<PAGE> 1
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
________________
FORM 10-K
(Mark One)
(X) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 - For the fiscal year ended September 30, 1995
( ) 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: 1-11429
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
(Exact name of registrant as specified in its charter)
NORTH CAROLINA 56-0233140
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
400 COX ROAD, P. O. BOX 1398
GASTONIA, NORTH CAROLINA 28053-1398
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (704) 864-6731
Securities registered pursuant to Section 12(b) of the Act:
COMMON STOCK, PAR VALUE $1 PER SHARE
(Title of Class)
Securities registered pursuant to Section 12(g) of the Act: NONE
______________________
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 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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this Form 10-K. ( )
______________________
Estimated aggregate market value of the voting stock held by nonaffiliates
of the registrant at November 30, 1995 . . . . . . . . . . . $304,265,169
______________________
Number of shares of Common Stock, $1 par value, outstanding
at November 30, 1995 . . . . . . . . . . . . . . . . . . . . . 18,765,708
Documents incorporated by reference:
Portions of the proxy statement dated December 20, 1995, relating to
the January 26, 1996 annual meeting of shareholders, are incorporated by
reference into Part III of this annual report.
<PAGE> 2
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
FORM 10-K
ANNUAL REPORT TO
THE SECURITIES AND EXCHANGE COMMISSION
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
_____________
TABLE OF CONTENTS
Item Page
- - ---- ----
PART I.
1. Business. . . . . . . . . . . . . . . . . . . . . 3
Executive Officers of the Registrant. . . . . . . 13
2. Properties. . . . . . . . . . . . . . . . . . . . 14
3. Legal Proceedings . . . . . . . . . . . . . . . . 14
4. Submission of Matters to a Vote of
Security Holders . . . . . . . . . . . . . . . . 15
PART II.
5. Market for the Registrant's Common Stock and
Related Shareholder Matters. . . . . . . . . . . 15
6. Selected Financial Data . . . . . . . . . . . . . 16
7. Management's Discussion and Analysis of Results
of Operations and Financial Condition. . . . . . 17
8. Financial Statements and Supplementary Data . . . 26
9. Changes in and Disagreements With Accountants on
Accounting and Financial Disclosure. . . . . . . 46
PART III.
10. Directors and Executive Officers of the
Registrant . . . . . . . . . . . . . . . . . . . 46
11. Executive Compensation. . . . . . . . . . . . . . 46
12. Security Ownership of Certain Beneficial Owners
and Management . . . . . . . . . . . . . . . . . 47
13. Certain Relationships and Related Transactions. . 47
PART IV.
14. Exhibits, Financial Statement Schedules and
Reports on Form 8-K. . . . . . . . . . . . . . . 47
Signatures. . . . . . . . . . . . . . . . . . . . 54
Exhibit Index . . . . . . . . . . . . . . . . . . 55
<PAGE> 3
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
PART I
------
Item 1. Business
- - -----------------
General
- - -------
Public Service Company of North Carolina, Incorporated (PSNC) is a
public utility engaged primarily in selling and transporting natural gas
to approximately 285,000 residential, commercial and industrial
customers in North Carolina. It was organized as a North Carolina
corporation in 1938, and its corporate office is located at 400 Cox
Road, P. O. Box 1398, Gastonia, North Carolina 28053-1398, telephone
(704) 864-6731.
In connection with its natural gas distribution business, PSNC
promotes, sells and installs both new and replacement cooking, water
heating, laundry, space heating, cooling and humidity control natural
gas appliances and equipment. PSNC, through an unregulated subsidiary,
provides conversion and maintenance services for natural gas-fueled
vehicles (NGVs) in selected cities in and beyond its franchised
territory. Through another unregulated subsidiary, PSNC is engaged in
the marketing of natural gas to large commercial and industrial
customers.
During fiscal years 1995, 1994 and 1993, no single customer account
contributed more than 2% of PSNC's total operating revenues.
PSNC has no reportable industry segments. Revenues attributable to
natural gas distribution, merchandise and jobbing, propane operations,
exploration and development and gas marketing and other activities for
each of the fiscal years in the three-year period ended September 30,
1995 were as follows (in thousands):
1995 1994 1993
-------- -------- --------
Natural Gas Distribution(1) $247,893 $273,705 $279,989
Merchandise and Jobbing(2) 8,675 8,135 8,692
Propane Operations(3) - 9,090 9,662
Exploration & Development(3) (171) 1,547 535
Gas Marketing/Other Activities(1) 8,827 7,654 157
-------- -------- --------
Total $265,224 $300,131 $299,035
======== ======== ========
- - ------------
(1) See "Results of Operations" on page 17 of this annual
report.
(2) Primarily the sale and installation of gas appliances.
(3) Effective June 29, 1994, PSNC sold its propane operations to
Empiregas, Inc. During June 1994, PSNC sold PSNC Production
Corporation's exploration and development properties.
<PAGE> 4
Service Territory
- - -------------------
PSNC's 26-county franchised service territory includes Raleigh,
Durham and the Research Triangle Park area in the northcentral portion
of the state; this area accounts for approximately 60% of PSNC's
customers and 51% of its throughput (total gas sales and transportation)
in fiscal 1995. PSNC's central area includes the cities of Gastonia,
Concord and Statesville which are located in the greater Charlotte
metropolitan area; this area accounts for 28% of PSNC's customers and
33% of its throughput. PSNC's western area includes Asheville,
Hendersonville and Brevard, and accounts for the remaining 12% of
customers and 16% of throughput. PSNC's diversified industrial base in
its service territory includes manufacturers of textiles, chemicals,
ceramics and clay products, glass, automotive products, minerals,
pharmaceuticals, plastics, metals, electronic equipment, furniture and a
variety of food and tobacco products. PSNC's utility operations are
regulated by the North Carolina Utilities Commission (NCUC).
Over 2.3 million people reside in PSNC's franchised territory.
During the past three fiscal years, PSNC has added approximately 36,300
new customers to its natural gas transmission and distribution systems.
Of those customers, 32,700 were residential, 2,400 were commercial and
1,200 were industrial. The resulting 5% average annual growth rate is
nearly three times the national industry average. PSNC's average annual
customer growth rate since fiscal 1985 has been 5.3%. PSNC attributes
this growth rate to two primary factors:
- The continued expansion by PSNC of its transmission and
distribution systems to enable it to reach new customers in
its relatively unsaturated service territory. The population
in PSNC's franchised territory has grown faster than the
national average in recent years and PSNC estimates that it
serves approximately one-third of that population.
- The continued growth of the North Carolina economy, including
areas within PSNC's service territory. Also, the State's
relatively low unemployment rate has been below the national
average in recent years.
Business Strategy
- - ------------------
PSNC is expanding its transmission and distribution systems to
deliver more natural gas throughout its service territory. Of its total
construction expenditures of $61.1 million in fiscal 1995, $45.5 million
in fiscal 1994, and $40.1 million in fiscal 1993, approximately $49.7
million, $39.1 million and $31.6 million, respectively, were expended on
the construction of transmission and distribution pipelines.
<PAGE> 5
PSNC is focusing on the following marketing priorities:
- Retaining existing customers by marketing the replacement of
old appliances and equipment with new gas equipment.
- Increasing demand for natural gas by marketing additional gas
equipment to PSNC's existing customers.
- Adding new customers either on its existing distribution
system or by economical short distribution main extensions.
In addition, PSNC is evaluating the introduction of emerging gas
technologies as a way to increase the long-term demand for natural gas.
PSNC has identified the conversion of gasoline-fueled vehicles to NGVs
as an opportunity to increase the demand for natural gas in the future.
PSNC was the first local distribution company (LDC) in North Carolina to
offer NGV conversions to the public and private sectors. PSNC also has
identified natural gas cooling technology as an opportunity to increase
the demand for natural gas and has begun marketing such technology. The
implementation in 1992 of the Federal Energy Regulatory Commission
(FERC) Orders 636, 636-A and 636-B created new off-system marketing
opportunities for PSNC and its marketing affiliate.
PSNC's internal focus has been to streamline its organizational
structure and improve the performance of management and employees. In
fiscal 1993, PSNC completed the process of streamlining the management
of its operations and engineering departments by moving many operating
decisions to the area offices. PSNC has also focused on increasing
employee efficiency, improving its average number of customers per
employee ratio over the last three years from 217 at September 30, 1992
to 247 at September 30, 1995.
Gas Supply
- - ----------
As a result of FERC Orders 636, which restructured the interstate
natural gas transportation industry, PSNC's gas purchasing practices
have changed significantly during the past few years. Effective August
1, 1991, PSNC's primary pipeline supplier, Transcontinental Gas Pipe
Line Corporation (Transco), became the first major pipeline to offer
unbundled open-access transportation and storage services. The primary
advantage is that PSNC now manages its gas supply, transportation and
storage service requirements rather than utilizing a pipeline supplier
whose service options are bundled together and then offered as a single
city gate sales service. Unbundled open-access transportation and
storage services, however, do shift the risk of ensuring an adequate
supply of gas from the interstate pipelines to LDCs.
The FERC approved Transco's restructuring settlement effective
November 1, 1993 and essentially preserved Transco's existing firm
service settlement with PSNC. PSNC has not experienced any material
adverse effect on its financial position or results of operations as a
result of the Order. Further, management believes it will provide gas
services marketing opportunities both on and off the existing pipeline
system for PSNC and its subsidiaries which should provide an overall net
benefit to PSNC.
<PAGE> 6
PSNC purchases for resale most of the natural gas that it delivers
(throughput) to its customers. The balance of its throughput is natural
gas purchased by certain large volume commercial and industrial
customers directly from various producers and marketers. This gas is
transported to these customers by PSNC at a rate which enables PSNC to
earn a margin equivalent to that which it would have earned by selling
the same quantity of gas to these customers. Quantities of transported
gas represented approximately 38%, 26%, and 8% of PSNC's total volume
throughput for fiscal 1995, 1994 and 1993, respectively.
Management believes that PSNC's gas supply portfolio will enable it
to continue to provide secure service on a cost-competitive basis. This
balance of security and cost control, along with flexibility to adapt to
changing conditions, is achieved through a mix of long-term contractual
obligations, coupled with short-term or spot market purchases. PSNC's
utility gas purchasing practices are reviewed annually by the NCUC.
The following table summarizes the natural gas supply sources and
transportation arrangements available to PSNC under contract with
Transco and CNG Transmission Company (CNG). All amounts are shown in
dekatherms (DT), a unit of heating value equal to one million British
Thermal Units (BTU). PSNC's backhaul arrangement with CNG makes
available additional daily capacity of 30,000 DT and is for a
combination of storage and firm transportation. Natural gas purchased
by PSNC from other sources is transported by Transco and CNG. Natural
gas purchased directly from Transco accounted for 28% and 30%,
respectively, of PSNC's supply in fiscal 1995 and 1994.
Daily Contract
Deliver- Annual Expiration
Type of Contract ability Quantity Date
- - -------------------------- -------- ---------- ----------
Firm Sales Service (1)(4) 41,928 15,303,720 3/31/96
Firm Sales Service (1) 41,928 15,303,720 3/31/01
Firm Transportation 164,151 59,915,115 1/31/12
Firm Transportation 5,175 1,888,875 10/31/07
Incremental Firm
Transportation 2,264 826,360 3/16/98
Winter Firm Transportation
(December 1 through
February 28) 4,347 391,230 7/31/11
Southern Expansion Firm
Transportation:
November and March 35,397
December through February 39,330 5,698,917 10/31/05
Southeast Expansion Firm
Transportation:
Phase 1 6,064 2,213,360 11/01/14
Phase 2 (3) 20,759 7,577,035 11/01/15
Phase 3 (3) 17,804 6,498,460 11/01/15
CNG Firm Transportation 30,000 10,950,000 (2)
- - ------------
(1) These are separate and concurrent contracts.
(2) These represent multiple contracts which expire on dates
ranging from 10/31/99 to 3/31/13.
(3) Phase 2 was effective November 1, 1995; Phase 3 will be
effective November 1, 1996.
(4) PSNC intends to renew this contract for a one-year period
ending 3/31/97.
<PAGE> 7
As discussed further in Note 2 to the financial statements, PSNC and
a subsidiary of Piedmont Natural Gas Company, Inc. formed Cardinal
Pipeline Company, LLC (Cardinal) in March 1994 to construct an
intrastate transmission pipeline. The Cardinal pipeline was placed into
service in December 1994 and provides additional daily capacity to
PSNC's eastern service territory in and around the Durham and Raleigh
areas. The NCUC granted an increase in annual revenues of $3,063,000 to
recover PSNC's cost of the investment, effective January 26, 1995. In
September 1995, PSNC, Piedmont, Transco, and North Carolina Natural Gas
Corporation (NCNG) signed a letter of intent to form a limited liability
company (LLC) to purchase and extend the Cardinal pipeline. As
proposed, the pipeline will be extended 65 miles from Burlington to a
point southeast of Raleigh and will add 140 million cubic feet per day
of additional firm capacity. A definitive agreement was signed on
December 6, 1995. The LLC plans to request appropriate regulatory
authorization in the fall of 1996 to extend the existing pipeline, and
subject to the approval of appropriate state and federal agencies,
construction is scheduled to begin in early 1999. The facilities are
expected to be in service on or before November 1, 1999.
To balance peak winter demands of residential and commercial
customers with their much-reduced summer usage, PSNC uses underground
natural gas storage services and liquefied natural gas (LNG) peaking
facilities. During periods of reduced usage, PSNC purchases natural gas
to replenish the LNG facilities owned by PSNC and used under contract
storage services from its pipeline suppliers. The ability to maintain
maximum delivery from these storage facilities for an extended period of
time is limited. Information about PSNC's storage arrangements is shown
in the following table.
Daily Contract
Deliver- Expiration
Storage Facility ability Capacity Date
- - ------------------------- -------- --------- ----------
CNG General Storage 11,669 696,000 3/31/13
Transco General Storage 33,218 1,923,485 3/31/13
Transco Washington
Storage (1) 32,870 2,794,500 3/31/98
Transco LNG Storage 5,175 25,875 (3)
Transco Eminence Storage 29,514 245,297 3/31/13
PSNC LNG Storage (2) 100,000 1,040,000 N/A
NCNG Peaking Supply 15,000 225,000 10/31/96
- - ------------
(1) No peak day delivery assured by contract.
(2) Amounts shown represent maximum peak day capacity.
(3) This contract has expired; however, its renewal is currently
being negotiated with Transco. In the interim, this service
is available to PSNC under the same terms and conditions
contained in the expired agreement.
As discussed further in Note 2 to the financial statements, PSNC
has signed a letter of intent with the Pine Needle LNG Company, LLC
(Pine Needle), to add PSNC's subsidiary, PSNC Blue Ridge Corporation, as
an owner of Pine Needle. Pine Needle, originally formed by subsidiaries
of Transco and Piedmont, has sought approval from the FERC to construct,
own and operate an LNG peak demand facility in North Carolina. A
subsidiary of Transco will serve as the operator.
<PAGE> 8
PSNC Blue Ridge will own 17 percent of Pine Needle and PSNC will have
the right to use 25 percent of the facility's gas storage capacity and
withdrawal capabilities. The facility will be located near Transco's
main transmission pipeline northwest of Greensboro and will have a
storage capacity of four billion cubic feet with vaporization capability
of 400 million cubic feet per day. A project application was submitted
to the FERC in early November 1995 and, pending FERC approval,
construction will begin in early 1997. Liquefaction is expected to
begin in May 1999 in time for withdrawal service to begin in the 1999
winter heating season.
Competition
- - -----------
Although PSNC is the sole distributor of natural gas in its service
area, it faces competition from suppliers of alternate fuels and other
types of energy. Competition is strongest for sales to large volume
commercial and industrial customers having alternate fuel capability but
exists for all other customer classes as well.
During fiscal 1995, approximately 40% of gas delivered by PSNC was
delivered to large volume commercial and industrial customers having
alternate fuel capability. The primary alternate fuels available to
these customers are fuel oil and propane, and to a lesser extent coal
and combustible wood products. The NCUC has approved a rate structure
that allows PSNC to negotiate reduced rates in order to match the cost
of alternate fuels to individual customers and recover the lost margin
from other classes of customers. PSNC anticipates that the need to
negotiate reduced rates with these customers will continue.
Electricity is the primary competition to natural gas in the
residential and commercial markets where the predominate uses of energy
are for space heating, water heating and cooking. Currently, natural
gas enjoys a competitive price advantage over electricity for these
purposes, enabling PSNC in recent years to obtain a significant share of
the new residential construction in its service area where natural gas
is available.
Regulation and Rates
- - --------------------
PSNC's natural gas transmission and distribution business is
subject to regulation by the NCUC, including rates, issuance of
securities, adequacy of service, safety standards, extension and
abandonment of facilities, accounting and depreciation rates. The NCUC
has seven commissioners appointed by the Governor of North Carolina for
staggered eight-year terms. The NCUC granted PSNC's most recent general
rate increase of $10,763,000 of additional annual revenues on October 7,
1994. The order allowed PSNC an opportunity to earn 11.87% on common
equity and a 10.51% overall return on its net utility investment, as
compared to 12.9% and 11.1% respectively, in its November 1991 rate
order.
