February 13, 1997
Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Gentlemen:
We are transmitting herewith Indiana Energy, Inc.'s
Quarterly Report on Form 10-Q for the quarter ended
December 31, 1996, pursuant to the requirements of
Section 13 of the Securities Exchange Act of 1934.
Very truly yours,
/s/Douglas S. Schmidt
Douglas S. Schmidt
DSS:rs
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Commission file number 1-9091
INDIANA ENERGY, INC.
(Exact name of registrant as specified in its charter)
INDIANA 35-1654378
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1630 North Meridian Street, Indianapolis, Indiana 46202
(Address of principal executive offices) (Zip Code)
317-926-3351
(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 such shorter period that
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.
Common Stock - Without par value 22,580,998 January 31, 1997
Class Number of shares Date
TABLE OF CONTENTS
Page
Numbers
Part I - Financial Information
Consolidated Balance Sheets
at December 31, 1996, and 1995
and September 30, 1996
Consolidated Statements of Income
Three Months Ended December 31, 1996 and 1995,
and Twelve Months Ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows
Three Months Ended December 31, 1996 and 1995,
and Twelve Months Ended December 31, 1996 and 1995
Notes to Consolidated Financial Statements
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Part II - Other Information
Item 1 - Legal Proceedings
Item 6 - Exhibits and Reports on Form 8-K
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
ASSETS
(Thousands - Unaudited)
December 31 September 30
1996 1995 1996
<S> <C> <C> <C>
UTILITY PLANT:
Original cost $946,934 $882,124 $931,092
Less - Accumulated depreciation and amortization 351,496 323,160 344,268
595,438 558,964 586,824
NONUTILITY PLANT AND OTHER INVESTMENTS - NET 15,354 7,080 10,338
CURRENT ASSETS:
Cash and cash equivalents 185 19,670 20
Accounts receivable, less reserves of
$2,658, $2,433 and $1,853, respectively 45,599 44,648 14,598
Accrued unbilled revenues 37,247 45,121 8,158
Materials and supplies - at average cost 4,075 3,827 4,611
Liquefied petroleum gas - at average cost 864 876 507
Gas in underground storage - at last-in,
first-out cost 34,336 51,392 39,083
Recoverable gas costs 16,949 - 2,710
Prepayments and other 1,024 1,457 46
140,279 166,991 69,733
DEFERRED CHARGES:
Unamortized debt discount and expense 7,428 6,930 7,585
Other 8,395 9,355 7,983
15,823 16,285 15,568
$766,894 $749,320 $682,463
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED BALANCE SHEETS
SHAREHOLDERS' EQUITY AND LIABILITIES
(Thousands - Unaudited)
December 31 September 30
1996 1995 1996
<S> <C> <C> <C>
CAPITALIZATION:
Common stock (no par value) - authorized 64,000,000
shares - issued and outstanding 22,578,339,
22,531,405 and 22,474,402 shares, respectively $146,445 $145,236 $143,875
Less unearned compensation - restricted stock grants 2,170 731 525
144,275 144,505 143,350
Retained earnings 163,868 148,587 152,972
Total common shareholders' equity 308,143 293,092 296,322
Long-term debt 142,866 196,100 178,063
451,009 489,192 474,385
CURRENT LIABILITIES:
Maturities and sinking fund requirements
of long-term debt 35,272 267 272
Notes payable 66,800 27,000 28,036
Accounts payable 52,793 69,363 34,192
Refundable gas costs - 8,008 -
Customer deposits and advance payments 16,533 16,976 14,256
Accrued taxes 14,406 18,190 4,206
Accrued interest 4,561 4,899 2,552
Other current liabilities 26,674 20,149 27,356
217,039 164,852 110,870
DEFERRED CREDITS:
Deferred income taxes 67,421 65,798 66,862
Unamortized investment tax credit 10,941 11,871 11,173
Regulatory income tax liability 2,835 3,797 2,835
Other 17,649 13,810 16,338
98,846 95,276 97,208
COMMITMENTS AND CONTINGENCIES (See Notes 7 & 9) - - -
$766,894 $749,320 $682,463
