UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
(X)QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1999
OR
( )TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ............ to ............
Commission file number 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 28053-1398
GASTONIA, NORTH CAROLINA (Zip Code)
(Address of principal executive offices)
(704) 864-6731
(Registrant's telephone number, including area code)
NONE
(Former name, former address and former fiscal year,
if changed since last report.)
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date.
Number of shares of Common Stock, $1 par value, outstanding
at April 30, 1999.....................................................20,577,967
<PAGE>
PUBLIC SERVICE COMPANY OF NORTH CAROLINA, INCORPORATED
AND SUBSIDIARIES
PART I. FINANCIAL INFORMATION
The condensed financial statements included herein have been prepared
by the registrant without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission. Although certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
pursuant to such rules and regulations, the registrant believes that the
disclosures herein are adequate to make the information presented not
misleading. It is recommended that these condensed financial statements be read
in conjunction with the financial statements and the notes thereto included in
the registrant's latest annual report on Form 10-K.
1
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share amounts)
Three Months Ended Six Months Ended Twelve Months Ended
March 31 March 31 March 31
------------------ ------------------ -------------
<S> <C> <C> <C> <C> <C> <C>
1999 1998 1999 1998 1999 1998
-------- -------- -------- -------- -------- -------
Operating revenues $134,326 $140,205 $207,528 $243,988 $294,211 $338,119
Cost of gas 63,747 71,719 97,149 134,779 136,670 181,604
-------- -------- -------- -------- -------- --------
Gross margin 70,579 68,486 110,379 109,209 157,541 156,515
-------- -------- -------- -------- -------- --------
Operating expenses and taxes:
Operating and maintenance 18,164 15,761 37,381 30,528 66,770 60,630
Provision for depreciation 6,742 6,177 13,435 12,255 26,229 23,727
General taxes 6,248 6,266 10,143 11,124 16,203 17,152
Income taxes 13,666 14,056 15,825 18,288 12,663 15,078
-------- -------- -------- -------- -------- --------
44,820 42,260 76,784 72,195 121,865 116,587
-------- -------- -------- -------- -------- --------
Operating income 25,759 26,226 33,595 37,014 35,676 39,928
Other income, net 913 833 1,657 1,900 3,277 3,729
Interest deductions 4,648 4,535 9,462 9,198 18,042 17,887
-------- -------- -------- -------- -------- --------
Net income $ 22,024 $ 22,524 $ 25,790 $ 29,716 $ 20,911 $ 25,770
======== ======== ======== ======== ======== ========
Average common shares
outstanding 20,546 20,081 20,453 19,987 20,336 19,841
Basic earnings per share $1.07 $1.12 $1.26 $1.49 $1.03 $1.30
Diluted common shares
outstanding 20,778 20,210 20,652 20,107 20,478 19,941
Diluted earnings per share $1.06 $1.11 $1.25 $1.48 $1.02 $1.29
Cash dividends declared
per share $.24 $.23 $.48 $.46 $.96 $.92
See notes to consolidated financial statements.
</TABLE>
2
<PAGE>
CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
ASSETS
Mar 31 Sep 30 Mar 31
1999 1998 1998
Gas utility plant $765,964 $743,721 $714,610
Less - Accumulated depreciation 239,368 224,204 215,604
-------- -------- --------
526,596 519,517 499,006
-------- -------- --------
Non-utility property, net 572 595 618
-------- -------- --------
Current assets:
Cash and temporary investments 2,943 3,277 4,541
Restricted cash and temporary investments 18,590 10,247 9,776
Receivables, less allowance for
doubtful accounts 50,342 20,836 47,528
Materials and supplies 6,160 6,992 8,013
Stored gas inventory 13,878 24,406 10,815
Deferred gas costs, net 5,961 13,576 9,026
Prepayments and other 2,322 2,260 2,801
-------- -------- --------
100,196 81,594 92,500
-------- -------- --------
Deferred charges and other assets 15,780 17,047 16,889
-------- -------- --------
Total $643,144 $618,753 $609,013
======== ======== ========
CAPITALIZATION AND LIABILITIES
Capitalization:
Common equity -
Common stock, $1 par $ 20,568 $ 20,274 $ 20,097
Capital in excess of par value 138,456 132,787 129,244
Retained earnings 85,730 69,778 84,376
-------- -------- --------
244,754 222,839 233,717
Long-term debt 157,250 171,550 174,050
-------- -------- --------
402,004 394,389 407,767
-------- -------- --------
Current liabilities:
Maturities of long-term debt 6,800 9,300 9,300
Accounts payable 26,593 20,015 32,992
Accrued taxes 13,917 1,180 13,929
Customer prepayments and deposits 4,877 7,021 4,579
Cash dividends and interest 8,673 9,210 8,761
Restricted supplier refunds 18,590 10,247 9,776
Other 6,037 4,184 3,911
-------- -------- --------
85,487 61,157 83,248
Interim bank loans 62,500 70,500 30,500
-------- -------- --------
147,987 131,657 113,748
-------- -------- --------
Deferred credits and other liabilities:
Income taxes, net 69,219 66,527 61,183
Investment tax credits 2,980 3,411 3,337
Accrued pension cost 4,834 7,985 8,929
Deferred revenues 1,632 2,121 2,610
Other 14,488 12,663 11,439
-------- -------- --------
93,153 92,707 87,498
-------- -------- --------
Total $643,144 $618,753 $609,013
======== ======== ========
See notes to consolidated financial statements.
3
<PAGE>
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS (Unaudited)
(In thousands)
Twelve Months Ended
March 31
1999 1998
------- -------
Balance beginning of period $84,376 $77,138
Add - Net income 20,911 25,770
Deduct - Common stock dividends
and other 19,557 18,532
------- -------
Balance end of period $85,730 $84,376
======= =======
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Six Months Ended Twelve Months Ended
March 31 March 31
----------------- --------------
1999 1998 1999 1998
------- ------- -------- -------
<S> <C> <C> <C> <C>
Cash Flows From Operating Activities:
Net income $25,790 $29,716 $20,911 $25,770
Adjustments to reconcile net income
to net cash provided by operating
activities -
Depreciation, depletion and other 15,223 14,092 29,627 27,042
Deferred income taxes, net 2,693 1,745 8,036 3,466
------- ------- ------- -------
43,706 45,553 58,574 56,278
Change in operating assets and liabilities:
Receivables, net (30,221) (21,789) (3,518) 3,359
Inventories 11,360 9,707 (1,210) (2,054)
Accounts payable 6,578 5,193 (6,399) 12,704
Accrued pension cost (3,151) (603) (4,095) (191)
Other 21,319 15,275 7,248 8,023
------- ------- ------- -------
49,591 53,336 50,600 78,119
------- ------- ------- -------
Cash Flows From Investing Activities:
Construction expenditures (22,243) (31,121) (56,451) (67,455)
Non-utility and other 784 (1,894) 1,152 379
------- ------- ------- -------
(21,459) (33,015) (55,299) (67,076)
------- ------- ------- -------
Cash Flows From Financing Activities:
Issuance of common stock through
dividend reinvestment, stock purchase
and stock option plans 6,101 6,254 9,644 10,222
Increase (decrease) in interim bank
loans, net (8,000) (7,500) 32,000 7,000
Retirement of long-term debt
and common stock (17,060) (7,060) (19,564) (9,564)
Cash dividends (9,507) (9,115) (18,979) (17,942)
------- ------- ------- -------
(28,466) (17,421) 3,101 (10,284)
------- ------- ------- -------
Net increase (decrease) in cash and
temporary investments (334) 2,900 (1,598) 759
Cash and temporary investments
at beginning of period 3,277 1,641 4,541 3,782
------- ------- ------- -------
Cash and temporary investments
at end of period $ 2,943 $ 4,541 $ 2,943 $ 4,541
======= ======= ======= =======
Cash paid during the period for:
Interest (net of amount capitalized) $ 9,577 $ 9,342 $18,136 $17,747
Income taxes 1,435 7,280 6,257 13,095
See notes to consolidated financial statements.
</TABLE>
4
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. The accompanying unaudited consolidated financial statements and notes should
be read in conjunction with the audited consolidated financial statements and
notes included in PSNC's 1998 Annual Report. In the opinion of management, all
adjustments necessary for a fair statement of the results of operations for the
interim periods have been recorded. Certain amounts previously reported have
been reclassified to conform with the current period's presentation.
PSNC's business is seasonal in nature; therefore, the financial results
for any interim period are not necessarily indicative of those which may be
expected for the annual period.
2. During the quarter ended December 31, 1998, PSNC recorded net restructuring
charges of $4,027,000 in connection with Plan 2001, a three-year operating plan
for translating PSNC's vision, mission, strategies and corporate goals into
specific actions. These charges consisted of severance benefits of approximately
$4,200,000, a one-time payment to 152 employees of approximately $1,100,000 in
connection with an automobile fleet restructuring and a net curtailment loss on
post-retirement benefit obligations of approximately $447,000 offset by pension
gains of approximately $1,720,000. The severance charges are the result of a
plan approved by the Board of Directors to eliminate approximately 200 positions
from PSNC's workforce by August 1999 through the involuntary termination of
selected employees or job classifications. Severance benefit arrangements under
the plan were communicated to employees during the first quarter of fiscal 1999.
The net curtailment loss on post-retirement benefits and the pension gains
relate directly to the severance activity. The combined one-time impact on
quarterly earnings from all of the above items was a decrease of $0.12 per share
net of tax.
3. In June 1997, the Financial Standards Board (FASB) issued Statement of
Financial Accounting Standards (SFAS) No. 130, "Reporting Comprehensive Income."
This statement establishes standards for reporting and display of comprehensive
income and its components. Comprehensive income is the total of net income and
all other non-owner changes in equity. This statement was adopted by PSNC
effective October 1, 1998. For the three months ended March 31, 1999,
comprehensive income does not differ materially from net income.
4. In June 1997, the FASB issued SFAS No. 131, "Disclosure About Segments of an
Enterprise and Related Information." This information introduces a new model for
segment reporting based on the way senior management organizes segments within
the company for operating decisions and assessing performance. This statement
was adopted by PSNC October 1, 1998 and becomes effective for its 1999 annual
financial statements.
5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5. In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement establishes accounting and
reporting standards requiring that every derivative instrument (including
certain derivative instruments embedded in other contracts) be recorded in the
balance sheet as either an asset or liability measured at fair value. The
statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. Special
accounting for qualifying hedges allows a derivative's gains and losses to
offset related results on the hedged item, in the income statement, and requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. This statement will be adopted by
PSNC effective October 1, 1999. PSNC has not yet quantified the impact of
adopting SFAS No. 133 on its financial statements and has not determined the
method of adoption.
6. On February 16, 1999, PSNC and SCANA Corporation (SCANA), a South Carolina
corporation, entered into an Agreement and Plan of Merger (Agreement) providing
for a strategic business combination of the two companies. Pursuant to the
Agreement, PSNC will be merged with and into a wholly owned subsidiary of SCANA.
Under the terms of the Agreement, the holders of PSNC's $1.00 par value common
stock will receive consideration valued at $33.00 per share. Each shareholder
may elect to receive 100 percent of the consideration in SCANA common stock, 100
percent in cash, or a combination thereof, subject to the total cash allocated
to PSNC shareholders being no higher than 50 percent of the total consideration
received by PSNC shareholders. PSNC shareholders who elect to receive stock will
receive between 1.02 and 1.45 shares of SCANA common stock depending upon the
average price of SCANA common stock in the 20 business day period ending on
the trading day immediately preceding the day of the closing of the mergers.
This equates to a collar of between $22.75 and $32.40 for each share of
SCANA's common stock. SCANA will allocate $700 million in cash for
payment to PSNC and SCANA shareholders under the election process. A maximum
of approximately $350 million, under a right of first refusal, will be allocated
to PSNC's shareholders who elect to receive cash. The transaction will be
accounted for as a purchase.
The Agreement has been approved by the Boards of Directors of PSNC and
SCANA. Consummation of the merger is subject to certain closing conditions,
including the approvals by both companies' common shareholders and the
appropriate governmental and regulatory bodies. In addition, the merger was
conditioned upon the effectiveness of a joint proxy statement/registration
statement filed on May 11, 1999 with respect to the SCANA common stock to be
issued pursuant to the merger and to solicit shareholder votes for approval of
the merger. The joint proxy statement/registration statement became effective
May 12, 1999. A shareholders meeting to vote on the merger will be held at
9:30 a.m. on Thursday, July 1, 1999 at PSNC's corporate office. A SCANA
shareholders meeting will be held simultaneously.
Operating and maintenance expenses for the three months ended
March 31, 1999 include merger-related charges of $1,594,000, or $0.05 per share
after tax. Excluding these charges, diluted earnings per share for the second
quarter of fiscal 1999 would have been $1.11, equal to the comparable period of
the prior year.
Currently, ten key executives have severance agreements with PSNC.
Under these severance agreements, approximately $4,223,000 in the aggregate may
be payable to them in connection with the merger.
6
<PAGE>
PSNC sponsors a deferred compensation plan for outside directors and a
retirement plan for all directors. Upon a change in control, approximately
$2,656,000 will be payable in cash to directors pursuant to these plans. Of this
amount, approximately $177,000 will be expensed for the deferred compensation
plan, and approximately $472,000 will be expensed for the retirement plan.
PSNC has two nonqualified stock option plans, a 1992 Nonqualified Stock
Option Plan and a 1997 Nonqualified Stock Option Plan. In accordance with the
plans, options are exercisable beginning two years and expiring 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. An exception is also
allowed upon a change in control as defined in the plans. Approximately 722,000
options, including 524,000 options that are unexercisable, are currently
outstanding. All of these stock options become exercisable upon a change in
control. The Agreement states, at the election of the optionee, participants in
the plans can receive cash payments equal to the differential between each
option exercise price and $33.00 per share for each option outstanding at
the date of the transaction. These payments will be made from the approximately
$350 million allocated by SCANA to PSNC's shareholders, as discussed above.
SCANA is a holding company principally engaged, through subsidiaries,
in electric and natural gas utility operations, telecommunications and other
energy-related businesses. SCANA's subsidiaries serve approximately 517,000
electric customers in South Carolina and more than 500,000 natural gas customers
in South Carolina and Georgia. SCANA also has significant investments in
telecommunications companies that serve more than 350,000 customers throughout
the Southeast.