PSNC's rates include a weather normalization adjustment mechanism
(WNA). The WNA was initially approved in PSNC's general rate case order
in November 1991 and is in effect for bills rendered during the period
from November 1 through April 30 of each year. The WNA applies only to
residential and small general service rates and affects only the non-gas
<PAGE> 9
portion of PSNC's rate. Sales to large-volume customers are not
normalized because natural gas usage for such customers is significantly
less weather-sensitive. The WNA increases tariff rates if weather is
warmer than normal and decreases rates if weather is colder than normal.
This prevents the under- or over-collection of non-gas costs due to
variations in the quantity of natural gas delivered when weather
deviates from normal. The WNA does not change the seasonality of PSNC's
earnings and cash flow; however, it does reduce fluctuations caused by
abnormal weather.
PSNC also operates under two other rate provisions that serve to
reduce fluctuations in PSNC's earnings. First, its Rider D rate
mechanism allows PSNC to recover, in any manner authorized by the NCUC,
margin losses on negotiated gas sales to large commercial and industrial
customers with alternate fuel capability. The Rider D rate mechanism
also allows PSNC to recover from customers all prudently incurred gas
costs, including changes in natural gas prices. Second, PSNC operates
with "full margin" transportation rates. These rates allow PSNC to earn
the same margin on gas delivered to customers regardless of whether the
gas is sold by PSNC to the customer or is only transported by PSNC.
PSNC's rates are established using a base cost of gas approved by
the NCUC which may be modified periodically due to changes in the market
price of natural gas and changes in the rates charged by PSNC's pipeline
suppliers. PSNC may file revised tariffs with the NCUC coincident with
these changes or it may track the changes in its deferred accounts for
subsequent rate consideration. The rules of the NCUC allow recovery of
all prudently incurred gas costs. Also, the NCUC reviews PSNC's gas
purchasing practices annually.
In April 1992, the NCUC adopted rules to implement a program of
expansion permitted by an act passed by the North Carolina General
Assembly in July 1991. This act permits the establishment of expansion
funds to be used by each North Carolina LDC to expand natural gas
service to areas which would otherwise not be economically feasible to
serve. Separate funds have been established for use solely in each
LDC's franchised service territory. Sources for expansion funds may be
each LDC's respective supplier refunds, special surcharges or other
sources permitted by the NCUC. Subject to the NCUC rules and
availability of funds, the LDCs will be allowed to utilize the expansion
funds to the extent necessary to make such projects feasible on a net
present value basis. The balance of the funding for projects will be
supplied by the LDC. Three counties in PSNC's franchised territory are
currently unserved along with certain areas in other counties. On June
3, 1993, the NCUC entered an order creating an expansion fund for PSNC
in the Office of the State Treasurer. PSNC has received approximately
$19,580,000 of supplier refunds and interest earned thereon. The NCUC
has approved an expansion project in McDowell County which will require
funding from PSNC's expansion fund. The total estimated cost to
complete this project is approximately $12.5 million, of which up to
$8,193,500 can be used from the fund to finance the project. The
project was initiated in December 1995 and is expected to be in service
by December 1996. PSNC plans to initiate additional expansion projects
in five other counties over an estimated five-year period, subject to
approval by the NCUC.
<PAGE> 10
PSNC currently plans to file a general rate case with the NCUC in
the spring of 1996. A general rate order from the NCUC is expected in
the fall of 1996.
Franchises
- - ----------
PSNC holds a certificate of public convenience and necessity
granted by the NCUC to provide service in its 26-county service
territory. Under North Carolina law, no company may construct or
operate properties for the sale or distribution of natural gas without
having obtained such a certificate, except that no certificate is
required for construction in the ordinary course of business or for
construction into territory contiguous to that already occupied by an
LDC and not receiving similar service from another public utility.
PSNC has nonexclusive franchises from 64 municipalities in which it
delivers natural gas. The expiration dates of franchises having
specific expiration provisions range from 1996 to 2029. The franchises
contain no restrictions of a materially burdensome nature and are
adequate for PSNC's business as presently, and as proposed to be,
conducted. These franchises have been routinely renewed by the
municipalities when they expire. The other communities served by PSNC
have not required franchises.
Non-utility Businesses
- - ----------------------
During fiscal 1995, PSNC continued its gas brokering activities
through its subsidiary, PSNC Production Corporation. This rapidly
expanding activity now serves over 200 accounts both on and off PSNC's
system. Clean Energy Enterprises, Inc. (formerly Tar Heel Energy
Corporation) also continued its activities in the refueling of natural
gas vehicles and the conversion of gasoline-fueled vehicles to natural
gas.
Environmental Matters
- - ---------------------
PSNC is subject to regulation with regard to environmental matters
by various federal, state and local authorities. PSNC owns or has owned
portions of six sites in North Carolina on which manufactured gas plants
(MGPs) were formerly operated and one site at which a manufactured gas
holder was located. Evaluations have revealed that MGP residuals are
present or suspected at each of the sites. PSNC has recorded a total
liability of $3,705,000, which represents the minimum amount of the
range of $3,705,000 to $50,145,000 expected for investigating and
monitoring the extent of environmental degradation and of implementing
remedial procedures. See Note 8 to the consolidated financial
statements for further details regarding this and other environmental
matters related to PSNC.
Employees
- - ---------
At November 30, 1995, PSNC had 1,121 full-time employees compared
with 1,130 at November 30, 1994. PSNC considers its relationship with
its employees to be good and has never experienced a strike or work
<PAGE> 11
stoppage. PSNC has collective bargaining agreements with International
Chemical Workers Union (ICWU) locals representing approximately 360
construction and service employees. In December 1993, these bargaining
agreements were renewed for a three-year period.
Seasonality
- - -----------
Due to the seasonal nature of PSNC's business, the first six months
of its fiscal year are generally the most profitable. During fiscal
1995, the quarters ended December 31 and March 31 together accounted for
approximately 75% and 77% of PSNC's natural gas sales revenues and
volumes, respectively. The quarters ending June 30 and September 30 are
generally PSNC's least profitable quarters due to decreased demand for
natural gas related to lower space heating requirements.
<PAGE> 12
<TABLE>
OPERATING STATISTICS
- - --------------------
<CAPTION>
For the Fiscal Years Ended September 30,
------------------------------------------------------------------------
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
OPERATING REVENUES - GAS:
Residential Sales $135,846,213 $137,986,651 $127,119,020 $109,475,477 $ 86,167,749
Commercial Sales 57,783,940 67,679,342 66,124,813 57,890,721 47,784,770
Industrial Sales 31,483,864 49,970,780 80,861,975 67,125,621 50,363,564
Gas Transported for Others 21,746,901 17,031,426 4,848,112 4,982,772 8,201,183
Miscellaneous 1,032,096 1,036,857 1,035,221 928,751 721,249
------------ ------------ ------------ ------------ ------------
Total $247,893,014 $273,705,056 $279,989,141 $240,403,342 $193,238,515
============ ============ ============ ============ ============
GAS SUPPLY (DT):
Natural Gas Purchased 37,790,467 47,390,194 54,772,352 51,508,887 42,779,844
Less Increase (Decrease) in Storage (257,091) 1,466,236 104,399 (22,568) (6,633)
Less Unbilled, Unaccounted For,
Company Use and Other 1,979,901 2,156,027 2,166,864 2,182,555 1,538,259
------------ ------------ ------------ ------------ ------------
Total Gas Sold 36,067,657 43,767,931 52,501,089 49,348,900 41,248,218
============ ============ ============ ============ ============
GAS DELIVERED (DT):
Residential Sales 17,566,948 18,781,482 18,058,000 16,092,646 13,817,796
Commercial Sales 10,827,444 12,261,918 13,031,684 12,613,272 11,620,849
Industrial Sales 7,673,265 12,724,531 21,411,405 20,642,982 15,809,573
Gas Transported for Others 22,551,006 15,120,391 4,678,292 5,508,225 9,224,627
------------ ------------ ------------ ------------ ------------
Total 58,618,663 58,888,322 57,179,381 54,857,125 50,472,845
============ ============ ============ ============ ============
NUMBER OF CUSTOMERS (AT YEAR END):
Residential 246,868 234,948 222,996 214,153 204,189
Commercial 27,788 25,942 25,688 25,416 24,496
Industrial 2,107 2,249 (2) 1,469 (2) 938 857
------- ------- ------- ------- -------
Total 276,763 263,139 250,153 240,507 229,542
======= ======= ======= ======= =======
PER RESIDENTIAL CUSTOMER:
Average Gas Used (DT) 71.16 79.94 80.98 75.15 67.67
Average Revenue $550.28 $587.31 $570.05 $487.61 $422.00
Revenue per DT $7.73 $7.35 $7.04 $6.49 $6.24
ANNUAL HEATING DEGREE DAYS (1):
Actual 2,954 3,389 3,462 3,181 2,726
Normal 3,341 3,341 3,341 3,359 3,341
Percent of Normal 88% 101% 104% 95% 82%
PEAK DAY DELIVERY (DT) 403,581 420,597 350,131 340,905 356,460
- - --------------
<F01>
(1) Degree day information is based on the Raleigh/Durham area. Fiscal 1992 reflects an additional day for
leap year.
<F02>
(2) Increase is attributable to a reclassification of approximately 400 commercial customers to a small industrial
classification during fiscal 1994 and fiscal 1993.
</TABLE>
<PAGE> 13
EXECUTIVE OFFICERS OF THE REGISTRANT
Date Elected
Name and Age (1) Title (1) An Officer
- - ----------------------- ------------------------------- ------------
Charles E. Zeigler, Jr. Chairman, President and 11/01/86
Age - 49 Chief Executive Officer
John D. Grawe Senior Vice President - 10/3/94
Age - 47 Operations
George F. Kast Senior Vice President - 8/24/87
Age - 49 Information Systems
Jerry W. Richardson Senior Vice President - 2/23/82
Age - 50 Engineering
Fred L. Schmidt Senior Vice President - 1/04/93
Age - 54 Human Resources
Robert D. Voigt Senior Vice President - 9/01/81
Age - 44 Corporate Development and
Chief Financial Officer
Franklin H. Yoho Senior Vice President - 2/01/91
Age - 36 Marketing and Gas Supply
Herbert B. Cox Vice President - 5/01/90
Age - 51 Operations Services
J. Paul Douglas Vice President - 12/21/94
Age - 48 Corporate Counsel and
Secretary
Boyce C. Morrow, Jr. Vice President - 3/01/90
Age - 51 Governmental Relations
Sharon D. Boone Controller and 3/01/95
Age - 42 Assistant Secretary
Jack G. Mason Treasurer 3/01/95
Age - 38
- - --------------
(1) As of November 30, 1995.
The present terms of all officers extend to January 26, 1996, the
date of the next annual meeting of shareholders and the annual meeting of
the board of directors, or until their successors are elected and
qualified.
All of the executive officers have served in executive positions with
PSNC for the past five years with the exception of Fred L. Schmidt,
Franklin H. Yoho, J. Paul Douglas, John D. Grawe, Sharon D. Boone and Jack
G. Mason.
Fred L. Schmidt was employed by PSNC on January 4, 1993. Prior to
joining PSNC, he was employed by RJR Nabisco, Incorporated in Winston-
Salem, North Carolina as Director - Employee Relations, Compensation and
Benefits, and Human Resources Information System.
Franklin H. Yoho was employed by PSNC on January 9, 1989 and
previously held the positions of Manager - Gas Supply and Transportation,
Vice President - Gas Supply and Transportation, and Vice President -
Corporate Development and Gas Supply. Prior to joining PSNC, he was
employed by Columbia Gas System Service Corporation as Manager - Market
Development.
J. Paul Douglas was employed by PSNC on December 21, 1994. Prior to
joining PSNC, he was employed by Conoco, Inc. as counsel from March 1991
to December 1994, was a partner with the law firm of Katten, Muchin, Zavis
and Dombroff from February 1990 to March 1991 and was a partner with the
<PAGE> 14
law firm of Grove, Jaskiewicz, Gilliam and Cobert from February 1984 to
February 1990. In connection with a divorce proceeding, Mr. Douglas filed
a bankruptcy petition in the United States Bankruptcy Court for the
Southern District of Texas on June 18, 1991 and was discharged on October
11, 1991.
John D. Grawe was employed by PSNC on October 3, 1994. Prior to
joining PSNC, he was employed by Wisconsin Power and Light Company, most
recently serving as Director of Gas Engineering and Operations.
Sharon D. Boone was employed by PSNC on November 15, 1982. During
the past five years, prior to serving as Controller and Assistant
Secretary, Ms. Boone held the positions of Manager - Plant Accounting and
Tax Services, Manager - Corporate Accounting, and Director - Corporate
Accounting.
Jack G. Mason was employed by PSNC on July 5, 1979. During the past
five years, prior to serving as Treasurer, Mr. Mason held the positions of
Assistant Treasurer and Assistant Controller, Assistant Treasurer, and
Director - Financial Projects and Assistant Treasurer.
Item 2. Properties
- - -------------------
PSNC owns 690 miles of transmission pipelines of 2 to 24 inches in
diameter which connect its distribution systems with the Texas to New York
pipeline transmission system of Transco. PSNC also owns 64 percent of the
37.5 miles of transmission pipeline associated with the Cardinal pipeline,
as discussed more fully in Note 2 to the financial statements. Transco
delivers natural gas to PSNC at various points on Transco's pipeline in
North Carolina. Natural gas is distributed by PSNC through its 5,750
miles of distribution mains. These transmission pipelines and
distribution mains are located primarily on rights-of-ways held under
easement, license or permit on lands owned by others.
PSNC's Energy Center, which consists of its LNG liquefaction, storage
and vaporization facility, is located on a 70-acre tract of land in Cary,
North Carolina.
PSNC also owns 18 commercial office buildings, a measurement
operations center, ten service center buildings, 16 service buildings, and
an energy control building; PSNC leases six commercial office buildings
for its own use. Two of the service buildings also house newly
established training facilities. Another service building is jointly
occupied by the NGV conversion facility.
PSNC's gas utility plant is subject to the lien of the Indenture
securing its outstanding first mortgage bonds. At September 30, 1995,
PSNC had $3,680,000 of first mortgage bonds outstanding. PSNC retired
these bonds effective December 1, 1995, and the lien will be released in
December 1995 or early 1996.
Item 3. Legal Proceedings
- - --------------------------
As more fully disclosed in Part I under "Environmental Matters" and
in Part II in Note 8 to the financial statements, PSNC owns or has owned
<PAGE> 15
portions of sites at which manufactured gas plants were formerly operated
and is cooperating with the North Carolina Department of Environment,
Health and Natural Resources to investigate these sites.
Item 4. Submission of Matters to a Vote of Security Holders
- - ------------------------------------------------------------
No matters were submitted to a vote of PSNC's security holders during
the three months ended September 30, 1995.
PART II
-------
Item 5. Market for the Registrant's Common Stock
- - -------------------------------------------------
and Related Shareholder Matters
-------------------------------
Effective March 1, 1995 PSNC's common stock began trading on the New
York Stock Exchange under the ticker symbol "PGS". PSNC's stock
quotations are listed in most publications, including newspapers, as
"PubSvcNC" or "PubSNC". Prior to March 1, 1995, PSNC was traded in the
over-the-counter market and was included in the NASDAQ National Market
System under the symbol "PSNC." At November 30, 1995, there were
approximately 11,600 holders of record of PSNC's common stock.
The table below presents the reported high and low common stock sale
prices along with cash dividends declared per share for each quarter of
fiscal 1995 and 1994.
Cash
Quarter Dividends
Ended High Low Declared
------- ------- ------- ---------
Fiscal
1995
-------
Sep 30 $16 3/4 $14 7/8 $.2125
Jun 30 16 3/4 14 3/8 .2125
Mar 31 16 1/2 14 .2050
Dec 31 15 1/2 13 3/4 .2050
Fiscal
1994
-------
Sep 30 15 3/4 14 1/4 .2050
Jun 30 15 3/4 13 1/2 .2050
Mar 31 17 3/4 14 1/2 .1975
Dec 31 18 1/4 15 1/2 .1975
On November 17, 1995 the Board of Directors declared a regular
quarterly cash dividend on PSNC's common stock of 21.25 cents per share,
payable on January 1, 1996 to shareholders of record on December 11,
1995. PSNC has paid regular quarterly cash dividends on its common stock
since 1958, and has increased cash dividends paid to shareholders each
calendar year since 1970.
<PAGE> 16
Item 6. Selected Financial Data
- - --------------------------------
<TABLE>
<CAPTION>
For the Fiscal Years Ended September 30, 1995 1994 1993 1992 1991
- - ---------------------------------------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Operating revenues (000's)........................ $247,893 $273,705 $279,989 $240,403 $193,239
Gross margin (000's).............................. $130,828 $118,327 $112,105 $110,003 $ 91,326
Net income (000's)................................ $ 21,421 $ 19,976 $ 14,219 $ 16,750 $ 10,590
Earnings per average common share ................ $ 1.16 $ 1.17 $ .90 $ 1.08 $ .70
Cash dividends declared per common share ......... $ .835 $ .805 $ .775 $ .747 $ .733
Average number of common shares
outstanding (000's) ............................. 18,509 17,012 15,812 15,373 14,928
Capital expenditures (000's)...................... $ 61,119 $ 45,469 $ 40,127 $ 31,055 $ 36,461
Total assets (000's).............................. $456,995 $427,939 $400,946 $379,770 $352,126
Common equity (000's)............................. $173,372 $160,555 $123,662 $115,069 $104,397
Redeemable preferred stock (000's) (1)............ - - - - $ 1,483
Long-term debt (000's) (1)........................ $100,700 $113,680 $124,518 $130,056 $104,094
- - --------------
(1) Excludes current maturities.