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF INCOME
(Thousands except per share data)
(Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
UTILITY OPERATING REVENUES $ 172,481 $ 154,309 $ 548,766 $ 445,057
COST OF GAS 109,836 89,197 340,770 245,181
MARGIN 62,645 65,112 207,996 199,876
UTILITY OPERATING EXPENSES:
Other operation and maintenance 19,237 18,690 84,683 76,130
Depreciation and amortization 8,624 8,118 33,738 31,734
Income taxes 9,868 11,405 21,637 24,110
Taxes other than income taxes 4,656 4,245 16,779 13,653
42,385 42,458 156,837 145,627
UTILITY OPERATING INCOME 20,260 22,654 51,159 54,249
INTEREST EXPENSE 4,285 3,992 16,200 15,528
OTHER (444) (266) (1,162) (1,537)
3,841 3,726 15,038 13,991
UTILITY INCOME 16,419 18,928 36,121 40,258
NONUTILITY INCOME 866 165 4,272 917
NET INCOME $ 17,285 $ 19,093 $ 40,393 $ 41,175
AVERAGE COMMON SHARES OUTSTANDING 22,578 22,540 22,522 22,556
EARNINGS PER AVERAGE SHARE OF
COMMON STOCK $ 0.77 $ 0.85 $ 1.79 $ 1.83
</TABLE>
<TABLE>
INDIANA ENERGY, INC.
AND SUBSIDIARY COMPANIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Thousands - Unaudited)
Three Months Twelve Months
Ended December 31 Ended December 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
CASH FLOWS FROM (REQUIRED FOR) OPERATING
ACTIVITIES:
Net income $ 17,285 $ 19,093 $ 40,393 $ 41,175
Adjustments to reconcile net income to cash
provided from operating activities -
Depreciation and amortization 8,671 8,173 33,939 31,954
Deferred income taxes 558 701 661 3,893
Investment tax credit (232) (232) (930) (930)
Undistributed earnings of unconsolidated affiliates (1,417) (24) (1,353) (276)
7,580 8,618 32,317 34,641
Changes in assets and liabilities -
Receivables - net (60,090) (69,571) 6,923 (28,938)
Inventories 4,926 8,072 16,820 9,131
Accounts payable, customer deposits,
advance payments and other current liabilities 20,196 15,883 (10,488) 33,944
Accrued taxes and interest 12,209 12,587 (4,122) (3,135)
Refundable/recoverable gas costs (14,239) 3,125 (24,957) (22,786)
Prepayments (978) (1,250) 370 11
Other - net 2,335 1,305 4,825 15,152
Total adjustments (28,061) (21,231) 21,688 38,020
Net cash flow from (required for) operations (10,776) (2,138) 62,081 79,195
CASH FLOWS FROM (REQUIRED FOR) FINANCING
ACTIVITIES:
Repurchase of common stock - (636) (1,480) (636)
Sale of long-term debt 16 20,017 1,067 40,829
Reduction in long-term debt (213) (213) (19,296) (405)
Net change in short-term borrowings 38,764 20,975 39,800 (20,350)
Dividends on common stock (6,389) (6,173) (25,112) (24,244)
Net cash flow from (required for) financing activities 32,178 33,970 (5,021) (4,806)
CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES:
Capital expenditures (17,713) (12,195) (71,899) (54,274)
Nonutility investments - net (3,524) 13 (4,646) (465)
Net cash flow required for investing activities (21,237) (12,182) (76,545) (54,739)
NET INCREASE (DECREASE) IN CASH 165 19,650 (19,485) 19,650
CASH AND CASH EQUIVALENTS AT BEGINNING OF
PERIOD 20 20 19,670 20
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 185 $ 19,670 $ 185 $ 19,670
</TABLE>
Indiana Energy, Inc. and Subsidiary Companies
Notes to Consolidated Financial Statements
1. Financial Statements.
The consolidated financial statements include the
accounts of Indiana Energy, Inc. (Indiana Energy) and
its wholly- and majority-owned subsidiaries, after
elimination of intercompany transactions. The
consolidated financial statements separate the regulated
utility operations, principally Indiana Gas Company,
Inc. (Indiana Gas), from nonutility operations. The
nonutility operations include IGC Energy, Inc. (IGC
Energy), Energy Realty, Inc. (Energy Realty) and Indiana
Energy Services, Inc. (IES), indirect wholly-owned
subsidiaries of Indiana Energy as well as the 50-percent
interest in ProLiance Energy, LLC (see Note 9).