7
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. The following tables summarize the effect on earnings per share of dilutive
securities as required by SFAS No. 128:
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1999 March 31, 1998
------------------------------------------------ ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
------------------------------------------------ -----------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $22,024,000 20,546,000 $1.07 $22,524,000 20,081,000 $1.12
Effect of dilutive
securities (Options) 232,000 129,000
----------- ----------
Diluted EPS
Net income $22,024,000 20,778,000 $1.06 $22,524,000 20,210,000 $1.11
=========== ==========
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended Six Months Ended
March 31, 1999 March 31, 1998
--------------------------------------------- ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $25,790,000 20,453,000 $1.26 $29,716,000 19,987,000 $1.49
Effect of dilutive
securities (Options) 199,000 120,000
----------- -----------
Diluted EPS
Net income $25,790,000 20,652,000 $1.25 $29,716,000 20,107,000 $1.48
========== ===========
</TABLE>
<TABLE>
<CAPTION>
Twelve Months Ended Twelve Months Ended
March 31, 1999 March 31, 1998
------------------------------------------------ ----------------------------------------------
Income Shares Per Share Income Shares Per Share
(Numerator) (Denominator) Amount (Numerator) (Denominator) Amount
----------- ------------- --------- ----------- ------------- -------
<S> <C> <C> <C> <C> <C> <C>
Basic EPS
Net income $20,911,000 20,336,000 $1.03 $25,770,000 19,841,000 $1.30
Effect of dilutive
securities (Options) 142,000 100,000
----------- -----------
Diluted EPS
Net income $20,911,000 20,478,000 $1.02 $25,770,000 19,941,000 $1.29
========== ===========
</TABLE>
8
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Changes in Results of Operations
(Amounts in thousands except
degree day and customer data) Three Months Ended March 31
----------------------------------
Increase
1999 1998 (Decrease) %
Gross margin $ 70,579 $ 68,486 $ 2,093 3
Less - Franchise taxes 4,318 4,506 (188) (4)
-------- -------- --------
Net margin $ 66,261 $ 63,980 $ 2,281 4
======== ======== ========
Total volume throughput (DT):
Residential 10,734 10,425 309 3
Commercial/small industrial 5,561 5,492 69 1
Large commercial/industrial 8,774 9,729 (955) (10)
-------- -------- --------
25,069 25,646 (577) (2)
======== ======== ========
System average degree days:
Actual 1,726 1,655 71 4
Normal 1,814 1,814
Percent colder (warmer) than normal (5%) (9%)
Weather normalization adjustment
income (refund), net of
franchise taxes $ 3,044 $ 3,034 $ 10
Customers at end of period:
Residential 298,711 283,184 15,527 5
Commercial/small industrial 41,975 41,165 810 2
Large commercial/industrial 2,431 2,431 - -
-------- -------- --------
343,117 326,780 16,337 5
======== ======== ========
Net margin for the three months ended March 31, 1999 increased $2,281,000
as compared to the same period last year. This increase in net margin is
attributable to the items shown below (in thousands):
Commercial/ Large
Small Commercial/
Residential Industrial Industrial Other Total
Price variance * $2,496 $ 430 $(1,203) $ - $1,723
Volume variances, net 1,361 224 (515) - 1,070
Other - - - (512) (512)
------ ------ ------- ------ ------
Total $3,857 $ 654 $(1,718) $ (512) $2,281
====== ====== ======= ====== ======
*Includes changes in sales mix.
9
<PAGE>
MANAGEMENT'S DISCUSSION (Continued)
The increase in net margin is attributable to the general rate increase which
was effective November 1, 1998 and an increase in the number of customers
served. Furthermore, throughput to non-weather normalization adjustment (WNA)
large commercial and industrial customers decreased 10% as compared to the same
period in fiscal 1998 as a result of the warmer than normal weather for the
period and price competition with alternate fuels.
(Amounts in thousands except
degree day data) Six Months Ended March 31
---------------------------------
Increase
1999 1998 (Decrease) %
Gross margin $110,379 $109,209 $ 1,170 1
Less - Franchise taxes 6,679 7,853 (1,174) (15)
-------- -------- ---------
Net margin $103,700 $101,356 $ 2,344 2
======== ======== =========
Total volume throughput (DT):
Residential 15,008 16,549 (1,541) (9)
Commercial/small industrial 8,293 9,098 (805) (9)
Large commercial/industrial 17,117 19,035 (1,918) (10)
-------- -------- ---------
40,418 44,682 (4,264) (10)
======== ======== =========
System average degree days:
Actual 2,804 3,132 (328) (10)
Normal 3,106 3,106
Percent colder (warmer) than normal (10%) 1%
Weather normalization adjustment
income (refund), net of
franchise taxes $ 7,080 $ (398) $ 7,478
Net margin for the six months ended March 31, 1999 increased $2,344,000 as
compared to the same period last year. This increase in net margin is
attributable to the items shown below (in thousands):
Commercial/ Large
Small Commercial/
Residential Industrial Industrial Other Total
Price variance * $ 3,313 $ 644 $(1,791) $ - $2,166
Volume variances, net 1,349 (83) (1,294) - (28)
Other - - - 206 206
------- ------ ------- ---- ------
Total $ 4,662 $ 561 $(3,085) $206 $2,344
======= ====== ======= ==== ======
* Includes changes in sales mix.
10
<PAGE>
The increase in net margin is due primarily to the general rate increase
effective November 1, 1998 and an increase in the number of customers served.
Although natural gas deliveries decreased over the same period the prior year,
due to weather that was 10% warmer than the prior period, the WNA helped offset
the impact that the warmer than normal weather had on net margin. Throughput to
non-WNA large commercial and industrial customers decreased 10% as compared to
the same period in fiscal 1998 as a result of the warmer than normal weather for
the period and price competition with alternate fuels.
(Amounts in thousands except
degree day data) Twelve Months Ended March 31
---------------------------------
Increase
1999 1998 (Decrease) %
Gross margin $157,541 $156,515 $ 1,026 1
Less - Franchise taxes 9,415 10,823 (1,408) (13)
-------- -------- ---------
Net margin $148,126 $145,692 $ 2,434 2
======== ======== =========
Total volume throughput (DT):
Residential 19,254 20,934 (1,680) (8)
Commercial/small industrial 11,812 12,705 (893) (7)
Large commercial/industrial 32,109 34,557 (2,448) (7)
-------- -------- ---------
63,175 68,196 (5,021) (7)
======== ======== =========
System average degree days:
Actual 3,038 3,560 (522) (15)
Normal 3,382 3,382
Percent colder (warmer) than normal (10%) 5%
Weather normalization adjustment
income, net of franchise taxes $ 7,366 $ 508 $ 6,858
Net margin for the twelve months ended March 31, 1999 increased
$2,434,000 as compared to the same period last year. This increase in net margin
is attributable to the items shown below (in thousands):
Commercial/ Large
Small Commercial/
Residential Industrial Industrial Other Total
Price variance * $ 2,934 $ 453 $ (2,227) $ - $ 1,160
Volume variances, net 1,183 (162) (1,436) - (415)
Other - - - 1,689 1,689
------- ----- -------- ------ -------
Total $ 4,117 $ 291 $ (3,663) $1,689 $ 2,434
======= ===== ======== ====== =======
* Includes changes in sales mix.
11
<PAGE>
MANAGEMENT'S DISCUSSION (Continued)
The increase in net margin is due primarily to the general rate
increase effective November 1, 1998, an increase in the number of customers
served and, as a result of the warmer weather, a lower volume and cost of
unaccounted-for gas. Although natural gas deliveries decreased over the same
period the prior year, due to weather that was 15% warmer than the prior period,
the WNA helped offset the impact that the warmer than normal weather had on net
margin. Throughput to non-WNA large commercial and industrial customers
decreased 7% as compared to the same period in fiscal 1998 as a result of the
warmer than normal weather for the period and price competition with alternate
fuels.
Operating and maintenance expenses for the three, six and twelve months
ended March 31, 1999 increased 15%, 22% and 10%, respectively, as compared to
the same periods last year. The increase for the three months ended March 31,
1999 is due primarily to $1,594,000 of costs related to the proposed business
combination with SCANA Corporation discussed further in Note 6 to the
accompanying unaudited consolidated financial statements. The change for the
six- and twelve-month periods also includes net restructuring charges recognized
during the first quarter of fiscal 1999 of $4,027,000 in connection with Plan
2001, discussed further in Note 2. Excluding acquisition and restructuring
charges, operating and maintenance expenses increased 5% and 4% for the three-
and six-month periods, respectively, and remained flat for the twelve-month
period.
PSNC estimates that implementation of Plan 2001 over the course of
fiscal 1999 should produce approximately $9,800,000 of pre-tax annualized cost
savings and incremental margin. Additionally, PSNC expects Plan 2001 initiatives
during the fiscal 2000-01 period to provide approximately $6,000,000 of pre-tax
annualized cost savings and incremental margin.
Depreciation expense increased for the three, six and twelve months
ended March 31, 1999 due to utility plant additions. General taxes decreased for
all three periods due primarily to decreased franchise taxes based on decreased
operating revenues for the respective periods.
Other income for the three months ended March 31, 1999 increased
$80,000, while decreasing $243,000 and $452,000 for the six- and twelve-month
periods, respectively, as compared to the same periods for the prior year. The
decrease for the six- and twelve-month periods is primarily the result of a
decrease in interest income on amounts due from customers through the operation
of the Rider D rate mechanism. This mechanism allows PSNC to recover all
prudently incurred gas costs from customers. It also allows PSNC to recover
margin losses on negotiated sales to large commercial and industrial customers.
Through an increment in its rates, PSNC collected previously under collected gas
costs and was able to match its benchmark gas cost more closely to market
prices. This resulted in a lower average Rider D receivable
12
<PAGE>
balance. Additionally, contributing to the decrease in both periods is a
$210,000 pre-tax write-down due to an anticipated loss on PSNC Production
Corporation's investment in American Gas Finance Company, a limited liability
company established by natural gas utilities to provide financing for
residential energy-efficiency improvements. Partially offsetting these items is
an increase in merchandising and jobbing income of $163,000, $247,000 and
$563,000 for the three-, six- and twelve-month periods, respectively.
Interest deductions for the three, six and twelve months ended March
31, 1999 increased 3%, 3% and 1%, respectively, as compared to the same periods
last year. This reflects the increase in interest expense on short-term debt
resulting from higher average short-term bank loans outstanding during the
period. Also, included in this increase is $200,000 of debt expense recognized
due to the prepayment on February 26, 1999 of the remaining $10,000,000 of 8.65%
senior debentures due 2002. Partially offsetting these increases is a decrease
in interest expense on long-term debt resulting from lower average long-term
debt outstanding.
The change in diluted earnings per share for the three-, six- and
twelve-month periods reflects an increase of 3% in the average number of diluted
common shares outstanding as compared to the same periods last year. These
increases are primarily due to shares issued through PSNC's dividend
reinvestment and stock option plans. In March 1999, PSNC began purchasing shares
on the open market to satisfy the requirements of these plans.
Changes in Financial Condition
The capital expansion program, through the construction of lines,
services, systems, and facilities, and the purchase of equipment, is designed to
help PSNC meet the growing demand for its product. PSNC's fiscal 1999
construction budget is approximately $45,000,000, compared to actual
construction expenditures for fiscal 1998 of $65,329,000. This 31% reduction in
budgeted construction expenditures is partially due to the completion of PSNC's
bare main replacement program and management's emphasis on improving the return
made on capital investments. The construction program is regularly reviewed by
management and is dependent upon PSNC's continuing ability to generate adequate
funds internally and to sell new issues of debt and equity securities on
acceptable terms. Construction expenditures during the six and twelve months
ended March 31, 1999 were $22,243,000 and $56,451,000, respectively, as compared
to $31,121,000 and $67,455,000 for the same periods for the prior year.
PSNC generally finances its operations with internally generated funds,
supplemented with bank lines of credit to satisfy seasonal requirements. PSNC
also
13
<PAGE>
MANAGEMENT'S DISCUSSION (Continued)
borrows under its bank lines of credit to finance portions of its construction
expenditures pending refinancing through the issuance of equity or long-term
debt at a later date depending upon prevailing market conditions. PSNC has
committed lines of credit with five commercial banks which vary monthly
depending upon seasonal requirements and a five-year revolving line of credit
with one bank. For the twelve-month period beginning April 1, 1999, total
committed lines of credit range from a minimum of $40,000,000 to a winter-period
maximum of $81,000,000, and uncommitted annual lines of credit total
$45,000,000. 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 budgeted construction
expenditures, stored gas inventories and other corporate needs.
Restricted cash and temporary investments and restricted supplier
refunds relate to refunds of $18,590,000 received from PSNC's pipeline
transportation provider that have not been deposited into the expansion fund in
the Office of the State Treasurer. This fund was created by an order of the NCUC
to finance the construction of natural gas lines into unserved areas of PSNC's
service territory that otherwise would not be economically feasible to serve.
PSNC's business is seasonal in nature as fluctuations in weather
dictate natural gas storage injections and withdrawals. Injections of natural
gas into storage occur during periods of warm weather (April through October).
Withdrawals from storage occur during periods of cold weather (November through
March). This seasonality is the primary reason for lower volumes of gas in
storage as of March 31, 1999 as compared to September 30, 1998. Seasonality also
accounts for the increase in accounts receivable for the same period.
As of March 31, 1999, September 30, 1998, and March 31, 1998, net
deferred gas costs include $4,391,000, $863,000 and $5,023,000, respectively, of
gas costs related to unbilled volumes. The remaining balance of net deferred gas
costs fluctuates in response to the operation of PSNC's Rider D rate mechanism.
This mechanism allows PSNC to recover from customers all prudently incurred gas
costs. On a monthly basis, any difference in amounts paid and collected for
these costs is recorded for subsequent refund to or collection from PSNC's
customers. It also allows PSNC to recover margin losses on negotiated sales to
large commercial and industrial customers with alternate fuel capability. Net
deferred gas costs at March 31, 1999, September 30, 1998 and March 31, 1998
reflect undercollections from customers. PSNC's deferred gas costs balances are
approved by the NCUC in annual gas cost prudence reviews and are collected from
or refunded to customers over a subsequent twelve-month period. Amounts that
have not been collected from or refunded to customers bear interest at an annual
rate of 10% as required by the NCUC. PSNC's strategy is to manage the balance of
deferred gas costs to a minimal level. On November 6, 1997, the NCUC issued an
order permitting PSNC, on a two-year trial basis, to establish its commodity
14
<PAGE>
cost of gas monthly for large commercial and industrial customers on the basis
of market prices for natural gas. PSNC will continue to establish a benchmark
cost of gas for residential and small commercial customers pursuant to its
existing procedures, which are based upon market prices projected for the
succeeding twelve months.
Deferred charges and other assets decreased as compared to September
30, 1998 due primarily to a decrease in long-term restricted cash. Long-term
restricted cash represents a restricted cash contribution from Sonat Marketing
Company L.P. (Sonat Marketing), a subsidiary of Sonat Inc. PSNC's subsidiary,
PSNC Production Corporation (PSNC Production), and Sonat Marketing created Sonat
Public Service Company L.L.C. (Sonat Public Service) in December 1996. Upon
creation of Sonat Public Service, Sonat Marketing contributed $4,944,000 for its
50% ownership, of which $4,845,000 was restricted. Restricted cash of equal
amounts are being released annually beginning in December 1998 through December
2001. PSNC Production received its first payment of $1,211,000 in December 1998,
lowering the balance in long-term restricted cash to $3,634,000 at March 31,
1999. Sonat Marketing is entitled to a partial refund of its contribution if the
economics of the transaction are adversely modified by any regulatory body over
a five-year period. PSNC has not determined what operating or financial impacts,
if any, the proposed mergers of PSNC and SCANA Corporation or Sonat Inc. and El
Paso Energy Corporation will have on the joint venture.
The decrease in long-term debt at March 31, 1999 reflects the
prepayment of the remaining $10,000,000 of 8.65% senior debentures due 2002.
The decrease in accounts payable at March 31, 1999 of $6,399,000 as
compared to March 31, 1998 is primarily the result of natural gas purchased at
lower costs and decreased natural gas brokering and transportation pooling
activities.
The change in deferred credits and other liabilities from September 30,
1998 includes a decrease in accrued pension cost of $1,720,000 offset by an
increase of $447,000 in post-retirement benefits, both related to the company's
severance activity.
Regulatory Matters
On October 30, 1998, the NCUC issued an order in PSNC's general rate
case filed in April 1998. The order, effective November 1, 1998, granted PSNC
additional annual revenue of $12,400,000 and allowed a 9.82% overall rate of
return on PSNC's net utility investment. It also approved the continuation of
the Weather Normalization Adjustment, Rider D mechanism and full margin
transportation rates. The Carolina Utility Customers Association, Inc. (CUCA), a
party to PSNC's general rate case, has formally appealed the general rate case
order. Management cannot predict the outcome of this appeal.
