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 quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-1160
THE PROVIDENCE GAS COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0203650
(State or other jurisdiction of incorporation (I.R.S. Employer
or organization) Identification No.)
100 Weybosset Street, Providence, Rhode Island 02903
(Address of principal executive offices)
(Zip Code)
401-272-5040
Registrant's telephone number, including area code
Indicate by checkmark 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 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 .
Common Stock, $1.00 par value; 1,243,598 shares outstanding at
May 13, 1996.
THE PROVIDENCE GAS COMPANY
FORM 10-Q
MARCH 31, 1996
PART I: FINANCIAL INFORMATION
PAGE
Item 1 Financial Statements
Consolidated Statements of Income for the
three, six and twelve months ended
March 31, 1996 and 1995
I-1
Consolidated Balance Sheets as of
March 31, 1996, March 31, 1995 and
September 30, 1995
I-2
Consolidated Statements of Cash Flows for the
six months ended March 31, 1996 and 1995
I-3
Consolidated Statements of Capitalization as of
March 31, 1996, March 31, 1995 and
September 30, 1995
I-4
Notes to Consolidated Financial Statements
I-5
Item 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
I-8
PART II: OTHER INFORMATION
Item 4 Submission of Matters to a Vote of Security
Holders
II-1
Item 6 Exhibits and Reports on Form 8-K
II-1
Signature
II-2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
THREE MONTHS SIX MONTHS
1996 1995 1996 1995
(thousands, except per share amounts)
Operating revenues $ 79,261 $ 64,401 $136,531 $112,683
Cost of gas sold 46,164 35,949 77,308 61,641
Operating margin 33,097 28,452 59,223 51,042
Operating expenses:
Operation and
maintenance 13,049 11,847 24,551 22,545
Deprecation and
amortization 2,783 2,485 5,567 4,970
Taxes-
State gross
receipts 2,295 1,812 3,906 3,105
Local property and
other 1,718 1,710 3,348 3,306
Federal income 3,876 3,097 6,186 4,772
Total operating
expenses 23,721 20,951 43,558 38,698
Operating income 9,376 7,501 15,665 12,344
Other income, net 136 169 758 318
Income before
interest expense 9,512 7,670 16,423 12,662
Interest expense:
Long-term debt 1,524 1,268 2,837 2,551
Other 421 700 972 1,088
Interest capitalized (26) (25) (33) (47)
1,919 1,943 3,776 3,592
Net income 7,593 5,727 12,647 9,070
Dividends on
preferred stock (174) (174) (348) (348)
Net income applicable
to common stock $ 7,419 $ 5,553 $ 12,299 $ 8,722
======== ======== ======== =======
Earnings per common
share $ 5.97 $ 4.47 $ 9.89 $ 7.01
======== ======== ======== =======
Dividends paid per
common share $ .92 $ .89 $ 1.84 $ 1.78
======== ======== ======== =======
Weighted average common
shares outstanding 1,243.6 1,243.6 1,243.6 1,243.6
======== ======== ======== =======
PAGE I-1
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE PERIODS ENDED MARCH 31
(Unaudited)
TWELVE MONTHS
1996 1995
(thousands, except per share amounts)
Operating revenues $203,891 $187,958
Cost of gas sold 114,652 106,306
Operating margin 89,239 81,652
Operating expenses:
Operation and
maintenance 45,492 42,435
Depreciation and
amortization 10,647 9,668
Taxes-
State gross
receipts 5,806 5,237
Local property and
other 6,634 6,058
Federal income 4,441 4,153
Total operating
expenses 73,020 67,551
Operating income 16,219 14,101
Other income, net
1,238 286
Income before
interest expense 17,457 14,387
Interest expense:
Long-term debt 5,372 5,128
Other 2,081 1,697
Interest capitalized (88) (101)
7,365 6,724
Net income 10,092 7,663
Dividends on
preferred stock (696) (696)
Net income applicable
to common stock $ 9,396 $ 6,967
======== ========
Earnings per common
share $ 7.56 $ 5.60
======== ========
Dividends paid per
common share $ 3.68 $ 3.56
======== ========
Weighted average common
shares outstanding 1,243.6 1,243.6
======== ========
PAGE I-1(a)
THE PROVIDENCE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
(Thousands)
(Unaudited)
March 31, March 31,
September 30,
1996 1995
1995
ASSETS
Gas plant, at original cost $260,467 $238,781
$247,933
Less - Accumulated depreciation 95,949 83,997
85,867
and utility plant
acquisition adjustments 164,518 154,784
162,066
Current assets:
Cash and temporary cash investments 962 1,382
791
Accounts receivable, less allowance of
$4,471 at 3/31/96, $3,515 at 3/31/95
and $2,309 at 9/30/95 43,440 40,013
13,807
Unbilled revenues 9,510 8,512
2,637
Deferred gas costs - -
1,196
Inventories, at average cost -
Liquefied natural gas, propane and
under-ground storage 2,201 6,530
9,976
Materials and supplies 1,408 1,419
1,427
Prepaid and refundable taxes 2,387 3,002
5,272
Prepayments 812 549
1,328
60,720 61,407
36,434
Deferred charges and other assets 13,244 14,887
16,227
Total assets $238,482 $231,078
$214,727
======== ========
========
CAPITALIZATION AND LIABILITIES
Capitalization $161,480 $142,440
$153,502
(See accompanying statement)
Current liabilities:
Notes payable 6,500 14,000
4,337
Current portion of long-term debt 2,034 2,077
1,950
Accounts payable 18,608 21,690
13,896
Accrued taxes 6,716 9,360
5,863
Accrued vacation 1,869 1,798
1,634
Customer deposits 3,938 3,713
3,937
Refundable gas costs 6,260 9,564
- -
Other 4,046 2,605
3,574
49,971 64,807
35,191
Deferred credits and reserves:
Accumulated deferred Federal
