<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification Number
1-14174 AGL RESOURCES INC. 58-2210952
(A Georgia Corporation)
303 PEACHTREE STREET, NE
ATLANTA, GEORGIA 30308
404-584-4000
1-9905 ATLANTA GAS LIGHT COMPANY 58-014925
(A Georgia Corporation)
303 PEACHTREE STREET, NE
ATLANTA, GEORGIA 30308
404-584-4000
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 and (2) has been subject to
such filing requirements for the past 90 days.
AGL RESOURCES INC. Yes No
(This quarterly report on Form 10-Q is the first report required
to be filed by AGL Resources Inc. since it became subject to the
filing requirements of the Securities Exchange Act of 1934.)
ATLANTA GAS LIGHT COMPANY Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of March 31, 1996.
AGL RESOURCES INC.
Common Stock, $5.00 Par Value
Shares Outstanding at March 31, 1996 . . . . . . . . . . 55,362,112
ATLANTA GAS LIGHT COMPANY
Common Stock, $5.00 Par Value
Shares Outstanding and Held by AGL Resources Inc.
at March 31, 1996 . . . . . . . . . . . . . . . . . . . 55,352,415
<PAGE>
AGL RESOURCES INC. and
ATLANTA GAS LIGHT COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 1996
Table of Contents
Item Page
Number PART I - FINANCIAL INFORMATION Number
1 Financial Statements (Unaudited)
AGL Resources Inc.
Condensed Consolidated Income Statements 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 6
Atlanta Gas Light Company
Condensed Consolidated Income Statements 7
Condensed Consolidated Balance Sheets 8
Condensed Consolidated Statements of Cash Flows 10
Notes to Condensed Consolidated Financial Statements 11
2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 14
AGL Resources Inc.
Atlanta Gas Light Company
PART II - OTHER INFORMATION
1 Legal Proceedings 19
2 Changes in Securities 19
4 Submission of Matters to a Vote of Security Holders 20
5 Other Information 21
6 Exhibits and Reports on Form 8-K 24
SIGNATURES 25
<PAGE>
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of AGL Resources Inc. (Resources), the unaudited condensed
consolidated financial statements, included herein, reflect all normal
recurring accruals necessary for a fair statement of the results of the
interim periods reflected. Resources is the parent holding company of
Atlanta Gas Light Company (AGLC), AGL Energy Services, Inc. and AGL
Investments, Inc. AGLC comprises substantially all of Resources' assets,
revenues and earnings. All nonutility operating transactions are
included in "Other Income -- Other Income and Deductions" in Resources'
Consolidated Income Statements.
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS, SIX MONTHS AND TWELVE MONTHS ENDED
MARCH 31, 1996 AND 1995
(MILLIONS, EXCEPT PER SHARE DATA)
Three Months Six Months Twelve Months
1996 1995 1996 1995 1996 1995
Operating Revenues $478.8 $448.2 $807.6 $777.0 $1,093.6 $1,114.8
Cost of Gas 308.0 269.9 496.8 458.0 610.6 636.6
------ ------ ------ ------ -------- --------
Operating Margin 170.8 178.3 310.8 319.0 483.0 478.2
------ ------ ------ ------ -------- --------
Other Operating Expenses:
Operating Expenses 91.8 88.0 172.6 169.5 331.1 325.3
Restructuring Costs 23.0 67.5 2.8 67.5
------ ------ ------ ------ -------- --------
Total Other Operating
Expenses 91.8 111.0 172.6 237.0 333.9 392.8
Income Taxes 24.8 18.4 42.0 19.0 39.0 13.2
------ ------ ------ ------ -------- --------
Operating Income 54.2 48.9 96.2 63.0 110.1 72.2
------ ------ ------ ------ -------- --------
Other Income:
Other Income and Deductions 6.7 1.0 8.3 2.4 8.0 3.4
Income Taxes (2.4) (0.4) (3.0) (0.9) (2.8) (1.2)
------ ------ ------ ------ -------- --------
Other Income - Net 4.3 0.6 5.3 1.5 5.2 2.2
------ ------ ------ ------ -------- --------
Income Before Income
Deductions 58.5 49.5 101.5 64.5 115.3 74.4
Income Deductions:
Interest Charges 12.4 12.2 25.2 25.4 47.3 48.8
Dividends on Preferred Stock
of Subsidiary 1.1 1.1 2.2 2.2 4.4 4.5
------ ------ ------ ------ -------- --------
Net Income $45.0 $36.2 $74.1 $36.9 $63.6 $21.1
====== ====== ====== ====== ======== ========
Earnings Per Share of
Common Stock $0.81 $0.71 $1.34 $0.72 $1.17 $0.42
Cash Dividends Paid Per
Share of Common Stock $0.265 $0.26 $0.53 $0.52 $1.05 $1.04
Average Number of Common Shares
Outstanding (Millions) 55.3 51.3 55.2 51.2 54.4 50.9
See notes to condensed consolidated financial statements.