</TABLE>
<PAGE> 17
Item 7. Management's Discussion and Analysis of Results
- - -------------------------------------------------------
of Operations and Financial Condition
------------------------------------
Results of Operations
- - ---------------------
Net Margin
- - ----------
For the Fiscal Years Ended September 30, 1995 1994 1993
- - ---------------------------------------- -------- -------- --------
(Amounts in thousands except
degree day and customer data)
Gross margin $130,828 $118,327 $112,105
Less - Franchise taxes 7,943 8,766 8,966
-------- -------- --------
Net margin $122,885 $109,561 $103,139
======== ======== ========
Total volume throughput (DT):
Residential 17,567 18,781 18,058
Commercial/small industrial 11,855 12,450 11,945
Large commercial/industrial 29,197 27,657 27,176
------ ------ ------
58,619 58,888 57,179
====== ====== ======
Raleigh/Durham area degree days:
Actual 2,954 3,389 3,462
Normal 3,341 3,341 3,341
Percent of normal 88% 101% 104%
Weather normalization adjustment
income (refund), net of
franchise taxes $ 5,800 $ (138) $ (578)
Customers at end of period:
Residential 246,877 234,957 223,004
Commercial/small industrial 29,497 27,806 26,772
Large commercial/industrial 389 376 377
------- ------- -------
276,763 263,139 250,153
======= ======= =======
Total volume throughput and net margin, defined as operating revenues
less cost of gas and franchise taxes, are more meaningful comparative
statistics than gas sales volumes and operating revenues when analyzing
PSNC's utility operating results. This is because certain large-volume
customers purchase gas directly from gas producers or other gas suppliers
and transport it through PSNC's pipeline system. PSNC's operating revenues
and expenses do not include the commodity cost of this transported gas;
<PAGE> 18
however, PSNC earns a margin on the transported gas which is equivalent to
the margin that PSNC would earn if it purchased and resold gas to these
customers. Also, various temporary collection and refund mechanisms affect
both operating revenues and cost of gas equally.
Fiscal 1995
- - -----------
- - - Net margin increased by $13,324,000, or 12%, in fiscal 1995 as
compared to fiscal 1994 primarily due to rate increases associated
with the October 7, 1994 general rate case order and the approval of
rates for the Cardinal pipeline effective January 26, 1995. Rate
increases that affected PSNC's residential and commercial/small
industrial customers account for approximately $11,723,000 of the
increase. The volumes of gas delivered to residential and
commercial/small industrial customer bases declined 6% and 5%,
respectively, due to significantly warmer weather as compared to the
prior fiscal year. This decrease was somewhat offset by increases in
both customer bases of 5% and 6%, respectively. Net volume-related
variances for these customers total approximately $2,956,000,
including $5,938,000 related to the operation of the weather
normalization adjustment (WNA) mechanism. The volumes of gas
delivered to large commercial/industrial customers rose 6% due to a 3%
increase in the customer base and to higher operating levels by some
of these customers. This volume increase resulted in additional net
margin of approximately $1,346,000; however, the increase was offset
by a price-related decline of approximately $1,539,000 due to both
changes in the sales mix and the general rate case order, and a
decline of $430,000 from the prior year in penalty billings for
unauthorized gas usage. The twelve-month period also reflects a
$732,000 refund ordered by the NCUC in the October 7, 1994 rate case
order that related to income tax credits taken in prior periods.
Fiscal 1994
- - -----------
- - - Net margin increased by $6,422,000 or 6% in fiscal 1994 as compared to
fiscal 1993. This net increase includes the impact of the $1,225,000
write-off of Southern Expansion costs, as discussed in Note 2 to the
financial statements, during fiscal 1993. A 5% increase in the
residential and a 4% increase in the commercial/small industrial
customer bases, as compared to the previous year, generated increases
in net margin of $2,937,000 and $1,141,000, respectively. The volumes
of gas delivered to residential and commercial/small industrial
customers both increased 4% due to the increased customer bases. The
WNA decreased net margin by $138,000 for fiscal 1994. Net margin for
the large commercial/industrial customer base increased $1,119,000.
Total volumes delivered to large commercial/industrial customers
increased only 2% due to curtailments of interruptible customers
during January 1994's record cold weather; however, volumes delivered
to the general service segment of this customer base increased 14%.
<PAGE> 19
Fiscal 1993
- - -----------
- - - Net margin increased by $846,000 or 1% in fiscal 1993 as compared to
fiscal 1992. This net increase includes the negative impact of the
$1,225,000 write-off of Southern Expansion costs. Net margin improved
by approximately $1,425,000 and $219,000, respectively, due to the 4%
increase in residential and the 3% increase in commercial/small
industrial customer bases as compared to the previous year. The
increase of 12% and 8%, respectively, in the volumes of gas delivered
to higher-margin, weather-sensitive residential and commercial/small
industrial customers was caused primarily by weather which was 9%
colder than fiscal 1992 and 3% colder than normal. However, the
resultant increase in net margin was reduced by the operation of the
WNA mechanism which lowered net margin by $578,000. Although
throughput to large commercial/industrial customers declined 2% as
compared to fiscal 1992, net margin for this customer base increased
$427,000 due to higher unit margins attributable to a positive sales
mix variance.
Operating Expenses
- - ------------------
Other operating expenses increased 4% during fiscal 1995. This
increase reflects higher salary expenses and the payroll reallocations
implemented during November 1994 to standardize labor distributions. Also
contributing to the increase were employee severance expenses related to
departmental reorganizations, fees related to listing on the New York Stock
Exchange, and expenses for outside consulting services related to
information systems and employee benefits. These increases were partially
offset by the reclassification of certain sales compensation expenses to
merchandising and jobbing, and adjustments related to group life insurance
and hospitalization insurance due to favorable experience realized by PSNC,
along with the transfer of a large number of employees to a less costly
health maintenance organization provider.
The 5% increase in other operating expenses during fiscal 1994 was
primarily due to the October 1993 wage increases granted under the new
performance-based pay system and rising health insurance costs. Also
contributing to the increase were postretirement benefit expenses related
to the adoption of Statement of Financial Accounting Standards (SFAS) No.
106 effective October 1, 1993.
Other operating expenses increased 13% during fiscal 1993. The fiscal
1993 increase was due to increased expenses for wages, salaries, fringe
benefits, outside consulting services and liability insurance. Outside
consulting expenses largely reflect charges associated with the development
and refinement of PSNC's strategic and operational plans, enhancement of
its management practices, and improvements in microcomputer capabilities.
Maintenance expenses decreased 8% in fiscal 1995 due to the $750,000
reversal of expenses related to the investigation of former manufactured
gas plant (MGP) sites, originally recorded in fiscal 1992 (see Note 8 to
the financial statements). Maintenance expenses decreased 5% in fiscal
1994 due to the absence of expenses relating to the overhauling of
compressor equipment and maintenance of the LNG storage tank during fiscal
<PAGE> 20
1993. The 7% decrease in fiscal 1993 primarily reflects the absence of the
$750,000 accrual for environmental costs in fiscal 1992.
Depreciation expense for all three fiscal years increased due to plant
additions. Depreciation expense for fiscal 1995 also reflected higher
depreciation rates approved in the October 1994 general rate case order.
General taxes decreased during fiscal 1995 due to a reduction in franchise
tax expense reflecting a decrease in revenues. General taxes increased
during fiscal 1994 due to increased property tax expense due to an increase
in taxable property and higher tax rates. The fiscal 1993 increase in
general taxes was due to franchise tax expense reflecting increased
revenues in fiscal 1993 over fiscal 1992.
Other Income (Deductions)
- - ------------------------
Other income (deductions) decreased $4,350,000 during fiscal 1995 due
mainly to proceeds received in fiscal 1994 for the sale of PSNC Propane and
the absence of operating income from propane operations. Other income
(deductions) also decreased due to a loss in merchandise and jobbing
largely due to a reclassification of certain sales commission expenses to
merchandise and jobbing from operation and maintenance in connection with
the October 1994 general rate case order. Also contributing to the
decrease was the fiscal 1994 reclassification of income from pipeline
capacity sales from operating revenues to other income.
Other income (deductions) increased $4,836,000 during fiscal 1994
mainly due to income from subsidiary operations and from merchandise and
jobbing income. Income from subsidiary operations exceeded fiscal 1993 by
$2,845,000 primarily due to the sale of the assets of PSNC Propane
Corporation to Empiregas, Inc. of North Carolina. The sale resulted in
an after-tax gain of $1,511,000, net of expenses related to terminating the
operations, and to after-tax earnings of $810,000 related to gas marketing
activities conducted by PSNC Production Corporation. Income from PSNC
Propane's operations, net of tax and not including the gain from the asset
sale, increased approximately $450,000 as compared to the same period
during fiscal 1993. This increase was due to a decreased cost of propane
and higher weather-related volumes of propane sold. The June 1994 sale of
PSNC Production's remaining exploration and development properties resulted
in an after-tax gain of $139,000. Merchandise and jobbing income for
fiscal 1994 increased $1,341,000 over fiscal 1993. Although total unit
sales decreased, the per unit margin increased due to price changes made in
merchandising programs. The previously mentioned reclassification of income
from pipeline capacity sales also contributed to the increase.
In fiscal 1993, other income increased $120,000 due mainly to
increased earnings from subsidiary operations. Subsidiary earnings rose
primarily due to increased propane gas sales reflecting weather during
fiscal 1993 which was 9% colder than fiscal 1992. Increased subsidiary
earnings were partially offset by a decrease in other interest income due
to lower average balances in the deferred gas account for collections due
from customers. Losses from merchandise operations were experienced during
fiscal 1993 due to lower margins earned on appliance sales.
<PAGE> 21
Interest Deductions
- - -------------------
Interest deductions for fiscal 1995 and fiscal 1994 decreased 3% and
5%, respectively, due mainly to lower interest expense on declining
balances in long-term debt. The declining balance in long-term debt is due
to sinking fund payments and to the early redemption in May 1994 of the 9
7/8% First Mortgage Bonds due 1995. These decreases were partially offset
by increased interest expense due to higher rates on short-term debt
related to financing of increased construction activities.
Interest deductions for fiscal 1993 increased 3% as compared to fiscal
1992 due mainly to increased interest on long-term debt reflecting the
issuance of an additional $32,000,000 of debentures in June 1992. This
increase was partially offset by a decrease in other interest expense due
to a declining balance in the deferred gas cost account for refunds due
customers and a reduction in interest on short-term debt due to lower
average bank loans outstanding and lower short-term interest rates.
Liquidity and Capital Resources
- - -------------------------------
PSNC's primary capital needs are the funding of its continuing
construction program and the seasonal funding of its stored gas
inventories. PSNC uses short-term bank loans temporarily, together with
internally generated funds, long-term debt and equity financing to fund its
continuing construction program. PSNC has committed lines of credit with
eight commercial banks which vary monthly depending upon seasonal
requirements. For the twelve-month period beginning April 1, 1995, lines
of credit with these banks range from a minimum of $22,000,000 to a winter-
period maximum of $79,000,000. At September 30, 1995, committed lines of
credit totaled $52,000,000. PSNC also has uncommitted annual lines of
credit with three of these banks totaling $21,000,000. Lines of credit are
evaluated periodically by management and renegotiated to accommodate
anticipated short-term financing needs. Management believes these lines
are currently adequate to finance construction expenditures, stored gas
inventories and other corporate needs. At September 30, 1995 and 1994,
PSNC's total short-term bank loans outstanding were $51,000,000 and
$23,000,000, respectively.
PSNC sold an additional 1,725,000 new shares of $1 par common stock
through an underwritten public offering during May 1994. The proceeds, net
of expenses, were $23,406,000. These proceeds were used to repay all
outstanding short-term debt, to redeem the remaining $3,098,000 balance of
the 9 7/8% First Mortgage Bonds due 1995, and to finance a portion of
fiscal 1994's construction expenditures. During both September 1995 and
1994, PSNC made additional payments on its 10% Senior Debentures due 2003
of $2,500,000, the maximum additional annual payment permitted pursuant to
the terms of the debenture agreement.
PSNC also generates equity capital through its dividend reinvestment,
employee stock purchase and stock option plans. During fiscal 1995, 1994
and 1993, the dividend reinvestment plan generated $5,069,000, $5,020,000
and $4,952,000, respectively, of additional equity capital. The employee
stock purchase plan generated $1,174,000, $1,255,000 and $1,043,000,
respectively, of additional equity capital. The stock option plan
<PAGE> 22
generated net equity capital of $447,000, $861,000 and $416,000 for the
respective three fiscal years.
The ratio of long-term debt to total capitalization at September 30,
1995 was 36.7% compared to 41.5% at September 30, 1994 and 50.2% at
September 30, 1993. PSNC's goal is to maintain a capital structure with a
ratio of long-term debt to total capitalization in the 40%-45% range with
periodic moderate fluctuations.
Effective December 1, 1995, PSNC anticipates redeeming the remaining
$3,680,000 balance of its 8% Series I First Mortgage Bonds, due 1998, at a
redemption price of 100.35%. PSNC will finance this redemption through the
use of short-term bank debt. After this series of first mortgage bonds is
retired, PSNC will close the original indenture and all supplemental
indentures. PSNC currently plans to secure additional long-term debt
financing to retire a portion of its then outstanding short-term bank debt
in the first half of fiscal 1996. The type of financing and timing of the
issuance have not been determined at this time.
Construction expenditures were $61,119,000, $45,469,000 and
$40,127,000 for fiscal 1995, 1994 and 1993, respectively. The fiscal 1995
increase is due mainly to construction costs of $7,332,000 associated with
the construction of the Cardinal Pipeline project, and approximately
$4,000,000 associated with another transmission project. For fiscal 1996,
PSNC's Board of Directors approved a budget of approximately $61,131,000
for PSNC's ongoing construction program.
As discussed more fully in Note 2 to the financial statements, PSNC
and a subsidiary of Piedmont Natural Gas Company, Inc. (Piedmont) formed
Cardinal Pipeline Company, LLC (Cardinal) in March 1994 to construct an
intrastate transmission pipeline. The pipeline was placed into service in
December 1994 and extends 37.5 miles to provide additional daily capacity
to PSNC's eastern service territory in and around the Durham and Raleigh
areas. In September 1995, Transcontinental Gas Pipe Line Corporation
(Transco), PSNC, Piedmont, and North Carolina Natural Gas Corporation
(NCNG) signed a letter of intent to form a limited liability company (LLC).
After receiving North Carolina Utilities Commission (NCUC) approval, the
LLC will purchase and extend the existing Cardinal pipeline by
approximately 65 miles. The estimated cost of purchasing and extending the
pipeline is $97 million. PSNC, through a subsidiary, will own
approximately 33% of the new pipeline, and will contribute its net book
investment in the existing pipeline plus additional capital of
approximately $1 million.
Pine Needle LNG Company, LLC (Pine Needle), a limited liability
company formed by subsidiaries of Transco and Piedmont, signed a letter of
intent in September 1995 to add PSNC and NCNG as owners of Pine Needle.
Pine Needle will own, build and operate a four billion cubic feet liquefied
natural gas (LNG) storage facility near Transco's main line in northwest
Guilford County. Pending approval by the Federal Energy Regulatory
Commission, construction should begin in early 1997 at an estimated cost of
$107 million. The facility is expected to be ready for operation by May
1999. PSNC, through its subsidiary PSNC Blue Ridge Corporation, will own
17% of the facility and PSNC will have the right to use 25% of the
facility's gas storage capacity and withdrawal capabilities. At September
<PAGE> 23
30, 1995, PSNC's investment in Pine Needle totaled $708,000. PSNC will make
additional capital contributions of approximately $8 million during the
construction period.
As discussed more fully in Note 5 to the financial statements, PSNC
and its subsidiaries sponsor a non-contributory defined benefit pension
plan covering substantially all employees. Projected fiscal 1996 plan
contributions total $2,855,000, which includes estimated quarterly
contributions due for the 1996 plan year, in addition to the minimum
contribution required for the 1995 plan year.
Restricted cash and temporary investments and restricted supplier
refunds are attributable to refunds of $19,580,000 received from PSNC's
pipeline suppliers since fiscal 1992, including interest earned thereon of
$1,163,000. The investment and use of these funds have been restricted by
an order of the NCUC. These funds are to remain segregated from PSNC's
general funds and may be used only for expansion of PSNC's facilities into
unserved territories which would otherwise be uneconomical to serve. In an
order dated June 3, 1993, the NCUC created an expansion fund for PSNC in
the Office of the State Treasurer. Pursuant to the order, approximately
$16,528,000 of the restricted funds have been deposited into the expansion
fund. The NCUC has approved an expansion project in McDowell County to be
funded from PSNC's expansion fund in an amount up to $8,193,500. The
project was initiated in December 1995 and is expected to be in service by
December 1996. PSNC has scheduled additional expansion projects in five
other counties over a projected five-year period, subject to approval by
the NCUC.
