (30,101) (39,618)
------- -------- -------- -------- -------- --------
NET INCOME APPLICABLE
TO COMMON STOCK $ 11,905 $ 3,819 $ 96,322 $ 65,037 $ 84,952 $ 50,913
======== ======= ======== ======== ======== ========
<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>
June 30, June 30,
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 $1,743,502 $1,815,407 $1,801,182
Less - Accumulated depreciation 564,485 628,258 624,731
---------- ---------- ----------
Net property, plant and equipment 1,179,017 1,187,149 1,176,451
Other investments 4,181 5,027 5,718
---------- ---------- ----------
TOTAL CAPITAL INVESTMENTS - NET 1,183,198 1,192,176 1,182,169
---------- ---------- ----------
CURRENT ASSETS:
Cash 3,483 2,599 2,824
Cash equivalents 49,147 149,616 210,905
Other temporary cash investments,
at cost that approximates market value 500 600 600
Trust fund - bond redemption -- 237 50,237
Receivables -
Customers, net of allowance for
uncollectible accounts of $25,564,
$18,315, and $18,993, respectively 107,943 52,142 70,758
Other 36,291 2,665 2,625
Accrued unbilled revenues 18,374 18,451 14,025
Materials and supplies, at average cost 14,724 13,843 15,455
Gas in storage, at last-in, first-out cost 40,894 82,151 72,894
Gas costs recoverable through rate adjustments 22,460 2,132 4,904
Prepayments 4,591 1,927 2,049
---------- ---------- ---------
TOTAL CURRENT ASSETS 298,407 326,363 447,276
---------- ---------- ---------
OTHER ASSETS:
Regulatory assets 61,969 29,707 21,907
Deferred charges 11,338 13,235 14,851
---------- ---------- ---------
TOTAL OTHER ASSETS 73,307 42,942 36,758
---------- ---------- ---------
TOTAL PROPERTIES AND OTHER ASSETS $1,554,912 $1,561,481 $1,666,203
========== ========== ==========
<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>
June 30, June 30,
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 420,360 363,001 388,518
Total Common Stockholder's Equity 585,667 528,308 553,825
Long-term debt, exclusive of sinking fund
payments and maturities due within one year 462,400 549,150 549,150
---------- ---------- ----------
TOTAL CAPITALIZATION 1,048,067 1,077,458 1,102,975
---------- ---------- ----------
CURRENT LIABILITIES:
Interim loans -- 900 --
Accounts payable 101,172 87,693 80,792
Dividends payable on common stock 12,905 14,146 14,394
Customer gas service and credit deposits 16,456 35,012 26,650
Sinking fund payments and maturities,
due within one year -
Long-term debt -- -- 50,000
Accrued taxes 79,521 26,962 50,374
Gas sales revenue refundable through
rate adjustments 9,407 68,558 55,365
Accrued interest 6,488 11,025 8,852
Temporary LIFO liquidation credit 29,418 -- 37,848
---------- ---------- ----------
TOTAL CURRENT LIABILITIES 255,367 244,296 324,275
---------- ---------- ----------
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily
accelerated depreciation 193,869 189,850 188,448
Investment tax credits being amortized
over the average lives of related property 32,072 34,228 34,623
Other 25,537 15,649 15,882
---------- --------- ----------
TOTAL DEFERRED CREDITS AND
OTHER LIABILITIES 251,478 239,727 238,953
---------- --------- ----------
TOTAL CAPITALIZATION AND LIABILITIES $1,554,912 $1,561,481 $1,666,203
========== ========== ==========
<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>
Nine Months Ended
June 30,
-----------------
1996 1995
---- ----
(Thousands)
<S> <C> <C>
OPERATING ACTIVITIES:
Net Income $ 96,322 $ 65,037
Adjustments to reconcile net income to net cash:
Depreciation and amortization 46,953 44,121
Deferred income taxes and investment tax credits - net 2,043 8,880
Change in other deferred credits and other liabilities 9,708 (10,664)
Change in other assets (30,365) 3,857
Other 55 33
Change in current assets and liabilities:
Receivables - net (89,427) (1,220)
Accrued unbilled revenues 77 3,536
Materials and supplies (881) 6,109
Gas in storage 41,257 50,690
Gas costs recoverable (20,328) 7,120
Accounts payable 13,479 (14,235)
Customer gas service and credit deposits (18,556) (12,893)
Accrued taxes 52,559 23,683
Gas sales revenue refundable (59,151) 14,198
Accrued interest (4,537) (1,352)
Temporary LIFO liquidation credit 29,418 37,848
Other (2,664) (401)
-------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES 65,962 224,347
-------- --------
INVESTING ACTIVITIES:
Capital expenditures - construction (47,183) (56,052)