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
March 31, September 30,
1996 1995 1995
ASSETS
Utility Plant $1,969.3 $1,872.7 $1,919.9
Less Accumulated Depreciation 607.1 571.5 583.3
-------- -------- --------
Utility Plant - Net 1,362.2 1,301.2 1,336.6
-------- -------- --------
Other Property and Investments (less
accumulated depreciation) 51.5 18.6 46.3
-------- -------- --------
Current Assets:
Cash and Cash Equivalents 4.5 36.2 3.7
Receivables (less allowance for
uncollectible accounts of $6.4 at
March 31, 1996, $7.2 at March 31, 1995
and $4.4 at September 30, 1995) 225.7 178.9 69.3
Inventories:
Natural Gas Stored Underground 14.5 22.5 111.2
Liquefied Natural Gas 4.0 11.5 14.3
Materials and Supplies 8.0 9.0 8.0
Other 0.4 3.7 2.6
Deferred Purchased Gas Adjustment 19.3
Other 8.4 7.8 10.9
-------- -------- --------
Total Current Assets 284.8 269.6 220.0
-------- -------- --------
Deferred Debits and Other Assets:
Unrecovered Environmental Response
Costs 34.7 34.2 34.9
Unrecovered Integrated Resource
Plan Costs 8.0 12.5 9.9
Other 24.2 27.1 26.9
-------- -------- --------
Total Deferred Debits and Other
Assets 66.9 73.8 71.7
-------- -------- --------
Total $1,765.4 $1,663.2 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
March 31, September 30,
1996 1995 1995
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock, $5 Par Value, Shares Issued and
Outstanding of 55.4 at March 31, 1996,
51.4 at March 31, 1995 and 54.9 at
September 30, 1995 $276.8 $128.7 $137.3
Premium on Capital Stock 166.3 249.9 297.7
Earnings Reinvested 167.2 160.4 122.3
-------- -------- --------
Total Common Stock Equity 610.3 539.0 557.3
Preferred Stock of Subsidiary,
Cumulative $100 Par or Stated Value,
Shares Issued and Outstanding of 0.6
at March 31, 1996, March 31, 1995
and September 30, 1995 58.5 58.5 58.5
Long-Term Debt 554.5 554.5 554.5
-------- -------- --------
Total Capitalization 1,223.3 1,152.0 1,170.3
-------- -------- --------
Current Liabilities:
Redemption Requirements on Preferred
Stock 0.3 0.3 0.3
Short-Term Debt 66.5 51.0
Accounts Payable 81.5 50.8 72.3
Deferred Purchased Gas Adjustment 67.6 6.3
Customer Deposits 29.1 30.1 29.5
Interest 25.3 25.0 25.4
Taxes 27.8 22.6 3.7
Other 43.5 41.0 42.4
-------- -------- --------
Total Current Liabilities 274.0 237.4 230.9
-------- -------- --------
Accrued Environmental Response Costs 28.6 28.6 28.6
Accrued Pension Costs 1.5 25.0 10.3
Accrued Postretirement Benefits Costs 33.6 30.8 30.1
Deferred Credits 63.2 65.8 65.6
Accumulated Deferred Income Taxes 141.2 123.6 138.8
-------- -------- --------
Total $1,765.4 $1,663.2 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
<PAGE>
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS AND TWELVE MONTHS ENDED MARCH 31, 1996 AND 1995
(MILLIONS)
Six Months Twelve Months
1996 1995 1996 1995
Cash Flows from Operating Activities:
Net Income $74.1 $36.9 $63.6 $21.1
Adjustments to Reconcile Net Income to Net
Cash Flow from Operating Activities:
Non-Cash Restructuring Costs 66.6 2.8 66.6
Depreciation and Amortization 33.4 31.5 64.4 60.8
Deferred Income Taxes 2.4 (11.0) 17.6 (2.8)
Non-Cash Compensation Expense 2.3 4.2 4.3 8.3
Other (1.2) (1.3) (2.3) (2.3)
Changes in Certain Assets and
Liabilities (45.3) 90.7 (96.7) 44.8