income taxes 18,569 15,325
17,892
Unamortized investment tax credits 2,589 2,747
2,668
Other 5,873 5,759
5,474
27,031 23,831
26,034
Total capitalization and liabilities $238,482 $231,078
$214,727
======== ========
========
PAGE I-2
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 31
(Unaudited)
1996 1995
(Thousands of Dollars)
Cash provided by (used for)
Operating Activities:
Net income $ 12,647 $ 9,070
Items not requiring cash:
Depreciation and amortization-plant 5,659 5,156
Changes as a result of regulatory
actions (1,453) -
Amortization of deferred charges and
other 689 677
Deferred Federal income taxes 680 539
Amortization of investment tax credits (79) (79)
Changes in assets and liabilities
which provided (used) cash:
Accounts receivable (29,650) (22,349)
Unbilled revenues (6,873) (5,635)
Inventories 7,794 4,764
Prepaid and refundable taxes 2,882 505
Prepayments 516 909
Accounts payable 4,712 3,651
Accrued taxes 4,911 3,303
Refundable gas costs 7,456 24,913
Accrued vacation, customer deposits
and other 717 (390)
Deferred charges and other 370 (957)
Net cash provided by
operations 10,978 24,077
Investing Activities:
Expenditures for property, plant and
equipment, net (8,593) (8,363)
Financing Activities:
Issuance of mortgage bonds 15,000 -
Payments on long-term debt (1,740) (1,839)
(Decrease) in notes payable, net (12,837) (10,700)
Cash dividends on common shares (2,289) (2,289)
Cash dividends on preferred shares (348) (348)
Total (2,214) (15,176)
Increase in cash & temporary cash
investments 171 538
Cash and cash equivalents at beginning
of period 791 844
Cash and cash equivalents at end
of period $ 962 $ 1,382
========= ========
Supplemental disclosures of cash flow information:
Cash paid during the period -
Interest (net of amount
capitalized) $ 2,332 $ 3,500
Income taxes (net of refunds) $ 2,149 $ 1,400
PAGE I-3
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
(THOUSANDS)
(unaudited)
March 31, March 31,
September 30,
1996 1995
1995
Common stock equity:
Common stock, $1 par
Authorized - 2,500 shares
Outstanding -1,244 at 3/31/96,
3/31/95 and 9/30/95 $ 1,244 $ 1,244 $
1,244
Amount paid in excess of par 37,612 37,802
37,820
Retained earnings 41,966 37,147
31,956
Total common stock equity 80,822 76,193
71,020
Cumulative preferred stock:
Redeemable 8.70% Series, $100 par
Authorized -80 shares
Outstanding -80 shares at 3/31/96,
3/31/95 and 9/30/95 8,000 8,000
8,000
Long-term debt:
First mortgage bonds 72,800 59,400
74,400
Capital leases 1,892 924
2,032
Total long-term debt 74,692 60,324
76,432
Less current portion 2,034 2,077
1,950
Long-term debt, net 72,658 58,247
74,482
Total capitalization $161,480 $ 142,440 $
153,502
========= =========
=========
PAGE I-4
PROVIDENCE GAS COMPANY
Notes to Consolidated Financial Statements
Accounting Policies
It is the Registrant's opinion that the financial information
contained in this report reflects all normal, recurring adjustments
necessary to provide a fair statement of the results for the
periods reported; however, such results are not necessarily
indicative of results to be expected for the year, due to the
seasonal nature of the Registrant's operations. Certain
information and footnote disclosures normally included in the
consolidated financial statements prepared in accordance with
generally accepted accounting principles have been condensed or
omitted in this Form 10-Q pursuant to the rules and regulations of
the Securities and Exchange Commission. However, the disclosures
herein when read with the annual report for 1995 filed on Form 10-K
are adequate to make the information presented not misleading.
Reclassifications
Certain prior period amounts have been reclassified for
consistent presentation with the current period.
Environmental Matters
Federal, state and local laws and regulations establishing
standards and requirements for the protection of the environment
have increased in number and in scope within recent years. The
Registrant cannot predict the future impact of such standards and
requirements which are subject to change and can take effect
retroactively. The Registrant continues to monitor the status of
these laws and regulations. Such monitoring involves the review of
past activities and current operations, and may include expending
funds to investigate or clean-up certain sites. To the best of its
knowledge, subject to the following, the Registrant believes it is
in substantial compliance with such laws and regulations.
At March 31, 1996, the Registrant is aware of four sites at
which future costs may be incurred.
The Registrant has been designated as a potentially
responsible party (PRP) under the Comprehensive Environmental
Response Compensation and Liability Act of 1980 at two sites at
Plympton, Massachusetts on which waste material is alleged to have
been deposited by disposal contractors employed in the past either
directly or indirectly by the Registrant and other PRPs. With
respect to one of the Plympton sites, the Registrant has joined
with other PRPs in entering into an Administrative Consent Order
with the Massachusetts Department of Environmental Protection. The
costs to be borne by the Registrant, in connection with both
Plympton sites, are not anticipated to be material to the financial
condition of the Registrant.