The interim condensed consolidated financial statements
included in this report have been prepared by Indiana
Energy, without audit, as provided in the rules and
regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally
included in financial statements prepared in accordance
with generally accepted accounting principles have been
omitted as provided in such rules and regulations.
Indiana Energy believes that the information in this
report reflects all adjustments necessary to fairly
state the results of the interim periods reported, that
all such adjustments are of a normally recurring nature,
and the disclosures are adequate to make the information
presented not misleading. These interim financial
statements should be read in conjunction with the
financial statements and the notes thereto included in
Indiana Energy's latest annual report on Form 10-K.
Because of the seasonal nature of Indiana Energy's gas
distribution operations, the results shown on a
quarterly basis are not necessarily indicative of annual
results.
2. Cash Flow Information.
For the purposes of the Consolidated Statements of Cash
Flows, Indiana Energy considers cash investments with an
original maturity of three months or less to be cash
equivalents. Cash paid during the periods reported for
interest and income taxes were as follows:
<TABLE>
Three Months Ended Twelve Months Ended
December 31 December 31
Thousands 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Interest (net of
amount capitalized) $1,909 $1,691 $15,802 $14,031
Income taxes $ - $ - $30,608 $23,244
</TABLE>
3. Revenues.
To more closely match revenues and expenses, revenues
are recorded for all gas delivered to customers but not
billed at the end of the accounting period.
4. Gas in Underground Storage.
Based on the cost of purchased gas during December 1996,
the cost of replacing the current portion of gas in
underground storage exceeded last-in, first-out cost at
December 31, 1996, by approximately $39,934,000.
5. Refundable or Recoverable Gas Costs.
The cost of gas purchased and refunds from suppliers,
which differ from amounts recovered through rates, are
deferred and are being recovered or refunded in
accordance with procedures approved by the Indiana
Utility Regulatory Commission (IURC).
6. Allowance For Funds Used During Construction.
An allowance for funds used during construction (AFUDC),
which represents the cost of borrowed and equity funds
used for construction purposes, is charged to
construction work in progress during the period of
construction and included in "Other" on the Consolidated
Statements of Income. An annual AFUDC rate of 7.5
percent was used for all periods reported.
The table below reflects the total AFUDC capitalized and
the portion of which was computed on borrowed and equity
funds for all periods reported.
<TABLE>
Three Months Ended Twelve Months Ended
December 31 December 31
Thousands 1996 1995 1996 1995
<S> <C> <C> <C> <C>
AFUDC-Borrowed Funds $ 157 $ 84 $ 356 $ 236
AFUDC-Equity Funds 128 69 291 194
Total AFUDC Capitalized $ 285 $ 153 $ 647 $ 430
</TABLE>
7. Environmental Costs.
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
locations of former manufactured gas plants. It is
seeking to recover the costs of the investigations and
work from insurance carriers, other potentially
responsible parties (PRPs) and customers.
On May 3, 1995, Indiana Gas received an order from the
IURC in which the Commission concluded that the costs
incurred by Indiana Gas to investigate and, if
necessary, clean-up former manufactured gas plant sites
are not utility operating expenses necessary for the
provision of service and, therefore, are not recoverable
as operating expenses from utility customers. On
January 21, 1997, this ruling was affirmed by the
Indiana Court of Appeals. The company is planning to
petition for transfer to the Indiana Supreme Court.