Other assets 8,362 (1,324)
Other investments 891 484
-------- --------
NET CASH USED IN INVESTING ACTIVITIES (37,930) (56,892)
-------- --------
FINANCING ACTIVITIES:
Issuance of long-term debt -- 50,000
Retirement of long-term debt (86,750) --
Interim loans - net (900) (900)
Trust fund - utility construction -- 31,493
- bond redemption 237 (50,237)
Dividends paid on common stock (40,204) (42,190)
-------- --------
NET CASH USED IN FINANCING ACTIVITIES (127,617) (11,834)
-------- --------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (99,585) 155,621
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 152,215 58,108
-------- --------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 52,630 $213,729
======== ========
<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 nine months
ended June 30, 1996 1995
------------------------------------------------
(Thousands)
<S> <C> <C>
Income taxes paid $22,051 $10,435
Interest paid 30,590 33,147
</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
provided for the full recovery of transition costs from the
Company's gas service customers and transportation customers to the
extent they contracted 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 placed 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 June 30,
1996, the Company has made payments of $63.9 million and has
accrued an additional $17.8 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, its predecessors, and certain former affiliates
operated facilities in the past at 31 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. Two of the Manufactured Gas Sites are
discussed in more detail below. The Company, under the supervision
of the Illinois Environmental Protection Agency (IEPA), is
conducting investigations of other Manufactured Gas sites. These
investigations may require the Company to perform additional
investigation and remediation. The investigations are in a
preliminary stage and are expected to occur over an extended period
of time.
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.
In May 1996, the current owner of a site in Chicago, formerly
called Pitney Court Station, filed suit against the Company in
federal district court under CERCLA. The suit seeks recovery of
the past and future costs of investigating and remediating the site
and an order directing the Company to remediate the site. The
Company is currently evaluating this suit.
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 June 30, 1996, the total
of the costs deferred by the Company, net of recoveries and amounts
billed to other entities, was $10.2 million. This amount includes
an estimate of the costs of the investigations being conducted
under the supervision of the IEPA 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 at this time. 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 1937 and 1986 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 June 30, 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 June 30, 1996, it had recovered $2.3 million of
such costs through rates.
5. 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 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 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.
6. 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.
7. 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 income taxes, of approximately $2.4 million in the third
quarter of fiscal 1996 and $5.4 million in both the nine and twelve
months ended June 30, 1996.
8. 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 and
Refunding 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 $8.1 million, to
$11.9 million, for the three months ended June 30, 1996, from the
results of last year's like quarter, due mainly to a rate increase
that went into effect for the Company on November 14, 1995. (See
Note 3A of the Notes to Consolidated Financial Statements.) In
addition, net income benefited from weather that was 26 per cent
colder than last year's period. Also, the current quarter was
aided by a gain associated with the expiration of certain natural
gas storage contracts. (See Note 7 of the Notes to Consolidated
Financial Statements.) These increases were partly offset by the
effect of last year's federal income tax settlement. (See Note 5
of the Notes to Consolidated Financial Statements).