On February 22, 1999, the NCUC approved PSNC's application to use
expansion funds to extend natural gas service into Alexander County, and
authorized
15
<PAGE>
MANAGEMENT'S DISCUSSION (Continued)
disbursements from the fund of $4,301,000. Most of Alexander County lies within
PSNC's certificated service territory and is not currently provided natural gas
service. PSNC estimates that the project will be completed prior to April 2000
at a cost of $6,188,000.
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, 37.5-mile natural gas pipeline. PSNC owns 64.5% of the
pipeline, which extends from Wentworth to near Haw River, North Carolina, where
it interconnects with PSNC and Piedmont. It was placed in service on December
31, 1994, and provides 130 million cubic feet per day (mmcf/day) of additional
firm capacity (70 mmcf/day for PSNC and 60 mmcf/day for Piedmont). In 1995,
PSNC, Piedmont, Transcontinental Gas Pipe Line Corporation (Transco) and North
Carolina Natural Gas Corporation (NCNG) formed Cardinal Extension Company, LLC
(Cardinal Extension) to purchase and extend the Cardinal Pipeline. The new
pipeline will extend 67 miles from the existing termination point of Cardinal
Pipeline near Haw River to a point southeast of Raleigh and will provide 140
mmcf/day of additional capacity (100 mmcf/day for PSNC and 40 mmcf/day for
NCNG). The extension is project-financed with an estimated cost of approximately
$75,000,000. Through their respective subsidiaries, PSNC will own approximately
33%, Piedmont will own approximately 17%, Transco will own approximately 45% and
NCNG will own approximately 5% of Cardinal Extension. PSNC, through a
subsidiary, will contribute to Cardinal Extension its net book investment in the
existing pipeline plus additional equity capital of approximately $1,000,000. On
November 6, 1997, the NCUC issued an order approving this project and the merger
of Cardinal Pipeline and Cardinal Extension, with the surviving entity being
named Cardinal Pipeline, LLC. Construction began in November 1998. The
facilities are expected to be in service on or before November 1, 1999.
Pine Needle LNG Company, LLC (Pine Needle) was formed by subsidiaries
of Transco, Piedmont, NCNG, Amerada Hess, and PSNC, and the Municipal Gas
Authority of Georgia. Pine Needle owns and operates a liquefied natural gas
storage facility, built at a cost of approximately $107,000,000. This facility
is located on a site near Transco's pipeline northwest of Greensboro, North
Carolina, and has a storage capacity of four billion cubic feet with
vaporization capability of 400 mmcf/day. The facility became operational on May
1, 1999. PSNC, through its subsidiary, PSNC Blue Ridge Corporation (Blue Ridge),
owns 17% of the facility, and PSNC has contracted to use 25% of the facility's
gas storage capacity and withdrawal capabilities. Blue Ridge made its required
capital contribution of $9,095,000 on May 3, 1999.
On March 24, 1999, PSNC filed an application with the NCUC requesting
authorization to issue and sell up to $150,000,000 of senior unsecured debt
securities. This amount includes $25,000,000 of senior debt previously
authorized by the NCUC that has not been issued and sold. On April 14, 1999, the
NCUC issued an order permitting PSNC to issue and sell senior unsecured debt as
described and requested in its application. PSNC will use these funds primarily
to repay all of its then outstanding short-term bank loans and to finance the
construction of facilities. A registration statement under Form S-3 will be
filed with the Securities and Exchange Commission during the third quarter
fiscal 1999.
16
<PAGE>
On November 14, 1996, PSNC filed an application with the NCUC
requesting deferral accounting for the costs of a project to ensure that PSNC's
computer operating systems function properly in the year 2000. On April 29,
1997, the NCUC issued an order authorizing the deferral of each year's costs and
requiring a three-year amortization of these costs beginning in the year
incurred. Approximately $4,200,000 of these costs have been incurred to date.
PSNC began amortizing these costs in September 1997. The NCUC allowed recovery
of a majority of the unamortized Year 2000 costs in the general rate case order
issued on October 30, 1998.
Year 2000 Readiness
The Year 2000 issue exists because many computer systems and
applications, including those with embedded chips in equipment or facilities,
use two digit date fields rather than four digit date fields to designate the
applicable year. As a result, these date-sensitive applications may not properly
recognize the year 2000 or years thereafter, or process data containing them,
potentially causing critical systems including, but not limited to, business and
operational systems to function improperly or not at all.
PSNC's overall goal is to address Year 2000 readiness requirements by
mid-1999. PSNC began its Year 2000 efforts in 1995 by interviewing vendors and
gaining awareness of this issue. An assessment of PSNC's Year 2000 impact was
performed in 1996, and PSNC began addressing its major business computer
systems. PSNC decided to renovate its customer information system and to replace
its financial and the materials management systems. The renovation of PSNC's
customer information system was completed in September 1998. Year 2000 ready
financial and materials management systems were implemented on April 1, 1999.
Upgrades to the Supervisory Control and Data Acquisition (SCADA) system that
monitors the flow of gas through PSNC's distribution system are targeted for
completion in June 1999. Assessment of embedded chips within critical equipment
continues, with a target completion date of June 1999. Our remaining activities
include completion of scheduled desktop hardware and software upgrades and
additional forward date testing of our computer systems that will continue
throughout 1999.
During 1998, PSNC established a centrally managed, company-wide Year
2000 project office. PSNC's Year 2000 project scope was expanded to include:
business continuity planning; embedded systems containing microprocessors, i.e.,
automated meter reading and process control equipment; end-user computing
hardware and software, i.e., personal computers; facility equipment, such as
heating and cooling systems and facsimile devices; and business relationships
with PSNC's customers and key suppliers. The Year 2000 project office reports
daily to the chief information officer. Frequent formal and informal discussions
are held with the chief financial officer as the Year 2000 project executive.
The audit committee of the board of directors is updated quarterly by the chief
financial officer and the internal audit department. The full board is updated
by the audit committee. Senior officers of PSNC are updated monthly on the
project team's status, and they participate in making contingency planning
decisions related to their functional areas.
While PSNC believes that it has minimized the risks of encountering
serious problems associated with the Year 2000 issue, it still faces the risk
that some systems
17
<PAGE>
MANAGEMENT'S DISCUSSION (Continued)
and processes that are not Year 2000 ready either will not be identified or will
not be corrected before 2000. Additionally, PSNC has no assurance that the Year
2000 issues of other entities will not have a material impact on PSNC's systems
or results of operations.
Year 2000 Costs
The estimated cost of completion, including costs incurred to date, is
$17,000,000. This estimated cost includes external contractors and service
providers, the purchase of computer hardware and software, and dedicated
internal resources. The majority of these costs are currently being recovered in
rates charged to PSNC's customers. A portion of PSNC's costs will not be
incremental costs, but a redeployment of existing resources. PSNC does not track
the cost and time of internal employees who are not fully dedicated to the Year
2000 effort.
Approximately $12,500,000 to replace existing systems is being
capitalized as plant. Approximately $10,000,000 of these costs has been
incurred. Approximately $4,500,000 to modify existing computer systems is being
expensed over a three-year period in accordance with the NCUC order discussed
more fully in Regulatory Matters. Approximately $4,200,000 of these costs has
been incurred. These costs are estimates based on PSNC's analysis to date and
are subject to change after the modifications of its systems are completed.
The project completion dates and costs are estimates based on numerous
assumptions. These assumptions include the continued availability of personnel
resources and third-party vendor compliance.
Risk Assessment
At this time, PSNC believes a "worst case scenario" is that its
customers could experience some temporary disruptions in their gas service. The
natural gas that PSNC distributes and sells to its sales customers, and the
natural gas that it transports and delivers to its transportation customers,
comes principally from the producing areas along the Gulf of Mexico (including
the states of Alabama, Louisiana, Mississippi, and Texas, and adjacent offshore
areas). Prior to PSNC's receipt of that gas, it must be extracted and processed
to be useable. It is then delivered to an interstate pipeline company (or
companies) for transportation to PSNC or to storage for PSNC's account; the gas
that is stored for PSNC's account must then be withdrawn and delivered to PSNC
by an interstate pipeline, generally in the winter. A disruption in PSNC's
service to its customers could be caused by a disruption in the extraction or
processing of this gas, the transmission and/or storage of such gas or finally
the distribution of such gas by PSNC.
Even if the flow of gas is not disrupted, customers may not be able to
use the available gas if electrical service is disrupted and electronic controls
do not work.
Although PSNC does not believe that these disruptions will occur, it
has no assurance that such disruptions will not occur. PSNC has assessed the
impact of such
18
<PAGE>
a scenario and continues to evaluate this scenario. PSNC believes that its
contingency plans will lessen the impact of any disruption.
If such disruption does occur, PSNC does not believe that it will have
a material adverse impact on its financial position, cash flows or results of
operations.
Contingency Plans
Business continuity planning is underway, with a target date of June
1999 for the initial version of a plan based on worst case scenarios. Testing of
the plan will continue throughout 1999. The plan will address the mitigation of
risks associated with key business processes and those processes critical to the
delivery of gas services. It will include the short-term localized impact of
losing one or more of the following services: electricity, telecommunications,
water/sewer, gas pressure, information technology systems and staffing (order
does not imply priority). PSNC is not implying that disruption will occur, but
that the risk does exist.
The assessment of critical supplier and third-party vendor progress,
although external to PSNC, will continue throughout calendar 1999. PSNC cannot
quantify the impact of any failure by a critical supplier or third-party vendor
at this time. PSNC is presently developing a contingency plan to address the
mitigation of risks and continuance of operations if critical suppliers or
third-party vendors have a failure. PSNC has a verbal mutual agreement with its
major pipeline transporter to begin developing a contingency plan in mid-1999.
The foregoing information is based on PSNC's current best estimates,
which were derived using numerous assumptions of future events, including the
availability and future costs of certain technological and other resources,
third-party modifications and remediation actions and other factors. Given the
complexity of the issues and possible as yet unidentified risks, actual results
may vary from those anticipated and discussed above. Specific factors that might
cause such differences include, among others, the availability and cost of
trained personnel, the ability to locate and correct all affected computer code,
the timing and success of remedial efforts of third-party suppliers and similar
uncertainties.
Each of the components of PSNC's Year 2000 program is progressing, and
the company believes it is taking all reasonable steps necessary to be able to
operate successfully through and beyond the turn of the century.
Year 2000 Communications
PSNC meets quarterly with the other North Carolina gas utilities to
exchange information and discuss the best practices that may be used to address
Year 2000 requirements. Additionally, PSNC frequently participates in industry
and community forums attended by representatives of the electric and
telecommunications industries. Electric and telecommunications service providers
to PSNC will be further evaluated during the business continuity planning
process.
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<PAGE>
SCANA Corporation reviewed PSNC's Year 2000 program strategy during its
due diligence efforts prior to the execution of the merger agreement referred to
in Note 6 to the accompanying consolidated financial statements. PSNC will
continue to share information with SCANA throughout the due diligence and
integration process.
PSNC will distribute a customer bill insert and additional customer
awareness information mid-1999.
Forward-looking Statements
Statements contained in this document and the notes to the financial
statements which are not historical in nature are forward-looking statements
within the meaning of the Private Securities Litigation Reform Act of 1995.
Forward-looking statements are subject to risks and uncertainties that may cause
future results to differ materially from those set forth in such forward-looking
statements. PSNC undertakes no obligation to update forward-looking statements
to reflect events or circumstances after the date hereof. Such risks and
uncertainties with respect to PSNC include, but are not limited to, its ability
to successfully implement internal performance goals, performance issues with
natural gas suppliers and transporters, the capital-intensive nature of PSNC's
business, regulatory issues (including rate relief to recover increased capital
and operating costs), legislative issues, competition, weather, exposure to
environmental issues and liabilities, variations in natural gas prices and
general and specific economic conditions. From time to time, subsequent to the
date of the filing of this document, PSNC may include forward-looking statements
in oral statements or other written documents.
20
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
As more fully disclosed in Part I under "Environmental Matters" and in
Part II in Note 7 to the audited consolidated financial statements in the Annual
Report on Form 10-K for the period ending September 30, 1998, PSNC owns, or has
owned, all or portions of six sites in North Carolina on which manufactured gas
plants were formerly operated and is cooperating with the North Carolina
Department of Environment and Natural Resources to investigate these sites.
Item 2. Changes in Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of Shareholders held on January 29, 1999, the
following members were re-elected to serve on the Board of Directors for a term
expiring at the annual meeting in the month and year indicated or until their
successors are elected and qualified.
Director Term Ending Votes in Favor Votes Withheld
Bert Collins January 2002 16,780,420 120,813
John W. Copeland January 2002 16,750,221 151,012
D. Wayne Peterson January 2002 16,748,957 152,276
Charles E. Zeigler, Jr. January 2002 16,754,941 146,293
The following are directors whose term of office continued after the
meeting: William C. Burkhardt, William A.V. Cecil, Van E. Eure, William L.
O'Brien, Jr., Ben R. Rudisill II, and G. Smedes York.
The shareholders approved an amendment to PSNC's Employee Stock
Purchase Plan to restate the total number of shares authorized under the Plan
after taking into effect the 3-for-2 stock split of the Common Stock that
occurred in January 1993. After giving effect to the stock split, the total
authorized shares under the Plan are 1,265,706.
For - 16,177,424 Against - 470,402 Abstain - 265,378
The shareholders also ratified the selection of Arthur Andersen LLP as
PSNC's independent public accountants for the fiscal year ending September 30,
1999.
For - 16,707,971 Against - 92,654 Abstain - 100,607
21
<PAGE>
Item 5. Other Information
None.
Item 6. Exhibits and Reports on Form 8-K
(a) Part I Exhibits:
27 - Financial Data Schedule.
Part II Exhibits:
10-A-33.2 Amendment of Amended and Restated Natural Gas
Sales Agreement between PSNC and Transco Energy
Marketing Company dated November 1, 1990.
10-A-39 Firm Transportation Service Agreement under
Rate Schedule FT Service, dated June 26, 1998,
between PSNC and Cardinal Extension Company, LLC.
10-A-40 Firm Transportation Service Agreement under Rate
Schedule FT Service, dated June 26, 1998, between
PSNC and Cardinal Extension Company, LLC.
10-A-41 Amendment to Firm Service Agreements (Exhibits
10-A-9, 10-A-10 and 10-A-11) under Rate Schedule
FT, dated August 1, 1991, between PSNC and
Transcontinental Gas Pipe Line Corporation,
dated August 1, 1991.
(b) Reports on Form 8-K
PSNC filed on February 22, 1999 a current report on
Form 8-K which included the Agreement and Plan of Merger
between Public Service Company of North Carolina, Incorporated
and SCANA Corporation.
22
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
the registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
PUBLIC SERVICE COMPANY
OF NORTH CAROLINA, INCORPORATED
(Registrant)
Date 05/14/99 /s/ Charles E. Zeigler, Jr.
Charles E. Zeigler, Jr.
Chairman, President and
Chief Executive Officer
Date 05/14/99 /s/ Jack G. Mason
Jack G. Mason
Vice President - Finance
23
<PAGE>
Exhibit 10-A-33.2
AMENDMENT TO AMENDED AND RESTATED
GAS SALES AGREEMENT
THIS AMENDMENT ("Amendment") to that certain Amended and Restated Gas Sales
Agreement by and between TRANSCO ENERGY MARKETING COMPANY ("Seller") and PUBLIC
SERVICE COMPANY OF NORTH CAROLINA, INC. ("Buyer"), dated November 1, 1990
("Agreement"), is made and entered into as of the Ist day of November 1998.