On April 14, 1995, Indiana Gas filed suit in the United
States District Court for the Northern District of
Indiana, Fort Wayne Division, against a number of
insurance carriers for payment of claims for
investigation and clean-up costs already incurred, as
well as for a determination that the carriers are
obligated to pay these costs in the future. On October
2, 1996, the Court granted several motions filed by
defendant insurance carriers for summary judgment on a
number of issues relating to the insurers' obligations
to Indiana Gas under insurance policies issued by these
carriers. For example, the Court held that because the
placement of residuals on the ground at the sites was
done intentionally, there was no "fortuitous accident"
and therefore no "occurrence" subject to coverage under
the relevant policies. Since the management of Indiana
Gas believes that a number of the Court's rulings are
contrary to Indiana law, it intends to appeal all
adverse rulings to the United States Court of Appeals
for the Seventh Circuit. However, if these rulings are
not reversed on appeal, they would effectively eliminate
coverage under most of the policies at issue. There can
be no assurance as to whether Indiana Gas will prevail
on this appeal. As of December 31, 1996, Indiana Gas
has obtained settlements from some insurance carriers in
an aggregate amount in excess of $14.7 million.
The Court's rulings have had no material impact on
earnings since Indiana Gas has previously recorded all
costs (in aggregate $14.8 million) which it presently
expects to incur in connection with remediation
activities. It is possible that future events may
require additional remediation activities which are not
presently foreseen.
8. Postretirement Benefits Other Than Pensions
On May 3, 1995, the IURC issued an order authorizing
Indiana Gas to recover the costs related to
postretirement benefits other than pensions under the
accrual method of accounting consistent with Statement
of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than
Pensions (SFAS 106). The Office of Utility Consumer
Counselor appealed the order. On January 21, 1997, the
Indiana Court of Appeals affirmed the IURC decision
authorizing recovery.
9. Nonutility Income.
Nonutility income includes the earnings recognized from
Indiana Energy's gas marketing affiliates. Prior to
April 1, 1996, IES provided natural gas and related
services to other gas utilities and customers in Indiana
and surrounding states, and from January 1, 1996, to
March 31, 1996, to Indiana Gas. ProLiance Energy, LLC
(ProLiance), a nonregulated marketing affiliate, assumed
the business of IES effective April 1, 1996, and is the
supplier of gas and related services to both Indiana Gas
and Citizens Gas and Coke Utility (Citizens Gas). The
company's investment in ProLiance is accounted for using
the equity method. ProLiance's fiscal year ends on
August 31.
Indiana Energy's gas marketing affiliates' contribution
to nonutility income is listed below.
<TABLE>
Three Months Ended Twelve Months Ended
December 31 December 31
THOUSANDS 1996 1995 1996 1995
<S> <C> <C> <C> <C>
Nonutility income (loss):
Gas marketing affiliates, net of reserve $ 908 $ 163 $ 4,010 $ 239
Other - net (42) 2 262 678
$ 866 $ 165 $ 4,272 $ 917
</TABLE>
Two proceedings which may affect the formation,
operation or earnings of ProLiance are currently pending
before the IURC. The first proceeding was initiated by
a small group of Indiana Gas' and Citizens Gas' large-
volume customers who contend that the gas service
contracts between ProLiance and Indiana Gas and Citizens
Gas should be disapproved by the IURC or, alternatively,
that the IURC should regulate the operations of
ProLiance. On September 27, 1996, the IURC issued a
partial decision in that proceeding and found that
ProLiance is not subject to regulation as a public
utility. The IURC did confirm that it will continue to
monitor gas costs incurred by Indiana Gas. Hearings on
the remaining issues were concluded on October 9, 1996.
A decision from the IURC is expected during the first
half of calendar 1997.
The second proceeding involves the quarterly gas cost
adjustment applications of Indiana Gas and Citizens Gas
wherein these utilities are proposing to recover the
costs they have and will incur under their gas supply
and related agreements with ProLiance. This proceeding
will consider whether the recovery of those costs is
consistent with Indiana law governing gas cost recovery.