Net income applicable to common stock increased $31.3 million,
to $96.3 million, and $34 million, to $85 million, for the current
nine- 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 21 per cent and 22 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 the prior
periods' recognition of the federal income tax settlement and the
gain 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 Nine Months Ended 12 Months Ended
June 30, 1996 June 30,1996 June 30, 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) $14,593 16.9 $65,650 18.9 $68,754 16.9
Operation and
maintenance expenses 4,217 7.9 20,107 12.6 13,801 6.3
Depreciation and
amortization expense 1,826 12.8 2,832 6.4 3,091 5.2
Income taxes 5,234 1,615.4 21,634 63.8 27,079 141.7
Other income and deductions (4,767) (47.4) (10,411) (33.7) (9,517) (24.0)
Net Income Applicable
to Common Stock 8,086 211.7 31,285 48.1 34,039 66.9
<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 $14.6 million, to $101 million,
$65.7 million, to $413.4 million, and $68.8 million, to $476.4
million, for the current three-, nine-, 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 $7.5 million,
or $4.5 million after income taxes. The rate increase benefited
net operating revenues in both the current nine- and 12-month
periods by about $23.3 million, and net income by $14.1 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 $4.2 million, to
$57.8 million, for the current three-month period, due mainly to
the prior year's recognition of $2.1 million for an IRS settlement.
(See Note 5 of the Notes to Consolidated Financial Statements.) In
addition, the current period was affected by increases in the
provision for uncollectible accounts, due primarily to increased
revenues, the provision for injuries and damages, and reengineering
costs. These increases were partially offset by decreased group
insurance and pension expenses, reflecting a change in assumptions.
Operation and maintenance expenses increased $20.1 million, to
$179.3 million, and $13.8 million, to $233.5 million, in the
current nine- and 12-month periods, due principally to the prior
periods' recognition of an IRS settlement of $11.6 million and
$10.5 million, respectively. Also, both prior periods included the
benefit of $3.3 million from the sale of certain oil and gas
rights. In addition, increases between periods resulted from
reengineering costs and environmental costs recovered through
rates. The current nine-month period also includes an increase in
the provision for uncollectible accounts, due primarily to
increased revenues; whereas the provision for uncollectible
accounts decreased in the 12-month period, reflecting a prior
period adjustment. The above mentioned increases were offset, in
part, by decreased pension and group insurance expenses.
Depreciation and Amortization Expense
Depreciation and amortization expense increased $1.8 million, to
$16.1 million, $2.8 million, to $47 million, and $3.1 million to
$62 million, for the current three-, nine-, and 12-month periods,
respectively, due primarily to depreciable property additions and
the amortization of costs associated with the closing of the SNG
Plant (see Note 6 of the Notes to Consolidated Financial
Statements).
Income Taxes
Income taxes, exclusive of income taxes included in other income
and deductions, increased $5.2 million, to $4.9 million, $21.6
million, to $55.6 million, and $27.1 million, to $46.2 million, for
the current three-, nine-, and 12-month periods, due principally to
higher pre-tax income.
Other Income and Deductions
Other income and deductions decreased $4.8 million, $10.4
million, and $9.5 million, for the current three-, nine-, and
12-month periods, respectively, due primarily to the gain of $2.4
million in the three-month period and $5.4 million in the nine- and
12-month periods, after income taxes, associated with the
expiration of certain natural gas storage contracts. (See Note 7
of the Notes to Consolidated Financial Statements.) In addition,
all three periods benefited from decreased interest on long-term
debt reflecting a reduction in debt outstanding, partially offset
by decreased 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 certain 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 Nine Months Ended Twelve Months Ended
June 30, June 30, June 30,
-------------------- ------------------ --------------------
1996 1995 1996 1995 1996 1995
------ ----- ----- ----- ----- ------
<S> <C> <C> <C> <C> <C> <C>
Operating Revenues (thousands):
Gas sales
Residential $157,641 $116,146 $675,148 $578,913 $744,997 $651,604
Commercial 23,369 17,091 109,930 92,275 119,090 102,562
Industrial 6,385 3,672 25,816 19,205 27,419 21,425
