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, 1998
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, 1998.
<TABLE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
<CAPTION> The Peoples Gas Light and Coke Company
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended Six Months Ended Twelve Months Ended
March 31, March 31, March 31,
1998 1997 1998 1997 1998 1997
(Thousands, except per-share amounts)
OPERATING REVENUES:
<S> <C> <C> <C> <C> <C> <C>
Gas sales $ 306,626 $ 436,984 $ 574,857 $ 734,197 $ 804,977 $ 1,013,558
Transportation 37,374 48,953 70,938 83,149 106,565 129,446
Other 4,402 3,411 9,573 8,481 17,483 15,655
Total Operating Revenues 348,402 489,348 655,368 825,827 929,025 1,158,659
OPERATING EXPENSES:
Gas costs 158,137 271,885 302,216 433,069 388,482 565,294
Operation 44,750 42,706 86,463 90,103 168,693 178,190
Maintenance 8,935 9,204 18,829 19,990 43,532 42,775
Depreciation and amortization 16,722 16,499 33,501 32,903 66,672 65,090
Taxes - Income 25,666 30,934 44,642 50,908 40,347 49,697
- State and local revenue 37,812 51,699 70,132 87,599 97,963 120,161
- Other 7,623 4,779 12,087 9,290 21,837 19,261
Total Operating Expenses 299,645 427,706 567,870 723,862 827,526 1,040,468
OPERATING INCOME 48,757 61,642 87,498 101,965 101,499 118,191
OTHER INCOME
AND (DEDUCTIONS):
Interest income 112 1,759 326 2,004 2,475 3,504
Allowance for funds used
during construction 357 35 593 62 799 85
Interest on long-term debt (7,785) (7,778) (15,562) (15,548) (31,108) (31,103)
Other interest expense (805) (651) (1,760) (1,348) (2,608) (2,531)
Income taxes 73 (725) (69) (797) (929) (3,817)
Miscellaneous - net (310) 46 (202) 100 (644) 6,444
Total Other Income
and Deductions (8,358) (7,314) (16,674) (15,527) (32,015) (27,418)
NET INCOME APPLICABLE
TO COMMON STOCK $ 40,399 $ 54,328 $ 70,824 $ 86,438 $ 69,484 $ 90,773
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
March 31, March 31,
1998 September 30, 1997
(Unaudited) 1997 (Unaudited)
(Thousands of Dollars)
PROPERTIES AND OTHER ASSETS
CAPITAL INVESTMENTS:
<S> <C> <C> <C>
Property, plant and equipment, at original cost $ 1,843,098 $ 1,819,567 $ 1,780,800
Less - Accumulated depreciation 635,695 614,224 594,404
Net property, plant and equipment 1,207,403 1,205,343 1,186,396
Other investments 5,290 5,470 5,918
Total Capital Investments - Net 1,212,693 1,210,813 1,192,314
CURRENT ASSETS:
Cash and cash equivalents 22,441 18,509 30,485
Temporary cash investments 15,500 15,500 15,500
Receivables -
Customers, net of allowance for uncollectible accounts
of $25,285, $28,959, and $32,347, respectively 128,407 67,330 208,889
Other 36,643 40,159 30,379
Accrued unbilled revenues 51,981 20,109 54,117
Materials and supplies, at average cost 15,321 13,225 12,524
Gas in storage, at last-in, first-out cost 31,318 67,536 27,341
Gas costs recoverable through rate adjustments 11,741 3,328 -
Regulatory assets 5,724 13,139 26,746
Prepayments 54,503 39,802 25,859
Total Current Assets 373,579 298,637 431,840
OTHER ASSETS:
Non-Current Regulatory assets 30,366 32,473 33,971
Deferred charges 17,412 15,704 16,460
Total Other Assets 47,778 48,177 50,431
Total Properties and Other Assets $ 1,634,050 $ 1,557,627 $ 1,674,585
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,
1998 September 30, 1997
(Unaudited) 1997 (Unaudited)
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION:
<S> <C> <C> <C>
Common Stockholder's Equity:
Common stock, without par value -
Authorized 60,000,000 shares
Outstanding - 24,817,566 shares $ 165,307 $ 165,307 $ 165,307
Retained earnings 448,223 409,662 458,262
Total Common Stockholder's Equity 613,530 574,969 623,569
Long-term debt, exclusive of sinking fund
payments and maturities due within one year 462,400 462,400 462,400
Total Capitalization 1,075,930 1,037,369 1,085,969
CURRENT LIABILITIES:
Interim loans 700 700 700
Accounts payable 105,409 113,502 124,062
Dividends payable on common stock 15,883 32,015 13,898
Customer gas service and credit deposits 24,791 39,753 15,699
Accrued taxes 67,342 19,056 89,713
Gas sales revenue refundable through rate adjustments 18 14,484 8,726
Accrued interest 8,583 8,763 8,573
Temporary LIFO liquidation credit 33,276 - 45,422
Total Current Liabilities 256,002 228,273 306,793
DEFERRED CREDITS AND OTHER LIABILITIES:
Deferred income taxes - primarily accelerated depreciation 239,241 229,225 219,254
Investment tax credits being amortized over
the average lives of related property 29,654 30,350 30,980
Other 33,223 32,410 31,589
Total Deferred Credits and Other Liabilities 302,118 291,985 281,823
Total Capitalization and Liabilities $1,634,050 $ 1,557,627 $ 1,674,585
The Notes to Consolidated Financial Statements are an integral part of these statements.