WHEREAS, Buyer requested redetermination of the Base Contract Price under
Article VII, Paragraph 8.05(a) of the Agreement; and
WHEREAS, Buyer and Seller have reached agreement on the terms of the
amendment of the Agreement as set forth below;
NOW, THEREFORE, Seller and Buyer agree as follows:
1 . Amended Summer Period Minimum Quantity. In Article IV, Paragraph 4.03
(a) of the Agreement, the phrase "forty percent (40%)" shall be replaced with
the phrase "fifty percent (50 %). "
2. Amended Contract Year Minimum Quantity. In Article IV, Paragraph 4.03(b)
of the Agreement, the phrase "sixty percent (60%)" shall be replaced with the
phrase "seventy" five percent (75 %). "
3. Amended Price. In Article VIII, Paragraph 8.01(a) of the Agreement, the
phrase "eighteen cents ($.18) " shall be replaced with the phrase "four cents
($.04). "
4. Effective Dates. This Amendment shall be effective November 1, 1998,
and continue through the later of October 31, 2000, or such time as the Base
Contract Price is renegotiated pursuant to Article VIII, Paragraph 8.05(a) of
the Agreement.
5. Entire Agreement; Construction.
a. This Amendment shall constitute an integral part of the
Agreement and shall be read and construed as one with the Agreement and,
together with the Agreement, constitutes the entire agreement of the
parties hereto with respect to the subject matter hereof and thereof.
b. Capitalized terms used in this Amendment but not defined
shall have the meaning ascribed to them in the Agreement.
<PAGE>
Amendment to Amended and Restated Gas Sales Agreement Public Service Company of
North Carolina, Inc.
Page 2 of 2
c. Except as specifically amended herein, all terms, conditions and
provisions contained in the Agreement shall remain unchanged and in full force
and effect.
d. Any discrepancy between the terms and conditions set forth in this
Amendment and the terms and conditions set forth in the Agreement shall be
resolved in favor of the terms and conditions set forth in this Amendment.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed by
their respective representatives.
TRANSCO ENERGY MARKETING
COMPANY
By: /s/ H. Dean Jones, II
Name: H. Dean Jones, II
Title: Vice President - Sales & Supply
Date: November 25, 1998
PUBLIC SERVICE COMPANY OF
NORTH CAROLINA, INC.
By: /s/ Franklin H. Yoho
Name: Franklin H. Yoho
Title: Vice President-Marketing & Gas Supply
Date: November 24, 1998
Exhibit 10-A-39
FIRM TRANSPORTATION
CARDINAL EXTENSION PIPELINE COMPANY
This Service Agreement, entered into this the 26th day of June, 1998,
by and between Cardinal Extension Company, LLC, a North Carolina limited
liability company, hereinafter referred to as "Transporter," and Public Service
Company at North Carolina, Inc., a North Carolina corporation, hereinafter
referred to as "Shipper."
WITNESSETH
WHEREAS, Shipper has requested Transporter to transport natural gas on
a firm basis on its behalf;
WHEREAS, Transporter is the owner of an intrastate natural gas pipeline
which interconnects with the interstate pipeline system of Transcontinental Gas
Pipe Line Corporation ("Transco") in Rockingham County, North Carolina;
WHEREAS, Transporter has sufficient capacity available on its pipeline
system to provide firm transportation service for Shipper pursuant to the terms
specified herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
assumed, Transporter and Shipper agree as follows:
ARTICLE I
DEFINITIONS
1.01 As used herein, the following terms shall have meanings defined below:
(a) "British Thermal Unit" or "BTU" -- The amount of heat required to raise the
temperature of 1 pound of water 1 degree Fahrenheit at 60 degrees Fahrenheit.
(b) "Contract Year" -- The year beginning with the date that service shall
commence as set forth in Paragraph 13.01 hereof, or any anniversary thereof.
Provided, however, that in the event firm service commences on a day other than
the first day of the month, the Contract Year shall be considered to commence on
the first day of the month following the day on which service has commenced.
(c) "Cubic Foot" -- The volume of gas which occupies one cubic foot when such
gas is at a temperature of 60 degrees Fahrenheit and an absolute pressure of
14.73 pounds per square inch.
(d) "Day" -- A period of 24 consecutive hours beginning as nearly as practicable
at 10:00 a.m. Eastern Standard Time or Eastern Daylight Time, as appropriate, or
at such other hour as Transporter and Shipper mutually agree.
(e) "Dekatherm"or "dt" -- The quantity of heat energy which is 1,000,000 British
Thermal Units.
(f) "Equivalent Quantity" -- The volume of gas measured in Mcf received by
Transporter at the Point of Receipt during any given period of time, adjusted
for any variations in Btu content, it being the intent of the parties that the
volumes of gas delivered hereunder at the Point of Delivery be the thermal
equivalent of the volumes of gas received at the Point of Receipt less any
amounts attributable to fuel and line losses.
<PAGE>
(g) Excess Rate Schedule CFT Service -- The service shall be available on any
Day when the total quantity of gas taken by all firm shippers in Zone 1 is less
than the dekatherm equivalent of 130,000 Mcf per day and/or the total quantity
of gas taken by all Shippers in Zone 2 is less than the dekatherm equivalent of
140,000 Mcf per day provided that such service has been scheduled by Shipper and
allocated by Transporter on such Day.
(h) "Force Majeure" means acts of God, strikes, lockouts or other industrial
disturbances, acts of the public enemy or terrorists, wars, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
storms, floods, washouts, arrests, the order of any court or governmental
authority having jurisdiction while the same is in force and effect, civil
disturbances, explosions, breakage, accidents to machinery or pipelines,
freezing of or damage to receipt or delivery facilities, National Weather
Service warnings or advisories, whether official or unofficial, that result in
the evacuation of facilities, inability to obtain or unavoidable delays in
obtaining material or equipment, a Force Majeure event or Operating Conditions
on the pipeline system of Transco or any other event, condition or incident
which prevents Transco from tendering gas to Transporter for transportation
hereunder, and any other cause whether of the kind herein enumerated or
otherwise, not reasonably within the control of either party claiming suspension
and which by the exercise of due diligence such party is unable to prevent or
overcome.
(i) "Heating Value" -- Gross heating value on a dry basis which is the number of
British Thermal Units produced by the complete combustion at constant pressure
of the amount of dry gas which would occupy a volume of one cubic foot at 14.73
Psia and 60 degrees Fahrenheit with combustion air at the same temperature and
pressure as the gas, the products of combustion being cooled to the initial
temperature of the gas and air and the water formed by combustion condensed to
the liquid state.
(j) "Mcf" -- 1,000 cubic feet of gas.
(k) "Month" -- A period beginning as nearly as practicable at 10:00 a.m. Eastern
Standard Time or Eastern Daylight time, as appropriate, or at such other hour as
Transporter and Shipper agree upon on the first day of a calendar month and
shall end at the aforesaid time on the first day of the next succeeding calendar
month.
(l) "Operating Conditions" means the necessity to make modifications, tests or
repairs to Transporter's pipeline system. Transporter shall exercise reasonable
diligence to schedule maintenance so as to minimize disruption of service to
Shipper and shall provide reasonable notice of the same.
(m) "Psia" -- Pounds per square inch absolute.
(n) "Psig" -- Pounds per square inch gauge.
(o) "Scheduled Daily Delivery Quantity" -- The daily quantity of gas requested
in advance by Shipper electronically or otherwise to Transporter covering a
specific period of time.
(p) "Transportation Contract Quantity" or "TCQ" -- The quantity of gas specified
in Article 2, Paragraph 2.01, which shall be the maximum quantity that
Transporter is obligated to deliver hereunder on any day, at the Point(s) of
Delivery set forth in Article 4 hereof.
(q) "Year" -- A period of three hundred and sixty-five (365) consecutive days
beginning on the date of initial delivery of gas under this Service Agreement,
or on any anniversary thereof, provided, however, that any such year which
contains a date of February 29, shall consist of three hundred and sixty-six
(366) consecutive days.
<PAGE>
ARTICLE 2
GAS TRANSPORTATION SERVICE
2.01 Subject to the terms and provisions of this Service Agreement, Transporter
agrees to receive, transport and redeliver, on a firm basis, for Shipper's
account up to the dekatherm equivalent of a Transportation Contract Quantity
("TCQ") of 100,000 Mcf per day of natural gas from the Point of Receipt
specified in Article 3 hereof to the Point(s) of Delivery specified in Article 4
hereto.
2.02 Transportation service rendered hereunder shall be firm and shall not be
subject to interruption or curtailment except as provided in Article 17 hereof.
ARTICLE 3
POINT OF RECEIPT
3.01 Shipper shall deliver or cause to be delivered gas for transportation
hereunder and Transporter shall receive gas quantities up to Shipper's TCQ, plus
any applicable fuel and line loss makeup, at the existing point of
interconnection between Transporter and the pipeline system of Transco in
Rockingham County, North Carolina ("Point of Receipt"). Transporter shall accept
deliveries at the Point of Receipt at a pressure sufficient to allow the gas to
enter Transporter's pipeline system at the varying pressures that may exist in
such system from time-to-time; provided, however, that such pressure(s) of the
gas delivered or caused to be delivered by Shipper shall not exceed the maximum
operating pressure(s) specified by Transporter for the Point of Receipt.
3.02 Shipper shall make any necessary arrangements with Transco so as to be able
to deliver gas to Transporter at the Point of Receipt; provided, however, that
such arrangements are compatible with the operating conditions on Transporter's
pipeline system.
ARTICLE 4
POINT(S) OF DELIVERY
Transporter shall deliver to Shipper, or for the account of Shipper, Equivalent
Quantities hereunder at the existing points of interconnection between the
systems of Transporter and Shipper and any upstream points of delivery within
Shipper's TCQ capacity entitlements. Transporter shall design its pipeline
facilities and use reasonable efforts to deliver gas at the Point(s) of Delivery
at a minimum pressure of not less than 500 psig. The maximum pressure at the
Point(s) of Delivery shall not exceed the maximum operating pressure of
Transporter's pipeline at such point(s).
ARTICLE 5
DETERMINATION OF RECEIPTS AND DELIVERIES
5.01 Receipts and deliveries shall be allocated by Transporter according to a
predetermined methodology administered by Transporter for the allocation among
shippers each Day of each dt of gas which is delivered by Transporter at the
Point(s) of Delivery. Under the current allocation methodology, the quantity of
gas allocated each Day to each Shipper at the Point of Receipt shall be deemed
to be, to the maximum extent possible, the quantities of gas delivered for such
Shipper's account at the Point(s) of Delivery hereunder adjusted for any
quantities attributable to fuel and line loss makeup.
5.02 Shipper shall cause Transco to provide Transporter with a predetermined
daily allocation methodology in writing, or electronically (by electronic data
transfer) for measured quantities based on scheduled quantities in advance of
service each Day and prior to any intra-day changes pursuant to Section 7.02
below. The daily allocation methodology provided by Transco shall consist of
rankings for allocation among all shippers nominating service such that receipts
are equivalent to the quantities delivered by Transporter plus any quantities
applicable for fuel or line loss makeup.
<PAGE>
ARTICLE 6
DETERMINATION OF ALLOWABLE DAILY DELIVERY VARIATIONS
AND OVERRUN PENALTIES
6.01 Allowable daily delivery variations shall be the quantity computed as
follows:
(a) During each Day of the period beginning May 1 of any Year and extending
through the next succeeding September 30, 5 percent of Shipper's TCQ under this
Service Agreement.
(b) During each Day of the period beginning on October 1 of any Year and
extending through the next succeeding April 30, 3.5 percent of Shipper's TCQ
under this Service Agreement.
6.02 Any quantity of gas taken by Shipper on any Day from Transporter in excess
of Shipper's TCQ under this Service Agreement shall, as adjusted by the
allowable daily delivery variations above, be an unauthorized daily overrun
unless:
(a) Shipper is utilizing the firm capacity entitlements of another firm shipper
that is not using that capacity entitlement and Shipper has provided prior
notice to Transporter, or
(b) Shipper is utilizing Excess Rate Schedule CFT Service which has been
scheduled by Shipper and allocated by Transporter on such Day.
6.03 In the event of a Force Majeure, Shipper's revised TCQ pursuant to Article
17 below shall be utilized to determine the allowable daily delivery variation
and unauthorized daily overrun quantity and any penalties thereon. Notice shall
be provided by Transporter to Shipper of such revised TCQ by telephone or
telecopy. Such notice shall be confirmed in writing as soon as reasonably
possible.
6.04 In the event on any Day Shipper takes unauthorized daily overrun
quantities, Shipper shall pay Transporter:
(a) an overrun charge equal to the 100 percent load factor FT rate per dt for
quantities up to, but not exceeding, the daily allowable delivery variation set
forth in Section 6.01 above, and
(b) an overrun penalty of $25 per dt for each dt of unauthorized daily overrun
quantities in excess of the daily delivery variation set forth in Section 6.01
above.
6.05 All overrun penalties collected by Transporter during any calendar year,
less an amount equal to the 100 percent load factor FT rate per dt multiplied by
the total volume of overruns, shall be directly refunded to each non-overrunning
firm transportation shipper for the Month(s) in which such penalties were
incurred based on each such non-overrunning shipper's fixed cost contribution
under its service agreement with Transporter as a percentage of the total fixed
cost contributions of all non-overrunning shippers under all firm service
agreements. Such refunds shall be made by January 31 of each calendar year.
6.06 The payment of a penalty for an unauthorized overrun quantity shall under
no circumstances be considered as giving Shipper the right to take such
unauthorized overrun quantity nor shall such payment be considered as a
substitute for any other remedy available to Transporter or any other shipper
against the offending shipper for such unauthorized overrun.
ARTICLE 7
SCHEDULING AND BALANCING
7.01 Shipper shall nominate service under this Service Agreement in advance of
each Month or in advance of each Day in accordance with the nomination deadlines
of Transco. Transporter, in its sole judgement, may waive any nomination
deadlines, on a non-discriminatory basis, if Transporter determines that
operating conditions permit. Such nominated quantities shall be subject to
confirmation by Transporter which shall be based on the best operating
information available to
<PAGE>
Transporter. Such confirmed quantity shall be deemed the scheduled quantity.
Shipper and Transporter shall have scheduling personnel available to be
contacted seven days a week, twenty-four hours a day.
7.02 During any Day, Shipper may request to reschedule, on a prospective basis,
quantities scheduled pursuant to Section 7.01 above, provided that such
quantities are consistent with rescheduled quantities and deadlines on Transco.
7.03 Shipper shall endeavor to balance receipts and deliveries as reasonably as
practicable so that the quantities delivered by Transco to Transporter are
consistent with the actual quantities taken by Shipper at the Point(s) of
Delivery. Shipper shall have the responsibility to monitor daily receipts and
deliveries during the Month based on the best information available.
7.04 Transporter shall provide its latest estimated allocation data on receipts
and deliveries to all parties requesting such data. These allocated quantities
will be subject to change and the data is offered for informational purposes
only, and should not be relied on by Shipper for any purposes whatsoever.
ARTICLE 8
SHIPPER'S RESPONSIBILITIES
Shipper recognizes that, as between it and Transporter, Shipper has sole control
over its physical takes of gas from Transporter's system and therefore has a
duty to refrain from taking delivery of unauthorized overrun quantities. Shipper
further recognizes that Shipper may cause hardship and economic damage to other
shippers in the event Shipper takes delivery of unauthorized overrun quantities
for which Shipper may be held accountable either through a direct cause of
action by such other shippers or as an impleaded or third party defendant in a
suit by such other shippers. In no event shall the payment of a penalty for an
overrun quantity pursuant to this Service Agreement be considered as giving
Shipper the right to take such unauthorized overrun quantity nor shall such
payment be considered as a substitute for all other rights and remedies
(including but not limited to consequential damages) available to any other
shipper against Shipper.