------- ------- ------- -------
Net Cash Flow from Operating
Activities 65.7 217.6 53.7 196.5
------- ------- ------- -------
Cash Flows from Financing Activities:
Short-Term Borrowings, Net 15.5 (95.4) 66.5
Redemption of Long-Term Debt (15.0) (15.0)
Sale of Common Stock, Net of Expenses 1.0 1.0 50.4 2.1
Dividends on Common Stock (24.4) (21.6) (47.1) (43.1)
------- ------- ------- -------
Net Cash Flow from Financing
Activities (7.9) (131.0) 69.8 (56.0)
------- ------- ------- -------
Cash Flows from Investing Activities:
Utility Plant Expenditures (57.9) (53.5) (125.2) (111.7)
Non-Utility Capital Expenditures 1.1 (0.9) 1.6 (0.9)
Investment in Joint Venture (32.6)
Cost of Removal, Net of Salvage (0.2) 0.7 1.0 0.3
------- ------- ------- -------
Net Cash Flow from Investing
Activities (57.0) (53.7) (155.2) (112.3)
------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents 0.8 32.9 (31.7) 28.2
Cash and Cash Equivalents at
Beginning of Period 3.7 3.3 36.2 8.0
------- ------- ------- -------
Cash and Cash Equivalents at
End of Period $4.5 $36.2 $4.5 $36.2
======= ======= ======== =======
Cash Paid During the Period for:
Interest $25.5 $25.5 $48.4 $47.3
Income Taxes $12.7 $20.7 $20.6 $26.3
See notes to condensed consolidated financial statements.
<PAGE>
In the opinion of Atlanta Gas Light Company (AGLC), the unaudited
condensed consolidated financial statements, included herein, reflect all
normal recurring accruals necessary for a fair statement of the results
of the interim periods reflected. All nonutility operating transactions
are included in "Other Income -- Other Income and Deductions" in AGLC's
Consolidated Income Statements.
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS, SIX MONTHS AND TWELVE MONTHS ENDED
MARCH 31, 1996 AND 1995
(MILLIONS)
Three Months Six Months Twelve Months
1996 1995 1996 1995 1996 1995
Operating Revenues $478.8 $448.2 $807.6 $777.0 $1,093.6 $1,114.8
Cost of Gas 308.0 269.9 496.8 458.0 610.6 636.6
------ ------ ------ ------ -------- --------
Operating Margin 170.8 178.3 310.8 319.0 483.0 478.2
------ ------ ------ ------ -------- --------
Other Operating Expenses:
Operating Expenses 91.2 88.0 172.0 169.5 330.5 325.3
Restructuring Costs 23.0 67.5 2.8 67.5
------ ------ ------ ------ -------- --------
Total Other Operating
Expenses 91.2 111.0 172.0 237.0 333.3 392.8
Income Taxes 25.1 18.4 42.3 19.0 39.3 13.2
------ ------ ------ ------ -------- --------
Operating Income 54.5 48.9 96.5 63.0 110.4 72.2
------ ------ ------ ------ -------- --------
Other Income:
Other Income and Deductions 6.7 1.0 8.3 2.4 8.0 3.4
Income Taxes (2.4) (0.4) (3.0) (0.9) (2.8) (1.2)
------ ------ ------ ------ -------- --------
Other Income - Net 4.3 0.6 5.3 1.5 5.2 2.2
------ ------ ------ ------ -------- --------
Income Before Interest
Charges 58.8 49.5 101.8 64.5 115.6 74.4
Interest Charges 12.4 12.2 25.2 25.4 47.3 48.8
------ ------ ------ ------ -------- --------
Net Income 46.4 37.3 76.6 39.1 68.3 25.6
Dividends on Preferred Stock 1.1 1.1 2.2 2.2 4.4 4.5
------ ------ ------ ------ -------- --------
Earnings Available for Common
Stock $45.3 $36.2 $74.4 $36.9 $63.9 $21.1
====== ====== ====== ====== ======== ========
See notes to condensed consolidated financial statements.