During 1995, the Registrant voluntarily began a study at its
primary gas distribution facility located in Providence, Rhode
Island. As of March 31, 1996, approximately $909,000 had been
spent on studies at this site. In accordance with state laws, such
a voluntary study is monitored by the Rhode Island Department of
Environmental Management (DEM). The purpose of this study was to
determine the extent of environmental contamination at the site.
The Registrant has completed the initial phase of the study which
indicates that some clean-up will be required. The Registrant is
currently exploring remediation options for the site and it will be
several months before the range of options is identified. Once the
options are identified, costs will be estimated for each option and
the Registrant will then consult with the DEM before choosing the
most appropriate option. At March 31, 1996, the Registrant does
not have a range of options and amounts have not been specifically
accrued for remediation at this site.
PAGE I-5
Tests conducted following the recent discovery of an abandoned
underground oil storage tank at the Registrants Westerly, Rhode
Island operations center confirm the existence of contaminants at
this site. The Registrant is currently conducting tests at this
site, the costs of which are being shared equally with the prior
owner, to determine the nature and extent of the contamination.
Due to the early stages of investigation, management cannot offer
any conclusions as to whether any remediation will be required at
this site.
In its rate case filed in February 1995, the Registrant
requested that environmental investigation and remediation costs be
recovered by inclusion in its depreciation factors consistent with
the rate recovery treatment for all types of cost of removal.
Accordingly, environmental investigation costs of approximately
$1.2 million have been charged to the accumulated depreciation
reserve at March 31, 1996. Management believes that this rate
recovery mechanism is appropriate for recovery of future costs.
Should future developments warrant additional rate recovery
mechanisms, management will seek such recovery.
In addition to rate recovery, management has a program to
ascertain the possibility of recovery under prior insurance
coverage. Also, management has begun discussions with other
parties who may assist the Registrant in paying future costs
incurred at the above sites. Management believes that its program
for managing environmental issues combined with rate recovery,
probable insurance recovery and financial contributions from
others, will likely avoid any material adverse effect on its
results of operations or its financial condition as a result of the
ultimate resolution of the above sites.
Gas Supply Restructuring
Federal Energy Regulatory Commission (FERC) Order 636 and
other related orders (the Orders) have significantly changed the
structure and types of services offered by pipeline transportation
companies. The most significant components of the restructuring
occurred in November 1993. In response to these changes, the
Registrant has successfully negotiated new pipeline transportation
and gas storage contracts.
At the same time, a number of contracts with gas suppliers
have been negotiated to complement the transportation and storage
contracts. The portfolio of supply contracts is designed to be
market responsive and is diversified with respect to contract
lengths, source location and other contract terms. On a periodic
basis, the Registrant reviews all of its contracts to ensure a
diverse, secure, flexible and economical supply portfolio is
maintained.
To meet the requirements of the Orders, the pipelines have
incurred significant costs, collectively known as transition costs.
The majority of these costs will be reimbursed by the pipelines
customers, including the Registrant. Based upon current
information, the Registrant anticipates its transition costs to net
between $18 million and $20 million of which $15.2 million has been
included in the Cost of Gas Adjustment Clause(CGA) and is currently
being collected from customers. The remaining minimum obligation
of $2.8 million has been recorded in the accompanying consolidated
balance sheet along with a regulatory asset anticipating future
recovery through the CGA.
The Registrants ultimate liability may differ from the above
estimates based on FERC settlements with the Registrants pipeline
transportation suppliers. FERC has approved settlements with three
of its pipelines, which account for the bulk of the
PAGE I-6
Registrants transition costs. Negotiations are continuing on one
additional pipeline, and based on the information available, the
Registrant believes that its current range for transition costs is
reasonable.
Rate Case
In February 1995, the Registrant filed for rate relief
requesting an approximate 8 percent general rate increase. The
major factors contributing to the rate request were an increase in
depreciation due to capital spending, an increase in working
capital needs, and an increase in capital expenditures. On
November 17, 1995, the Rhode Island Public Utilities Commission
(RIPUC) issued its decision on the rate request made by the
Registrant. In its decision, the RIPUC authorized the Registrant
to increase its rates to recover additional annual revenues in the
amount of $3,990,000. Subsequent to the issuance of the rate
decision, the RIPUC approved the Registrants motion to reconsider
a revenue adjustment of $171,572. That approval increases the
overall rate increase to $4,161,572. Additionally, as a result of
the Order, the Registrant recorded several adjustments to its first
quarter 1996 financial statements. Specifically:
a) The Registrant began calculating property tax expense for rate
purposes based on the current years expense plus an estimate of
one years increase in expense. Previously, the Registrant was
required to estimate two years increase in expense. As a result,
the Registrant reduced its regulatory liability for one years
property tax expense resulting in a one time gain of approximately
$4.1 million before tax.
b) The Registrant wrote-off and will not recover approximately $1.6
million, before tax, of restructuring costs previously deferred.
The RIPUC had previously allowed the Registrant recovery of similar
costs, but determined that the costs of the 1994 reorganization
should not be recovered in rates.
c) The Registrant wrote-off approximately $440,000, before tax, of
previously deferred rate case expenses.
d) The Registrant wrote-off approximately $470,000, before tax, of
construction expenditures previously capitalized. These costs were
capitalized in accordance with generally accepted accounting
principles and were based on Federal Energy Regulatory Commission
guidance on accounting for such costs. The RIPUC agreed that such
costs could be capitalized beginning in 1996, but did not allow
recovery of previously capitalized costs.