ARTICLE 9
TRANSPORTER'S RESPONSIBILITIES
Transporter recognizes that it has a duty to use reasonable care and prudent
operating procedures to allow Shipper to schedule for delivery within its TCQ,
as adjusted pursuant to a Force Majeure situation or Operating Conditions, the
gas quantities available to Shipper up to the amount verified and confirmed by
Transporter based on the best operating information available to Transporter.
Transporter also recognizes that unless forces beyond Transporter's control
(including, but not limited to, Force Majeure, or the failure of Shipper or
Shipper's gas supplier to deliver scheduled gas quantities into Transporter's
system) cause interference with Transporter's ability to redeliver, Transporter
has a duty to tender to Shipper for redelivery the gas quantities which
Transporter has verified and confirmed as available to Shipper. Transporter
further recognizes that a breach of its duties herein may cause hardship and
economic damage to Shipper, for which Shipper reserves all rights and remedies
(including but not limited to consequential damages), and for which Transporter
may be held accountable.
ARTICLE 10
RATES AND CHARGES
10.01 For firm transportation service provided to Shipper hereunder, Shipper
shall pay to Transporter each month the sum of the following charges:
(a) Reservation Charge: Shipper's TCQ multiplied by the reservation rate
applicable to deliveries in the rate zone in which the gas is delivered and as
set forth on currently effective Sheet No.
1 of Transporter's tariff.
<PAGE>
(b) Commodity Charge: The applicable commodity rate set forth on currently
effective Sheet No. 1 multiplied by the quantities of gas (dts) delivered.
(c) Excess CFT Charge: The applicable rate set forth on currently effective
Sheet No. 1 multiplied by the excess CFT quantity delivered during that month.
10.02 Transporter shall retain from the quantities of gas received on behalf of
Shipper hereunder any applicable fuel and line loss make-up associated with the
transportation service provided hereunder. Transporter will evaluate any fuel
retention percentages applicable to Shipper's service on an annual basis and
will make any necessary filings with the NCUC to reflect any changes at least
thirty (30) days prior to April 1 of each calendar year.
10.03 Transporter shall have the right, from time-to-time, through filings with
the governmental agency having jurisdiction to seek to change the rates or
allowance for fuel, and to change the other terms and conditions of this Service
Agreement, without limitation or reservation; provided, however, that (a) the
character of firm service, (b) the term, (c) the quantities, (d) the Point(s) of
Receipt and Delivery, and (e) the delivery pressure shall not be subject to
change hereunder without mutual agreement of the parties. Shipper shall have the
right to oppose any of the foregoing and to seek other changes to the terms and
conditions of this Service Agreement to the extent that Shipper is legally
permitted to do so under applicable provision(s) of law.
ARTICLE 11
QUALITY OF GAS
11.01 The parties hereto recognize that the natural gas delivered for
transportation hereunder will necessarily be commingled in Transporter's
pipeline system with gas received from other sources, and that the specific gas
delivered to Transporter cannot be redelivered for Shipper's account. It is
further agreed that the natural gas delivered to and by Transporter hereunder
shall be merchantable natural gas.
11.02 All gas delivered to Transporter for Shipper and redelivered by
Transporter to Shipper shall meet the quality standards for transportation on
the interstate pipeline system of Transco as amended from time-to-time.
ARTICLE 12
MEASUREMENT AND MEASURING EQUIPMENT
12.01 The unit of the natural gas deliverable hereunder shall be a Dekatherm of
gas on the measurement basis hereinafter set forth.
12.02 The quantity and the Heating Value of the natural gas delivered by
Transporter to or for the account of Shipper or delivered by Shipper to
Transporter for redelivery shall be determined as follows:
(i) The unit of volume for the purpose of measurement shall be one (1) Cubic
Foot of gas at a temperature of 60 degrees Fahrenheit and at an absolute
pressure of fourteen and seventy-three hundredths (14.73) pounds per square
inch.
(ii) The unit of weight for the purpose of measurement shall be one (1) pound
mass of gas.
(iii The average absolute atmospheric pressure shall be assumed to be 14.73
pounds per square inch.
(iv) The temperature of the gas flowing through the meters, when necessary for
computing gas quantities, shall be determined by the use of a recording
thermometer or other temperature measuring device. The arithmetic average of the
temperature recorded each 24-hour day, or so much of the 24 hours as gas has
been flowing, shall be used in computing gas quantities or
<PAGE>
instantaneous temperature measurements may be applied to metering instruments to
provide the quantity computation.
(v) The specific gravity of the gas flowing through the meters, when necessary
for computing gas quantities, shall be, unless otherwise agreed upon, determined
by the use of a recording gravitometer or an online process type gas
chromatograph. The arithmetic average of the 24- hour record, or so much of the
24 hours as gas has been flowing, or continuous instantaneous specific gravity
measurement may be applied to metering instruments to provide the quality
computation.
(vi) The deviation of the gas from Ideal Gas Laws shall be calculated following
the recommendations of the ANSI/API 2530 "Orifice Metering of Natural Gas and
Other Related Hydrocarbon Fluids" (A.G.A. Report No. 3) including the A.G.A.
Manual for Determination of Supercompressibility Factors of natural Gas or the
A.G.A. Transmission Measurement Committee Report No. 8 "Compressibility and
Supercompressibility for Natural Gas and Other Hydrocarbon Gases." If the
composition of the gas is such as to render the above procedure inapplicable,
other methods for determination of the deviation factors, mutually agreed upon
by Shipper and Transporter, shall be used.
(vii) The Heating Value shall be determined by either (1) the use of a suitably
located and acceptable make gas chromatograph or (2) calculation from a
fractional analysis, or (3) methods outlined in A.G.A. Gas Measurement Committee
Report No. 5, latest edition, or (4) other methods mutually acceptable.
Dekatherms delivered shall be determined by either (1) multiplying the Mcf
delivered by a fraction the numerator of which is the Btu per cubic foot and the
denominator of which is 1,000 or (2) multiplying the pounds mass delivered by a
fraction the numerator of which is the Btu per pound mass and the denominator of
which is 1,000,000.
12.03 Unless otherwise agreed to, Transporter will install, maintain, own and
operate, at its own expense, at or near each Point of Receipt and each Point of
Delivery, measuring stations properly equipped with standard orifice meters,
flange connections, orifice plates and other necessary measuring equipment or
other standard type meter suitable for the purpose by which the quantity of
natural gas shall be measured and determined. The Heating Value of natural gas
received or delivered shall be measured and determined as provided above.
Orifice meters where used shall be installed and operated in accordance with
ANSI/API "Orifice Metering of Natural Gas and Other Related Hydrocarbon Fluids"
latest revision, and shall include the use of straightening vanes.
12.04 Shipper acting jointly with Transporter may install, maintain and operate,
at its own expense, such check measuring equipment as desired, provided that
such equipment shall be so installed as not to interfere with the operation of
Transporter's measuring equipment.
12.05 Each party shall have the right to be present at the time of installing,
reading, cleaning, changing, repairing, inspecting, testing, calibrating, or
adjusting done in connection with measuring equipment involved in billing and
used in measuring or checking the measurement of receipts and deliveries. The
records from such measuring equipment shall remain the property of their owner,
but upon request, each will submit to the other its records and charts, together
with calculations therefrom for inspection and verification, subject to return
within ten (10) days after receipt thereof.
12.06 All installations of measurement equipment applying to or affecting
receipts and deliveries shall be made in such manner as to permit an accurate
determination of the quantity of natural gas delivered and ready verification of
the accuracy of measurement. Care shall be exercised by Transporter and Shipper
in the installation, maintenance and operation of pressure regulating equipment
so as to prevent any inaccuracy in the determination of the quantity of gas
received or delivered hereunder.
12.07 In the event a meter is out of service, or registering inaccurately, the
quantity of natural gas received or delivered shall be determined,
<PAGE>
(i) By using the registration of any check meter or meters if installed and
accurately registering, or, in the absence of (i),
(ii) By correcting the error or the percentage of error if ascertainable by
calibration, test, or mathematical calculation, or in the absence of both (i)
and (ii), then
(iii) By estimating the quantity of receipts or deliveries during periods under
similar conditions when the meter was registering accurately.
12.08 The accuracy of Transporter's measurement equipment shall be verified by
Transporter at reasonable intervals, and, if requested, in the presence of
representatives of Shipper, but Transporter shall not be required as a matter of
routine to verify the accuracy of such equipment more frequently than once in
any thirty (30) day period.
12.09 If, upon test, any measurement equipment, including recording gas
chromatograph, is found to be in error not more than two percent (2%), previous
recording of such equipment shall be considered accurate in computing receipts
and deliveries; but such equipment shall be adjusted at once to record
correctly. If, upon test, any measurement equipment shall be found to be
inaccurate by an amount exceeding two percent (2%) at a recording corresponding
to the average hourly rate of flow for the period since the last preceding test,
then any previous recordings of such equipment shall be corrected to zero error
for any period which is definitely known, but, in case the period is not known
definitely or agreed upon, such correction shall be for a period extending over
one-half of the time elapsed since the date of the last test, not exceeding a
correction period of 16 days.
12.10 Transporter and Shipper shall preserve all original or equivalent
electronic test data, charts, or other similar records for a period required by
the applicable rules of regulatory agencies having jurisdiction.
ARTICLE 13
TERM OF AGREEMENT
13.01 This Agreement shall be effective as of the date hereof and shall continue
in effect until the expiration of the twentieth (20th) Contract Year, and
year-to-year thereafter, subject to termination by either party at the end of
the Contract Year or any year thereafter upon two years advance written notice
to the other party.
13.02 Firm transportation service hereunder shall commence at the Effective Time
of the Merger between Transporter and Cardinal Pipeline Company, LLC as defined
in the Agreement and Plan of Merger, as amended.
ARTICLE 14
BILLING AND PAYMENT
14.01 Transporter shall render its bill on or before the first Day of each Month
for the Reservation Charges due for service rendered hereunder during the
preceding calendar Month. On or before the 10th day of each Month, Transporter
shall render its bill for any remaining charges for gas services rendered during
the preceding calendar Month. Such bill shall include any Commodity Charges,
Excess CFT Charges, any adjustments to the charges billed on the first day of
the Month, and any penalties for unauthorized overruns applicable to the Month
for which the bill is rendered.
14.02 Transporter and Shipper shall each, upon request of the other, deliver to
the other for examination such pertinent records and charts as shall be
necessary to verify the accuracy of any statement, chart, or computation made by
either of them under or pursuant to any of the provisions hereof.
14.03 Shipper, except as otherwise hereinafter provided, shall pay to
Transporter by wire transfer of immediately available funds on or before the
10th day of each Month for the Reservation Charges due for service rendered by
Transporter hereunder during the preceding month and billed by
<PAGE>
Transporter in the statement for such month, and on or before the 20th day for
each Month for any remaining charges for services which are due hereunder. If
the normal payment due date is a Saturday, Sunday or holiday, this payment is
due the following business Day.
14.04 Should Shipper fail to pay all of the amount of any bill for service
hereunder when such amount is due, interest on the unpaid portion of such amount
shall accrue at the rate equal to the prime rate of CitiBank, N.A. or its
successor, calculated from the due date until the date of payment. If such
failure to pay continues for thirty (30) days after payment is due, Transporter,
in addition to any other remedy it may have hereunder, may suspend further
transportation of natural gas hereunder until such amount is paid; provided,
however, that if Shipper in good faith shall dispute the amount of any such bill
or any part hereof, and shall pay to Transporter such amount as it concedes to
be correct, and at any time thereafter within thirty (30) days of a demand made
by Transporter, shall furnish good and sufficient surety bond, guaranteeing
payment to Transporter of the amount ultimately found to be due under such bill
after a final determination, which may be reached either by agreement between
the parties, arbitration or judgment for a court or by any regulatory authority
having jurisdiction, then Transporter shall not be entitled to suspend further
delivery of natural gas unless and until default be made in the conditions of
such bond.
14.05 If within twelve (12) months of the date of payment, it shall be found
that Shipper has been overcharged or undercharged in any form whatsoever under
the provisions hereof, and Shipper shall have actually paid the bill(s)
containing such overcharge or undercharge, then within thirty (30) days after
the final determination thereof, Transporter shall refund the amount of any such
overcharge with interest thereon at the prime rate of the CitiBank N.A. or its
successor from the time such overcharge was paid to the date of refund, and
Shipper shall pay the amount of any such undercharge but without interest.
14.06 In the event an error is discovered in the amount billed in any statement
rendered by Transporter, such error shall be adjusted within thirty (30) days of
the determination thereof, provided that claim therefor shall have been made
within sixty (60) days from the date of discovery of such error, but in any
event, within twelve (12) months from the date of payment.
14.07 If rendition of a bill to Shipper by Transporter is delayed beyond the
date specified herein, then Shipper shall pay such bill by wire transfer within
ten (10) days after rendition thereof.
ARTICLE 15
ASSUMPTION OF RISK
15.01 As between the parties hereto, Shipper shall be deemed to be in control
and possession of the gas to be transported hereunder until it shall have been
delivered to Transporter at the Point of Receipt; and Shipper shall be deemed to
be in control and possession of the gas to be transported hereunder after
delivery for Shipper's account at the Point of Delivery. Transporter shall be
deemed to be in control and possession of such gas after the delivery thereof to
Transporter at the Point of Receipt and prior to delivery thereof for Shipper's
account at the Point of Delivery.
15.02 Transporter shall have no responsibility with respect to any gas to be
transported hereunder or on account of anything which may be done, happen or
arise with respect thereto until it is delivered into its facilities at the
Point of Receipt and after it is received for Shipper's account at the Point of
Delivery. Shipper shall have no responsibility with respect to such gas or on
account of anything which may be done, happen or arise with respect thereto
after causing the delivery thereof to Transporter at the Point of Receipt and
prior to delivery thereof for Shipper's account at the Point of Delivery.
ARTICLE 16
WARRANTIES
Shipper warrants for itself, its successors and assigns, that it will at the
time of delivery to Transporter for transportation have good and merchantable
title to or the legal right to tender all gas delivered hereunder
<PAGE>
free and clear of all liens, encumbrances and claims. Shipper shall indemnify
Transporter and save it harmless from all suits, actions, debts, accounts,
damages, costs, losses and expenses arising from or out of adverse claims of any
or all persons to said gas, including claims for any royalties, taxes, license
fees or charges applicable to such gas or to the delivery thereof to Transporter
for transportation under this Service Agreement.
ARTICLE 17
FORCE MAJEURE
17.01 In the event of either party being rendered unable, wholly or in part, by
Force Majeure or Operating Conditions to carry out its obligations other than
(i) the obligation of Shipper to pay the monthly Reservation Charge due
Transporter (except as provided in 17.03 below), and (ii) the obligation to make
payment of amounts accrued and due at the time thereof, it is agreed that on
such party's giving notice and full particulars of such Force Majeure or
Operating Conditions in writing or by telecopy to the other party within a
reasonable time after the occurrence of the cause relied on, the obligation of
both parties, so far as they are affected by such Force Majeure or Operating
Conditions, shall be suspended during the continuance of any inability so
caused, but for no longer period, and such cause shall so far as possible be
remedied with all reasonable dispatch. Neither party shall be liable in damages
to the other for any act, omission or circumstance occasioned by, or in
consequence of, Force Majeure or Operating Conditions, as herein defined in this
Service Agreement.
17.02 If, due to Force Majeure or Operating Conditions, Transporter is unable to
receive, transport or redeliver gas tendered by Shipper for transportation or if
Shipper is unable to deliver gas to Transporter, then Transporter, upon
providing as much notice as possible under all of the circumstances, shall order
reduction of Shipper's TCQ to the extent necessary depending upon the type and
location of the occurrence, in accordance with the following procedures:
Transporter shall order allocation, to the extent necessary, of affected
transportation service to all shippers proportionate to each shipper's TCQ.