The hearing on the second proceeding has not yet been
scheduled.
As a result of the two on-going proceedings, $1.5
million of Indiana Energy's share of its gas marketing
affiliates' net income has been reserved until the
outcome of these proceedings can be determined.
10. Affiliate Transactions.
ProLiance began providing natural gas supply and related
services to Indiana Gas effective April 1, 1996.
Indiana Gas' purchases from ProLiance for the three- and
twelve-month periods ended December 31, 1996, totalled
$103.2 million and $221.1 million, respectively.
Amounts owed by Indiana Gas to ProLiance were $47.0
million at December 31, 1996, and are included in
Accounts Payable on the Consolidated Balance Sheet.
As of December 31, 1996, ProLiance has an available
letter of credit with a bank to borrow up to $30
million. Borrowings are secured by a support agreement
signed by Indiana Energy and Citizens Gas.
11. Reclassifications.
Certain reclassifications have been made to the prior
periods' financial statements to conform to the current
year presentation. These reclassifications have no
impact on net income previously reported.
Indiana Energy, Inc. and Subsidiary Companies
Management's Discussion and Analysis of Results of
Operations and Financial Condition
Results of Operations
Earnings
The majority of Indiana Energy Inc.'s (Indiana Energy)
consolidated earnings are from the operations of its gas
distribution subsidiary, Indiana Gas Company, Inc.
(Indiana Gas). Nonutility operations include IGC Energy,
Inc., Energy Realty, Inc. and Indiana Energy Services,
Inc. (IES), indirect wholly-owned subsidiaries of Indiana
Energy, as well as the 50-percent interest in ProLiance
Energy, LLC (see ProLiance Energy, LLC). Though Indiana
Energy will continue to consider nonutility opportunities
for investment, its principal business is expected to
continue to be gas distribution.
Utility income, net income and earnings per average
share of common stock for the three- and twelve-month
periods ended December 31, 1996, when compared to the same
periods one year ago, are listed below. The decrease in
utility earnings for the three-month period is primarily
attributable to normal weather for the current quarter as
compared to the prior year which was 9 percent colder than
normal. The twelve-month utility earnings reflect
increased margin attributable to weather that was 5
percent colder than normal as compared to the prior year
which was about normal, and the addition of new customers.
The increase in margin for the twelve-month period was
offset by increased operating expenses, including the
acceleration of several distribution system maintenance
projects during the period. Nonutility income increased
for the quarter and twelve-month period as a result of the
operations of Indiana Energy's gas marketing affiliates.
<TABLE>
Three Months Ended Twelve Months Ended
December 31 December 31
1996 1995 1996 1995
<S> <C> <C> <C> <C>
Utility income (millions of dollars) $16.4 $18.9 $36.1 $40.3
Net income (millions of dollars) $17.3 $19.1 $40.4 $41.2
Earnings per average share of
common stock $ .77 $ .85 $1.79 $1.83
</TABLE>
The following discussion of operating results relates
primarily to the operations of Indiana Gas.
Margin (Revenues Less Cost of Gas)
Margin for the quarter ended December 31, 1996,
decreased $2.5 million compared to the same period last
year. The decrease reflects normal weather for the
current quarter as compared to the prior year which was 9
percent colder than normal.
Margin for the twelve-month period ended December 31,
1996, increased $8.1 million compared to the same period
last year. The increase is primarily attributable to
weather that was 5 percent colder than normal as compared
to the prior year which was about normal. Additional
residential and commercial customers, as well as rate
recovery (beginning May 1995) of postretirement benefit
costs recognized in accordance with Statement of Financial
Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (SFAS 106)
also contributed to the increase.
Total system throughput (combined sales and
transportation) decreased 4 percent (1.7 MMDth) for the
three-month period ended December 31, 1996, compared to
the same period one year ago. For the twelve-month
period, throughput increased 6 percent (6.5 MMDth)
compared to the same period last year. Indiana Gas' rates
for transportation generally provide the same margins as
are earned on the sale of gas under its sales tariffs.