</TABLE>
The Peoples Gas Light and Coke Company
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended
March 31,
1998 1997
(Thousands of Dollars)
Operating Activities:
Net Income $ 70,824 $ 86,438
Adjustments to reconcile net income to net cash:
Depreciation and amortization 33,501 32,903
Deferred income taxes and investment tax credits - net 8,431 4,505
Change in other deferred credits and other liabilities 1,702 4,499
Change in other assets (2,408) 445
Change in current assets and liabilities:
Receivables - net (57,561) (144,071)
Accrued unbilled revenues (31,872) (28,583)
Materials and supplies (2,096) 1,493
Gas in storage 36,218 28,535
Gas costs recoverable (8,413) 17,420
Regulatory assets 7,415 7,997
Prepayments (14,701) (13,962)
Accounts payable (8,093) 2,409
Customer gas service and credit deposits (14,962) (21,422)
Accrued taxes 48,286 58,471
Gas sales revenue refundable (14,466) (2,008)
Accrued interest (180) (185)
Temporary LIFO liquidation credit 33,276 45,422
Net Cash Provided by (Used in) Operating Activities 84,901 80,306
Investing Activities:
Capital expenditures - construction (32,608) (26,260)
Other assets (147) 179
Other capital investments 180 29
Other temporary cash investments - (15,000)
Net Cash Used in Investing Activities (32,575) (41,052)
Financing Activities:
Dividends paid on common stock (48,394) (26,306)
Net Cash Provided by (Used in) Financing Activities (48,394) (26,306)
Net Increase (Decrease) in Cash and Cash Equivalents 3,932 12,948
Cash and Cash Equivalents at Beginning of Period 18,509 17,537
Cash and Cash Equivalents at End of Period $ 22,441 $ 30,485
The Notes to Consolidated Financial Statements are an integral part of these
statements.
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, 1997. 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 Use of Estimates
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent
liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates.
2B Revenue Recognition
Gas sales revenues are recorded on the accrual basis for all
gas delivered during the month, including an estimate for gas
delivered but unbilled at the end of each month.
2C 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.
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 Statement of Cash Flows
For purposes of the balance sheet and the statement of cash
flows, the Company considers all short-term liquid investments
with maturities of three months or less to be cash equivalents.
Income taxes and interest paid (excluding capitalized
interest) were as follows:
For the six months
ended March 31, 1998 1997
(Thousands)
Income taxes paid $12,190 $23,488
Interest paid 16,314 16,608
2F Recovery of Gas Costs
Under the tariffs of the Company, the difference for any month
between costs recoverable through the Gas Charge and revenues
billed to customers under the Gas Charge is refunded to or
recovered from customers. Consistent with these tariff
provisions, such difference for any month is recorded either as a
current liability or as a current asset (with a contra entry to
Gas Costs).
For each gas utility, the Commission conducts annual
proceedings regarding the reconciliation of revenues from the Gas
Charge and related costs incurred for gas. In such proceedings,
costs recovered by a utility through the Gas Charge are subject
to challenge. Such a proceeding regarding the Company for fiscal
year 1997 is currently pending before the Commission.
3. ENVIRONMENTAL MATTERS
The Company, its predecessors, and certain former affiliates
operated facilities in the past at multiple sites for the purpose
of manufacturing gas and storing manufactured gas (Manufactured
Gas Sites). In connection with manufacturing and storing gas,
various by-products and waste materials were produced, some of
which might have been disposed of rather than sold. Under
certain laws and regulations relating to the protection of the
environment, the 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 an
additional 27 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.