Net accounts receivable decreased $3,044,000 as compared to September
1994. This decrease was due primarily to decreased revenues billed in
September 1995 compared to September 1994.
Net deferred gas costs fluctuate in response to the operation of
PSNC's Rider D rate mechanism. This mechanism allows PSNC to recover
margin losses on negotiated sales to large commercial and industrial
customers with alternate fuel capability. It also allows PSNC to recover
from customers all prudently incurred gas costs. On a monthly basis, any
difference in amounts paid and collected from these costs is recorded for
subsequent refund to or collection from PSNC's customers. Deferred gas
costs at September 30, 1995 and September 30, 1994 primarily represent
undercollections from customers of $3,692,000 and $734,000, respectively.
Other assets increased $1,419,000 in fiscal 1995 primarily due to the
recording of an additional $750,000 to a regulatory asset related to the
investigation and remediation of MGP sites, which is discussed more fully
later in this section. In addition, PSNC recorded a $376,000 transition
obligation associated with the adoption of Statement of Financial
Accounting Standards (SFAS) No. 112, "Employers' Accounting for
Postemployment Benefits," effective October 1, 1994. At September 30,
1995, the unamortized balance included in other assets totaled $250,000.
Also contributing to the increase was the $708,000 investment in Pine
Needle.
As discussed in Note 8 to the financial statements, PSNC owns or has
owned portions of six sites in North Carolina on which MGPs were formerly
operated and one site at which a manufactured gas holder was located.
Evaluations of these sites have revealed that MGP residuals are present or
<PAGE> 24
suspected at each of the sites. The North Carolina Department of
Environment, Health and Natural Resources (NCDEHNR) has recommended that no
further action be taken with respect to one site. An environmental
consulting firm retained by PSNC estimated that the minimum aggregate costs
to investigate and monitor the extent of environmental degradation and to
implement remedial procedures with respect to the remaining six sites may
range from $3,705,000 to $50,145,000 over a 30-year period. PSNC is unable
to determine the rate at which costs may be incurred over this time period.
During October 1994, PSNC entered into an administrative order on consent
with NCDEHNR to investigate the Durham, North Carolina site in accordance
with standards and methods approved by NCDEHNR. At September 30, 1995,
PSNC had recorded a total liability of the minimum amount of the range, or
$3,705,000.
In the general rate order dated October 7, 1994, the NCUC allowed the
recovery of incurred MGP costs of approximately $150,000 as a reasonable
operating expense to be amortized over a three-year period and ordered PSNC
to defer additional MGP costs for consideration in subsequent rate cases.
The NCUC concluded that it is proper and in the public interest to allow
recovery of prudently incurred clean-up costs from current ratepayers as
reasonable operating expenses even though the MGP sites are not used and
useful in providing gas service to current customers. However, the order
does not allow recovery of carrying costs on deferred amounts. Management
intends to request recovery of additional MGP clean-up costs, not recovered
from other potentially responsible parties (PRPs), in future rate case
filings and believes that all costs deemed by the NCUC to be prudently
incurred will be recoverable in gas rates. PSNC is also in discussions
with another PRP regarding potential cost-sharing arrangements for
investigation and potential remediation costs at four of the sites. At
this time, PSNC has not reached a definitive agreement regarding such
arrangements.
The increase in accounts payable at September 30, 1995 as compared to
the prior year reflects increased construction expenditures.
The decrease in accrued taxes at September 30, 1995 as compared to the
prior year is primarily due to a decrease in accrued income taxes that
includes an overpayment of approximately $2,100,000 for fiscal 1995.
The increase in cash dividends declared at September 30, 1995 as
compared to the prior year is primarily due to the early payment of cash
dividends of $1,073,000 during September 1994.
The increase in interim bank loans at September 30, 1995 as compared
to September 30, 1994 is due to an increase in the level of construction
expenditures. In addition, short-term indebtedness at September 30, 1994
decreased as compared to the prior year due to the use of a portion of the
proceeds of the May 1994 stock sale to pay off all short-term indebtedness
then outstanding.
Deferred credits and other liabilities increased $2,230,000 due mainly
to an increase of $4,136,000 related to net deferred taxes, an additional
$1,006,000 recorded in fiscal 1995 for postretirement benefits, and the
recording of the $376,000 transition obligation associated with the
implementation of SFAS No. 112, "Employers' Accounting for Postemployment
Benefits," effective October 1, 1994. These increases were partially
<PAGE> 25
offset by a $440,000 decrease in insurance reserves and a $2,601,000
decrease in accrued pension cost due to pension contribution payments made
during fiscal 1995. PSNC did not have to fund its pension plan during
fiscal 1994 or fiscal 1993.
Effects of Inflation
- - --------------------
The margin charged to PSNC's firm gas customers may not be increased
without a general rate case. Accordingly, in the absence of authorized
rate increases and except for changes in the cost of gas sold, which are
passed along to customers on a timely basis through various rate adjustment
mechanisms, PSNC must look to performance improvement and higher gas sales
volumes to offset inflationary increases in its cost of operations. Current
rates only permit PSNC to recover its historical cost of utility plant and
give no recognition to the replacement cost of these facilities. PSNC's
last general rate case was filed March 9, 1994 and became effective October
7, 1994. Testimony and exhibits were filed with the NCUC on January 11,
1995 for an increase in annual revenues of approximately $3,000,000 to
recover costs associated with PSNC's investment in the Cardinal Pipeline.
A hearing was held on January 25, 1995 and new rates became effective on
January 26, 1995. Management continually reviews operations and economic
conditions to assess the need for filing for general rate relief. PSNC
currently plans to file a general rate case with the NCUC in the spring of
1996. A general rate order from the NCUC is expected in the fall of 1996.
Effects of SFAS Nos. 119, 121 and 123
- - -------------------------------------
In October 1994, the Financial Accounting Standards Board (FASB)
issued its SFAS No. 119, "Disclosure about Derivative Financial Instruments
and Fair Value of Financial Instruments." PSNC currently uses derivatives
primarily to reduce the level of price volatility of PSNC's gas supply.
PSNC plans to adopt this standard on October 1, 1996. Due to its limited
use of derivatives, PSNC does not expect the adoption of this statement to
materially affect PSNC's financial position or results of operations.
In March 1995, the FASB issued its SFAS No. 121, "Accounting for the
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of."
This statement imposes stricter criteria for regulatory assets by requiring
that such assets be probable of future recovery at each balance sheet date.
PSNC plans to adopt this standard on October 1, 1996. Based on the current
regulatory structure in which PSNC operates, PSNC does not expect the
adoption of this statement to materially affect PSNC's financial position
or results of operations.
In October 1995, the FASB issued its SFAS No. 123, "Accounting for
Awards of Stock-Based Compensation to Employees." This statement
establishes financial accounting and reporting standards for stock-based
employee compensation plans. PSNC will adopt this standard on October 1,
1996. The effect on PSNC's financial position and results of operations of
adopting this standard is not known.
<PAGE> 26
Item 8. Financial Statements and Supplementary Data
- - ----------------------------------------------------
<TABLE>
Public Service Company of North Carolina, Incorporated and Subsidiaries
Consolidated Statements of Income
<CAPTION>
For the Fiscal Years Ended September 30, 1995 1994 1993
- - ---------------------------------------- ------------ ------------ ------------
<S> <C> <C> <C>
Operating revenues $247,893,014 $273,705,056 $279,989,141
Cost of gas 117,065,047 155,377,642 167,884,242
------------ ------------ ------------
Gross margin 130,827,967 118,327,414 112,104,899
------------ ------------ ------------
Operating Expenses and Taxes:
Other operating expenses 47,006,721 45,123,338 43,129,029
Maintenance 4,261,832 4,645,045 4,867,565
Provision for depreciation 18,156,134 15,197,428 14,092,809
General taxes 13,823,123 14,566,009 14,013,564
Income taxes -
Federal 10,776,500 8,031,000 5,917,400
State 2,743,800 2,109,000 1,708,100
------------ ------------ ------------
Total operating expenses and taxes 96,768,110 89,671,820 83,728,467
------------ ------------ ------------
Operating income 34,059,857 28,655,594 28,376,432
------------ ------------ ------------
Other Income (Deductions):
Allowance for equity funds used
during construction 18,244 10,431 -
Merchandise and jobbing (333,914) 478,848 (862,611)
Subsidiary operations, net of
income taxes 402,344 3,130,113 285,463
Interest income and other 132,543 950,177 310,627
------------ ------------ ------------
Total other income (deductions) 219,217 4,569,569 (266,521)
------------ ------------ ------------
Gross income 34,279,074 33,225,163 28,109,911
------------ ------------ ------------
Interest Deductions:
Interest on long-term debt 11,115,979 12,060,285 12,593,076
Amortization of debt expense 137,122 146,983 146,263
Other interest 1,974,268 1,187,878 1,201,171
Allowance for borrowed funds used
during construction (369,522) (146,389) (49,794)
------------ ------------ ------------
Total interest deductions 12,857,847 13,248,757 13,890,716
------------ ------------ ------------
Net income 21,421,227 19,976,406 14,219,195
Dividends on preferred stock - - 35,659
------------ ------------ ------------
Earnings applicable to common stock $ 21,421,227 $ 19,976,406 $ 14,183,536
============ ============ ============
Average common shares outstanding 18,509,049 17,012,261 15,812,050
Earnings per average common share $1.16 $1.17 $ .90
===== ===== =====
Cash dividends declared per common share $.835 $.805 $.775
The accompanying notes to consolidated financial statements are an integral part of these
statements.
</TABLE>
<PAGE> 27
<TABLE>
Public Service Company of North Carolina, Incorporated and Subsidiaries
Consolidated Balance Sheets
<CAPTION>
September 30, 1995 1994
- - ------------------------------------------ ------------ ------------
<S> <C> <C>
Assets
- - ------
Gas Utility Plant:
In service $566,460,339 $508,507,929
Less - Accumulated depreciation 166,506,014 153,308,552
------------ ------------
Net plant in service 399,954,325 355,199,377
Construction work in progress 7,484,772 11,701,126
------------ ------------
407,439,097 366,900,503
------------ ------------
Non-utility Property, net of
accumulated depreciation (1995 -
$148,864 and 1994 - $106,959) 801,118 251,058
------------ ------------
Current Assets:
Cash and temporary investments 993,086 2,534,220
Restricted cash and temporary investments 4,215,146 12,731,385
Receivables, less allowance for
doubtful accounts (1995 - $2,037,855
and 1994 - $1,467,887) 13,604,584 16,648,707
Inventories, at average cost -
Materials, supplies and merchandise 5,576,801 6,131,590
Stored gas 12,141,033 14,276,322
Deferred gas costs, net 3,692,135 733,626
Prepayments 2,088,850 2,571,714
------------ ------------
42,311,635 55,627,564
------------ ------------
Deferred Charges and Other Assets:
Debt expense 884,392 1,021,514
Other 5,558,331 4,138,588
------------ ------------
6,442,723 5,160,102
------------ ------------
$456,994,573 $427,939,227
============ ============
Capitalization and Liabilities
- - ------------------------------
Capitalization (see statements):
Common equity $173,372,370 $160,555,389
Long-term debt 100,700,000 113,680,000
------------ ------------
274,072,370 274,235,389
------------ ------------
Current Liabilities:
Current maturities of long-term debt 10,480,000 5,240,000
Accounts payable 20,411,512 15,655,954
Accrued taxes 1,823,638 5,787,398
Customer prepayments and deposits 5,741,647 5,569,991
Accrued interest 2,451,520 2,313,092
Cash dividends declared 3,971,802 2,660,008
Restricted supplier refunds 4,215,146 12,731,385
Other 3,416,056 3,565,082
------------ ------------
52,511,321 53,522,910
Interim bank loans, due within one year 51,000,000 23,000,000
------------ ------------
103,511,321 76,522,910
------------ ------------
Deferred Credits and Other Liabilities:
Income taxes, net 52,605,635 48,469,306
Investment tax credits 4,645,425 5,080,579
Accrued pension cost 12,930,801 15,531,559
Other 9,229,021 8,099,484
------------ ------------
79,410,882 77,180,928
------------ ------------
$456,994,573 $427,939,227
============ ============
The accompanying notes to consolidated financial statements are an integral part of
these balance sheets.
</TABLE>
<PAGE> 28
Public Service Company of North Carolina, Incorporated and Subsidiaries
Consolidated Statements of Capitalization
September 30, 1995 1994
- - ------------------------------------------ ------------ ------------
Common Equity:
Common stock, $1 par, 30,000,000
shares authorized; shares outstanding
1995 - 18,689,346 and 1994 - 18,212,047 $ 18,689,346 $ 18,212,047
Capital in excess of par value 106,655,316 100,200,706
Retained earnings 48,027,708 42,142,636
------------ ------------
173,372,370 160,555,389
------------ ------------
Long-term Debt:
First mortgage bonds (An equivalent
portion of gas utility plant pledged
as collateral) -
8% Series I, due 1998 3,680,000 3,920,000
Senior debentures (unsecured) -
8.65% due 2002 17,500,000 20,000,000
10% due 2003 15,000,000 20,000,000
10% due 2004 43,000,000 43,000,000
8.75% due 2012 32,000,000 32,000,000
------------ ------------
111,180,000 118,920,000
Less - Current maturities 10,480,000 5,240,000
------------ ------------
100,700,000 113,680,000
------------ ------------
$274,072,370 $274,235,389
============ ============
<TABLE>
Consolidated Statements of Retained Earnings
<CAPTION>
For the Fiscal Years Ended September 30, 1995 1994 1993
- - ---------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Balance, beginning of year $42,142,636 $36,164,769 $39,583,226
Add - Earnings applicable
to common stock 21,421,227 19,976,406 14,183,536
----------- ----------- -----------
63,563,863 56,141,175 53,766,762
Deduct - Cash dividends declared
on common stock and other 15,536,155 13,998,539 12,374,876
- 50% common stock dividend - - 5,227,117
----------- ----------- -----------
Balance, end of year $48,027,708 $42,142,636 $36,164,769
=========== =========== ===========
The accompanying notes to consolidated financial statements are an integral part of these
statements.
</TABLE>
<PAGE> 29
<TABLE>
Public Service Company of North Carolina, Incorporated and Subsidiaries
Consolidated Statements of Cash Flows
<CAPTION>
For the Fiscal Years Ended September 30, 1995 1994 1993
- - ---------------------------------------- ----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net income $21,421,227 $19,976,406 $14,219,195
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation charged to operating expenses 18,156,134 15,197,428 14,092,809
Depreciation charged to other accounts 2,350,489 2,440,130 2,558,901
Depletion and other 137,122 161,896 197,932
Provision for doubtful accounts 1,404,268 1,493,028 1,451,121
Amortization of investment tax credits, net (435,154) (440,313) (457,186)
Deferred income taxes, net 4,136,329 1,876,372 (628,370)
Gain on sale of propane assets - (3,127,970) -
----------- ----------- -----------
47,170,415 37,576,977 31,434,402
Change in assets and liabilities:
Receivables 1,639,855 (3,521,320) (1,717,879)
Inventories 2,690,078 (1,404,041) (2,580,154)
Deferred gas costs, net (2,958,509) 5,348,373 (1,141,304)
Prepayments 482,864 (745,459) (1,264,754)
Accounts payable 4,755,558 (1,848,648) (2,431,277)
Accrued taxes (3,963,760) 2,634,559 (177,584)
Customer prepayments and deposits 171,656 100,649 419,598
Accrued interest 138,428 (1,382,050) (90,596)
Other 268,917 1,445,207 1,646,509
Accrued pension cost (2,600,758) 2,008,302 2,765,898
----------- ----------- -----------
Net cash provided by operating activities 47,794,744 40,212,549 26,862,859
----------- ----------- -----------
Cash Flows from Investing Activities:
Construction expenditures (61,118,541) (45,469,230) (40,126,600)
Non-utility property and other (1,015,502) (1,535,728) (908,064)
Proceeds from sale of propane assets - 12,800,126 -
----------- ----------- -----------
Net cash used in investing activities (62,134,043) (34,204,832) (41,034,664)
----------- ----------- -----------
Cash Flows from Financing Activities:
Issuance of common stock through public
offering, net of expenses - 23,406,260 -
Issuance of common stock through dividend
reinvestment, stock purchase and stock
option plans 6,762,526 7,297,969 6,509,014
Increase (decrease) in interim bank loans, net 28,000,000 (10,500,000) 23,000,000
Retirement of long-term debt (7,740,000) (11,136,000) (6,038,000)
Retirement of preferred and common stock (71,811) (162,420) (1,581,469)
Cash dividends (14,152,550) (14,297,880) (12,167,301)
----------- ----------- -----------
Net cash provided by (used in)
financing activities 12,798,165 (5,392,071) 9,722,244
----------- ----------- -----------
Net increase (decrease) in cash and
temporary investments (1,541,134) 615,646 (4,449,561)
Cash and temporary investments at beginning
of year 2,534,220 1,918,574 6,368,135
----------- ----------- -----------
Cash and temporary investments at end of year $ 993,086 $ 2,534,220 $ 1,918,574
=========== =========== ===========
Cash paid during the year for:
Interest (net of amount capitalized) $12,137,583 $14,134,527 $13,334,151
Income taxes $13,486,095 $ 8,927,800 $ 9,289,292
The accompanying notes to consolidated financial statements are an integral part of these
statements.