New Accounting Pronouncements
Management continues to analyze the new accounting statement,
Statement of Financial Accounting Standards No. 121 (SFAS No 121),
SAccounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of. Based on the current regulatory
environment, management does not believe adoption of SFAS No. 121
will have a material impact on the financial position or results of
operations of the Registrant. Adoption of SFAS No. 121 is required
in fiscal 1997 although the Registrant may adopt at an earlier
date.
PAGE I-7
ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Registrant's current operating revenues, operating margin
and net income applicable to common stock for the current quarter,
six month period and twelve month period have increased over the
comparable periods presented, as shown in the table
below.
THREE MONTHS SIX MONTHS TWELVE
MONTHS
ENDED MARCH ENDED MARCH ENDED
MARCH
1996 1995 1996 1995 1996 1995
(000's)
Operating revenues $79,261 $64,401 $136,531 $112,683 $203,891$187,958
=============== ===================================
Operating margin $33,097 $28,452 $ 59,223 $ 51,042 $ 89,239 $
81,652
=============== ===================================
Net income
applicable to $ 7,419 $ 5,553 $ 12,299 $ 8,722 $ 9,396 $6,967
common stock =============== ===================================
Operating Revenues and Operating Margin
During the latest quarter, the Registrant experienced colder
than normal weather resulting in temperatures averaging 17.0
percent colder than last year. The increase in heating load due to
the colder temperatures represents approximately $2.6 million in
increased operating margin.
The colder temperatures during the current fiscal year-to-date
period have also averaged 20.3 percent colder than last year. As a
result, operating margin has increased approximately $5.5 million.
Additionally, the Rhode Island Public Utilities Commission
(RIPUC) approved a rate increase of approximately $4.2 million
effective December 17, 1995. Operating margin for the current
quarter and six month period, versus last year, increased
approximately $1.7 million and $2.3 million, respectively, as a
result of the rate increase.
Operating and Maintenance Expenses
Overall, other operating and maintenance expenses increased,
during the current quarter versus last year, approximately $1.2
million or 10.1 percent. The increase is attributable primarily to
a higher uncollectible revenue provision due to the increased
operating revenues resulting from the colder temperatures and
higher labor costs also due to colder weather, as well as normal
increases under negotiated union contracts and employee merit
raises. Other operation and maintenance expenses increased $2.0
million or 8.9 percent and $3.1 million or 7.2 percent for the six
and twelve month periods, respectively, for the reasons described
above.
Taxes
Taxes for the current quarter, six and twelve month periods
versus last year increased approximately $1.3 million or 19.2
percent, $2.3 million or 20.2 percent and $1.4 million or 9.3
percent, respectively. The increase in taxes, mainly Federal
income and state gross receipts tax, resulted from higher pretax
income and higher operating revenues, respectively.
PAGE I-8
Other Income
Other income increased approximately $440,000 for the current
six month period versus last year. The increase is due to
regulatory adjustments including a one-time gain for the regulatory
change in accounting for property taxes which was offset by the
write-offs of previously deferred reorganization and other costs
for which recovery was not allowed as part of the rate award
received from the RIPUC on November 17, 1995. (See notes to
consolidated financial statements.)
Interest Expense
Interest expense decreased approximately $24,000 or 1.2
percent for the current quarter and increased $184,000 or 5.1
percent and $641,000 or 9.5 percent for the six and twelve month
periods, respectively. A decrease in weighted average short-term
borrowings caused short-term interest expense to decrease during
the current quarter versus last year. The Registrant's long-term
interest expense for the current quarter, six and twelve month
periods has increased slightly as a result of the Series R First
Mortgage Bond issuance in December 1995.
Future Outlook
The Financial Accounting Standards Board (FASB) recently
released Statement of Financial Accounting Standards No. 121 (SFAS
No. 121), Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of, which will be effective
for the Registrant in fiscal 1997. Based on the current regulatory
environment, management does not believe SFAS No. 121 will have a
material impact on the Registrants results of operations or
financial position. The FASB has also released statement of
Financial Accounting Standards No. 123 (SFAS No. 123), Accounting
for Stock-based Compensation. Although this Statement will
increase footnote disclosures regarding the Registrants stock
plans, management does not believe SFAS No. 123 will have an impact
on the Registrants results of operations or financial position.
There are virtually unlimited opportunities to unbundle
services, form alliances, custom-tailor services for customers, and
greatly step-up the competition with other energy suppliers. To
facilitate the transition to a diversified energy marketer, the
Registrant is planning to form business alliances outside of its
traditional utility business. The Registrant is also seeking
investment opportunities in non-regulated energy ventures. These
energy marketing ventures will increasingly be separate from the
distribution utility. There are strategic long-term planning costs
associated with building the new energy business. The Registrant
estimates these costs to be in the range of $400,000 to $900,000
for fiscal year 1996.
LIQUIDITY AND CAPITAL RESOURCES
The Registrant meets seasonal cash requirements and finances
its capital expenditures program on an interim basis through short-
term borrowings. For example, during the latest six months, the
Registrant's accounts receivable and unbilled revenue have
increased approximately $37 million. These fluctuations are the
result of higher monthly sales during the latest quarter and a
moratorium on residential shut-offs during the heating season.
Because of these increases, which negatively impact cashflow, the
Registrant must borrow to maintain an appropriate level of
liquidity. Management believes its available financings are
sufficient to meet these seasonal needs.
The Registrant experienced a sharp decrease in its net cash
provided by operations during the latest quarter as compared to
last year, primarily as the result of gas cost collections. Last
year, the net cash provided by operations increased as a result of
the collection of gas costs from a substantial underrecovery which
previously existed.