-------- -------- -------- -------- -------- --------
187,395 136,909 810,894 690,393 891,506 775,591
-------- -------- -------- -------- -------- --------
Transportation
Residential 7,054 7,599 30,894 31,884 35,627 36,520
Commercial 8,702 8,726 39,683 37,524 45,618 43,224
Industrial 7,709 6,697 26,594 23,524 32,620 28,507
Contract Pooling 1,848 -- 1,848 -- 1,848 --
-------- -------- -------- -------- -------- --------
25,313 23,022 99,019 92,932 115,713 108,251
-------- -------- -------- -------- -------- --------
Other 3,730 3,795 10,267 15,227 13,352 19,276
-------- -------- -------- -------- -------- --------
Total Operating Revenues 216,438 163,726 920,180 798,552 1,020,571 903,118
Less - Gas Costs 93,886 58,260 407,386 360,990 434,072 395,290
- Revenues Taxes 21,508 19,015 99,368 89,786 110,144 100,227
-------- -------- -------- -------- --------- --------
Net Operating Revenues $101,044 $86,451 $413,426 $347,776 $476,355 $407,601
======== ======== ======== ======== ========= ========
Deliveries (MDth):
Gas Sales
Residential 21,301 19,511 122,984 102,731 131,763 110,454
Commercial 3,627 3,378 21,813 17,552 23,467 19,075
Industrial 1,115 851 5,484 3,992 5,848 4,423
-------- -------- -------- -------- --------- --------
26,043 23,740 150,281 124,275 161,078 133,952
-------- -------- -------- -------- --------- --------
Transportation (a)
Residential 4,734 4,558 22,908 22,000 25,140 24,088
Commercial 6,969 6,742 33,348 31,514 37,965 36,007
Industrial 9,269 7,340 31,593 25,968 39,146 31,716
-------- -------- -------- -------- --------- --------
20,972 18,640 87,849 79,482 102,251 91,811
-------- -------- -------- -------- --------- --------
Total Gas Sales
and Transportation 47,015 42,380 238,130 203,757 263,329 225,763
======== ======== ======== ======== ========= ========
Margin per Mcf
delivered $2.15 $2.04 $1.74 $1.71 $1.81 $1.81
<FN>
(a) Volumes associated with contract pooling service are included
in the respective customer classes.
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Regulatory Actions. On November 8, 1995, the Commission issued an
order approving changes in rates of the Company. (See Note 3A of
the Notes to Consolidated Financial Statements.)
In September 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 this program. As modified by the Company
during the proceeding, the PBR Program would be for a pilot period
covering October 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. Hearings on
the PBR Program proposal have been concluded. On June 5, 1996, the
Hearing Examiner issued his proposed order recommending that the
petition be denied. The Hearing Examiner's recommendation is not
binding on the Commission. The Company and the Commission Staff
have filed briefs opposing that recommendation and have presented
oral argument before the Commission, which is expected to enter an
order prior to the close 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 and Refunding 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 8 of the Notes to Consolidated
Financial Statements.)
Credit Lines. The Company has lines of credit of approximately
$129.4 million of which North Shore Gas may borrow up to $30
million. Agreements covering $92 million of the total will expire
on June 25, 1997. 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 June 30, 1996, and for fiscal 1995
and 1994 were 4.35, 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.
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 June
30, 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)
August 7, 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> 9-MOS
<FISCAL-YEAR-END> SEP-30-1996
<PERIOD-START> OCT-01-1995
<PERIOD-END> JUN-30-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 1,179,017
<OTHER-PROPERTY-AND-INVEST> 4,181
<TOTAL-CURRENT-ASSETS> 298,407
<TOTAL-DEFERRED-CHARGES> 11,338
<OTHER-ASSETS> 61,969
<TOTAL-ASSETS> 1,554,912
<COMMON> 165,307
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 420,360
<TOTAL-COMMON-STOCKHOLDERS-EQ> 585,667
0
0
<LONG-TERM-DEBT-NET> 462,400
<SHORT-TERM-NOTES> 0
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 0
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 506,845
<TOT-CAPITALIZATION-AND-LIAB> 1,554,912
<GROSS-OPERATING-REVENUE> 920,180
<INCOME-TAX-EXPENSE> 55,564
<OTHER-OPERATING-EXPENSES> 747,825
<TOTAL-OPERATING-EXPENSES> 803,389
<OPERATING-INCOME-LOSS> 116,791
<OTHER-INCOME-NET> 8,291
<INCOME-BEFORE-INTEREST-EXPEN> 125,082
<TOTAL-INTEREST-EXPENSE> 28,760
<NET-INCOME> 96,322
0
<EARNINGS-AVAILABLE-FOR-COMM> 96,322
<COMMON-STOCK-DIVIDENDS> 40,204
<TOTAL-INTEREST-ON-BONDS> 24,702
<CASH-FLOW-OPERATIONS> 65,962
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