</TABLE>
<PAGE> 30
Public Service Company of North Carolina, Incorporated
and Subsidiaries
Notes to Consolidated Financial Statements
For the Fiscal Years Ended September 30, 1995, 1994 and 1993
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation and Segment Data
-------------------------------------------
The consolidated financial statements include Public Service
Company of North Carolina, Incorporated's (PSNC) wholly-owned
subsidiaries, Clean Energy Enterprises, Inc. (previously Tar Heel
Energy Corporation), PSNC Blue Ridge Corporation, PSNC Exploration
Corporation, PSNC Production Corporation, PSNC Propane Corporation,
and PSNC's interest in Cardinal Pipeline Company, LLC. All
significant intercompany transactions have been eliminated in
consolidation.
PSNC and its subsidiaries operate in one dominant business
segment, distribution of natural gas. PSNC, through an unregulated
subsidiary, is engaged in the marketing of natural gas to large
commercial and industrial customers. Through another unregulated
subsidiary, PSNC provides conversion, maintenance and fueling
services for natural gas vehicles in selected cities in and beyond
its franchised territory. PSNC divested its remaining oil and gas
properties during fiscal 1994, which ended PSNC's participation in
exploration and development activities. Also during fiscal 1994,
PSNC sold its propane subsidiary assets to Empiregas, Inc. of North
Carolina.
Utility Plant
-------------
Utility plant is stated at the historical cost of construction.
Included in historical cost are certain construction-related costs
such as taxes, pensions and other fringe benefits, as well as the
estimated cost of funds used during construction (AFUDC). PSNC
capitalizes AFUDC on a pre-tax basis for both the cost of short-term
debt and the allowed overall cost rate.
Depreciation
------------
PSNC provides for depreciation on a straight-line basis by the
application of specific rates to the various classes of depreciable
property. These rates, which have been approved by the North
Carolina Utilities Commission (NCUC), approximate on a composite
basis 3.9%, 3.5% and 3.5% of the cost of depreciable property for
fiscal 1995, 1994 and 1993, respectively.
Revenues
--------
Certain customers (primarily residential and commercial) are
billed on a cycle basis while other customers are billed as of the
end of each month. Revenues are recorded at the time of billing.
The cost of gas delivered but unbilled is deferred and recognized in
the period in which the related revenue is billed.
Income Taxes
------------
Beginning October 1, 1993, PSNC adopted Statement of Financial
Accounting Standards (SFAS) No. 109, "Accounting for Income Taxes,"
<PAGE> 31
issued by the Financial Accounting Standards Board (FASB). This
statement requires the use of the liability method of accounting for
income taxes. Under this method, the deferred tax liability
represents the tax effect of temporary differences between the
financial statement and tax bases of assets and liabilities and is
measured using current tax rates. PSNC adopted SFAS No. 109 on a
prospective basis without restating prior year amounts. As a result
of implementation, PSNC increased its net regulatory liability by
approximately $6,000,000 with a similar decrease in accumulated
deferred income taxes.
PSNC uses deferral accounting for investment tax credits, which
amortizes the credits to income over the service life of related
property.
Cash and Temporary Investments
-----------------------------
For purposes of reporting cash flows, cash and temporary
investments include cash on hand and investments of 45 days or less.
Investments may include repurchase agreements, Treasury bills,
federal agency securities, certificates of deposit and high-grade
commercial paper.
Since fiscal 1992, PSNC has received refunds from its pipeline
suppliers for which the investment and use have been restricted by
an order of the NCUC. Pursuant to the order, these funds are to
remain segregated from PSNC's general funds and will be used for
expansion of PSNC's facilities into unserved territories. These
refunds, along with interest earned thereon, are periodically
transferred to the Office of the State Treasurer. The balance not
transferred is reported in restricted cash and temporary investments
and restricted supplier refunds. The total amount transferred to
the Office of the State Treasurer at September 30, 1995 is
$16,528,000.
Debt Expense
------------
PSNC amortizes issuance costs for its first mortgage bonds and
debentures over the life of the related debt. In addition, PSNC is
amortizing the redemption premium and the unamortized issuance costs
on its previously refunded Series K First Mortgage Bonds over 15
years, in accordance with the treatment authorized by the NCUC.
Fair Value of Financial Instruments
-----------------------------------
In December 1991, the FASB issued its SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments." This standard requires
disclosure of the fair value of financial instruments, both assets
and liabilities, including those recorded and not recorded, for
which it is practicable to estimate the fair value. The following
methods and assumptions were used to comply with this standard.
Cash and temporary investments: The carrying value closely
approximates fair value due to their short-term nature.
Long-term debt: The fair value of these instruments are based on
current market prices and yields for similar issues. Based on the
current market value for similar issues, the fair market value of
PSNC's long-term debt (including current maturities) at September
30, 1995 is $129,939,000 as compared to a carrying value of
$111,180,000.
<PAGE> 32
Use of Estimates in the Preparation of Financial Statements
-----------------------------------------------------------
The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make
certain estimates and assumptions. These affect the reported
amounts of assets and liabilities and disclosure of contingent
assets and 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.
Reclassifications
-----------------
Certain amounts included in the consolidated financial statements
for fiscal 1994 and 1993 have been reclassified from their original
presentation to conform with the current year's presentation.
2. REGULATORY MATTERS
In PSNC's 1986 general rate case order, a rate mechanism
(Rider D) was put into place. As currently approved by the NCUC,
Rider D allows PSNC to record for recovery from its customers all
prudently incurred gas costs on a monthly basis. Any difference in
amounts paid and collected for these costs is deferred for
subsequent refund to or collection from customers. Additionally,
PSNC can recover its margin losses on negotiated gas sales to
certain large commercial and industrial customers in any manner
authorized by the NCUC. At September 30, 1995, the balance of net
gas costs to be collected from customers pursuant to Rider D was
approximately $3,913,000.
In PSNC's 1991 general rate case order, a weather normalization
adjustment (WNA) mechanism was put into place. This mechanism
allows PSNC to adjust its winter-period gas sales rates to certain
customers to avoid undercollections or overcollections of its non-
gas costs due to weather fluctuations.
Effective November 1, 1990, PSNC obtained additional firm
capacity from Transco's Southern Expansion project. The demand
costs associated with this increased capacity were recorded as a
reduction of refunds due customers in accordance with PSNC's
interpretation of its tariffs as approved by the NCUC in Docket No.
G-5, Sub 246. The Public Staff of the NCUC filed a petition with
the NCUC claiming that these amounts were not recoverable from
customers under tariffs and laws existing at the time, except
through a general rate case. In an order dated April 5, 1991, the
NCUC ordered that PSNC's prior treatment of these costs not be
disturbed. The NCUC also ordered, prospectively, that these demand
costs be collected through all rates on a provisional basis pending
further order. In view of this NCUC order, PSNC deferred both the
associated costs and the revenue for the period April 5, 1991
through October 31, 1991. In the November 1, 1991 general rate case
order, the NCUC approved the prospective collection of these demand
costs through all rates. On April 29, 1993, the Public Staff filed
a motion with the NCUC requesting that PSNC be ordered to refund to
its customers the revenues collected from April 5, 1991 through
October 31, 1991. On July 27, 1993, the NCUC issued an order
requiring the refund as proposed by the Public Staff. As a result
of the order, PSNC charged to gas cost expenses during the fourth
quarter of fiscal 1993 approximately $1,225,000 of related deferred
gas costs and incurred approximately $199,000 of interest on the
deferred revenue. PSNC has no additional exposure from this matter.
<PAGE> 33
On October 7, 1994 the NCUC issued an order in PSNC's general
rate case filed in March 1994 granting additional annual revenues of
$10,763,000 and rates of return of 10.51% and 11.87% on net utility
investment and common equity, respectively. The order also approved
the continuation of the previously mentioned WNA and Rider D rate
mechanisms.
PSNC and a subsidiary of Piedmont Natural Gas Company, Inc.
(Piedmont) formed Cardinal Pipeline Company, LLC (Cardinal) in March
1994, to construct and operate a 24-inch natural gas pipeline. It
was placed into service on December 31, 1994 and extends 37.5 miles
from a connection with Transcontinental Gas Pipe Line Corporation
(Transco) near Reidsville to Burlington, where it connects with
existing pipelines of PSNC and Piedmont. An increase in annual
revenues of $3,063,000 was granted by the NCUC to PSNC to recover
the cost of the investment, effective January 26, 1995.
In September 1995, PSNC, Piedmont, Transco, and North Carolina
Natural Gas Corporation (NCNG) signed a letter of intent to form a
limited liability company (LLC) to purchase and extend the Cardinal
pipeline. As proposed, the pipeline will be extended 65 miles from
Burlington to a point southeast of Raleigh and will add 140 million
cubic feet per day of additional firm capacity to North Carolina
consumers. The purchase and extension will be project-financed at
an estimated cost of $97 million. Through their respective
subsidiaries, it is anticipated that PSNC will own approximately 33
percent, Piedmont will own approximately 17 percent, Transco will
own approximately 45 percent, and NCNG will own approximately five
percent of the LLC. PSNC, through a subsidiary, will contribute to
the new LLC its net book investment in the existing pipeline plus
additional capital of approximately $1 million. Following the
execution of a definitive agreement and appropriate NCUC approval,
the LLC plans to request appropriate regulatory authorization in the
fall of 1996 for authorization to extend the existing pipeline.
Subject to the approval of appropriate state and federal agencies,
construction is scheduled to begin in early 1999. The facilities
are expected to be in service on or before November 1, 1999.
In September 1995, PSNC signed a letter of intent with the Pine
Needle LNG Company, LLC (Pine Needle), to add PSNC's subsidiary,
PSNC Blue Ridge Corporation, as an owner of Pine Needle. Pine
Needle, originally formed by subsidiaries of Transco and Piedmont,
has sought approval from the FERC to construct, own and operate a
liquefied natural gas (LNG) peak demand facility in North Carolina.
A subsidiary of Transco will serve as the operator. PSNC Blue Ridge
will own 17 percent of Pine Needle and PSNC will have the right to
use 25 percent of the facility's gas storage capacity and withdrawal
capabilities. The facility, estimated to cost $107 million, will be
located near Transco's main line northwest of Greensboro and will
have a storage capacity of four billion cubic feet with vaporization
capability of 400 million cubic feet per day. Pine Needle plans to
seek non-recourse project financing for the facility investment. A
project application will be submitted to the FERC in early November
1995 and, pending FERC approval, construction will begin in early
1997. Liquefaction is expected to begin in May 1999 in time for
withdrawal service to begin in the 1999 winter heating season. PSNC
Blue Ridge will make capital contributions of approximately $8
million during the construction period, in addition to its initial
investment of $708,000.
<PAGE> 34
3. REDEEMABLE PREFERRED STOCK
Series Without Sinking Fund Requirements
---------------------------------------
Effective January 1, 1993, PSNC redeemed all outstanding shares
of its $25 par Cumulative Preferred Stock at $25.25 per share.
The amount and the number of shares redeemed during the year
ended September 30, 1993 are shown below:
Redemptions
---------------------
Amount Shares
---------- ------
5.75% Series $ 330,450 13,218
6% Series $1,152,600 46,104
<PAGE> 35
4. COMMON STOCK
The changes in common stock and capital in excess of par value for
the three years ended September 30, 1995 were as follows:
<TABLE>
Common Stock
$1 Par, Authorized
30,000,000 Shares
------------------------
Capital In
Shares Excess Of
Outstanding Amount Par Value
----------- ----------- ------------
<CAPTION>
<S> <C> <C> <C>
September 30, 1992 10,367,583 $10,367,583 $ 65,118,308
50% common stock dividend 5,227,117 5,227,117 -
Issuance through dividend 254,438 254,438 4,697,424
reinvestment plan (DRP)
Issuance through employee 98,029 98,029 944,508
stock purchase plan (ESPP)
Issuance through nonqualified 44,609 44,609 470,006
stock option plan (NSOP) - net
Compensation expense - NSOP - - 113,248
Recognition of permanent tax
differences related to stock
options exercised - - 162,300
---------- ----------- ------------
September 30, 1993 15,991,776 15,991,776 71,505,794
Issuance through DRP 325,434 325,434 4,694,165
Issuance through ESPP 86,892 86,892 1,168,261
Issuance through NSOP - net 82,945 82,945 940,272
Compensation expense - NSOP - - 14,154
Recognition of permanent tax
differences related to stock
options exercised - - 196,800
Issuance through public
offering - net of expenses 1,725,000 1,725,000 21,681,260
---------- ----------- ------------
September 30, 1994 18,212,047 18,212,047 100,200,706
Issuance through DRP 349,315 349,315 4,720,158
Issuance through ESPP 90,574 90,574 1,083,265
Issuance through NSOP - net 37,410 37,410 481,804
Compensation expense - NSOP - - 113,583
Recognition of permanent tax
differences related to stock
options exercised - - 55,800
---------- ----------- ------------
September 30, 1995 18,689,346 $18,689,346 $106,655,316
========== =========== ============
</TABLE>
<PAGE> 36
In accordance with PSNC's 1992 Nonqualified Stock Option Plan,
options to purchase an aggregate of up to 600,000 shares of PSNC's
common stock can be granted to officers and key employees of PSNC
annually beginning October 1, 1992. Options are granted at 90% of
the fair market value determined on the date of the grant, are
exercisable beginning two years from the date of the grant and
expire five years from the date of the grant. An exception to the
two-year exercise date is allowed upon the retirement, disability or
death of a participant.
On January 4, 1993, PSNC effected a 3-for-2 common stock split in
the form of a 50% common stock dividend. The following common stock
options and shares have been restated.
Options granted, exercised and cancelled for the three years
ended September 30, 1995 were as follows:
Options Exercise Price
Outstanding Per Share
----------- --------------
September 30, 1992 273,399
Granted 120,000 $15.57
Exercised (54,468) $ 8.65 to $10.56
-------
September 30, 1993 338,931
Granted 120,000 $13.23
Exercised (98,928) $ 8.77 to $15.57
Cancelled (11,572) $ 8.77 to $15.57
-------
September 30, 1994 348,431
Granted 120,000 $12.86
Exercised (46,095) $10.56 to $15.57
Cancelled (1,479) $15.57
-------
September 30, 1995 420,857
=======
PSNC also offers an Employee Stock Purchase Plan under which
eligible employees may purchase PSNC's common stock through
voluntary payroll deductions at a 10% discount from the fair market
value as defined in the plan.
At September 30, 1995, there were 995,234 common shares reserved
for issuance under PSNC's Automatic Dividend Reinvestment and Stock
Purchase Plan, 253,052 total common shares reserved for granting
under the 1992 Nonqualified Stock Option Plan and 461,623 common
shares reserved under the Employee Stock Purchase Plan.
5. PENSION AND POSTRETIREMENT PLANS
PSNC and its subsidiaries sponsor a non-contributory defined
benefit pension plan covering substantially all employees. The
benefits are based on years of service and the employee's
compensation during the five consecutive years of employment that
will produce the highest average pay. Contributions to the plan are
determined on an annual basis with the amount of such contributions
being within the minimum required for funding standard account
purposes and the maximum deductible for federal income tax purposes.
<PAGE> 37
Net pension cost in fiscal 1995, 1994 and 1993 consisted of the
following components (amounts in thousands):
1995 1994 1993
------ ------ ------
Service cost $1,977 $2,026 $2,288
Interest cost 3,173 3,040 3,469
Actual return on assets (3,320) (814) (2,186)
Net amortization 228 (2,244) (805)
------ ------ ------
Net pension cost $2,058 $2,008 $2,766
====== ====== ======
The table below sets forth the amount recognized on PSNC's
consolidated balance sheets at September 30, 1995 and 1994 (amounts in
thousands):
1995 1994
------- -------
Actuarial present value of benefit
obligations:
Accumulated benefit obligation,
including vested benefits in
1995 of $32,049 and 1994 of $27,317 $33,382 $28,477
======= =======
Projected benefit obligation $45,315 $42,054
Plan assets at fair value 37,011 34,321
------- -------
Plan assets under projected
benefit obligation 8,304 7,733
Unrecognized transition amount 2,849 3,160
Unrecognized net gain 7,074 10,507
Unrecognized prior service cost (5,296) (5,868)
------- -------
Accrued pension cost $12,931 $15,532
======= =======
Actuarial assumptions:
Weighted average discount rate 7% 8%
Rate of increase in future
compensation levels 3%-6.25% 4%-7.25%
Weighted average expected
long-term rate of return 8% 8%
The majority of plan assets is invested in obligations of the
U.S. Treasury, corporate obligations and cash equivalents, with the
balance primarily in common stocks. The fair value of PSNC's own
common stock held by the plan at the respective 1995 and 1994
measurement dates was approximately $2,629,000 and $2,364,000.
PSNC offers medical, life and dental insurance coverage to its
qualified salaried and hourly retirees. Retirees are required to
contribute for the cost of the coverage. PSNC's policy is to review
the contributions required from retirees on an annual basis and to
increase retiree contributions as necessary. Effective October 1,
1993, PSNC adopted SFAS No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." The standard provides
for the accrual of the costs of retiree medical, life and dental
insurance benefits over the working lifetime of the employees.