In December 1995, the Registrant received proceeds of $15
million related to an issuance of First Mortgage Bonds, Series R
(7.5%), which will mature in December 2025. The net proceeds
received from the issuance were used to pay down short-term debt.
PAGE I-9
Capital expenditures for the latest fiscal year-to-date
quarter of $8.6 million were stable when compared to $8.4 million
last year. Capital expenditures for the remainder of the fiscal
year are expected to be approximately $11.4 million. Anticipated
capital expenditures for the next three years are expected to total
between $55 million to $65 million.
In February 1995, the Registrant filed for rate relief
requesting an approximate eight percent general rate increase. In
November 1995, the RIPUC authorized the Registrant to increase its
rates to recover additional annual revenues in the amount of
$3,990,000. Subsequent to the issuance of the rate decision, the
RIPUC approved the Registrants motion to reconsider a revenue
adjustment of $171,572. That approval increases the overall rate
increase to $4,161,572. As part of this award, the Registrant is
allowed to earn a 10.9% return on common equity.
In February 1996, the Registrant received approval of a three-
year Settlement Agreement between itself and the Division of Public
Utilities and Carriers (Division) regarding the Integrated Resource
Plan (IRP), which was filed with the RIPUC in July 1994. The
purpose of the IRP is to optimize the utilization of production
transmission and distribution resources so that customers receive
high quality services at the lowest possible costs.
The Settlement Agreement provides for: (1) funding associated
with Demand Side Management programs of $500,000, which are
designed to provide equipment rebates for specific load building
programs; (2) funding associated with a low income weatherization
program of $200,000, which is designed to assist low income
customers through the installation of conservation measures; and
(3) a performance-based ratemaking mechanism. The Settlement
Agreement also contains a general agreement that the Registrants
strategy and steps included in its supply plan are reasonable.
The Settlement Agreement also provides for a one-time funding
of up to $800,000 for a Low Income Assistance Program (LIAP)
through a portion of the Registrants share of the performance-
based ratemaking mechanism. The LIAP was developed in response to
the Registrants anticipated loss of approximately $1.5 million in
Federal funding for the low income heat assistance program
administered by the State of Rhode Island for fiscal 1996.
The funding of these programs is generated through annual gas
cost savings beginning in July 1995. The Registrant has performed
a preliminary analysis of gas cost savings since July 1995 and
believes that sufficient savings have been achieved as of March 31,
1996 to provide funding for these programs without incurring a
charge to income. Although the settlement agreement contains a
methodology used to calculate the actual gas cost savings, the
ultimate analysis of savings is subject to RIPUC review and
approval which will occur in the fourth quarter of the fiscal year.
PAGE I-10
PROVIDENCE GAS COMPANY
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders for the Registrant's parent
company, Providence Energy Corporation, was held on January 18,
1996 and the following nominees to the Registrant's Board of
Directors were elected as Directors for terms expiring at the time
of the 1998 annual meeting by the following vote:
Mr. John H. Howland 4,060,870 FOR 87,334 WITHHELD
Mr. Douglas H. Johnson 4,063,935 FOR 84,269 WITHHELD
Mr. Romolo A. Marsella 4,077,557 FOR 70,647 WITHHELD
Mr. William Kreykes 4,067,299 FOR 80,905 WITHHELD
Item 6 (a). Exhibits
10.1 Employment agreement dated February 29, 1996 between
Patricia O. Keene, Vice President, Customer Activities of The
Providence Gas Company, and the said Company.
Item 6 (b). Reports on Form 8-K
No reports on Form 8-K were filed during the quarter for which
this report is filed.
PAGE II-1
THE PROVIDENCE GAS COMPANY
It is the opinion of management that the financial information
contained in this report reflects all adjustments necessary for a
fair statement of results for the period reported, but such results
are not necessarily indicative of results to be expected for the
year, due to the seasonal nature of the Registrant's gas
operations. All accounting policies and practices have been
applied in a manner consistent with prior periods.
SIGNATURE
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.
The Providence Gas Company
(Registrant)
BY:/s/Gary S. Gillheeney
GARY S. GILLHEENEY
Senior Vice President,
Treasurer and CFO
Date: May 14, 1996
PAGE II-2
THE PROVIDENCE GAS COMPANY
It is the opinion of management that the financial information
contained in this report reflects all adjustments necessary for a
fair statement of results for the period reported, but such results
are not necessarily indicative of results to be expected for the
year, due to the seasonal nature of the Registrant's gas
operations. All accounting policies and practices have been
applied in a manner consistent with prior periods.
SIGNATURE
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.
The Providence Gas Company
(Registrant)
BY:
GARY S. GILLHEENEY
Senior Vice President,
Treasurer and CFO
Date: May 14, 1996
PAGE II-2
EMPLOYMENT AGREEMENT
This Employment Agreement is made this 29th day of
February, 1996, by and between PROVIDENCE GAS COMPANY, a Rhode
Island corporation with principal offices at 100 Weybosset
Street, Providence, Rhode Island 02903 (the Company), and
Patricia O. Keene, of Harvard, Massachusetts (the Employee),
with respect to the following facts:
1. The Employee is currently employed by the Company as
Vice President; the Company has confidence in the managerial
and other skills of the Employee and desires to continue the
employment of the Employee on the terms and conditions
hereinafter contained; and in order to encourage the full
attention by the Employee to her duties in her capacity
aforesaid the Company wishes to make provision for certain
protections for the Employee in the event of the termination
of her employment under specified conditions.