The current owner of a site in Chicago, formerly called Pitney
Court Station, filed suit against the Company in federal district
court under the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended. 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 contesting 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 March 31, 1998, the
total of the costs deferred by the Company, net of recoveries and
amounts billed to other entities, was $10.4 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, 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 three 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 its insurance
carriers. Accordingly, the costs deferred at March 31, 1998 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 a rate
mechanism approved by the Commission. At March 31, 1998, it had
recovered $6.3 million of such costs through rates.
4. LONG-TERM DEBT
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 First
Mortgage 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, 1997, have been remarketed. The interest
rate on such bonds is 3.875 percent for the period October 1,
1997, through September 30, 1998.
The rate of interest on the City of Chicago 1993 Series B
Bonds, which are secured by the Company's Adjustable-Rate First
Mortgage Bonds, Series EE, is subject to adjustment annually on
December 1. Owners of the Series B Bonds have the right to
tender such bonds at par during a limited period prior to that
date. The Company is obligated to purchase any such bonds
tendered if they cannot be remarketed. All Series B Bonds that
were tendered prior to December 1, 1997, have been remarketed.
The interest rate on such bonds is 3.90 percent for the period
December 1, 1997, through November 30, 1998.
The Company classifies these adjustable-rate bonds as long-
term liabilities, since it would refinance them on a long-term
basis if they could not be remarketed. In order to ensure its
ability to do so, on February 1, 1994, the Company established a
$37.4 million three year line of credit with The Northern Trust
Company, which has since been extended to January 31, 2000.
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 $13.9 million,
to $40.4 million, for the three-month period ending March 31, 1998,
due primarily to weather that was 19 percent warmer than in the
comparable quarter last year. Prior period adjustments to accrued
income taxes and pension expense also contributed to the decline in
comparative results. Partially offsetting these negative factors
were lower other operation and maintenance expenses.
Net income applicable to common stock decreased $15.6 million,
to $70.8 million, for the six-month period ending March 31, 1998,
due principally to lower gas deliveries attributable to warmer
weather and conservation in the current period. Other factors
affecting the period were a tax accrual adjustment in the year-ago
period and reduced interest income. A decline in operation and
maintenance expenses partially offset these negative factors.
Net income applicable to common stock decreased $21.3 million,
to $69.5 million, for the 12-month period ending March 31, 1998,
due mainly to reduced gas deliveries caused by warmer weather and
conservation. The prior period's one-time gain associated with the
expiration of gas storage contracts, along with increased costs
associated with outside professional services, also negatively
impacted comparative results for the period. Benefiting the
current period were a reduction in pension expense caused by a
change in settlement accounting attributed to employees choosing
early retirement and a decline in other operation and maintenance
expenses.
<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, 1998 March 31, 1998 March 31, 1998
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) $(13,311) (8.0) $(22,139) (7.3) $(30,624) (6.5)
Operation and maintenance expenses 1,775 3.4 (4,801) (4.4) (8,740) (4.0)
Depreciation and amortization expense 223 1.4 598 1.8 1,582 2.4
Income taxes (5,268) (17.0) (6,266) (12.3) (9,350) (18.8)
Other income and deductions 1,044 14.3 1,147 7.4 4,597 16.8
Net income applicable to common stock (13,929) (25.6) (15,614) (18.1) (21,289) (23.5)
(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 2F 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 declined $13.3 million, to $152.5
million, for the current three-month period due primarily to El
Nino which caused weather to be 19 percent warmer than the same
period a year-ago.
Net operating revenues declined $22.1 million, to $283.0
million, and $30.6 million, to $442.6 million, for the current
six- and 12-month periods, respectively, due primarily to weather
that was 14 and 12 percent warmer, respectively, than comparable
periods a year ago.
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 $1.8 million, to
$53.7 million, for the current three-month period, due primarily
to a $3.9 million increase in pension expense, caused by a prior
period adjustment to reflect changes in settlement accounting,
and a $1.3 million increase in costs of outside professional
services. In addition, a prior period adjustment to costs
associated with claim settlements resulted in an increase of
$1.0 million in the current period. Partially offsetting these
negative effects were a decrease in the provision for
uncollectible accounts caused by reduced revenues resulting from
warmer weather ($3.6 million) and lower group insurance expense
($436,000).
Operation and maintenance expenses decreased $4.8 million, to
$105.3 million, for the current six-month period due largely to a
$4.3 million decrease in the provision for uncollectible accounts
and to a $1.5 million decrease in environmental costs recovered
through rates. Also contributing to the period were reduced
group insurance expenses ($936,000). These effects were offset,
in part, by increases in costs of outside professional services
($1.4 million) and a prior period adjustment to costs associated
with claim settlements ($1.3
million).