<PAGE> 38
Based on the actuarial valuation of October 1, 1993, the adoption
of SFAS No. 106 resulted in a transition obligation of approximately
$7,400,000. The following table reconciles the plan's funded status
to the accrued benefit cost as of September 30, 1995 and 1994
(amounts in thousands):
1995 1994
------- -------
Fair value of plan assets $ - $ -
Accumulated postretirement benefit
obligation (APBO):
Retirees and dependents $ 2,163 $ 1,676
Other fully eligible participants 1,651 1,567
Other active participants 4,466 4,377
------- -------
8,280 7,620
Unrecognized prior service cost - -
Unrecognized net gain 721 769
Unrecognized transition obligation (6,639) (7,007)
------- -------
Accrued postretirement benefit cost $ 2,362 $ 1,382
======= =======
The net periodic postretirement benefit cost for the twelve
months ended September 30, 1995 and 1994 consists of the following
components (amounts in thousands):
1995 1994
------ ------
Service cost $ 326 $ 366
Interest cost on APBO 599 533
Amortization of
transition obligation 369 368
Amortization of unrecognized
net gain (21) -
------ ------
Net periodic postretirement benefit cost $1,273 $1,267
====== ======
As of the 1995 measurement date, the assumed health care cost
trend rate used in determining the APBO was 10% in 1995, 9% in 1996,
8% in 1997, 7% in 1998, then decreasing .5% annually to an ultimate
trend rate of 3.5% in 2005. A one-percentage point increase in the
assumed health care cost trend rate would increase the APBO by
approximately 12%. The service and interest cost components of the
net periodic postretirement benefit cost would increase
approximately 8%. The net periodic postretirement benefit cost was
calculated using a discount rate of 8%. The APBO at the measurement
date was determined using a discount rate of 7%.
PSNC requested recovery of SFAS No. 106 expenses in its general
rate case filed with the NCUC on March 9, 1994. In an order dated
October 7, 1994, the NCUC granted recovery of these expenses on a
prospective basis.
6. SHORT-TERM BORROWING ARRANGEMENTS
PSNC has committed lines of credit with eight commercial banks
which vary monthly depending upon seasonal requirements. For the
twelve-month period beginning April 1, 1995, total lines of credit
with these banks range from a minimum of $22,000,000 to a winter-
<PAGE> 39
period maximum of $79,000,000. PSNC also has uncommitted annual
lines of credit with three of these banks totaling $21,000,000.
There are no restrictions on the withdrawal of cash balances
maintained with these banks. The banks are compensated for the
unused portion of the committed lines of credit through the payment
of commitment fees. At September 30, 1995 and 1994, there were
$51,000,000 and $23,000,000 of short-term loans outstanding,
respectively.
PSNC borrows funds on a short-term basis primarily for its
construction program and for the seasonal financing of stored gas.
The loans are generally arranged for periods of up to 90 days at
rates below the prime rate. Bankers' acceptance loans are arranged
for periods of up to 180 days at rates below the prime rate. At
September 30, 1995 and 1994, there were no bankers' acceptance loans
outstanding.
Certain information related to short-term borrowings is as
follows (dollars in thousands):
1995 1994
------- -------
At year end -
Amount outstanding $51,000 $23,000
Weighted average rate 6.42% 5.24%
During the year -
Maximum amount outstanding $51,000 $49,000
Average daily amount outstanding $25,362 $24,064
Weighted average rate 6.10% 3.66%
The weighted average rate is determined by dividing the total
short-term interest expense for the fiscal year by the average daily
amount outstanding during the fiscal year.
7. INCOME TAXES
PSNC adopted SFAS No. 109 effective October 1, 1993 on a
prospective basis. Income tax expense is shown on the consolidated
statements of income within the captions listed below. Immediately
following are the components of income tax expense (amounts in
thousands):
<TABLE>
1995 1994 1993
--------------- ---------------- ----------------
Federal State Federal State Federal State
------- ------ ------- ------ ------- ------
<CAPTION>
<S> <C> <C> <C> <C> <C> <C>
Income Statement Captions:
Operating expenses and taxes $10,777 $2,744 $8,031 $2,109 $5,917 $1,708
Other income (deductions) 162 19 1,532 528 140 37
------- ------ ------ ------ ------ ------
$10,939 $2,763 $9,563 $2,637 $6,057 $1,745
======= ====== ====== ====== ====== ======
Income Tax Expense:
Currently payable $8,320 $2,023 $9,569 $2,550 $4,179 $1,201
Deferred 3,054 740 434 87 2,335 544
Investment tax credit, net (435) - (440) - (457) -
------- ------ ------ ------ ------ ------
$10,939 $2,763 $9,563 $2,637 $6,057 $1,745
======= ====== ====== ====== ====== ======
</TABLE>
<PAGE> 40
A reconciliation of the statutory federal income tax rate to the
effective tax rate is as follows (dollars in thousands):
1995 1994 1993
------- ------- -------
Statutory federal income tax rate 35% 35% 34.75%
Expected federal income tax expense
at federal statutory rate $12,230 $10,541 $ 7,591
Less: State income tax benefit 962 757 600
Amortization of ITC 435 439 449
Tax on subsidiary income 141 1,096 99
Claim of right credit 19 29 470
Other (104) 189 56
------- ------- -------
Federal income tax expense $10,777 $ 8,031 $ 5,917
======= ======= =======
The components of the net deferred tax liabilities as of
September 30, 1995 and 1994 are as follows (amounts in thousands):
1995 1994
------- --------
Deferred tax assets:
Regulatory liabilities - income tax amounts $ 5,100 $ 5,156
Pension expense 3,903 4,675
Unamortized ITC 1,767 2,002
Exploration surcharge 334 335
Stock options 238 193
Other 1,760 1,407
-------- --------
$ 13,102 $ 13,768
-------- --------
Deferred tax liabilities:
Depreciation and property related items $ 53,723 $ 50,167
Excess deferred taxes due to
a change in the statutory rate 10,914 10,774
Regulatory assets - income tax amounts 701 756
Other 370 540
-------- --------
$ 65,708 $ 62,237
-------- --------
Net deferred tax liabilities $ 52,606 $ 48,469
======== ========
During fiscal 1993, deferred income taxes were provided for
significant timing differences between revenues and expenses for tax and
financial statement purposes. The source and deferred tax effect of
these differences are summarized below (amounts in thousands):
1993
---------------
Federal State
------- -------
Deferred Income Tax Provision:
Accelerated tax depreciation $ 2,731 $ 682
Accrued pension cost (691) (173)
Tax deductions from exploration
programs over book deductions 159 40
Accrued revenue taxable currently
for income tax purposes 112 28
Effect of alternative minimum tax (144) -
Other 168 (33)
------- -----
$ 2,335 $ 544
======= =====
<PAGE> 41
8. ENVIRONMENTAL ISSUES
PSNC owns or has owned portions of six sites in North Carolina
on which manufactured gas plants (MGPs) were formerly operated and
one site at which a manufactured gas holder was located. In 1992,
PSNC retained an environmental consulting firm to perform an
environmental survey of the sites, to plan investigative measures
and to prepare cost estimates for investigative and remedial
measures.
Of the seven sites with which PSNC is involved, intrusive
investigation (including drilling, sampling and analysis) has begun
at only one site and the remaining sites have been evaluated using
historical records and observations of current site conditions made
during visits to the sites. These evaluations have revealed that
MGP residuals are present or suspected at each of the sites. The
North Carolina Department of Environment, Health and Natural
Resources (NCDEHNR) has recommended that no further action be taken
with respect to one site. In March and April 1994, the consulting
firm estimated that the aggregate cost of investigating and
monitoring the extent of environmental degradation and of
implementing remedial procedures with respect to the remaining six
sites may range from $3,705,000 to $50,145,000 over a 30-year
period. PSNC is unable to determine the rate at which costs may be
incurred over this time period. The estimated cost range has not
been discounted to present value. The range includes costs of
investigating and monitoring the sites at the low end of the range
and investigating, monitoring and extensively remediating the sites
at the high end of the range. PSNC's associated actual costs for
these sites will depend on a number of factors, such as actual site
conditions, third party claims and recoveries from other
potentially responsible parties (PRPs). Another North Carolina
public utility or its predecessors also operated the MGPs in
Raleigh, Durham and Asheville and PSNC is in discussion with that
utility regarding potential cost sharing arrangements for
investigation and potential remediation costs of four of the sites.
At this time, PSNC has not reached a definitive agreement regarding
such arrangements.
At September 30, 1995, PSNC had recorded a total liability of
the minimum amount of the range, or $3,705,000. Of this amount,
$750,000 was accrued during the fiscal year ended September 30,
1992 in other current liabilities with a corresponding charge to
maintenance expenses. In accordance with an order of the NCUC
dated May 11, 1993, which authorizes deferral accounting, or the
creation of a regulatory asset, for all costs associated with the
investigation and remediation of MGP sites, PSNC recorded an
additional liability and an associated regulatory asset of
$2,955,000 during the second quarter of fiscal 1994 pending NCUC
determination of the appropriate disposition of these costs in
PSNC's general rate case filed March 9, 1994.
In the general rate order dated October 7, 1994, the NCUC
allowed the recovery of incurred MGP costs of approximately
$150,000 as a reasonable operating expense to be amortized over a
three-year period and ordered PSNC to defer additional MGP costs
for consideration in subsequent rate cases. The NCUC concluded
that it is proper and in the public interest to allow recovery of
prudently incurred clean-up costs from current ratepayers as
reasonable operating expenses even though the MGP sites are not
used and useful in providing gas service to current customers.
However, the order does not allow recovery of carrying costs on
<PAGE> 42
deferred amounts. In October 1994, PSNC reversed the $750,000
accrual of MGP costs charged to maintenance expenses during fiscal
1992 and recorded an additional regulatory asset of $750,000,
pursuant to the terms of the general rate order, to reflect
estimated total remedial costs of $3,705,000. Management intends
to request recovery of additional MGP clean-up costs not recovered
from other PRPs in future rate case filings, and believes that all
costs deemed by the NCUC to be prudently incurred will be
recoverable in gas rates.
9. LONG-TERM DEBT
Effective December 1, 1995, PSNC anticipates redeeming the
remaining $3,680,000 balance of its 8% Series I First Mortgage
Bonds, due 1998, at a redemption price of 100.35%. PSNC will
finance this redemption through the use of short-term bank debt.
After this series of first mortgage bonds is retired, PSNC will
close the original indenture and all supplemental indentures. PSNC
currently plans to secure additional long-term debt financing to
retire a portion of its then outstanding short-term bank debt in
the first half of fiscal 1996. The type of financing and timing of
the issuance have not been determined at this time.
Maturities of long-term debt during each of the next five
fiscal years will be as follows: 1996, $10,480,000; 1997,
$9,300,000; 1998, $9,300,000; 1999, $9,300,000; and 2000,
$11,800,000.
Under terms of the debt agreements, there are various
provisions relating to the maintenance of certain financial ratios
and conditions, the most significant of which could restrict
payment of dividends. At September 30, 1995, PSNC is in compliance
in all material respects with the requirements of its debt
agreements.
10. CONSTRUCTION PROGRAM
The construction program for fiscal 1996, as presently
planned, provides for expenditures of $61,131,000.
11. CONTINGENT LIABILITIES
PSNC is party to certain legal actions. Although it is
impossible to predict the outcome with certainty, based upon the
opinions of legal counsel, management does not expect disposition
of these matters to have a materially adverse effect on PSNC's
financial position or results of operations.
<PAGE> 43
12. SUMMARY OF QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
The following table presents certain financial information for
each quarter during the fiscal years ended September 30, 1995 and
1994 (amounts in thousands, except per share data):
1995
--------------------------------------
Fourth Third Second First
------- ------- -------- -------
Operating revenues $26,718 $41,650 $112,690 $66,835
Gross margin 16,042 24,236 57,452 33,099
Operating income (loss) (1,222) 3,595 21,849 9,838
Net income (loss) (4,350) 605 18,503 6,663
Earnings (loss) per share (.23) .03 1.00 .36
1994
--------------------------------------
Fourth Third Second First
------- ------- -------- -------
Operating revenues $30,858 $48,171 $123,234 $71,442
Gross margin 14,905 22,560 51,003 29,860
Operating income (loss) (1,551) 3,344 19,014 7,849
Net income (loss) (3,564) 1,669 16,856 5,016
Earnings (loss) per share (1) (.20) .10 1.04 .31
(1) The sum of the quarterly earnings (loss) per share amounts does not
equal the annual earnings per share amount reflected in the
consolidated statement of income due to the effect of changes in
average common shares outstanding during the fiscal year.
<PAGE> 44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Shareholders and the Board of Directors of
Public Service Company of North Carolina, Incorporated:
We have audited the accompanying consolidated balance sheets and
statements of capitalization of Public Service Company of North
Carolina, Incorporated (PSNC), a North Carolina corporation, and
subsidiaries as of September 30, 1995 and 1994, and the related
consolidated statements of income, retained earnings and cash flows for
each of the three years in the period ended September 30, 1995. These
financial statements are the responsibility of PSNC's management. Our
responsibility is to express an opinion on these financial statements
based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for
our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the financial position of Public
Service Company of North Carolina, Incorporated and subsidiaries as of
September 30, 1995 and 1994, and the results of their operations and
their cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting
principles.
As explained in Note 1 and Note 5 to the financial statements,
effective October 1, 1993, PSNC changed its method of accounting for
income taxes and postretirement benefits other than pensions.
Arthur Andersen LLP
Charlotte, North Carolina,
November 2, 1995.
<PAGE> 45
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
Management is responsible for the preparation, presentation and
integrity of the financial statements and other financial information in
this report. The accompanying financial statements have been prepared
in accordance with generally accepted accounting principles applicable
to rate-regulated public utilities, including estimates and judgments
made by management that were necessary to prepare the statements in
accordance with such accounting principles, and are not misstated due to
material fraud or error. To assure the integrity of the underlying
financial records supporting the financial statements, management
maintains a system of internal accounting controls sufficient to provide
reasonable assurances that PSNC assets are properly accounted for,
safeguarded and are utilized only in accordance with management's
authorization. The concept of reasonable assurance recognizes that the
costs of a system of internal controls should not exceed the related
benefits derived from it.
The system of internal accounting controls is augmented by PSNC's
internal audit department, which has unrestricted access to all levels
of PSNC management. The internal audit department meets periodically,
with and without the presence of management, with the Audit Committee of
the Board of Directors to discuss, among other things, PSNC's system of
internal accounting controls and the adequacy of the internal audit
program. The Audit Committee is comprised of five directors who are not
officers or employees of PSNC.
The Audit Committee also meets periodically with Arthur Andersen
LLP, PSNC's independent public accountants, with and without the
presence of management, to discuss the results of the annual audit of
PSNC's financial statements and related data. The Audit Committee and
Arthur Andersen LLP also discuss internal accounting control matters
that come to the attention of Arthur Andersen LLP during the course of
the audit.
s/Charles E. Zeigler, Jr. s/Robert D. Voigt
- - ------------------------- -------------------------
Charles E. Zeigler, Jr. Robert D. Voigt
Chairman, President and Senior Vice President -
Chief Executive Officer Corporate Development
and Chief Financial Officer
<PAGE> 46
Supplementary Data
------------------
The information for this item is contained in Note 12 entitled
"SUMMARY OF QUARTERLY FINANCIAL INFORMATION (UNAUDITED)" on page
43 of this annual report.
Item 9. Changes in and Disagreements With Accountants
------------------------------------------------------
on Accounting and Financial Disclosure
--------------------------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
------------------------------------------------------------
Directors
---------
The information for this item is set forth in the sections
entitled "Election of Directors" and "The Board of Directors and
Committees of the Board - Compliance with Section 16(a)" in PSNC's
proxy statement dated December 20, 1995, relating to the January
26, 1996 annual meeting of shareholders, which section is
incorporated herein by reference.
Executive Officers
------------------
The information for this item is set forth on page 13 of
this annual report.
Item 11. Executive Compensation
--------------------------------
The information for this item is set forth in the sections
entitled "Executive Compensation," "Employee Retirement Plans,"
"Performance Graph" and "The Board of Directors and Committees of
the Board" in PSNC's proxy statement dated December 20, 1995,
relating to the January 26, 1996 annual meeting of shareholders,
which section is incorporated herein by reference (specifically
excluding disclosures in such sections relating to Items 402(k) and
(l) of Regulation S-K).