2. The Employee is willing to continue to be employed
by the Company on such terms and conditions and with the
benefit of such protections.
NOW, THEREFORE, in consideration of the mutual promises
hereinafter contained, the parties hereto mutually agree as
follows:
1. Term of Agreement
The Company hereby employs the Employee, and the Employee
hereby accepts employment by the Company, for a term
commencing with the date hereof and continuing indefinitely
hereafter, subject to termination in accordance with the
provisions of paragraphs 6, 7, and 8, below.
2. Capacity and Responsibilities
The Employee shall be employed by the Company in the
capacity of Vice President of the Company, or in such other
executive capacities or positions as the board of directors of
the Company may determine from time to time, with such duties
and authority as customarily appertain to such office or other
capacities or positions, and with such additional duties and
authority as may be agreed upon by the Employee and the
Company from time to time. While in the employ of the
Company, the Employee agrees to serve the Company faithfully
and diligently and to use her best efforts to promote the
interests of the Company.
3. Compensation
The Company agrees to compensate the Employee for her
services rendered hereunder at a rate per annum which shall be
commensurate with the Employees office with the Company and
shall be determined from time to time by the board of
directors of the Company, which rate shall, however, in no
case be less than the rate of compensation being paid to the
Employee at the time of execution of this Agreement or such
higher rate as may be in effect for the Employee from time to
time during her employment by the Company. Such compensation
shall be payable in substantially equal monthly installments,
in arrears, or in such other installments, not less often than
monthly, as the board of directors of the Company may approve
from time to time, subject to such withholdings and deductions
as may be required by law. For the purposes of this
paragraph, the term compensation shall mean the Employees
base annual compensation as established by the board of
directors and shall exclude (i) any incentive pay, bonuses, or
similar compensation, (ii) the value of any fringe benefits,
and (iii) contributions by the Company to or for the account
of the Employee under the Voluntary Investment Plan of
Providence Energy Corporation or any other contributory plan
of Providence Energy Corporation or of the Company in effect
from time to time.
4. Reimbursement of Expenses
The Employee shall be reimbursed for such expenses as may
be reasonably incurred in connection with the carrying out of
the Employees duties hereunder, subject to the presentation
of vouchers in such detail as the board of directors may
require from time to time.
5. Vacation; Fringe Benefits
The Employee shall be entitled to the same vacation
privileges and other fringe benefits as those enjoyed by other
salaried employees of the Company generally, but subject to
such variations as may be determined by the board of directors
of the Company from time to time to reflect differences
between the compensation levels and terms of employment of the
Employee and other salaried employees of the Company. In any
case, such vacation privileges and other fringe benefits shall
at no time be less favorable to the Employee than those
currently enjoyed by the Employee.
6. Termination (Absent Change in Control)
If there shall have been no Change in Control (as defined
hereinafter), this Agreement and the employment of the
Employee hereunder may be terminated as follows:
(a) by the Employee, on not less than thirty (30) days
notice to the Company; or
(b) by the Company, on not less than thirty (30) days
notice to the Employee; provided, that if the termination of
the Employees employment by the Company shall be without
cause (as defined hereinafter), the Employee shall be entitled
to the payment of an amount equal to the Employees annual
compensation (as defined in paragraph 3, above), as reportable
to the Internal Revenue Service for federal income tax
purposes, at the rate in effect immediately prior to such
termination, such amount to be paid to the Employee in twelve
(12) consecutive equal monthly installments on the last day of
each month beginning with the month next following the month
in which the termination is effective. If and for as long as
the Employee is entitled to payments under this paragraph, the
Company will continue to provide to the Employee, at the
Companys expense, the health and medical insurance benefits
being provided to the Employee at the time of termination of
her employment.
7. Termination (After Change in Control)
(a) If a Change in Control shall have occurred, this
Agreement and the employment of the Employee hereunder may be
terminated as follows:
(i) by the Employee, on not less than thirty (30)
days notice to the Company; or
(ii) by the Company at any time on not less than
thirty (30) days notice to the Employee, provided that (A) if
there shall have been a Change in Employment Conditions, as
defined hereinafter, prior to the exercise by the Employee of
her termination rights referred to above, or (B) if the
termination of the Employees employment by the Company shall
be without cause (as defined hereinafter), then in either case
the Employee shall be entitled to the payment of an amount
equal to the sum of (i) the aggregate of her compensation (as
defined in paragraph 3, above) paid or payable with respect to
the thirty-six (36) months of employment next preceding the
date of termination, as reportable to the Internal Revenue
Service for federal income tax purposes, plus (ii) the
aggregate of the amounts paid or payable under the Providence
Energy Corporation Performance and Equity Incentive Plan (or
under such other incentive plan of the Company or of
Providence Energy Corporation as may be in effect from time
to time) for the (3) full fiscal years next preceding the date
of termination. Such amount shall be paid to the Employee in
twenty-four (24) consecutive equal monthly installments on the
last day of each month beginning with the month next following
the month in which the termination is effective. If and for
as long as the Employee is entitled to payments under this
paragraph, the Company will continue to provide to the
Employee, at the Companys expense, the health and medical
insurance benefits being provided to the Employee at the time
of termination of her employment.
(b) Any payment provided for in paragraph 6(b) or in
subparagraph (a), above, shall be made without reduction
whether or not any portion thereof shall be deemed an excess
parachute payment under the provisions of Section 280G of the
Internal Revenue Code of 1986, as the same may be amended from
time to time.
(c) For the purposes of this Agreement, the Employees
employment shall be deemed to have been terminated for cause
only if there shall have been an act of fraud,
misappropriation, or embezzlement on the part of the Employee.