Approximately one-half of total system throughput
represents gas used for space heating and is affected by
weather.
Total average cost per unit of gas purchased increased
to $4.04 for the three-month period ended December 31,
1996, compared to $2.71 for the same period one year ago.
For the twelve-month period, cost of gas per unit
increased to $3.55 in the current period compared to $2.55
for the same period last year.
Adjustments to Indiana Gas' rates and charges related
to the cost of gas are made through gas cost adjustment
(GCA) procedures established by Indiana law and
administered by the Indiana Utility Regulatory Commission
(IURC). The GCA passes through increases and decreases in
the cost of gas to Indiana Gas' customers dollar for
dollar.
Operating Expenses
Operation and maintenance expenses increased $.5
million for the three-month period ended December 31,
1996, when compared to the same period one year ago. The
increase is primarily due to higher labor costs and
related benefits.
Operation and maintenance expenses for the twelve-
month period increased $8.6 million when compared to the
same period last year partly due to the acceleration of
several distribution system maintenance projects into
fiscal 1996 permitted by higher earnings attributable to
the colder than normal weather. Higher performance-based
compensation and recognition (beginning May 1995) of
postretirement benefit costs in accordance with SFAS 106
also contributed to the increase.
Depreciation and amortization expense increased for
the three- and twelve-month periods ended December 31,
1996, when compared to the same periods one year ago as
the result of additions to utility plant to serve new
customers and to maintain dependable service to existing
customers.
Federal and state income taxes decreased for the three-
and twelve-month periods ended December 31, 1996, when
compared to the same periods one year ago due to lower
taxable utility income.
Taxes other than income taxes increased for the three-
month period ended December 31, 1996, when compared to the
same period one year ago due to higher property tax
expense. Taxes other than income taxes increased for the
twelve-month period due to higher property tax expense and
higher gross receipts tax expense resulting from increased
revenue.
Interest Expense
Interest expense increased for the three- and twelve-
month periods ended December 31, 1996, when compared to
the same periods one year ago due to an increase in
average debt outstanding slightly offset by a decrease in
interest rates.
Nonutility Income
Nonutility income increased for the three- and twelve-
month periods ended December 31, 1996, when compared to
the same periods one year ago due primarily to higher
earnings recognized from Indiana Energy's gas marketing
affiliates. Prior to April 1, 1996, IES provided natural
gas and related services to other gas utilities and
customers in Indiana and surrounding states, and from
January 1, 1996, to March 31, 1996, to Indiana Gas.
ProLiance assumed the business of IES effective April 1,
1996, and now is the supplier of gas and related services
to both Indiana Gas and Citizens Gas and Coke Utility
(see following).
Other Operating Matters
ProLiance Energy, LLC
Two proceedings which may affect the formation,
operation or earnings of ProLiance are currently pending
before the IURC. The first proceeding was initiated by a
small group of Indiana Gas' and Citizens Gas' large-volume
customers who contend that the gas service contracts
between ProLiance and Indiana Gas and Citizens Gas should
be disapproved by the IURC or, alternatively, that the
IURC should regulate the operations of ProLiance. On
September 27, 1996, the IURC issued a partial decision in
that proceeding and found that ProLiance is not subject to
regulation as a public utility. The IURC did confirm that
it will continue to monitor gas costs incurred by Indiana
Gas. Hearings on the remaining issues were concluded on
October 9, 1996. A decision from the IURC is expected
during the first half of calendar 1997.
The second proceeding involves the quarterly gas cost
adjustment applications of Indiana Gas and Citizens Gas
wherein these utilities are proposing to recover the costs
they have and will incur under their gas supply and
related agreements with ProLiance. This proceeding will
consider whether the recovery of those costs is consistent
with Indiana law governing gas cost recovery. The hearing
on the second proceeding has not yet been scheduled.
As a result of the two on-going proceedings, $1.5
million of Indiana Energy's share of its gas marketing
affiliates' net income has been reserved until the outcome
of these proceedings can be determined.