<PAGE> 47
Item 12. Security Ownership of Certain Beneficial Owners
---------------------------------------------------------
and Management
--------------
The information for this item is set forth in the section
entitled "Common Stock Ownership By Directors and Executive
Officers" in PSNC's proxy statement dated December 20, 1995,
relating to the January 26, 1996 annual meeting of shareholders,
which section is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
--------------------------------------------------------
The information for this item is set forth in the sections
entitled "Election of Directors" and "Compensation Committee
Interlocks and Insider Participation" in PSNC's proxy statement
dated December 20, 1995, relating to the January 26, 1996 annual
meeting of shareholders, which sections are incorporated herein by
reference.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and
-----------------------------------------------------
Reports on Form 8-K
-------------------
Page
----
(a) 1. Financial statements -
Consolidated Statements of Income for the
Fiscal Years Ended September 30, 1995,
1994 and 1993 26
Consolidated Balance Sheets at
September 30, 1995 and 1994 27
Consolidated Statements of Capitalization
at September 30, 1995 and 1994 28
Consolidated Statements of Retained
Earnings for the Fiscal Years Ended
September 30, 1995, 1994 and 1993 28
Consolidated Statements of Cash Flows for
the Fiscal Years Ended September 30, 1995,
1994 and 1993 29
Notes to Consolidated Financial Statements
for the Fiscal Years Ended September 30,
1995, 1994 and 1993 30-43
Report of Independent Public Accountants 44
Management's Responsibility for Financial
Statements 45
<PAGE> 48
Page
----
2. Financial statement schedules -
The following financial statement schedules
are included herein:
Supplemental Schedules:
Report of Independent Public Accountants 50
Schedule II - Reserves for the Fiscal
Years Ended September 30, 1995, 1994
and 1993 51-53
All other financial statement schedules are omitted as not
applicable, not required, or the required information is included in
the consolidated financial statements and notes thereto.
3. Exhibits -
See Exhibit Index on page 55 of this annual report.
(b) Reports on Form 8-K -
There were no reports on Form 8-K filed during the three
months ended September 30, 1995.
<PAGE> 49
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
-----------------------------------------
As independent public accountants, we hereby consent to the
incorporation of our reports included in this Form 10-K, into PSNC's
previously filed Registration Statements on Form S-3 (File Nos. 33-48911
and 33-52997) and Form S-8 (File Nos. 33-49153, 33-48908 and 33-27903).
Arthur Andersen LLP
Charlotte, North Carolina,
December 20, 1995.
<PAGE> 50
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
----------------------------------------
We have audited in accordance with generally accepted auditing
standards, the consolidated financial statements of Public Service
Company of North Carolina, Incorporated included in this Form 10-K, and
have issued our report thereon dated November 2, 1995. Our report on
the consolidated financial statements includes an explanatory paragraph
with respect to changes in accounting for income taxes and
postretirement benefits other than pensions as disclosed in Note 1 and
Note 5 to the consolidated financial statements. Our audit was made for
the purpose of forming an opinion on those statements taken as a whole.
The schedules listed in the accompanying index are the responsibility of
the Registrant's management and are presented for purposes of complying
with the Securities and Exchange Commission's rules and are not part of
the basic financial statements. These schedules have been subjected to
the auditing procedures applied in the audit of the basic financial
statements and, in our opinion, fairly state in all material respects
the financial data required to be set forth therein in relation to the
basic financial statements taken as a whole.
Arthur Andersen LLP
Charlotte, North Carolina,
November 2, 1995.
<PAGE> 51
<TABLE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - RESERVES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
<CAPTION>
Column A Column B Column C Column D Column E
- - ------------------------------ ---------- -------------------- ---------- ----------
Additions
Charged To
Balance At -------------------- Balance
Beginning Operating Other At End
Description Of Period Expenses Income Deductions(1) Of Period
- - ------------------------------ ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTED IN BALANCE SHEET FROM
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts $1,467,887 $1,335,441 $68,827 $834,300 $2,037,855
========== ========== ======= ======== ==========
(1) Deductions represent uncollectible accounts written off, net of
recoveries, as follows -
Write-off of accounts considered to be uncollectible $1,496,453
Less - Recoveries on accounts previously written off 662,153
----------
$ 834,300
==========
</TABLE>
<PAGE> 52
<TABLE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - RESERVES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1994
<CAPTION>
Column A Column B Column C Column D Column E
- - ------------------------------ ---------- -------------------- ---------- ----------
Additions
Charged To
Balance At -------------------- Balance
Beginning Operating Other At End
Description Of Period Expenses Income Deductions(1) Of Period
- - ------------------------------ ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTED IN BALANCE SHEET FROM
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts $1,303,171 $1,430,708 $101,166 $1,367,158 $1,467,887
========== ========== ======== ========== ==========
(1) Deductions represent uncollectible accounts written off, net of
recoveries, as follows -
Write-off of accounts considered to be uncollectible $2,049,726
Less - Recoveries on accounts previously written off 682,568
----------
$1,367,158
==========
</TABLE>
<PAGE> 53
<TABLE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED AND SUBSIDIARIES
SCHEDULE II - RESERVES
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1993
<CAPTION>
Column A Column B Column C Column D Column E
- - ------------------------------ ---------- -------------------- ---------- ----------
Additions
Charged To
Balance At -------------------- Balance
Beginning Operating Other At End
Description Of Period Expenses Income Deductions(1) Of Period
- - ------------------------------ ---------- ---------- -------- ---------- ----------
<S> <C> <C> <C> <C> <C>
DEDUCTED IN BALANCE SHEET FROM
ASSET TO WHICH IT APPLIES:
Allowance for doubtful
accounts $1,099,035 $1,387,009 $ 88,504 $1,271,377 $1,303,171
========== ========== ======== ========== ==========
(1) Deductions represent uncollectible accounts written off, net of
recoveries, as follows -
Write-off of accounts considered to be uncollectible $1,750,902
Less - Recoveries on accounts previously written off 479,525
----------
$1,271,377
==========
</TABLE>
<PAGE> 54
SIGNATURES
----------
Pursuant to the requirements of Section 13 or 15(d) 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.
PUBLIC SERVICE COMPANY
OF NORTH CAROLINA, INCORPORATED
-------------------------------
(Registrant)
Charles E. Zeigler, Jr.
-------------------------------
Charles E. Zeigler, Jr.
Chairman, President and
December 20, 1995 Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on December 20, 1995.
Charles E. Zeigler, Jr. Robert D. Voigt
- - ---------------------------------- -----------------------------------
Charles E. Zeigler, Jr. Robert D. Voigt
Chairman, President and Senior Vice President - Corporate
Chief Executive Officer Corporate Development
(Principal executive officer) and Chief Financial Officer
(Principal financial and
accounting officer)
William C. Burkhardt B. Frank Matthews, II
- - ---------------------------------- -----------------------------------
William C. Burkhardt - Director B. Frank Matthews, II - Director
William A. V. Cecil William L. O'Brien, Jr.
- - ---------------------------------- -----------------------------------
William A. V. Cecil - Director William L. O'Brien Jr. - Director
Bert Collins Plato P. Pearson, Jr.
- - ---------------------------------- -----------------------------------
Bert Collins - Director Plato P. Pearson, Jr. - Director
H. Max Craig, Jr. G. Smedes York
- - ---------------------------------- -----------------------------------
H. Max Craig, Jr. - Director G. Smedes York - Director
Van E. Eure Charles E. Zeigler, Sr.
- - ---------------------------------- -----------------------------------
Van E. Eure - Director Charles E. Zeigler, Sr. - Director
<PAGE> 55
EXHIBIT INDEX
-------------
The following documents are filed as a part of this annual report
on Form 10-K for the fiscal year ended September 30, 1995. Those
exhibits previously filed and incorporated herein by reference are
identified below with an asterisk and with a reference to the previous
filing.
Exhibit
Number
- - -------
*3-A-4 - Amended and Restated Charter, dated February 1, 1991. (File
No. 0-1218, 10-K--1992, Exhibit 3-A-4).
*3-I - By-laws, as amended to date. (File No. 0-1218, 10-Q--March
31, 1994, Exhibit 3-I).
*4-A - Debenture Purchase Agreement, dated as of June 15, 1987, for
$25,000,000 of 8.65% Senior Debentures due August 31, 2002.
(File No. 0-1218, 10-K--1987, Exhibit 4-A).
*4-B - Debenture Purchase Agreement, dated as of September 15,
1988, for $25,000,000 of 10% Senior Debentures due October
1, 2003. (File No. 0-1218, 10-K--1988, Exhibit 4-B).
*4-C - Debenture Purchase Agreement, dated as of December 5, 1989,
for $43,000,000 of 10% Senior Debentures due December 1,
2004. (File No. 0-1218, 10-K--1989, Exhibit 4-C).
*4-D - Debenture Purchase Agreement, dated as of June 25, 1992, for
$32,000,000 of 8.75% Senior Debentures due June 30, 2012.
(File No. 0-1218, 10-Q--June 30, 1992, Exhibit 4-D).
*10-A-5 - Natural Gas Sales Agreement - TEMCO/PSNC FT-1 between PSNC
and Transco Energy Marketing Company dated January 1, 1989.
(File No. 0-1218, 10-Q--March 31, 1989, Exhibit 19-A).
*10-A-7 - Firm Seasonal Transportation Agreement dated June 29, 1990,
between PSNC and Transcontinental Gas Pipe Line Corporation.
(File No. 0-1218, 10-K--1990, Exhibit 10-A-7).
*10-A-8 - Firm Sales Service Agreement under Rate Schedule FS, dated
August 1, 1991, between PSNC and Transcontinental Gas Pipe
Line Corporation. (File No. 0-1218, 10-Q--March 31, 1992,
Exhibit 10-A-8).
*10-A-9 - Firm Sales Service Agreement under Rate Schedule FS, dated
August 1, 1991, between PSNC and Transcontinental Gas Pipe
Line Corporation. (File No. 0-1218, 10-Q--March 31, 1992,
Exhibit 10-A-9).
<PAGE> 56
Exhibit
Number
- - -------
*10-A-10 - Firm Sales Service Agreement under Rate Schedule FS, dated
August 1, 1991, between PSNC and Transcontinental Gas Pipe
Line Corporation. (File No. 0-1218, 10-Q--March 31, 1992,
Exhibit 10-A-10).
*10-A-11 - Firm Sales Service Agreement under Rate Schedule FS, dated
August 1, 1991, between PSNC and Transcontinental Gas Pipe
Line Corporation. (File No. 0-1218, 10-Q--March 31, 1992,
Exhibit 10-A-11).
*10-A-13 - Firm Transportation Service Agreement under Rate Schedule
FT, dated August 1, 1991, between PSNC and Transcontinental
Gas Pipe Line Corporation. (File No. 0-1218, 10-K--1992,
Exhibit 10-A-13).
*10-A-14 - Firm Transportation Service Agreement under Rate Schedule
FT-NT, dated July 20, 1992, between PSNC and
Transcontinental Gas Pipe Line Corporation. (File No. 0-
1218, 10-K--1992, Exhibit 10-A-14).
*10-A-15 - Firm Transportation Service Agreement under Rate Schedule
FT, dated February 1, 1992, between PSNC and
Transcontinental Gas Pipe Line Corporation. (File No. 0-
1218, 10-K--1993, Exhibit 10-A-15).
*10-A-16 - Firm Transportation Service Agreement under Rate Schedule
FT-NN, dated October 8, 1993, between PSNC and CNG
Transmission Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-16).
*10-A-17 - Firm Transportation Service Agreement under Rate Schedule
FT-NN-GSS, dated October 8, 1993, between PSNC and CNG
Transmission Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-17).
*10-A-18 - Firm Transportation Service Agreement under Rate Schedule
FT-A, dated November 1, 1993, between PSNC and Tennessee Gas
Pipeline Company. (File No. 0-1218, 10-K--1993, Exhibit 10-
A-18).
*10-A-19 - Firm Transportation Service Agreement under Rate Schedule
FT-1, dated November 1, 1993, between PSNC and Texas Eastern
Transmission Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-19).
*10-A-20 - Firm Transportation Service Agreement under Rate Schedule
FT, dated November 1, 1993, between PSNC and Texas Gas
Transmission Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-20).
*10-A-21 - Firm Transportation Service Agreement under Rate Schedule
FT, dated October 1, 1993, between PSNC and Transcontinental
Gas Pipe Line Corporation. (File No. 0-1218, 10-K--1993,
Exhibit 10-A-21).
<PAGE> 57
Exhibit
Number
- - -------
10-A-22 - Firm Transportation Service Agreement under Rate Schedule
FT, dated June 6, 1994, between PSNC and Transcontinental
Gas Pipe Line Corporation.
10-A-23 - Firm Transportation Service Agreement under Rate Schedule
FT, dated April 30, 1995, between PSNC and Transcontinental
Gas Pipe Line Corporation.
*10-B-2 - General Storage Service Agreement under Rate Schedule GSS,
dated May 2, 1972, between PSNC and Transcontinental Gas
Pipe Line Corporation. (Registration No. 2-53708, Exhibit
5.4).
*10-B-4 - Liquefied Natural Gas Storage Service Agreement under Rate
Schedule LG-A, dated August 5, 1974, between PSNC and
Transcontinental Gas Pipe Line Corporation. (Registration
No. 2-53708, Exhibit 5.6).
*10-B-5 - Eminence Storage Service Agreement under Rate Schedule ESS,
dated November 1, 1993, and Amendment, dated December 1,
1993, between PSNC and Transcontinental Gas Pipe Line
Corporation. (File No. 0-1218, 10-K--1993, Exhibit 10-B-5).
*10-B-6 - Washington Storage Service Agreement under Rate Schedule
WSS, dated August 1, 1991, between PSNC and Transcontinental
Gas Pipe Line Corporation. (File No. 0-1218, 10-Q--March
31, 1994, Exhibit 10-B-6).
*10-C-1 - 1987 Nonqualified Stock Option Plan. (Registration No.
33-17996, Exhibit 4.1).
*10-C-2 - 1992 Nonqualified Stock Option Plan. (Registration No. 33-
48909, Exhibit 4).
*10-D-3 - Construction, Operating and Management Agreement by and
between Public Service Company of North Carolina, Inc. and
Cardinal Pipeline Company, LLC, dated March 23, 1994. (File
No. 0-12-18, 10-Q--March 31, 1994, Exhibit 10-D-3).
11 - Statement re computation of per share earnings.
*19 - Letter regarding change in method of accounting for the
commodity cost of gas purchased and delivered to customers
but not billed and recorded as revenue during the current
period. (File No. 0-1218, 10-Q--March 31, 1981, Exhibit
19).
22 - Subsidiaries of Registrant.
24 - Consent of Independent Public Accountants. (Set forth on
page 49 of this annual report).
27 - Financial Data Schedule.
<PAGE> 58
Exhibit
Number
- - -------
*28-C - Revised Item 21 of Part II to the Registration Statement on
Form S-8, Registration No. 33-27903. (File No. 0-1218, 10-
K--1990, Exhibit 28-C).
<TABLE> <S> <C>
<ARTICLE> UT
<LEGEND>
This schedule contains summary financial information extracted from the
consolidated financial statements for the year ended September 30, 1995.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> SEP-30-1995
<PERIOD-END> SEP-30-1995
<BOOK-VALUE> PER-BOOK
<TOTAL-NET-UTILITY-PLANT> 407,439
<OTHER-PROPERTY-AND-INVEST> 801
<TOTAL-CURRENT-ASSETS> 42,312
<TOTAL-DEFERRED-CHARGES> 6,443
<OTHER-ASSETS> 0
<TOTAL-ASSETS> 456,995
<COMMON> 18,689
<CAPITAL-SURPLUS-PAID-IN> 106,655
<RETAINED-EARNINGS> 48,028
<TOTAL-COMMON-STOCKHOLDERS-EQ> 173,372
0
0
<LONG-TERM-DEBT-NET> 100,700
<SHORT-TERM-NOTES> 51,000
<LONG-TERM-NOTES-PAYABLE> 0
<COMMERCIAL-PAPER-OBLIGATIONS> 0
<LONG-TERM-DEBT-CURRENT-PORT> 10,480
0
<CAPITAL-LEASE-OBLIGATIONS> 0
<LEASES-CURRENT> 0
<OTHER-ITEMS-CAPITAL-AND-LIAB> 121,443
<TOT-CAPITALIZATION-AND-LIAB> 456,995
<GROSS-OPERATING-REVENUE> 247,893
<INCOME-TAX-EXPENSE> 13,520
<OTHER-OPERATING-EXPENSES> 83,248
<TOTAL-OPERATING-EXPENSES> 96,768
<OPERATING-INCOME-LOSS> 34,060
<OTHER-INCOME-NET> 219
<INCOME-BEFORE-INTEREST-EXPEN> 34,279
<TOTAL-INTEREST-EXPENSE> 12,858
<NET-INCOME> 21,421
0
<EARNINGS-AVAILABLE-FOR-COMM> 21,421
<COMMON-STOCK-DIVIDENDS> 14,153
<TOTAL-INTEREST-ON-BONDS> 0
<CASH-FLOW-OPERATIONS> 47,795
<EPS-PRIMARY> 1.16
<EPS-DILUTED> 1.15
</TABLE>
<PAGE>
EXHIBIT 10-A-22
SERVICE AGREEMENT
between
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
and
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INC.
<PAGE>
SERVICE AGREEMENT
THIS AGREEMENT entered into this 6th day of June, 1994, by and between
TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation,
hereinafter referred to as "Seller," first party, and PUBLIC SERVICE COMPANY
OF NORTH CAROLINA INC. hereinafter referred to as "Buyer," second party,
WITNESSETH
WHEREAS, Seller has filed with the Federal Energy Regulatory Commission
in Docket No. CP94-68 for approval of Seller's 1994 Southeast Expansion
Project (referred to as "SE94"); and
WHEREAS, Buyer has requested firm transportation service under SE94 and
has executed with Seller a Precedent Agreement, dated October 26, 1993, for
such service; and
WHEREAS, Seller is willing to provide the requested firm transportation
for Buyer under SE94 pursuant to the terms of this Service Agreement and the
Precedent Agreement.