Where Transporter's ability to render service is impaired in a particular
segment of Transporter's system, then such allocation shall be effected only in
that segment of Transporter's system in which service has been impaired.
17.03 Such causes or contingencies affecting the performance by either party,
however, shall not relieve it of liability unless such party shall give notice
and full particulars of such cause or contingency in writing or by telecopy to
the other party within a reasonable time after the occurrence relied upon, nor
shall such causes or contingencies affecting the performance by either party
relieve it of liability in the event of its failure to use due diligence to
remedy the situation and remove the cause with all reasonable dispatch, provided
that the resolution of strikes, lockouts or other labor disputes shall be within
the sole discretion of the parties involved therein. Such causes or
contingencies affecting the performance by either party shall not relieve
Shipper from its obligations to make payments of monthly Reservation Charge
except to the extent of Transporter's negligence or willful misconduct.
<PAGE>
ARTICLE 18
NOTICES
Notice to either party shall be in writing and shall be considered as duly
delivered when mailed to the other party at the following address:
If to Shipper:
Public Service Company of North Carolina, Inc.
P. O. Box 1398
Gastonia, North Carolina 28053-1398
Attention: Senior Vice President Marketing and Gas Supply
Facsimile number: ____________________
If to Transporter:
Cardinal Extension Company, LLC
c/o Cardinal Operating Company
P. O. Box 1396
Houston, Texas 77251
Attention: Vice President, Customer Service
Facsimile number: _________________
Such addresses may be changed from time-to-time by mailing appropriate notice
thereof to the other party by certified or registered mail.
ARTICLE 19
MISCELLANEOUS
19.01 Transporter grants the right to Shipper to direct tie-ins between its
distribution system and Transporter's intrastate pipeline for the purpose of
serving its franchise area subject to the negotiation of mutual agreeable terms
and conditions (including reimbursement arrangements and/or incremental charges
and the construction, operation and maintenance specifications for such tie-ins)
which will be set forth in an Interconnect and Reimbursement Agreement to be
negotiated and executed by Shipper and Transporter.
19.02 This Agreement reflects the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral and written, among the parties with respect to the subject
matter hereof. This Agreement can be amended, restated or supplemented only by
the written agreement of Transporter and Shipper.
19.03 No waiver by either party of any default by the other party in the
performance of any provision, condition or requirement herein shall be deemed to
be a waiver of, or in any manner release the other party from, performance of
any other provision, condition or requirement herein, nor shall such waiver be
deemed to be a waiver of, or in any manner a release of, the other party from
future performance of the same provision, condition or requirement. Any delay or
omission of either party to exercise any right hereunder shall not impair the
exercise of any such right, or any like right, accruing to it thereafter. No
waiver of a right created by this Agreement by one party shall constitute a
waiver of such right by the other party except as may otherwise be required by
law with respect to persons not parties hereto. The failure of one party to
perform its obligations hereunder shall not release the other party from the
performance of such obligations.
19.04 This Agreement may be assigned by Shipper without the prior consent of
Transporter provided that Shipper remains responsible for any and all
obligations under this Agreement.
19.05 This Agreement and the obligations of the parties hereunder are subject to
all applicable laws, rules, orders and regulations of any governmental
authorities having jurisdiction, and to the extent of
<PAGE>
conflict, such laws, rules, orders and regulations of governmental authorities
having jurisdiction shall control.
19.06 Any provision of this Agreement that is prohibited or unenforceable shall
be ineffective to the extent of that prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of that provision in any other jurisdiction.
19.07 This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
<PAGE>
19.08 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NORTH CAROLINA. EXCLUDING, HOWEVER,
ANY CONFLICT OF LAWS RULES OR PRINCIPLES WHICH MIGHT REFER THE
CONSTRUCTION OR OPERATION OF THE TERMS OF THIS AGREEMENT TO THE
LAWS OF ANOTHER STATE.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
CARDINAL OPERATING COMPANY,
as Operator of
Cardinal Extension Company, LLC
By: /s/ Frank J. Ferazzi
Frank J. Ferazzi
Vice President
PUBLIC SERVICE COMPANY OF
NORTH CAROLINA, INC.
By: /s/s Jack G. Mason
Jack G. Mason
Vice - President, Treasurer and CFO
Exhibit 10-A-40
FIRM TRANSPORTATION
CARDINAL EXTENSION PIPELINE COMPANY
This Service Agreement, entered into this the 26 day of June, 1998, by
and between Cardinal Extension Company, LLC, a North Carolina limited liability
company, hereinafter referred to as "Transporter," and Public Service Company of
North Carolina, Inc., a North Carolina corporation, hereinafter referred to as
"Shipper."
WITNESSETH
WHEREAS, Transporter is the owner of an intrastate natural gas pipeline
which interconnects with the interstate pipeline system of Transcontinental Gas
Pipe Line Corporation ("Transco") in Rockingham County, North Carolina;
WHEREAS, Transporter has sufficient capacity available on its pipeline
system to provide firm transportation service for Shipper pursuant to the terms
specified herein;
NOW, THEREFORE, in consideration of the mutual covenants herein
assumed, Transporter and Shipper agree as follows:
ARTICLE I
DEFINITIONS
1.01 As used herein, the following terms shall have meanings defined below:
(a) "British Thermal Unit" or "BTU" -- The amount of heat required to raise the
temperature of 1 pound of water 1 degree Fahrenheit at 60 degrees Fahrenheit.
(b) "Contract Year" -- The year beginning with the date that service shall
commence as set forth in Paragraph 13.01 hereof, or any anniversary thereof.
Provided, however, that in the event firm service commences on a day other than
the first day of the month, the Contract Year shall be considered to commence on
the first day of the month following the day on which service has commenced.
(c) "Cubic Foot" -- The volume of gas which occupies one cubic foot when such
gas is at a temperature of 60 degrees Fahrenheit and an absolute pressure of
14.73 pounds per square inch.
(d) "Day" -- A period of 24 consecutive hours beginning as nearly as practicable
at 10:00 a.m. Eastern Standard Time or Eastern Daylight Time, as appropriate, or
at such other hour as Transporter and Shipper mutually agree.
(e) "Dekatherm" or "dt" -- The quantity of heat energy which is 1,000,000
British Thermal Units.
(f) "Equivalent Quantity" -- The volume of gas measured in Mcf received by
Transporter at the Point of Receipt during any given period of time, adjusted
for any variations in Btu content, it being the intent of the parties that the
volumes of gas delivered hereunder at the Point of Delivery be the thermal
equivalent of the volumes of gas received at the Point of Receipt less any
amounts attributable to fuel and line losses.
(g) Excess Rate Schedule CFT Service -- The service shall be available on any
Day when the total quantity of gas taken by all firm shippers in Zone 1 is less
than the dekatherm equivalent of
<PAGE>
130,000 Mcf per day and/or the total quantity of gas taken by all Shippers in
Zone 2 is less than the dekatherm equivalent of 140,000 Mcf per day provided
that such service has been scheduled by Shipper and allocated by Transporter on
such Day.
(h) "Force Majeure" means acts of God, strikes, lockouts or other industrial
disturbances, acts of the public enemy or terrorists, wars, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, fires,
storms, floods, washouts, arrests, the order of any court or governmental
authority having jurisdiction while the same is in force and effect, civil
disturbances, explosions, breakage, accidents to machinery or pipelines,
freezing of or damage to receipt or delivery facilities, National Weather
Service warnings or advisories, whether official or unofficial, that result in
the evacuation of facilities, inability to obtain or unavoidable delays in
obtaining material or equipment, a Force Majeure event or Operating Conditions
on the pipeline system of Transco or any other event, condition or incident
which prevents Transco from tendering gas to Transporter for transportation
hereunder, and any other cause whether of the kind herein enumerated or
otherwise, not reasonably within the control of either party claiming suspension
and which by the exercise of due diligence such party is unable to prevent or
overcome.
(i) "Heating Value" -- Gross heating value on a dry basis which is the number of
British Thermal Units produced by the complete combustion at constant pressure
of the amount of dry gas which would occupy a volume of one cubic foot at 14.73
Psia and 60 degrees Fahrenheit with combustion air at the same temperature and
pressure as the gas, the products of combustion being cooled to the initial
temperature of the gas and air and the water formed by combustion condensed to
the liquid state.
(j) "Mcf" -- 1,000 cubic feet of gas.
(k) "Month" -- A period beginning as nearly as practicable at 10:00 a.m. Eastern
Standard Time or Eastern Daylight time, as appropriate, or at such other hour as
Transporter and Shipper agree upon on the first day of a calendar month and
shall end at the aforesaid time on the first day of the next succeeding calendar
month.
(l) "Operating Conditions" means the necessity to make modifications, tests or
repairs to Transporter's pipeline system. Transporter shall exercise reasonable
diligence to schedule maintenance so as to minimize disruption of service to
Shipper and shall provide reasonable notice of the same.
(m) "Psia" -- Pounds per square inch absolute.
(n) "Psig" -- Pounds per square inch gauge.
(o) "Scheduled Daily Delivery Quantity" -- The daily quantity of gas requested
in advance by Shipper electronically or otherwise to Transporter covering a
specific period of time.
(p) "Transportation Contract Quantity" or ATCQ" -- The quantity of gas specified
in Article 2, Paragraph 2.01, which shall be the maximum quantity that
Transporter is obligated to deliver hereunder on any day, at the Point(s) of
Delivery set forth in Article 4 hereof.
(q) "Year" -- A period of three hundred and sixty-five (365) consecutive days
beginning on the date of initial delivery of gas under this Service Agreement,
or on any anniversary thereof, provided, however, that any such year which
contains a date of February 29, shall consist of three hundred and sixty-six
(366) consecutive days.
<PAGE>
ARTICLE 2
GAS TRANSPORTATION SERVICE
2.01 Subject to the terms and provisions of this Service Agreement, Transporter
agrees to receive, transport and redeliver, on a firm basis, for Shipper's
account up to the dekatherm equivalent of a Transportation Contract Quantity
("TCQ") of 70,000 Mcf per day of natural gas from the Point of Receipt specified
in Article 3 hereof to the Point(s) of Delivery specified in Article 4 hereto.
2.02 Transportation service rendered hereunder shall be firm and shall not be
subject to interruption or curtailment except as provided in Article 17 hereof.
ARTICLE 3
POINT OF RECEIPT
3.01 Shipper shall deliver or cause to be delivered gas for transportation
hereunder and Transporter shall receive gas quantities up to Shipper's TCQ, plus
any applicable fuel and line loss makeup, at the existing point of
interconnection between Transporter and the pipeline system of Transco in
Rockingham County, North Carolina ("Point of Receipt"). Transporter shall accept
deliveries at the Point of Receipt at a pressure sufficient to allow the gas to
enter Transporter's pipeline system at the varying pressures that may exist in
such system from time-to-time; provided, however, that such pressure(s) of the
gas delivered or caused to be delivered by Shipper shall not exceed the maximum
operating pressure(s) specified by Transporter for the Point of Receipt.
3.02 Shipper shall make any necessary arrangements with Transco so as to be able
to deliver gas to Transporter at the Point of Receipt; provided, however, that
such arrangements are compatible with the operating conditions on Transporter's
pipeline system.
ARTICLE 4
POINT(S) OF DELIVERY
Transporter shall deliver to Shipper, or for the account of Shipper, Equivalent
Quantities hereunder at the existing Point of Delivery between Transporter and
Shipper on the southeast side of Burlington, North Carolina, and any future
upstream points of delivery within Shipper's TCQ capacity entitlements.
Transporter shall design its pipeline facilities and use reasonable efforts to
deliver gas at the Point(s) of Delivery at a minimum pressure of not less than
550 psig. The maximum pressure at the Point(s) of Delivery shall not exceed the
maximum operating pressure of Transporter's pipeline at such point(s).
ARTICLE 5
DETERMINATION OF RECEIPTS AND DELIVERIES
5.01 Receipts and deliveries shall be allocated by Transporter according to a
predetermined methodology administered by Transporter for the allocation among
shippers each Day of each dt of gas which is delivered by Transporter at the
Point(s) of Delivery. Under the current allocation methodology, the quantity of
gas allocated each Day to each Shipper at the Point of Receipt shall be deemed
to be, to the maximum extent possible, the quantities of gas delivered for such
Shipper's account at the Point(s) of Delivery hereunder adjusted for any
quantities attributable to fuel and line loss makeup.
5.02 Shipper shall cause Transco to provide Transporter with a predetermined
daily allocation methodology in writing, or electronically (by electronic data
transfer) for measured quantities based on scheduled quantities in advance of
service each Day and prior to any intra-day changes pursuant to Section 7.02
below. The daily allocation methodology provided by Transco shall consist of
rankings for allocation among all shippers nominating service such that receipts
are equivalent to the quantities delivered by Transporter plus any quantities
applicable for fuel or line loss makeup.
<PAGE>
ARTICLE 6
DETERMINATION OF ALLOWABLE DAILY DELIVERY VARIATIONS
AND OVERRUN PENALTIES
6.01 Allowable daily delivery variations shall be the quantity computed as
follows:
(a) During each Day of the period beginning May 1 of any Year and extending
through the next succeeding September 30, 5 percent of Shipper's TCQ under this
Service Agreement.
(b) During each Day of the period beginning on October 1 of any Year and
extending through the next succeeding April 30, 3.5 percent of Shipper's TCQ
under this Service Agreement.
6.02 Any quantity of gas taken by Shipper on any Day from Transporter in excess
of Shipper's TCQ under this Service Agreement shall, as adjusted by the
allowable daily delivery variations above, be an unauthorized daily overrun
unless:
(a) Shipper is utilizing the firm capacity entitlements of another firm shipper
that is not using that capacity entitlement and Shipper has provided prior
notice to Transporter, or
(b) Shipper is utilizing Excess Rate Schedule CFT Service which has been
scheduled by Shipper and allocated by Transporter on such Day.
6.03 In the event of a Force Majeure, Shipper's revised TCQ pursuant to Article
17 below shall be utilized to determine the allowable daily delivery variation
and unauthorized daily overrun quantity and any penalties thereon. Notice shall
be provided by Transporter to Shipper of such revised TCQ by telephone or
telecopy. Such notice shall be confirmed in writing as soon as reasonably
possible.
6.04 In the event on any Day Shipper takes unauthorized daily overrun
quantities, Shipper shall pay Transporter:
(a) an overrun charge equal to the 100 percent load factor FT rate per dt for
quantities up to, but not exceeding, the daily allowable delivery variation set
forth in Section 6.01 above, and
(b) an overrun penalty of $25 per dt for each dt of unauthorized daily overrun
quantities in excess of the daily delivery variation set forth in Section 6.01
above.
6.05 All overrun penalties collected by Transporter during any calendar year,
less an amount equal to the 100 percent load factor FT rate per dt multiplied by
the total volume of overruns, shall be directly refunded to each non-overrunning
firm transportation shipper for the Month(s) in which such penalties were
incurred based on each such non-overrunning shipper's fixed cost contribution
under its service agreement with Transporter as a percentage of the total fixed
cost contributions of all non-overrunning shippers under all firm service
agreements. Such refunds shall be made by January 31 of each calendar year.
6.06 The payment of a penalty for an unauthorized overrun quantity shall under
no circumstances be considered as giving Shipper the right to take such
unauthorized overrun quantity nor shall such payment be considered as a
substitute for any other remedy available to Transporter or any other shipper
against the offending shipper for such unauthorized overrun.