Indiana Legislative Matters
On April 26, 1995, the Indiana General Assembly
enacted legislation which provides flexibility to the IURC
for future regulation of Indiana utilities. The law
recognizes that competition is increasing in the provision
of energy services and that flexibility in the regulation
of energy services providers is essential to the well-
being of the state, its economy and its citizens. Under
the law, an energy utility can present to the IURC a broad
range of proposals from performance-based ratemaking to
complete deregulation of a utility's operations. The law
gives the IURC the authority to adopt alternative
regulatory practices, procedures and mechanisms and
establish rates and charges that are in the public
interest, and will enhance or maintain the value of the
energy utility's retail energy services or property. It
also provides authority for the IURC to establish rates
and charges based on market or average prices that use
performance-based rewards or penalties, or which are
designed to promote efficiency in the rendering of retail
energy services.
Environmental Matters
Indiana Gas is currently conducting environmental
investigations and work at certain sites that were the
locations of former manufactured gas plants. It is
seeking to recover the costs of the investigations and
work from insurance carriers, other potentially
responsible parties (PRPs) and customers.
On May 3, 1995, Indiana Gas received an order from the
IURC in which the Commission concluded that the costs
incurred by Indiana Gas to investigate and, if necessary,
clean-up former manufactured gas plant sites are not
utility operating expenses necessary for the provision of
service and, therefore, are not recoverable as operating
expenses from utility customers. On January 21, 1997,
this ruling was affirmed by the Indiana Court of Appeals.
The company is planning to petition for transfer to the
Indiana Supreme Court.
On April 14, 1995, Indiana Gas filed suit in the
United States District Court for the Northern District of
Indiana, Fort Wayne Division, against a number of
insurance carriers for payment of claims for investigation
and clean-up costs already incurred, as well as for a
determination that the carriers are obligated to pay these
costs in the future. On October 2, 1996, the Court
granted several motions filed by defendant insurance
carriers for summary judgment on a number of issues
relating to the insurers' obligations to Indiana Gas under
insurance policies issued by these carriers. For example,
the Court held that because the placement of residuals on
the ground at the sites was done intentionally, there was
no "fortuitous accident" and therefore no "occurrence"
subject to coverage under the relevant policies. Since
the management of Indiana Gas believes that a number of
the Court's rulings are contrary to Indiana law, it
intends to appeal all adverse rulings to the United States
Court of Appeals for the Seventh Circuit. However, if
these rulings are not reversed on appeal, they would
effectively eliminate coverage under most of the policies
at issue. There can be no assurance as to whether Indiana
Gas will prevail on this appeal. As of December 31, 1996,
Indiana Gas has obtained settlements from some insurance
carriers in an aggregate amount in excess of $14.7
million.
The Court's rulings have had no material impact on
earnings since Indiana Gas has previously recorded all
costs (in aggregate $14.8 million) which it presently
expects to incur in connection with remediation
activities. It is possible that future events may require
additional remediation activities which are not presently
foreseen.
Postretirement Benefits Other Than Pensions
On May 3, 1995, the IURC issued an order authorizing
Indiana Gas to recover the costs related to postretirement
benefits other than pensions under the accrual method of
accounting consistent with Statement of Financial
Accounting Standards No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions (SFAS 106).
The Office of Utility Consumer Counselor appealed the
order. On January 21, 1997, the Indiana Court of Appeals
affirmed the IURC decision authorizing recovery.
Liquidity and Capital Resources
New construction, normal system maintenance and
improvements, and information technology investments to
provide service to a growing customer base will continue to
require substantial capital expenditures. Capital
expenditures for fiscal 1997 are estimated at $67.8 million
of which $17.7 million have been expended during the three-
month period ended December 31, 1996. For the twelve
months ended December 31, 1996, Indiana Gas' capital
expenditures totaled $71.9 million. Of this amount, 62
percent was provided by funds generated internally (utility
income less dividends plus charges to utility income not
requiring funds).
Indiana Gas' long-term goal is to fund internally
approximately 75 percent of its construction program.