<PAGE>
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
March 31, September 30,
1996 1995 1995
ASSETS
Utility Plant $1,969.3 $1,872.7 $1,919.9
Less Accumulated Depreciation 607.1 571.5 583.3
-------- -------- --------
Utility Plant - Net 1,362.2 1,301.2 1,336.6
-------- -------- --------
Other Property and Investments (less
accumulated depreciation) 51.5 18.6 46.3
-------- -------- --------
Current Assets:
Cash and Cash Equivalents 4.5 36.2 3.7
Receivables (less allowance for
uncollectible accounts of $6.4 at
March 31, 1996, $7.2 at March 31, 1995
and $4.4 at September 30, 1995) 225.7 178.9 69.3
Inventories:
Natural Gas Stored Underground 14.5 22.5 111.2
Liquefied Natural Gas 4.0 11.5 14.3
Materials and Supplies 8.0 9.0 8.0
Other 0.4 3.7 2.6
Deferred Purchased Gas Adjustment 19.3
Other 9.2 7.8 10.9
-------- -------- --------
Total Current Assets 285.6 269.6 220.0
-------- -------- --------
Deferred Debits and Other Assets:
Unrecovered Environmental Response
Costs 34.7 34.2 34.9
Unrecovered Integrated Resource
Plan Costs 8.0 12.5 9.9
Other 24.2 27.1 26.9
-------- -------- --------
Total Deferred Debits and
Other Assets 66.9 73.8 71.7
-------- -------- --------
Total $1,766.2 $1,663.2 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
<PAGE>
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
March 31, September 30,
1996 1995 1995
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock, $5 Par Value, Shares Issued and
Outstanding of 55.4 at March 31, 1996,
51.4 at March 31, 1995 and 54.9 at
September 30, 1995 $276.8 $128.7 $137.3
Premium on Capital Stock 166.2 249.9 297.7
Earnings Reinvested 167.6 160.4 122.3
-------- -------- --------
Total Common Stock Equity 610.6 539.0 557.3
Preferred Stock, Cumulative $100 Par
or Stated Value, Shares Issued and
Outstanding of 0.6 at March 31, 1996,
March 31, 1995 and September 30,
1995 58.5 58.5 58.5
Long-Term Debt 554.5 554.5 554.5
-------- -------- --------
Total Capitalization 1,223.6 1,152.0 1,170.3
-------- -------- --------
Current Liabilities:
Redemption Requirements on Preferred
Stock 0.3 0.3 0.3
Short-Term Debt 66.5 51.0
Accounts Payable 81.5 50.8 72.3
Deferred Purchased Gas Adjustment 67.6 6.3
Customer Deposits 29.1 30.1 29.5
Interest 25.3 25.0 25.4
Taxes 28.0 22.6 3.7
Other 43.9 41.0 42.4
-------- -------- --------
Total Current Liabilities 274.6 237.4 230.9
-------- -------- --------
Accrued Environmental Response Costs 28.6 28.6 28.6
Accrued Pension Costs 1.5 25.0 10.3
Accrued Postretirement Benefits Costs 33.6 30.8 30.1
Deferred Credits 63.2 65.8 65.6
Accumulated Deferred Income Taxes 141.1 123.6 138.8
-------- -------- --------
Total $1,766.2 $1,663.2 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
<PAGE>
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS AND TWELVE MONTHS ENDED MARCH 31, 1996 AND 1995
(MILLIONS)
Six Months Twelve Months
1996 1995 1996 1995
Cash Flows from Operating Activities:
Net Income $76.6 $39.1 $68.3 $25.6
Adjustments to Reconcile Net Income to Net
Cash Flow from Operating Activities:
Non-Cash Restructuring Costs 66.6 2.8 66.6
Depreciation and Amortization 33.4 31.5 64.4 60.8
Deferred Income Taxes 2.4 (11.0) 17.6 (2.8)