ARTICLE 7
SCHEDULING AND BALANCING
7.01 Shipper shall nominate service under this Service Agreement in advance of
each Month or in advance of each Day in accordance with the nomination deadlines
of Transco. Transporter, in its sole judgement, may waive any nomination
deadlines, on a non-discriminatory basis, if Transporter determines that
operating conditions permit. Such nominated quantities shall be subject to
<PAGE>
confirmation by Transporter which shall be based on the best operating
information available to Transporter. Such confirmed quantity shall be deemed
the scheduled quantity. Shipper and Transporter shall have scheduling personnel
available to be contacted seven days a week, twenty-four hours a day.
7.02 During any Day, Shipper may request to reschedule, on a prospective basis,
quantities scheduled pursuant to Section 7.01 above, provided that such
quantities are consistent with rescheduled quantities and deadlines on Transco.
7.03 Shipper shall endeavor to balance receipts and deliveries as reasonably as
practicable so that the quantities delivered by Transco to Transporter are
consistent with the actual quantities taken by Shipper at the Point(s) of
Delivery. Shipper shall have the responsibility to monitor daily receipts and
deliveries during the Month based on the best information available.
7.04 Transporter shall provide its latest estimated allocation data on receipts
and deliveries to all parties requesting such data. These allocated quantities
will be subject to change and the data is offered for informational purposes
only, and should not be relied on by Shipper for any purposes whatsoever.
ARTICLE 8
SHIPPER'S RESPONSIBILITIES
Shipper recognizes that, as between it and Transporter, Shipper has sole control
over its physical takes of gas from Transporter's system and therefore has a
duty to refrain from taking delivery of unauthorized overrun quantities. Shipper
further recognizes that Shipper may cause hardship and economic damage to other
shippers in the event Shipper takes delivery of unauthorized overrun quantities
for which Shipper may be held accountable either through a direct cause of
action by such other shippers or as an impleaded or third party defendant in a
suit by such other shippers. In no event shall the payment of a penalty for an
overrun quantity pursuant to this Service Agreement be considered as giving
Shipper the right to take such unauthorized overrun quantity nor shall such
payment be considered as a substitute for all other rights and remedies
(including but not limited to consequential damages) available to any other
shipper against Shipper.
ARTICLE 9
TRANSPORTER'S RESPONSIBILITIES
Transporter recognizes that it has a duty to use reasonable care and prudent
operating procedures to allow Shipper to schedule for delivery within its TCQ,
as adjusted pursuant to a Force Majeure situation or Operating Conditions, the
gas quantities available to Shipper up to the amount verified and confirmed by
Transporter based on the best operating information available to Transporter.
Transporter also recognizes that unless forces beyond Transporter's control
(including, but not limited to, Force Majeure, or the failure of Shipper or
Shipper's gas supplier to deliver scheduled gas quantities into Transporter's
system) cause interference with Transporter's ability to redeliver, Transporter
has a duty to tender to Shipper for redelivery the gas quantities which
Transporter has verified and confirmed as available to Shipper. Transporter
further recognizes that a breach of its duties herein may cause hardship and
economic damage to Shipper, for which Shipper reserves all rights and remedies
(including but not limited to consequential damages), and for which Transporter
may be held accountable.
ARTICLE 10
RATES AND CHARGES
10.01 For firm transportation service provided to Shipper hereunder, Shipper
shall pay to Transporter each month the sum of the following charges:
(a) Reservation Charge: Shipper's TCQ multiplied by the reservation rate
applicable to deliveries in the rate zone in which the gas is delivered and as
set forth on currently effective Sheet No.
1 of Transporter's tariff.
<PAGE>
(b) Commodity Charge: The applicable commodity rate set forth on currently
effective Sheet No. 1 multiplied by the quantities of gas (dts) delivered.
(c) Excess CFT Charge: The applicable rate set forth on currently effective
Sheet No. 1 multiplied by the excess CFT quantity delivered during that month.
10.02 Transporter shall retain from the quantities of gas received on behalf of
Shipper hereunder any applicable fuel and line loss make-up associated with the
transportation service provided hereunder. Transporter will evaluate any fuel
retention percentages applicable to Shipper's service on an annual basis and
will make any necessary filings with the NCUC to reflect any changes at least
thirty (30) days prior to April 1 of each calendar year.
10.03 Transporter shall have the right, from time-to-time, through filings with
the governmental agency having jurisdiction to seek to change the rates or
allowance for fuel, and to change the other terms and conditions of this Service
Agreement, without limitation or reservation; provided, however, that (a) the
character of firm service, (b) the term, (c) the quantities, (d) the Point(s) of
Receipt and Delivery, and (e) the delivery pressure shall not be subject to
change hereunder without mutual agreement of the parties. Shipper shall have the
right to oppose any of the foregoing and to seek other changes to the terms and
conditions of this Service Agreement to the extent that Shipper is legally
permitted to do so under applicable provision(s) of law. Notwithstanding the
foregoing, Transporter agrees to propose in any subsequent rate cases a cost
allocation and/or rate design for firm deliveries upstream of Burlington, North
Carolina that reasonably approximate the rates Shipper would have paid if the
costs of the existing firm service had remained in the utility rate bases of
PSNC and Piedmont and in the absence of the merger of Transporter and Cardinal
Pipeline Company, LLC.
ARTICLE 11
QUALITY OF GAS
11.01 The parties hereto recognize that the natural gas delivered for
transportation hereunder will necessarily be commingled in Transporter's
pipeline system with gas received from other sources, and that the specific gas
delivered to Transporter cannot be redelivered for Shipper's account. It is
further agreed that the natural gas delivered to and by Transporter hereunder
shall be merchantable natural gas.
11.02 All gas delivered to Transporter for Shipper and redelivered by
Transporter to Shipper shall meet the quality standards for transportation on
the interstate pipeline system of Transco as amended from time-to-time.
ARTICLE 12
MEASUREMENT AND MEASURING EQUIPMENT
12.01 The unit of the natural gas deliverable hereunder shall be a Dekatherm of
gas on the measurement basis hereinafter set forth.
12.02 The quantity and the Heating Value of the natural gas delivered by
Transporter to or for the account of Shipper or delivered by Shipper to
Transporter for redelivery shall be determined as follows:
(i) The unit of volume for the purpose of measurement shall be one (1) Cubic
Foot of gas at a temperature of 60 degrees Fahrenheit and at an absolute
pressure of fourteen and seventy-three hundredths (14.73) pounds per square
inch.
(ii) The unit of weight for the purpose of measurement shall be one (1) pound
mass of gas.
(iii)The average absolute atmospheric pressure shall be assumed to be 14.73
pounds per square inch.
<PAGE>
(iv) The temperature of the gas flowing through the meters, when necessary for
computing gas quantities, shall be determined by the use of a recording
thermometer or other temperature measuring device. The arithmetic average of the
temperature recorded each 24-hour day, or so much of the 24 hours as gas has
been flowing, shall be used in computing gas quantities or instantaneous
temperature measurements may be applied to metering instruments to provide the
quantity computation.
(v) The specific gravity of the gas flowing through the meters, when necessary
for computing gas quantities, shall be, unless otherwise agreed upon, determined
by the use of a recording gravitometer or an online process type gas
chromatograph. The arithmetic average of the 24- hour record, or so much of the
24 hours as gas has been flowing, or continuous instantaneous specific gravity
measurement may be applied to metering instruments to provide the quality
computation.
(vi) The deviation of the gas from Ideal Gas Laws shall be calculated following
the recommendations of the ANSI/API 2530 "Orifice Metering of Natural Gas and
Other Related Hydrocarbon Fluids" (A.G.A. Report No. 3) including the A.G.A.
Manual for Determination of Supercompressibility Factors of natural Gas or the
A.G.A. Transmission Measurement Committee Report No. 8 "Compressibility and
Supercompressibility for Natural Gas and Other Hydrocarbon Gases." If the
composition of the gas is such as to render the above procedure inapplicable,
other methods for determination of the deviation factors, mutually agreed upon
by Shipper and Transporter, shall be used.
(vii) The Heating Value shall be determined by either (1) the use of a suitably
located and acceptable make gas chromatograph or (2) calculation from a
fractional analysis, or (3) methods outlined in A.G.A. Gas Measurement Committee
Report No. 5, latest edition, or (4) other methods mutually acceptable.
Dekatherms delivered shall be determined by either (1) multiplying the Mcf
delivered by a fraction the numerator of which is the Btu per cubic foot and the
denominator of which is 1,000 or (2) multiplying the pounds mass delivered by a
fraction the numerator of which is the Btu per pound mass and the denominator of
which is 1,000,000.
12.03 Unless otherwise agreed to, Transporter will install, maintain, own and
operate, at its own expense, at or near each Point of Receipt and each Point of
Delivery, measuring stations properly equipped with standard orifice meters,
flange connections, orifice plates and other necessary measuring equipment or
other standard type meter suitable for the purpose by which the quantity of
natural gas shall be measured and determined. The Heating Value of natural gas
received or delivered shall be measured and determined as provided above.
Orifice meters where used shall be installed and operated in accordance with
ANSI/API "Orifice Metering of Natural Gas and Other Related Hydrocarbon Fluids,"
latest revision, and shall include the use of straightening vanes.
12.04 Shipper acting jointly with Transporter may install, maintain and operate,
at its own expense, such check measuring equipment as desired, provided that
such equipment shall be so installed as not to interfere with the operation of
Transporter's measuring equipment.
12.05 Each party shall have the right to be present at the time of installing,
reading, cleaning, changing, repairing, inspecting, testing, calibrating, or
adjusting done in connection with measuring equipment involved in billing and
used in measuring or checking the measurement of receipts and deliveries. The
records from such measuring equipment shall remain the property of their owner,
but upon request, each will submit to the other its records and charts, together
with calculations therefrom for inspection and verification, subject to return
within ten (10) days after receipt thereof.
12.06 All installations of measurement equipment applying to or affecting
receipts and deliveries shall be made in such manner as to permit an accurate
determination of the quantity of natural gas delivered and ready verification of
the accuracy of measurement. Care shall be exercised by Transporter and
<PAGE>
Shipper in the installation, maintenance and operation of pressure regulating
equipment so as to prevent any inaccuracy in the determination of the quantity
of gas received or delivered hereunder.
12.07 In the event a meter is out of service, or registering inaccurately, the
quantity of natural gas received or delivered shall be determined,
(i) By using the registration of any check meter or meters if installed and
accurately registering, or, in the absence of (i),
(ii) By correcting the error or the percentage of error if ascertainable by
calibration, test, or mathematical calculation, or in the absence of both (i)
and (ii), then
(iii) By estimating the quantity of receipts or deliveries during periods under
similar conditions when the meter was registering accurately.
12.08 The accuracy of Transporter's measurement equipment shall be verified by
Transporter at reasonable intervals, and, if requested, in the presence of
representatives of Shipper, but Transporter shall not be required as a matter of
routine to verify the accuracy of such equipment more frequently than once in
any thirty (30) day period.
12.09 If, upon test, any measurement equipment, including recording gas
chromatograph, is found to be in error not more than two percent (2%), previous
recording of such equipment shall be considered accurate in computing receipts
and deliveries; but such equipment shall be adjusted at once to record
correctly. If, upon test, any measurement equipment shall be found to be
inaccurate by an amount exceeding two percent (2%) at a recording corresponding
to the average hourly rate of flow for the period since the last preceding test,
then any previous recordings of such equipment shall be corrected to zero error
for any period which is definitely known, but, in case the period is not known
definitely or agreed upon, such correction shall be for a period extending over
one-half of the time elapsed since the date of the last test, not exceeding a
correction period of 16 days.
12.10 Transporter and Shipper shall preserve all original or equivalent
electronic test data, charts, or other similar records for a period required by
the applicable rules of regulatory agencies having jurisdiction.
ARTICLE 13
TERM OF AGREEMENT
13.01 This Agreement shall be effective as of the date hereof and shall continue
in effect until the expiration of the twentieth (20th) Contract Year, and
year-to-year thereafter, subject to termination by either party at the end of
the Contract Year or any year thereafter upon two years advance written notice
to the other party.
13.02 Firm transportation service hereunder shall commence at the Effective Time
of the Merger between Transporter and Cardinal Pipeline Company, LLC as defined
in the Agreement and Plan of Merger, as amended.
ARTICLE 14
BILLING AND PAYMENT
14.01 Transporter shall render its bill on or before the first Day of each Month
for the Reservation Charges due for service rendered hereunder during the
preceding calendar Month. On or before the 10th day of each Month, Transporter
shall render its bill for any remaining charges for gas services rendered during
the preceding calendar Month. Such bill shall include any Commodity Charges,
Excess CFT Charges, any adjustments to the charges billed on the first day of
the Month, and any penalties for unauthorized overruns applicable to the Month
for which the bill is rendered.
<PAGE>
14.02 Transporter and Shipper shall each, upon request of the other, deliver to
the other for examination such pertinent records and charts as shall be
necessary to verify the accuracy of any statement, chart, or computation made by
either of them under or pursuant to any of the provisions hereof.
14.03 Shipper, except as otherwise hereinafter provided, shall pay to
Transporter by wire transfer of immediately available funds on or before the
10th day of each Month for the Reservation Charges due for service rendered by
Transporter hereunder during the preceding month and billed by Transporter in
the statement for such month, and on or before the 20th day for each Month for
any remaining charges for services which are due hereunder. If the normal
payment due date is a Saturday, Sunday or holiday, this payment is due the
following business Day.
14.04 Should Shipper fail to pay all of the amount of any bill for service
hereunder when such amount is due, interest on the unpaid portion of such amount
shall accrue at the rate equal to the prime rate of CitiBank, N.A. or its
successor, calculated from the due date until the date of payment. If such
failure to pay continues for thirty (30) days after payment is due, Transporter,
in addition to any other remedy it may have hereunder, may suspend further
transportation of natural gas hereunder until such amount is paid; provided,
however, that if Shipper in good faith shall dispute the amount of any such bill
or any part hereof, and shall pay to Transporter such amount as it concedes to
be correct, and at any time thereafter within thirty (30) days of a demand made
by Transporter, shall furnish good and sufficient surety bond, guaranteeing
payment to Transporter of the amount ultimately found to be due under such bill
after a final determination, which may be reached either by agreement between
the parties, arbitration or judgment for a court or by any regulatory authority
having jurisdiction, then Transporter shall not be entitled to suspend further
delivery of natural gas unless and until default be made in the conditions of
such bond.
14.05 If within twelve (12) months of the date of payment, it shall be found
that Shipper has been overcharged or undercharged in any form whatsoever under
the provisions hereof, and Shipper shall have actually paid the bill(s)
containing such overcharge or undercharge, then within thirty (30) days after
the final determination thereof, Transporter shall refund the amount of any such
overcharge with interest thereon at the prime rate of the CitiBank N.A. or its
successor from the time such overcharge was paid to the date of refund, and
Shipper shall pay the amount of any such undercharge but without interest.
14.06 In the event an error is discovered in the amount billed in any statement
rendered by Transporter, such error shall be adjusted within thirty (30) days of
the determination thereof, provided that claim therefor shall have been made
within sixty (60) days from the date of discovery of such error, but in any
event, within twelve (12) months from the date of payment.
14.07 If rendition of a bill to Shipper by Transporter is delayed beyond the
date specified herein, then Shipper shall pay such bill by wire transfer within
ten (10) days after rendition thereof.
ARTICLE 15
ASSUMPTION OF RISK
15.01 As between the parties hereto, Shipper shall be deemed to be in control
and possession of the gas to be transported hereunder until it shall have been
delivered to Transporter at the Point of Receipt; and Shipper shall be deemed to
be in control and possession of the gas to be transported hereunder after
delivery for Shipper's account at the Point of Delivery. Transporter shall be
deemed to be in control and possession of such gas after the delivery thereof to
Transporter at the Point of Receipt and prior to delivery thereof for Shipper's
account at the Point of Delivery.