NOW, THEREFORE, Seller and Buyer agree as follows:
ARTICLE I
GAS TRANSPORTATION SERVICE
1. Subject to the terms and provisions of this agreement and of
Seller's Rate Schedule FT, Buyer agrees to deliver or cause to be delivered
to Seller gas for transportation and Seller agrees to receive, transport and
redeliver natural gas to Buyer or for the account of Buyer, on a firm basis,
up to the dekatherm equivalent of a Transportation Contract Quantity ("TCQ")
of 5,859 Mcf per day.
2. Transportation service rendered hereunder shall not be subject to
curtailment or interruption except as provided in Section 11 of the General
Terms and Conditions of Seller's FERC Gas Tariff.
ARTICLE II
POINT(S) OF RECEIPT
Buyer shall deliver or cause to be delivered gas at the point(s) of
receipt hereunder at a pressure sufficient to allow the gas to enter Seller's
pipeline system at the varying pressures that may exist in such system from
time to time; provided, however, the pressure of the gas delivered or caused
to be delivered by Buyer shall not exceed the maximum operating pressure(s)
of Seller's pipeline system at such point(s) of receipt. In the event the
maximum operating pressure(s) of Seller's pipeline system, at the point(s)
of receipt hereunder, is from time to time increased or decreased, then the
maximum allowable pressure(s) of the gas delivered or caused to be delivered
by Buyer to Seller at the point(s) of receipt shall be correspondingly
<PAGE>
SERVICE AGREEMENT
(Continued)
increased or decreased upon written notification of Seller to Buyer. The
point(s) of receipt for natural gas received for transportation pursuant
to this agreement shall be:
See Exhibit A, attached hereto, for points of receipt.
ARTICLE III
POINT(S) OF DELIVERY
Seller shall redeliver to Buyer or for the account of Buyer the gas
transported hereunder at the following point(s) of delivery and at a
pressure(s) of:
See Exhibit B, attached hereto, for points of delivery and pressures.
ARTICLE IV
TERM OF AGREEMENT
This agreement shall be effective as of the later of November 1, 1994 or
the date that the necessary regulatory approvals have been received and
accepted by Seller and Seller's facilities necessary to provide service to
Buyer under SE94 have been constructed and are ready for service, and shall
remain in force and effect for a primary term of twenty (20) years from and
after such effective date and year to year thereafter until terminated after
such primary term by Seller or Buyer upon at least two (2) years written
notice; provided, however, this agreement shall terminate immediately and,
subject to the receipt of necessary authorizations, if any, Seller may
discontinue service hereunder if (a) Buyer, in Seller's reasonable judgment
fails to demonstrate credit worthiness, and (b) Buyer fails to provide
adequate security in accordance with Section 8.3 of Seller's Rate Schedule
FT.
ARTICLE V
RATE SCHEDULE AND PRICE
1. Buyer shall pay Seller for natural gas delivered to Buyer
hereunder in accordance with Seller's Rate Schedule FT and the applicable
provisions of the General Terms and Conditions of Seller's FERC Gas Tariff
as filed with the Federal Energy Regulatory Commission, and as the same may
be legally amended or superseded from time to time. Such Rate Schedule and
General Terms and Conditions are by this reference made a part hereof.
2. Seller and Buyer agree that the quantity of gas that Buyer
delivers or causes to be delivered to Seller shall include the quantity of
gas retained by Seller for applicable compressor fuel, line loss make-up
(and injection fuel under Seller's Rate Schedule GSS, if applicable) in
providing the transportation service hereunder, which quantity may
be changed from time to time and which will be specified in the currently
effective Sheet No. 44 of Volume No. 1 of this Tariff which relates to
service under this agreement and which is incorporated herein.
3. In addition to the applicable charges for firm transportation
service pursuant to Section 3 of Seller's Rate Schedule FT, Buyer shall
reimburse Seller for any and all filing fees incurred as a result of
Buyer's request for service
<PAGE>
SERVICE AGREEMENT
(Continued)
under Seller's Rate Schedule FT, to the extent such fees are imposed upon
Seller by the Federal Energy Regulatory Commission or any successor
governmental authority having jurisdiction.
ARTICLE VI
MISCELLANEOUS
1. This Agreement supersedes and cancels as of the effective date
hereof the following contract(s) between the parties hereto: None
2. No waiver by either party of any one or more defaults by the other
in the performance of any provisions of this agreement shall operate or be
construed as a waiver of any future default or defaults, whether of a like or
different character.
3. The interpretation and performance of this agreement shall be in
accordance with the laws of the State of Texas, without recourse to the law
governing conflict of laws, and to all present and future valid laws with
respect to the subject matter, including present and future orders, rules
and regulations of duly constituted authorities.
4. This agreement shall be binding upon, and inure to the benefit of
the parties hereto and their respective successors and assigns.
5. Notices to either party shall be in writing and shall be considered
as duly delivered when mailed to the other party at the following address:
(a) If to Seller:
Transcontinental Gas Pipe Line Corporation
P. O. Box 1396
Houston, Texas 77251
Attention: Tom Skains - Senior Vice President
Transportation and Customer Services
(b) If to Buyer:
Public Service Company of North Carolina, Inc.
P.O. Box 1398
400 Cox Road
Gastonia, North Carolina 28054
such addresses may be changed from time to time by mailing appropriate notice
thereof to the other party by certified or registered mail.
<PAGE>
SERVICE AGREEMENT
(Continued)
IN WITNESS WHEREOF, the parties hereto have caused this agreement to be
signed by their respective officers or representatives thereunto duly
authorized.
TRANSCONTINENTAL GAS PIPE LINE
CORPORATION
(Seller)
By /s/ Thomas E. Skains
-------------------------
Thomas E. Skains
Senior Vice President
Transportation and Customer Services
PUBLIC SERVICE COMPANY OF
NORTH CAROLINA, INC.
(Buyer)
By /s/ Franklin H. Yoho
-------------------------
Franklin H. Yoho
Senior Vice President
Marketing and Gas Supply
<PAGE>
SERVICE AGREEMENT
(Continued)
Exhibit A
Transportation Contract Quantity (TCQ): 5,859 Mcf/d
Point(s) of Receipt Maximum Daily Quantity at each
Receipt Point ( Mcf/d)(1):
The interconnection between the 5,859
facilities of Seller and Seller's
Mobile Bay Lateral near Butler in
Choctaw County, Alabama.
(1) These quantities do not include the additional quantities of gas to be
retained by Seller for compressor fuel and line loss make-up. Therefore,
Buyer shall also deliver or cause to be delivered at the receipt points such
additional quantities of gas to be retained by Seller for compressor fuel
and line loss make-up.
<PAGE>
SERVICE AGREEMENT
(Continued)
EXHIBIT B
Point(s) of Delivery Pressure
The point(s) of delivery between Seller's available pipeline pressure.
Seller and Buyer, Subject to the
limits of Buyer's Delivery Point
Entitlements (DPEs) as set forth
in the General Terms and Conditions
of Seller's FERC Gas Tariff,
as such DPE's may be amended from time
to time.
<PAGE>
EXHIBIT 10-A-23
SERVICE AGREEMENT
between
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
and
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INC.
SERVICE AGREEMENT
<PAGE>
THIS AGREEMENT entered into this 30 day of April 1995, by and between
TRANSCONTINENTAL GAS PIPE LINE CORPORATION, a Delaware corporation,
hereinafter referred to as "Seller," first party, and PUBLIC SERVICE COMPANY
OF NORTH CAROLINA, INC.. hereinafter referred to as "Buyer," second party,
WITNESSETH
WHEREAS, by order issued December 21, 1994, in Docket No. CP94-109, the
Federal Energy Regulatory Commission has authorized Seller's 1995/1996
Southeast Expansion Project (referred to as "SE95/96"); and
WHEREAS, SE95/96 will be constructed in two phases -- Phase I will add
the dekatherm equivalent of 115,000 Mcf of gas per day of incremental firm
transportation capacity by a proposed in-service date of November 1, 1995,
and Phase II will add the dekatherm equivalent of 50,000 Mcf of gas per day
of incremental firm transportation capacity by a proposed in-service
date of November 1, 1996; and
WHEREAS, Buyer has requested firm transportation service under SE95/96
and has executed with Seller a Precedent Agreement, dated October 26, 1993,
for such service; and
WHEREAS, Seller is willing to provide the requested firm transportation
for Buyer under SE95/96 pursuant to the terms of this Service Agreement and
the Precedent Agreement.
NOW, THEREFORE, Seller and Buyer agree as follows:
ARTICLE I
GAS TRANSPORTATION SERVICE
1. Subject to the terms and provisions of this agreement and of
Seller's Rate Schedule FT, Buyer agrees to deliver or cause to be delivered
to Seller gas for transportation and Seller agrees to receive, transport
and redeliver natural gas to Buyer or for the account of Buyer, on a
firm basis, up to the dekatherm equivalent of a Transportation Contract
Quantity ("TCQ") of 20,057 Mcf per day from November 1, 1995 to October 31,
1996, and up to the dekatherm equivalent of 37,259 Mcf per day from November
1, 1996 through the remaining term of this agreement.(1)
2. Transportation service rendered hereunder shall not be subject to
curtailment or interruption except as provided in Section 11 of the General
Terms and Conditions of Seller's Volume No. 1 FERC Gas Tariff.
(1) Buyer and Seller agree that the commencement of service hereunder up to
the stated TCQ amounts shall be subject to the completion of construction
and placement into service of Seller's facilities necessary to provide firm
transportation service to Buyer pursuant to the authorization
by the FERC in Docket No. CP94-109. Seller shall notify Buyer as soon as
reasonably practicable as the additional authorized facilities are
constructed and ready for placement into service.
<PAGE>
SERVICE AGREEMENT
(Continued)
ARTICLE II
POINT(S) OF RECEIPT
Buyer shall deliver or cause to be delivered gas at the point(s) of
receipt hereunder at a pressure sufficient to allow the gas to enter
Seller's pipeline system at the varying pressures that may exist in such
system from time to time; provided, however, the pressure of the gas
delivered or caused to be delivered by Buyer shall not exceed the maximum
operating pressure(s) of Seller's pipeline system at such point(s) of
receipt. In the event the maximum operating pressure(s) of
Seller's pipeline system, at the point(s) of receipt hereunder, is from
time to time increased or decreased, then the maximum allowable pressure(s)
of the gas delivered or caused to be delivered by Buyer to Seller at the
point(s) of receipt shall be correspondingly increased or decreased upon
written notification of Seller to Buyer. The point(s) of receipt for natural
gas received for transportation pursuant to this agreement shall be:
See Exhibit A, attached hereto, for points of receipt.
ARTICLE III
POINT(S) OF DELIVERY
Seller shall redeliver to Buyer or for the account of Buyer the gas
transported hereunder at the following point(s) of delivery and at a
pressure(s) of:
See Exhibit B, attached hereto, for points of delivery and pressures.
ARTICLE IV
TERM OF AGREEMENT
1. This agreement shall be effective as of the later of November 1,
1995 or the date Seller's facilities necessary to provide service to Buyer
under Phase 1 of SE95/96 have been constructed and are ready for service,
and shall remain in force and effect for a primary term of twenty (20) years
from and after such effective date and year to year thereafter until
terminated after such primary term by Seller or Buyer upon at least
two (2) years written prior notice to the other party; provided, however,
this agreement shall terminate immediately and, subject to the receipt of
necessary authorizations, if any, Seller may discontinue service hereunder
if (a) Buyer, in Seller's reasonable judgment fails to demonstrate credit
worthiness, and (b) Buyer fails to provide adequate security in accordance
with Seller's Rate Schedule FT.
ARTICLE V
RATE SCHEDULE AND PRICE
1. Buyer shall pay Seller for natural gas delivered to Buyer
hereunder in accordance with Seller's Rate Schedule FT and the applicable
provisions of the General Terms and Conditions of Seller's FERC Gas Tariff
as filed with the Federal Energy Regulatory Commission, and as the
same may be legally amended or superseded from time to time. Such Rate
Schedule and General Terms and Conditions are by this reference made a part
hereof.
<PAGE>
SERVICE AGREEMENT
(Continued)
2. Seller and Buyer agree that the quantity of gas that Buyer
delivers or causes to be delivered to Seller shall include the quantity
of gas retained by Seller for applicable compressor fuel, line loss make-up
(and injection fuel under Seller's Rate Schedule GSS, if applicable) in
providing the transportation service hereunder, which quantity may be changed
from time to time and which will be specified in the currently effective
Sheet No. 44 of Volume No. 1 of this Tariff which relates to service under
this agreement and which is incorporated herein.
3. In addition to the applicable charges for firm transportation
service pursuant to Section 3 of Seller's Rate Schedule FT, Buyer shall
reimburse Seller for any and all filing fees incurred as a result of
Buyer's request for service under Seller's Rate Schedule FT, to the extent
such fees are imposed upon Seller by the Federal Energy Regulatory
Commission or any successor governmental authority having jurisdiction.
ARTICLE VI
MISCELLANEOUS
1. This Agreement supersedes and cancels as of the effective date
hereof the following contract(s) between the parties hereto: None
2. No waiver by either party of any one or more defaults by the other
in the performance of any provisions of this agreement shall operate or be
construed as a waiver of any future default or defaults, whether of a like
or different character.
3. The interpretation and performance of this agreement shall be in
accordance with the laws of the State of Texas, without recourse to the law
governing conflict of laws, and to all present and future valid laws with
respect to the subject matter, including present and future orders, rules and
regulations of duly constituted authorities.
4. This agreement shall be binding upon, and inure to the benefit of
the parties hereto and their respective successors and assigns.
5. Notices to either party shall be in writing and shall be considered
as duly delivered when mailed to the other party at the following address:
(a) If to Seller:
Transcontinental Gas Pipe Line Corporation
P. O. Box 1396
Houston, Texas 77251
Attention: Vice President
Transportation and Customer Services
<PAGE>
SERVICE AGREEMENT
(Continued)
(b) If to Buyer:
Public Service Company of North Carolina, Inc.
400 Cox Road
Gastonia, North Carolina 28054
Such addresses may be changed from time to time by mailing appropriate
notice thereof to the other party by certified or registered mail.
<PAGE>
SERVICE AGREEMENT
(Continued)
IN WITNESS WHEREOF, the parties hereto have caused this agreement to
be signed by their respective officers or representatives thereunto duly
authorized.
TRANSCONTINENTAL GAS PIPE LINE
CORPORATION
(Seller)
By /s/ James P. Avioli
---------------------------
James P. Avioli
PUBLIC SERVICE COMPANY OF NORTH
CAROLINA, INC.
(Buyer)
By /s/ Franklin H. Yoho
---------------------------
Franklin H. Yoho
<PAGE>
SERVICE AGREEMENT
(Continued)
Exhibit A
Point(s) of Receipt Maximum Daily Quantity at each
Receipt Point ( Mcf/d)(2):
Phase I Phase II(3)
The interconnection between the
facilities of Seller and Seller's 20,057 37,259
Mobile Bay Lateral near Butler in
Choctaw County, Alabama.
(2) These quantities do not include the additional quantities of gas to be
retained by Seller for compressor fuel and line loss make-up. Therefore,
Buyer shall also deliver or cause to be delivered at the receipt points
such additional quantities of gas to be retained by Seller for compressor
fuel and line loss make-up.
(3) The stated quantity represents the combined quantities for Phase I and
Phase II.
<PAGE>
SERVICE AGREEMENT
(Continued)
Exhibit B
Point(s) of Delivery(4) Maximum daily Quantity at each
Delivery Point (Mcf/d):
Phase I Phase II(5)
Stanley Meter Station, located at
milepost 1269.23 on Seller's main 7,317 7,317
transmission line near Stanley,
North Carolina.
Davidson Meter Station, located
at milepost 1287.10 on Seller's 5,684 10,381
main transmission line, Iredell
County, North Carolina.
Cardinal Meter Station, located at
milepost 1369.50 on Seller's main 7,056 19,561
transmission line, Rockingham
County, North Carolina.
(4) Seller shall redeliver gas at Seller's available pipeline pressure.
(5) The stated volume represents the combined quantities for Phase I
and Phase II.
EXHIBIT 11
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE
FOR THE FISCAL YEARS ENDED SEPTEMBER 30, 1995, 1994 AND 1993
For the Fiscal Years Ended September 30,
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1995 1994 1993
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Earnings available for common $21,421,227 $19,976,406 $14,183,536
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Average common shares outstanding 18,509,049 17,012,261 15,812,050
Additional dilutive effect of
outstanding options (as determined
by the application of the treasury
stock method) 54,281 60,520 127,950
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Average common shares outstanding as
adjusted 18,563,330 17,072,781 15,940,000
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Earnings per share, as adjusted $1.15 $1.17 $.89
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This calculation is submitted in accordance with Regulation S-K item
601(b)(11) although not required by footnote 2 to paragraph 14 of APB Opinion
No. 15 because it results in dilution of less than 3%.
EXHIBIT 22
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
SUBSIDIARIES OF REGISTRANT
Clean Energy Enterprises, Inc.
Cardinal Pipeline Company, LLC (1)
PSNC Blue Ridge Corporation
PSNC Cardinal Pipeline Company
PSNC Exploration Corporation
PSNC Production Corporation
PSNC Propane Corporation
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(1) 64% ownership by PSNC.