Non-Cash Compensation Expense 2.1 4.2 4.1 8.3
Other (1.2) (1.3) (2.3) (2.3)
Changes in Certain Assets and
Liabilities (45.4) 90.7 (96.8) 44.8
------- ------- ------- -------
Net Cash Flow from Operating
Activities 67.9 219.8 58.1 201.0
------- ------- ------- -------
Cash Flows from Financing Activities:
Short-Term Borrowings, Net 15.5 (95.4) 66.5
Redemption of Long-Term Debt (15.0) (15.0)
Sale of Common Stock, Net of Expenses 1.0 1.0 50.4 2.1
Common Stock Dividends (24.4) (21.6) (47.1) (43.1)
Dividends on Preferred Stock (2.2) (2.2) (4.4) (4.5)
------- ------- ------- -------
Net Cash Flow from Financing
Activities (10.1) (133.2) 65.4 (60.5)
------- ------- ------- -------
Cash Flows from Investing Activities:
Utility Plant Expenditures (57.9) (53.5) (125.2) (111.7)
Non-Utility Capital Expenditures 1.1 (0.9) 1.6 (0.9)
Investment in Joint Venture (32.6)
Cost of Removal, Net of Salvage (0.2) 0.7 1.0 0.3
------- ------- ------- -------
Net Cash Flow from Investing
Activities (57.0) (53.7) (155.2) (112.3)
------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents 0.8 32.9 (31.7) 28.2
Cash and Cash Equivalents at
Beginning of Period 3.7 3.3 36.2 8.0
------- ------- ------- -------
Cash and Cash Equivalents at
End of Period $4.5 $36.2 $4.5 $36.2
======= ======= ======= =======
Cash Paid During the Period for:
Interest $25.5 $25.5 $48.4 $47.3
Income Taxes $12.7 $20.7 $20.6 $26.3
See notes to condensed consolidated financial statements.
<PAGE>
AGL RESOURCES INC. AND ATLANTA GAS LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Formation of Holding Company
AGL Resources Inc. (Resources) is a Georgia corporation incorporated on
November 27, 1995, in a corporate restructuring, for the primary purpose
of becoming the parent company of Atlanta Gas Light Company (AGLC) and
its subsidiaries. The restructuring was completed upon shareholder
approval on March 6, 1996, at which time each outstanding share of AGLC
common stock was converted into one share of Resources common stock.
Under the restructuring plan, Resources will engage in utility activities
through AGLC and its wholly owned subsidiary, Chattanooga Gas Company
(Chattanooga), and in unregulated business activities through AGL Energy
Services, Inc. (AGL Energy Services), AGL Investments, Inc. (AGL
Investments) and their subsidiaries. The consolidated financial
statements of Resources include the accounts of AGLC as though Resources
had existed in all periods shown and had owned all of AGLC's outstanding
common stock prior to March 6, 1996.
On March 6, 1996, AGLC became the primary subsidiary of Resources. AGLC
will transfer ownership of its nonutility businesses, Georgia Gas
Company, Georgia Gas Service Company, Georgia Energy Company and Trustees
Investments, Inc., to AGL Investments. In addition, AGLC will transfer
its interest in Sonat Marketing Company L.P. (Sonat Marketing) to AGL
Energy Services. Those transfers are expected to be accomplished through
a dividend-in-kind during the third quarter of fiscal 1996. The
consolidated financial statements of AGLC include the accounts of all
subsidiaries owned by AGLC prior to March 6, 1996.