15.02 Transporter shall have no responsibility with respect to any gas to be
transported hereunder or on account of anything which may be done, happen or
arise with respect thereto until it is delivered into its facilities at the
Point of Receipt and after it is received for Shipper's account at the Point of
Delivery. Shipper shall have no responsibility with respect to such gas or on
account of anything which may be done, happen or arise with respect thereto
after causing the delivery thereof to
<PAGE>
Transporter at the Point of Receipt and prior to delivery thereof for Shipper's
account at the Point of Delivery.
ARTICLE 16
WARRANTIES
Shipper warrants for itself, its successors and assigns, that it will at the
time of delivery to Transporter for transportation have good and merchantable
title to or the legal right to tender all gas delivered hereunder free and clear
of all liens, encumbrances and claims. Shipper shall indemnify Transporter and
save it harmless from all suits, actions, debts, accounts, damages, costs,
losses and expenses arising from or out of adverse claims of any or all persons
to said gas, including claims for any royalties, taxes, license fees or charges
applicable to such gas or to the delivery thereof to Transporter for
transportation under this Service Agreement.
ARTICLE 17
FORCE MAJEURE
17.01 In the event of either party being rendered unable, wholly or in part, by
Force Majeure or Operating Conditions to carry out its obligations other than
(i) the obligation of Shipper to pay the monthly Reservation Charge due
Transporter (except as provided in 17.03 below), and (ii) the obligation to make
payment of amounts accrued and due at the time thereof, it is agreed that on
such party's giving notice and full particulars of such Force Majeure or
Operating Conditions in writing or by telecopy to the other party within a
reasonable time after the occurrence of the cause relied on, the obligation of
both parties, so far as they are affected by such Force Majeure or Operating
Conditions, shall be suspended during the continuance of any inability so
caused, but for no longer period, and such cause shall so far as possible be
remedied with all reasonable dispatch. Neither party shall be liable in damages
to the other for any act, omission or circumstance occasioned by, or in
consequence of, Force Majeure or Operating Conditions, as herein defined in this
Service Agreement.
17.02 If, due to Force Majeure or Operating Conditions, Transporter is unable to
receive, transport or redeliver gas tendered by Shipper for transportation or if
Shipper is unable to deliver gas to Transporter, then Transporter, upon
providing as much notice as possible under all of the circumstances, shall order
reduction of Shipper's TCQ to the extent necessary depending upon the type and
location of the occurrence, in accordance with the following procedures:
Transporter shall order allocation, to the extent necessary, of affected
transportation service to all shippers proportionate to each shipper's TCQ.
Where Transporter's ability to render service is impaired in a particular
segment of Transporter's system, then such allocation shall be effected only in
that segment of Transporter's system in which service has been impaired. 17.03
Such causes or contingencies affecting the performance by either party, however,
shall not relieve it of liability unless such party shall give notice and full
particulars of such cause or contingency in writing or by telecopy to the other
party within a reasonable time after the occurrence relied upon, nor shall such
causes or contingencies affecting the performance by either party relieve it of
liability in the event of its failure to use due diligence to remedy the
situation and remove the cause with all reasonable dispatch, provided that the
resolution of strikes, lockouts or other labor disputes shall be within the sole
discretion of the parties involved therein. Such causes or contingencies
affecting the performance by either party shall not relieve Shipper from its
obligations to make payments of monthly Reservation Charge except to the extent
of Transporter's negligence or willful misconduct.
<PAGE>
ARTICLE 18
NOTICES
Notice to either party shall be in writing and shall be considered as duly
delivered when mailed to the other party at the following address:
If to Shipper:
Public Service Company of North Carolina, Inc.
P. O. Box 1398
Gastonia, North Carolina 28053-1398
Attention: Senior Vice President Marketing and Gas Supply
Facsimile number: _____________________
If to Transporter:
Cardinal Extension Company, LLC
c/o Cardinal Operating Company
P. O. Box 1396
Houston, Texas 77251
Attention: Vice President, Customer Service
Facsimile number: _________________
Such addresses may be changed from time-to-time by mailing appropriate notice
thereof to the other party by certified or registered mail.
ARTICLE 19
MISCELLANEOUS
19.01 Transporter grants the right to Shipper to direct tie-ins between its
distribution system and Transporter's intrastate pipeline for the purpose of
serving its franchise area subject to the negotiation of mutual agreeable terms
and conditions (including reimbursement arrangements and/or incremental charges
and the construction, operation and maintenance specifications for such tie-ins)
which will be set forth in an Interconnect and Reimbursement Agreement to be
negotiated and executed by Shipper and Transporter.
19.02 This Agreement reflects the entire agreement between the parties with
respect to the subject matter hereof and supersedes all prior agreements and
understandings, oral and written, among the parties with respect to the subject
matter hereof. This Agreement can be amended, restated or supplemented only by
the written agreement of Transporter and Shipper.
19.03 No waiver by either party of any default by the other party in the
performance of any provision, condition or requirement herein shall be deemed to
be a waiver of, or in any manner release the other party from, performance of
any other provision, condition or requirement herein, nor shall such waiver be
deemed to be a waiver of, or in any manner a release of, the other party from
future performance of the same provision, condition or requirement. Any delay or
omission of either party to exercise any right hereunder shall not impair the
exercise of any such right, or any like right, accruing to it thereafter. No
waiver of a right created by this Agreement by one party shall constitute a
waiver of such right by the other party except as may otherwise be required by
law with respect to persons not parties hereto. The failure of one party to
perform its obligations hereunder shall not release the other party from the
performance of such obligations.
19.04 This Agreement may be assigned by Shipper without the prior consent of
Transporter provided that Shipper remains responsible for any and all
obligations under this Agreement.
19.05 This Agreement and the obligations of the parties hereunder are subject to
all applicable laws, rules, orders and regulations of any governmental
authorities having jurisdiction, and to the extent of
<PAGE>
conflict, such laws, rules, orders and regulations of governmental authorities
having jurisdiction shall control.
19.06 Any provision of this Agreement that is prohibited or unenforceable shall
be ineffective to the extent of that prohibition or unenforceability without
invalidating the remaining provisions hereof or affecting the validity or
enforceability of that provision in any other jurisdiction.
19.07 This Agreement may be executed in counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.
<PAGE>
19.08 THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF NORTH CAROLINA. EXCLUDING, HOWEVER,
ANY CONFLICT OF LAWS RULES OR PRINCIPLES WHICH MIGHT REFER THE
CONSTRUCTION OR OPERATION OF THE TERMS OF THIS AGREEMENT TO THE
LAWS OF ANOTHER STATE.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their duly authorized representatives as of the date first above
written.
CARDINAL OPERATING COMPANY,
as Operator of
Cardinal Extension Company, LLC
By: /s/ Frank J. Ferazzi
Frank J. Ferazzi
Vice President
PUBLIC SERVICE COMPANY OF
NORTH CAROLINA, INC.
By: /s/ Jack G. Mason
Jack G. Mason
Vice - President, Treasurer and CFO
EXHIBIT 10-A-41
AMENDMENT TO FS SERVICE AGREEMENTS
This Amendment to FS Service Agreements (this "Amendment") is made by
and between TRANSCONTINENTAL GAS PIPE LINE CORPORATION ("TGPL") and PUBLIC
SERVICE COMPANY OF NORTH CAROLINA, INC. ("Buyer") related to three (3) Rate
Schedule FS Service Agreements dated August 1, 1991, with Daily Sales
Entitlements of 16,204 Mcf per day (16,771 Dekatherms ("Dt") per day); 24,306
Mcf per day (25,157 Dt per day); and 32,408 Mcf per day (33,542 Dt per day)
(collectively, "FS Agreements").
WHEREAS, Buyer requested renegotiation of the Firm Service Fee under
Section 3d) of Exhibit "A" of the FS Agreements; and
WHEREAS, Buyer and Williams Energy Services Company, as agent for TGPL
("Seller"), have reached agreement as set forth below regarding the Gas
Commodity Charge for swing service, the Firm Service Fee renegotiation, and the
term, all as related to the FS Agreements; and
WHEREAS, Buyer and Seller desire to amend the FS Agreements previously
entered into to reflect such agreement;
NOW, THEREFORE, for and in consideration of the mutual covenants and
agreements contained herein, Seller and Buyer agree to amend the FS Agreements
as follows:
I. Definitions. Capitalized terms used in this Amendment but not defined
shall have the meaning ascribed to them in the FS Agreements.
2. Term. Buyer and Seller agree the FS Agreements shall have an extended
term ending no earlier than March 31, 2002, and neither Buyer nor
Seller shall exercise its right not to extend the term of the FS
Agreements under Article II[ of the FS Agreements to the extent such
exercise would result in an extended term of the FS Agreements ending
prior to March 31, 2002.
3. FS Fee. Effective April 1, 1999, and during the remaining term
(including any extended term) of the FS Agreements (i) the Firm
Service Fee shall be $4.5625 per Dt per month, and (ii) neither Buyer
nor Seller shall exercise its rights to request or engage in
renegotiation of the Firm Service Fee under Section 3d) of Exhibit "A"
of the FS Agreements.
4. Base Load FS Credit. No later than three (3) business days prior to the
first-of-the-month nomination deadline of TGPL, Buyer may notify Seller
of its election to receive and purchase a specified quantity of Gas (in
Dts) each day during such month not to exceed Buyer's Daily Sales
Entitlement (such specified daily quantity the "Base Load Quantity").
In the event Buyer timely elects to receive and purchase a Base Load
Quantity during a month, (a) each day during such month Buyer shall
purchase and receive a quantity of gas not less than the full Base Load
Quantity, and (b) Buyer shall purchase and receive a quantity of gas
not less
<PAGE>
Amendment to FS Service Agreements
Public Service Company of North Carolina, Inc.
Page 2 of 2
than the full Base Load Quantity, and (b) the Gas Commodity Charge for
such month shall be reduced by an amount equal to $0.10 times the Base
Load Quantity times the number of days in such month; provided,
however, in the event Buyer fails to receive and purchase a quantity of
gas at least equal to the full Base Load Quantity on any day during
such month, (i) Buyer shall not be entitled to such Gas Commodity
Charge reduction for that day and (ii) Buyer shall pay Seller the
Market Differential plus $0.05 (for administrative and incidental
costs), in both cases (i) and (ii) for each Dt not received and
purchased. For purposes of this Amendment, the "Market Differential"
shall mean the amount, in no event less than zero, obtained by
subtracting the Market Price from the Gas Commodity Rate.
5. Demand Ceiling FS Credit. No later than three (3) business days prior to
the first-of-the-month nomination deadline of TGPL, Buyer may notify
Seller of its election to receive and purchase no more than a specified
quantity of Gas (in Dts) each day during such month that is less than
Buyer's Daily Sales Entitlement (such specified daily quantity the
"Demand Ceiling Quantity"). In the event Buyer timely elects to receive
and purchase not more than the Demand Ceiling Quantity during a month,
(a) each day during such month Buyer shall purchase and receive a
quantity of gas not more than the Demand Ceiling Quantity, and (b) the Gas
Commodity Charge for such month shall be reduced by an amount equal to
$0.10 times (the Daily Sales Entitlement minus the Demand Ceiling Quantity)
times the number of days in such month; provided, however, in the event
Buyer receives a quantity of gas more than the Demand Ceiling
Quantity on any day during such month, (i)Buyer shall not be entitled to
such Gas Commodity Charge reduction for that day and (ii) Buyer shall pay
Seller the Market Price (in lieu of the Gas Commodity Rate) plus $0.05 (for
administrative and incidental costs), in both cases (i) and (ii) for each
Dt received in excess of the Demand Ceiling Quantity.
6. Market Price. As used in this Amendment, the "Market Price" shall mean
the higher of (i) the weighted average of the spot gas posted indices in
Inside F. E. R. C. 's Gas Market Report, the relevant first of the
month issue, "Prices of Spot Gas delivered to Pipelines,"
Transcontinental Gas Pipeline Corporation Zones 1, 2 and 3 fully telescoped
in the same proportions as Buyer's converted firm transportation service
purchased from TGPL, or (ii) an amount equal to the sum of the following
(a), (b) and (c), to be calculated using price listings as published by Gas
Daily as applicable to the day Buyer fails to receive and purchase at least
the full Base Load Quantity; provided, if such day occurs on Saturday,
Sunday or any other day on which Gas Daily is not published, the following
(a), (b), and (c) shall be calculated using the applicable price listings
in the nearest subsequent publication of Gas Daily.
(a) (Under the heading "Daily Price Survey," the highest price in the range
of prices listed under the heading "Common" for the section
"South--Corpus Christi," delivery in "Transco Zl St.
<PAGE>
Amendment to FS Service Agreements
Public Service Company of North Carolina, Inc.
Page 3 of 3
30") multiplied by the percentage applicable to such delivery/receipt
point as listed in Section 3.2 of TGPL's Rate Schedule FT (currently 17%);
(b) (Under the heading "Daily Price Survey," the highest price in
the range of prices listed under the heading "Common" for the
section "East-Houston-Katy," delivery in "Transco Z2 St. 45;")
multiplied by the percentage applicable to such
delivery/receipt point as listed in Section 3.2 of TGPL's Rate
Schedule FT (currently 25 %); and
(c) (Under the heading "Daily Price Survey," the highest price in
the range of prices listed under the heading "Common" for the
section "Louisiana-Onshore South," delivery in "Transco Z3 St.
50, 62, 65 ") multiplied by the sum of the percentages
applicable to such delivery/receipt points as listed in
Section 3.2 of TGPL's Rate Schedule FT (such sum currently
58%).
7. Buyer and Seller acknowledge and agree that the remedies and measure of
damages provided herein are reasonably designed to compensate Seller
for actual damages in the event of a failure by Buyer to receive and
purchase at least the full Base Load Quantity, and are not individually
or cumulatively a penalty.
8. Except as otherwise modified herein, the terms and conditions of the FS
Agreements shall remain as originally written in full force and effect.
ACCEPTED AND AGREED: WILLIAMS ENERGY SERVICES COMPANY
As Agent for
TRANSCONTINENTAL GAS PIPE LINE
CORPORATION
By: /s/ H. Dean Jones, II
H. Dean Jones, II
Vice President
Date: November 25, 1998
PUBLIC SERVICE COMPANY OF
NORTH CAROLINA. INC.
By: /s/ Franklin H. Yoho
Name: Franklin H. Yoho
Title: Vice President-Marketing & Gas Supply
Date: November 20, 1998
<TABLE> <S> <C>
<ARTICLE> UT
<MULTIPLIER> 1000
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<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> MAR-31-1999
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<TOTAL-NET-UTILITY-PLANT> 526,596
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<TOTAL-COMMON-STOCKHOLDERS-EQ> 244,754
0
0
<LONG-TERM-DEBT-NET> 157,250
<SHORT-TERM-NOTES> 62,500
<LONG-TERM-NOTES-PAYABLE> 0
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<TOT-CAPITALIZATION-AND-LIAB> 643,144
<GROSS-OPERATING-REVENUE> 207,528
<INCOME-TAX-EXPENSE> 15,825
<OTHER-OPERATING-EXPENSES> 60,959
<TOTAL-OPERATING-EXPENSES> 76,784
<OPERATING-INCOME-LOSS> 33,595
<OTHER-INCOME-NET> 1,657
<INCOME-BEFORE-INTEREST-EXPEN> 35,252
<TOTAL-INTEREST-EXPENSE> 9,462
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<EARNINGS-AVAILABLE-FOR-COMM> 25,790
<COMMON-STOCK-DIVIDENDS> 9,507
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