Notwithstanding the foregoing, the Employee shall not be
deemed to have been terminated for cause unless and until
there shall have been delivered to the Employee a copy of a
resolution duly adopted by the unanimous vote of the entire
membership of the Companys board of directors at a meeting
of such board duly called and held for that purpose (after
reasonable notice to the Employee and an opportunity for the
Employee, together with the Employees counsel, to be heard by
the board) finding that in the good faith opinion of the Board
the Employee was guilty of conduct set forth in the first
sentence of this subparagraph (c) and specifying the
particulars thereof in detail.
8. Other Termination
(a) Notwithstanding the provisions of paragraphs 6 and
7, above, this Agreement and the employment of the Employee
hereunder shall terminate without further action by either
party upon the earlier of
(i) the attainment by the Employee of her normal
retirement age under the Companys pension plan for salaried
employees;
(ii) the permanent disability of the Employee; or
(iii) the death of the Employee; provided, that
if at the time of her death the Employee is entitled to
payments under paragraph 6(b) or paragraph 7(a), above, such
payments shall be made following her death to her estate.
(b) For the purposes of this Agreement, the Employee
shall be deemed to be permanently disabled if (i) on the basis
of medical evidence reasonably satisfactory to the board of
directors of the Company, the board of directors finds that
the Employee is unable to carry out substantially her duties
hereunder as a result of bodily injury or disease, or mental
condition, either occupational or non-occupational in cause,
and (ii) such disability shall have continued for a period of
six (6) consecutive months.
(c) If the Employee and the Company shall not be in
agreement as to whether she is permanently disabled for the
purposes of this Agreement, the matter shall be referred to a
panel of three medical doctors, one of which shall be selected
by the Employee, one of which shall be selected by the
Company, and one of which shall be selected by the two doctors
as so selected, and the decision of a majority of the panel
with respect to the question of whether the Employee is or is
not permanently disabled shall be binding upon the Employee
and the Company. The expenses of any such referral shall be
borne by the party against whom the decision of the panel is
rendered. The Employee may be required by the Company to
submit to medical examination at any time during the period of
her employment hereunder, but not more often than quarter-
annually, to determine whether a permanent disability exists
for the purposes of this Agreement.
9. Definition of Change in Control
For the purposes of this Agreement, a Change in Control
shall be deemed to have occurred if
(a) there shall be consummated (i) any consolidation or
merger of Providence Energy Corporation, a Rhode
Island corporation and the holder of all of the
outstanding capital stock of the Company
(Providence Energy), in which Providence Energy is
not the continuing or surviving corporation, or
pursuant to which shares of Providence Energys
common stock are converted into cash, securities, or
other property, other than a merger of Providence
Energy in which the holders of Providence Energys
common stock immediately prior to the merger have
the same proportionate ownership of common stock of
the surviving corporation immediately after the
merger, or (ii) any sale, lease, exchange, or other
transfer (in one transaction or a series of related
transactions) of all of substantially all of the
assets of the Company; or
(b) the shareholders of the Company or of Providence
Energy approve any plan or proposal for the
liquidation or dissolution of the Company or of
Providence Energy; or
(c) any person (as such term is used in Sections 13(d)
and 14 (b)(2) of the Securities Exchange Act of
1934, as amended [the Exchange Act]), other than
Providence Energy or a successor corporation
resulting from a merger excluded under clause (i) of
subparagraph (a), above, shall become directly or
indirectly the owner or the beneficial owner (within
the meaning of Rule 13d-3 under the Exchange Act) of
thirty percent (30%) or more of the outstanding
common stock of the Company, or any person (as such
term is so used) shall become directly or indirectly
the owner or the beneficial owner (within the
meaning of Rule 13d-3 under the Exchange Act) of
thirty percent (30%) or more of the outstanding
common stock of the Company, or any person (as such
term is so used) shall become directly or indirectly
the owner or the beneficial owner (within the
meaning of said Rule 13d-3) of thirty percent (30%)
or more of the outstanding common stock of
Providence Energy.
10. Definition of Change in Employment Conditions
For the purposes of this agreement, a Change in
Employment Conditions shall mean any of the following:
(a) the assignment to the Employee by the Company of
duties inconsistent with the Employees position, duties,
responsibilities and status with the Company as Vice
President, or a change in the Employees titles or
offices as in effect immediately prior to a Change in
Control, or any removal of the Employee from any of such
positions, except in connection with the termination of
her employment for cause or as a result of the Employees
retirement, permanent disability, or death;
(b) a reduction by the Company in the Employees
compensation (as defined in paragraph 3, above) as in
effect on the date hereof or as the same may be increased
from time to time during the term of this Agreement, or
the Companys failure to increase (within twelve (12)
months of the Employees last increase in compensation)
the Employees compensation after a Change in Control in
an amount which at least equals, on a percentage basis,
the weighted average percentage increase in compensation
for all officers of the Company effected in the preceding
twelve (12) months;
(c) any failure by the Company or Providence Energy to
continue in effect any benefit plan or arrangement in
which the Employee is participating at the time of a
Change in Control (or any other plans providing the
Employee with substantially similar benefits)
(hereinafter referred to as Benefit Plans), or the
taking of any action by the Company or by Providence
Energy which would adversely affect the Employees
participation in or materially reduce the Employees
benefits under any such Benefit Plan or deprive the
Employee of any material fringe benefit enjoyed by the
Employee at the time of a Change in Control;
(d) a relocation of the Companys principal executive
offices to a location outside of the greater Providence,
Rhode Island, area, or the Employees relocation to any
place other than the location at which the Employee
performed her duties prior to a Change in Control, except
for required travel by the Employee on the Companys
business to an extent substantially consistent with the
Employees business travel obligations at the time of a
Change in Control;
(e) any failure by the Company to provide the Employee
with the number of paid vacation days to which the
Employee is entitled at the time of a Change in Control;
or
(f) any breach by the Company of any material provision
of this Agreement.