2. Interim Financial Statements
Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted from these condensed consolidated
financial statements pursuant to applicable rules and regulations of the
Securities and Exchange Commission. These financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the annual reports on Form 10-K of AGLC for the fiscal years
ended September 30, 1995 and 1994. Certain 1995 amounts have been
restated or reclassified for comparability with 1996 amounts.
In addition, on November 3, 1995, AGLC's Board of Directors declared a
two-for-one stock split of the common stock effected in the form of a
100% stock dividend to shareholders of record on November 17, 1995, and
paid on December 1, 1995. AGLC recorded a debit to premium on capital
stock and a credit to common stock of $137.5 million to transfer the
amount of the par value of the stock dividend to common stock. All
references to number of shares and to per share amounts in the Condensed
Consolidated Financial Statements and Management's Discussion and
Analysis of Results of Operations and Financial Condition have been
retroactively adjusted to reflect the stock dividend.
3. Earnings
Since sales of natural gas are dependent to a large extent on weather,
the majority of AGLC's income is realized during the winter
months. Earnings for three-month and six-month periods are not
indicative of the earnings for a twelve-month period.
On October 3, 1995, AGLC implemented revised firm service rates pursuant
to an order on rehearing of the rate design issues of AGLC's 1993
rate case that was issued by the Georgia Public Service Commission
(Georgia Commission) on September 25, 1995. Although neutral with
respect to total annual margins, the new rates shift margins from heating
months (November - March) into non-heating months, thereby affecting the
comparisons between interim earnings for fiscal 1996 and 1995. Annual
operating margins for fiscal 1996 will not be affected by the new rates.
<PAGE>
4. Environmental Matters - AGLC
AGLC has identified nine sites in Georgia where it currently owns all or
part of a manufactured gas plant (MGP) site. In addition, AGLC has
identified three other sites in Georgia which AGLC does not now own, but
which may have been associated with the operation of MGPs by AGLC or its
predecessors. There are three sites in Florida which have been
investigated by environmental authorities in connection with which AGLC
may be contacted as a potentially responsible party.
Under a thorough analysis of potentially applicable requirements, AGLC
has estimated that, under the most favorable circumstances reasonably
possible, the future cost of investigating and remediating the former MGP
sites, excluding those sites for which no remediation is expected or the
cost of which cannot be estimated, could be as low as $28.6 million.
Alternatively, AGLC has estimated that, under the least favorable
circumstances reasonably possible, the future cost of investigating and
remediating those same former MGP sites could be as high as $109 million,
excluding those sites for which no remediation is expected or the cost
of which cannot be estimated. AGLC cannot estimate at this time the
amount of any other future expenses or liabilities, or the impact on
these estimates of future environmental regulatory changes, that may be
associated with or related to the MGP sites, including expenses or
liabilities relating to any litigation. At the present time, no amount
within the range can be identified as a better estimate than any other
estimate. Therefore, a liability for the low end of this range and a
corresponding regulatory asset have been recorded in the financial
statements.
The Georgia Commission has approved the recovery by AGLC of Environmental
Response Costs, as defined below, pursuant to AGLC's Environmental
Response Cost Recovery Rider (ERCRR). For purposes of the ERCRR,
Environmental Response Costs include investigation, testing, remediation
and litigation costs and expenses or other liabilities relating to or
arising from MGP sites.
In connection with the ERCRR, the staff of the Georgia Commission has
undertaken a financial and management process audit related to the MGP
sites, clean-up activities at the sites and Environmental Response Costs
which have been incurred for purposes of the ERCRR. Although the result
of such audit is not known, management does not expect the audit to have
a significant effect on AGLC's consolidated financial statements.
With regard to legal proceedings related to the former MGP sites, AGLC is
or expects to be a party to claims or counterclaims on an ongoing basis.
Among such matters, AGLC intends to continue to pursue insurance coverage
and contribution from potentially responsible parties. Management
currently believes that the outcome of MGP-related litigation in which
AGLC is involved will not have a material adverse effect on the financial
condition and results of operations of AGLC.