Operation and maintenance expenses decreased $8.7 million, to
$212.2 million, for the current 12-month period, due mainly to a
$7.4 million decrease in pension expense caused by a change in
settlement accounting attributed to employees choosing early
retirement and a $6.6 million decrease in the provision for
uncollectible accounts. Also, affecting the comparison between
period were decreases in group insurance expense ($2.0 million),
reengineering costs ($1.9 million), and environmental costs
recovered through rates ($1.9 million). These positive
developments were partially offset by increases in costs
associated with outside professional services ($4.2 million) and
a prior period adjustment to costs associated with and claim
settlements ($621,000).
Depreciation and Amortization Expense
Depreciation and amortization expense increased $223,000, to
$16.7 million, $598,000, to $33.5 million, and $1.6 million, to
$66.7 million, for the current three-, six- and 12-month periods,
respectively, due mainly to net property additions.
Income Taxes
Income taxes, exclusive of taxes in other income and
deductions, decreased $5.3 million, to $25.7 million, $6.3
million, to $44.6 million, and $9.4 million, to $40.3 million,
for the current three-, six- and 12-month periods, respectively,
due primarily to lower pre-tax income. Partially offsetting the
effects of the lower pre-tax income in each of the comparative
periods was a prior year adjustment to reduce income tax
accruals.
Other Income and Deductions
Other income and deductions increased $1.0 million, and $1.1
million, for the current three- and six-month periods,
respectively, due largely to a decrease in miscellaneous interest
revenues and higher interest expense. Partially offsetting these
effects was an increase in the allowance for funds used during
construction.
Other income and deductions increased $4.6 million for the
current 12-month period due principally to the prior period's
gain of $3.7 million, net of income taxes, associated with the
expiration of natural gas storage contracts. This increase was
offset, in part, by an increase in the allowance for funds used
during construction and a decrease in interest expense on amounts
refundable to customers.
Other Matters
Effect of Weather. Weather variations affect the volumes of gas
delivered for heating purposes and, therefore, can have a
significant positive or negative impact on net income, cash
position, and coverage ratios.
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.
Small-Volume Transportation Service. On June 25, 1997, the
Commission allowed Riders SVT and AGG to go into effect for the
Company, thus initiating a two year pilot program designed to
provide transportation service to certain small-volume industrial
and commercial customers of the utility as well as to some of its
large residential customers. The Commission also ordered a
concurrent investigation of the program to ascertain if program
adjustments or revisions are required.
<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,
1998 1997 1998 1997 1998 1997
Operating Revenues (Thousands):
<S> <C> <C> <C> <C> <C> <C>
Gas sales
Residential $ 258,194 $ 365,198 $ 487,850 $ 616,986 $ 683,092 $ 855,259
Commercial 40,931 59,203 73,361 97,641 103,199 132,741
Industrial 7,501 12,583 13,646 19,570 18,686 25,558
306,626 436,984 574,857 734,197 804,977 1,013,558
Transportation
Residential 12,950 12,801 23,464 23,578 33,910 36,838
Commercial 14,796 16,309 27,588 29,506 40,722 44,632
Industrial 7,226 8,127 13,820 15,895 23,764 29,742
Contract Pooling 2,301 11,710 5,532 13,764 7,636 17,828
Other 101 6 534 406 533 406
37,374 48,953 70,938 83,149 106,565 129,446
Other 4,402 3,411 9,573 8,481 17,483 15,655
Total Operating Revenues 348,402 489,348 655,368 825,827 929,025 1,158,659
Less - Gas Costs 158,137 271,885 302,216 433,069 388,482 565,294
- Revenues Taxes 37,812 51,699 70,132 87,599 97,963 120,161
Net Operating Revenues $ 152,453 $ 165,764 $ 283,020 $ 305,159 $ 442,580 $ 473,204
Deliveries (MDth):
Gas Sales
Residential 44,248 54,786 79,664 94,430 106,493 123,776
Commercial 7,709 9,345 13,169 15,955 18,676 21,249
Industrial 1,563 2,152 2,687 3,459 3,750 4,543
53,520 66,283 95,520 113,844 128,919 149,568
Transportation (a)
Residential 10,088 10,410 18,097 18,655 24,595 25,898
Commercial 12,722 14,448 23,405 25,896 34,053 37,045
Industrial 10,373 9,674 19,214 19,390 32,334 34,580
Other - 224 - 234 - 234
33,183 34,756 60,716 64,175 90,982 97,757
Total Gas Sales
and Transportation 86,703 101,039 156,236 178,019 219,901 247,325
Margin per Dth delivered $ 1.76 $ 1.64 $ 1.81 $ 1.71 $ 2.01 $ 1.91
(a)Volumes associated with contract pooling revenues are included in
their respective customer classes.