11. Confidentiality and Noncompetition.
(a) Confidentiality. During the term of this Agreement
and thereafter in perpetuity, the Employee will not directly
or indirectly divulge or appropriate to her own use, or to the
use of any third party, any Trade Secrets, other secret or
Confidential Information, knowledge or financial information
of the Company or any of the Companys subsidiaries or
affiliates (hereinafter, the Company and its subsidiaries and
affiliates shall be collectively referred to as the Company
Group), except as may be in the public domain other than by
violation of this Agreement.
(b) Noncompetition. From the date hereof until two (2)
years after the termination of her employment hereunder, the
Employee will not (i) directly or indirectly own any equity or
proprietary interest in (except for ownership of shares in a
publicly-traded company not exceeding 5% of any class of
outstanding securities), or be an employee, agent, director,
advisor, or consultant to or for any corporation (other than
the Company Group), business enterprise, or any person engaged
anywhere in the State of Rhode Island or the Commonwealth of
Massachusetts, whether on her own behalf or on behalf of any
person other than the Company Group, in the manufacture,
procuring, sale, marketing, promotion, or distribution of any
product or product lines functioning competitively with any
product or product lines of the Company Group during the term
of this Agreement, and the Employee will not assist in,
manage, or supervise any of the foregoing activities; (ii)
undertake any action to induce or cause any customer or client
of the Company Group to discontinue any part of its business
with the Company Group; (iii) cause, induce or in any way
facilitate the employment by any other person or organization
of any employee of or consultant to the Company Group,
provided, that this covenant shall become operative only upon
the termination of the Employees employment; or (iv) take or
assist directly or indirectly in the taking, by acting as
consultant to a third party or otherwise, of any position on
any matter involving the Company and pending before any state
or other public agency, when such position is adverse to the
position being promoted before such agency at the time by the
Company.
(c) Definitions. Trade Secrets as used herein means
all secret discoveries, inventions, formulae, designs,
methods, processes, techniques of production and know-how
relating to the Company Groups business. Confidential
Information as used herein means the Company Groups internal
policies and procedures, suppliers, customers, financial
information, and marketing practices, as well as secret
discoveries, inventions, formulae, designs, techniques of
production, know-how and other information relating to the
Company Groups business not rising to the level of a trade
secret under applicable law.
(d) The breach by the Employee of any of the covenants
contained in this paragraph 11 shall relieve the Company of
all further payment obligations under paragraph 6 or paragraph
7.
12. Successor to the Company
The Company will require any successor to or assignee of
(whether direct or indirect, by purchase, merger,
consolidation or otherwise) all or substantially all of the
business and/or assets of the Company, by agreement,
expressly, absolutely and unconditionally to assume and agree
to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no
such succession or assignment had taken place. Any failure of
the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be
deemed a breach of a material provision of this Agreement. As
used in this Agreement, Company shall include any successor
to or assignee of the Companys business and/or assets as
aforesaid which executes and delivers the agreement provided
for in this Paragraph 12 or which otherwise becomes bound by
all the terms and provisions of this Agreement by operation of
law.
13. Performance and Equity Incentive Plan
Nothing in this agreement shall be deemed to alter or
modify in any way such rights as the Employee may now or in
the future have under the 1992 Performance and Equity
Incentive Plan (the Plan) of Providence Energy Corporation,
as the same may be amended from time to time, including
without limitation rights of the Employee with respect to the
accelerated vesting of Grant Shares (as defined in the Plan)
under certain circumstances as provided in the Plan.
14. Notices
Any notice given or required to be furnished to the
Employee under this Agreement shall be mailed to her by
registered mail, postage prepaid, at her last-known mailing
address as the same appears on the records of the Company, or
at such other address as she may furnish to the Company in
writing for the purpose. Any notice given or required to be
furnished to the Company hereunder shall be mailed to it by
registered mail, postage prepaid, at 100 Weybosset Street,
Providence, Rhode Island 02903, attention: Secretary, or at
such other address as the Company may furnish to the Employee
in writing for this purpose. Any such notice shall be deemed
to have been given when mailed in accordance with the
foregoing.
15. Termination of Prior Employment Agreements
This Agreement is intended to supersede all prior
employment agreements, oral or written, between the Employee
and the Company, all of which are hereby terminated and
cancelled. Neither the Company nor the Employee shall have
any further rights against or obligations to the other under
any of such prior agreements.
16. Binding Effect, etc.
This Agreement shall be binding upon and inure to the
benefit of the Employee and her heirs and the representatives
of her estate. The interests of the Employee hereunder shall
not be assignable. This Agreement shall also be binding upon
and shall inure to the benefit of the Company and its
successors and assigns.
17. Applicable Law
This Agreement fshall be governed in all respects by the
laws of the State of Rhode Island.
IN WITNESS WHEREOF, the parties have executed this
employment Agreement as of the day and year first above
written.
PROVIDENCE GAS COMPANY
BY:_____________________________
_________________________
James H. Dodge Patricia O. Keene
Chairman, President, and CEO
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80,822
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