See Part I, Item 2 and Part II, Item 5, "Other Information -
Environmental Matters," of this Form 10-Q for additional information
regarding environmental response activities associated with MGP sites.
5. Competition - AGLC
AGLC competes to supply natural gas to interruptible customers who are
capable of switching to alternative fuels, including fuel oil, coal,
propane, electricity and, in some cases, combustible wood by-products.
AGLC also competes to supply gas to interruptible customers who might
otherwise seek to bypass AGLC's distribution system.
On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option to
bypass AGLC's facilities and receive natural gas from other suppliers. A
bypass avoidance contract (Negotiated Contract) can be renewable,
provided that the initial term does not exceed five years,
<PAGE>
unless a longer term is specifically authorized by the Georgia
Commission. The rate provided by the Negotiated Contract may be lower
than AGLC's filed rate, but not less than AGLC's marginal cost of service
to the potential Bypass Customer. Service pursuant to a Negotiated
Contract may commence without Georgia Commission action, once a copy of
the contract is filed with the Georgia Commission. Negotiated Contracts
may be rejected by the Georgia Commission within 90 days of filing;
absent such action, however, the Negotiated Contracts remain effective.
None of the 44 Negotiated Contracts filed with the Georgia Commission
have been rejected. The settlement also provides for a bypass loss
recovery mechanism to operate until the earlier of September 30, 1998, or
the effective date of new rates for AGLC resulting from a general rate
case.
In addition to Negotiated Contracts, which are designed to serve existing
and potential Bypass Customers, AGLC's Interruptible Transportation and
Sales Maintenance (ITSM) Rider continues to permit discounts for
short-term transactions to compete with alternative fuels. Revenue
shortfalls, if any, from interruptible customers as measured by the
test-year interruptible revenues determined by the Georgia Commission in
AGLC's 1993 rate case will continue to be recovered under the ITSM Rider.
The settlement approved by the Georgia Commission also provides that AGLC
may file contracts (Special Contracts) for Georgia Commission approval if
the service cannot be provided through the ITSM Rider, existing rate
schedules or the Negotiated Contract procedures. An example of an
application for a Special Contract would be to provide for a long-term
service contract to compete with alternative fuels where physical bypass
was not the relevant competition. Currently, AGLC has filed, and the
Georgia Commission has approved, Special Contracts with five industrial
customers.
6. Corporate Restructuring - AGLC
In November 1994, AGLC announced a corporate restructuring plan in
response to increased competition and the changes in the federal and
state regulatory environments in which AGLC operates. The restructuring
plan provided for reengineering AGLC's business processes and
streamlining AGLC's statewide field organizations. As a result of
restructuring, AGLC has combined offices and established
centralized customer service centers. During the twelve months ended
March 31, 1996, AGLC reduced the number of employees by approximately 650
through voluntary retirement and severance programs and attrition. AGLC
recorded corporate restructuring costs of $1.7 million (after income
taxes) during the twelve months ended March 31, 1996, and a cumulative
total of $43.1 (after income taxes) related to the early retirement and
severance programs, office closings and costs to exit AGLC's appliance
merchandising and real estate investment operations. As a result of the
corporate restructuring, AGLC has experienced considerable reductions in
annual operating expenses from the levels incurred in fiscal 1994.
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<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
As of March 6, 1996, AGL Resources Inc. (Resources) became the parent company
of Atlanta Gas Light Company (AGLC) and its subsidiaries. The restructuring
was completed upon shareholder approval on March 6, 1996, at which time each
outstanding share of AGLC common stock was converted into one share of
Resources common stock. The following discussion and analysis reflects the
combined results of operations and financial condition since Resources
reflects principally the operations of AGLC.
Results of Operations - Resources and AGLC
Three-Month Periods Ended March 31, 1996 and 1995
Explained below are the major factors that had a significant effect on
results of operations for the three-month period ended March 31, 1996,
compared with the same period in 1995.