</TABLE>
LIQUIDITY AND CAPITAL RESOURCES
Environmental Matters. The Company is conducting environmental
investigations and work at certain sites that were the location
of former manufactured gas operations. (See Note 3 of the Notes
to Consolidated Financial Statements.)
Credit Lines. The Company has lines of credit totaling
$129.4 million of which North Shore Gas may borrow up to
$30 million. At March 31, 1998, the Company and North Shore Gas
had unused credit available from banks of $91.2 million of which
$30 million was available to North Shore Gas.
Interest Coverage. The fixed charges coverage ratios for the
Company for the 12 months ended March 31, 1998, and for fiscal
1997 and 1996 were 4.29, 5.01, and 4.84, respectively.
Year 2000. The Company is modifying all of its computer programs
to be year 2000 compliant. The Company does not believe that the
amount of expenditures it will incur in connection with its year
2000 modifications will have a material adverse effect on the
financial position or results of operations of the Company. The
Company's year 2000 modification program has achieved substantial
progress and the Company expects that the modifications will be
completed and fully tested prior to the year 2000. The Company
is also requiring that other parties, particularly vendors with
whom the Company electronically interacts, have year 2000
compatible computer systems. The Company, however, cannot
control the success of other parties' year 2000 modification
efforts.
Forward-Looking Information. Management's
Discussion and Analysis of Results of Operations
and Financial Condition ("MD&A") contains
statements that may be considered forward-looking,
such as the discussion of the effect of weather on
net income, cash position and coverage ratios, the
insignificant effect on income arising from
changes in revenue from customers' gas purchases
from entities other than the Company,
environmental matters, and the discussion
concerning year 2000 compliant information systems.
These statements speak of the Company's plans, goals,
beliefs, or expectations, refer to estimates or use
similar terms. Actual results could differ materially
because the realization of those results is
subject to many uncertainties, including:
" The future health of the U.S. and Illinois
economies.
" The timing and extent of changes in energy
commodity prices and interest rates.
" Regulatory developments in the U.S., Illinois
and other states where the Company has investments.
" Changes in the nature of the Company's
competition resulting from industry consolidation,
legislative change, regulatory change and other
factors, as well as action taken by particular
competitors.
" The ability of various vendors and others
with whom the Company electronically interacts
to complete year 2000 systems modification
efforts on a timely basis and in a manner that
allows them to continue normal business
transactions with the Company without disruption.
Some of these uncertainties that may affect
future results are discussed in more detail in the
sections of "Item 1 - Business" of the Annual
Report on Form 10-K captioned "Competition",
"Sales and Rates", "State Legislation and
Regulation", "Federal Legislation and
Regulation", "Environmental Matters", and
"Current Gas Supply". All forward-looking
statements included in this MD&A are based upon
information presently available, and the Company
assumes no obligation to update any forward-
looking statements.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
See Note 3 of the Notes to Consolidated Financial Statements
for a discussion pertaining to environmental matters.
Item 4. Submission of Matters to a Vote of Security Holders
a. On March 26, 1998, the following persons were
elected Directors of the Company and comprise the
entire Board of Directors of the Company: Kenneth
S. Balaskovits, J. Bruce Hasch, James Hinchliff,
Thomas M. Patrick, and Richard E. Terry.
b. The following matter was voted upon at the
Annual Meeting of Shareholders.
There were no broker non-votes with respect to any
matters voted upon.
1.The election of nominees for directors who
will serve for a one-year term or until their
respective successors shall be duly elected.
The nominees, all of whom were elected, were as
follows: Kenneth S. Balaskovits, J. Bruce
Hasch, James Hinchliff, Thomas M. Patrick, and
Richard E. Terry. The Secretary of the Company
certified the following vote tabulations:
FOR WITHHELD
Kenneth S. Balaskovits . . 24,817,566 0
J. Bruce Hasch . . . . . . 24,817,566 0
James Hinchliff . . . . .. 24,817,566 0
Thomas M. Patrick . . . .. 24,817,566 0
Richard E. Terry . . . . . 24,817,566 0
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, 1998
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, 1998 By: /s/ K. S. BALASKOVITS
(Date) K. S. Balaskovits
Vice President and Controller
(Same as above)
Principal Accounting
Officer
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