Capitalization objectives for Indiana Gas are 55-65
percent common equity and 35-45 percent long-term debt.
This will help Indiana Gas to maintain its high
creditworthiness. The long-term debt of Indiana Gas is
currently rated Aa3 by Moody's Investors Service and AA- by
Standard & Poor's Corporation.
The nature of Indiana Gas' business creates large short-
term cash working capital requirements primarily to finance
customer accounts receivable, unbilled utility revenues
resulting from cycle billing, gas in underground storage
and construction expenditures until permanently financed.
Short-term borrowings tend to be greatest during the
heating season when accounts receivable and unbilled
utility revenues are at their highest. Depending on cost,
commercial paper or bank lines of credit are used as
sources of short-term financing. Indiana Gas' commercial
paper is rated P-1 by Moody's and A-1+ by Standard &
Poor's. Long-term financial strength and flexibility
require maintaining throughput volumes, controlling costs
and, if absolutely necessary, securing timely increases in
rates to recover costs and provide a fair and reasonable
return to shareholders.
Forward-Looking Information
Certain matters discussed in Management's Discussion and
Analysis are forward-looking. These forward-looking
discussions reflect the company's current best estimates
regarding future operations. Since these are only
estimates, actual results could be materially different.
Several factors, some of which are outside of the company's
control and cannot be accurately and conclusively
predicted, may materially affect estimates of future
operations. Such factors include the effect of weather on
gas consumption, particularly in the residential market,
the effect of general economic conditions on gas
consumption, particularly in industrial and commercial
markets, the direction and pace of change in state and
federal regulation on both the gas and electric industries,
and the effects of competition on markets where prices and
providers have been regulated.
Item 1. Legal Proceedings
See Note 7 of the Notes to Consolidated Financial
Statements for litigation matters involving insurance
carriers pertaining to Indiana Gas' former manufactured
gas plants and storage facilities.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule, filed herewith.
(b) No Current Reports on Form 8-K were filed
during the quarter ended December 31, 1996.
SIGNATURES
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned
thereunto duly authorized.
INDIANA ENERGY, INC.
Registrant
Dated February 13, 1997 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
Executive Vice President, Treasurer
and Chief Financial Officer
Dated February 13, 1997 /s/Jerome A. Benkert
Jerome A. Benkert
Controller
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from Indiana
Energy, Inc.'s consolidated financial statements as of December 31, 1996, and
for the three months then ended and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1997
<PERIOD-END> DEC-31-1996
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 595,438
<OTHER-PROPERTY-AND-INVEST> 15,354
<TOTAL-CURRENT-ASSETS> 140,279
<TOTAL-DEFERRED-CHARGES> 15,823
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 766,894
<COMMON> 144,275
<CAPITAL-SURPLUS-PAID-IN> 0
<RETAINED-EARNINGS> 163,868
<TOTAL-COMMON-STOCKHOLDERS-EQ> 308,143
0
0
<LONG-TERM-DEBT-NET> 142,866
<SHORT-TERM-NOTES> 66,800
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 35,272
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 213,813
<TOT-CAPITALIZATION-AND-LIAB> 766,894
<GROSS-OPERATING-REVENUE> 172,481
<INCOME-TAX-EXPENSE> 9,868
<OTHER-OPERATING-EXPENSES> 142,353
<TOTAL-OPERATING-EXPENSES> 152,221
<OPERATING-INCOME-LOSS> 20,260
<OTHER-INCOME-NET> 1,310
<INCOME-BEFORE-INTEREST-EXPEN> 21,570
<TOTAL-INTEREST-EXPENSE> 4,285
<NET-INCOME> 17,285
0
<EARNINGS-AVAILABLE-FOR-COMM> 17,285
<COMMON-STOCK-DIVIDENDS> 6,389
<TOTAL-INTEREST-ON-BONDS> 3,492
<CASH-FLOW-OPERATIONS> (10,776)
<EPS-PRIMARY> .77
<EPS-DILUTED> 0
</TABLE>