Operating revenues increased 6.8% for the three-month period ended March 31,
1996, compared with the same period in 1995 primarily due to (1) an increase
in the cost of AGLC's gas supply recovered from customers under the purchased
gas provisions of AGLC's rate schedules, as explained in the following
paragraph, (2) increased volumes of gas sold as a result of weather that was
30% colder than the same period in 1995 and (3) an increase of approximately
41,000 in the number of customers served.
Cost of gas increased 14.1% for the three-month period ended March 31, 1996,
compared with the same period in 1995 primarily due to an increase in the
amount recovered from customers under the purchased gas provisions of AGLC's
rate schedules. The increase in the cost of AGLC's gas supply was primarily
due to (1) increased volumes of gas sold as a result of weather that was 30%
colder than the same period in 1995 and (2) an increase in the cost of gas
purchased for system supply. AGLC balances the cost of gas with revenues
collected under the purchased gas provisions of AGLC's rate schedules.
Underrecoveries or overrecoveries of gas costs are deferred and recorded as
current assets or liabilities, thereby eliminating the effect that recovery
of gas costs would otherwise have on net income.
Operating margin decreased 4.2% for the three-month period ended March 31,
1996, compared with the same period in 1995 primarily due to revised firm
service rates, effective October 3, 1995, which shift margins from heating
months into non-heating months (see Note 3 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q). The decrease in operating margin
was offset partly by an increase of approximately 41,000 in the number of
customers served. AGLC's Weather Normalization Adjustment Riders stabilized
operating margin at the level which would occur with normal weather for the
three-month periods ended March 31, 1996 and 1995. As a result of the
Weather Normalization Adjustment Riders, weather conditions experienced do
not have a significant impact on the comparability of operating margin.
Operating expenses increased 4.3% for the three-month period ended March 31,
1996, compared with the same period in 1995 primarily due to increased (1)
depreciation expense recorded as a result of increased property subject to
depreciation and (2) expenses related to employee benefits. The increase in
operating expenses was offset partly by decreased labor costs as a result of
AGLC's recent corporate restructuring. Total other operating expenses
decreased primarily due to corporate restructuring costs of $23 million
recorded in the three-month period ended March 31, 1995. See Note 6 to Notes
to Condensed Consolidated Financial Statements in this Form 10-Q.
<PAGE>
Other income increased $3.7 million for the three-month period ended March
31, 1996, compared with the same period in 1995 primarily due to (1)
income from investment in Sonat Marketing effective August 31, 1995 and (2)
an increase in the recovery of carrying costs attributable to an increase in
underrecovered deferred purchased gas costs.
Interest charges increased 1.6% for the three-month period ended March 31,
1996, compared with the same period in 1995 primarily due to increased
amounts of short-term debt outstanding.
Income taxes increased $8.4 million for the three-month period ended March
31, 1996, compared with the same period in 1995 primarily due to increased
taxable income.
Net income for the three-month period ended March 31, 1996, was $45 million,
compared with net income of $36.2 million in 1995. Earnings per share of
common stock were $0.81 for the three-month period ended March 31, 1996,
compared with earnings per share of $0.71 in 1995. The increases in net
income and earnings per share were primarily due to (1) corporate
restructuring costs of $13 million (after income taxes) included in the
three-month period ended March 31, 1995 and (2) an increase of approximately
41,000 in the number of customers served. The increases in net income and
earnings per share were offset partly by revised firm service rates approved
by the Georgia Commission which shift margins from heating months into
non-heating months. See Note 3 to Notes to Condensed Consolidated Financial
Statements in this Form 10-Q. The increase in earnings per share was also
offset partly by an increase in the average number of common shares
outstanding.
Six-Month Periods Ended March 31, 1996 and 1995
Explained below are the major factors that had a significant effect on
results of operations for the six-month period ended March 31, 1996, compared
with the same period in 1995.
Operating revenues increased 3.9% for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to (1) an increase
in the cost of AGLC's gas supply recovered from customers under the purchased
gas provisions of AGLC's rate schedules, as explained in the following
paragraph, (2) increased volumes of gas sold as a result of weather that was
49% colder than the same period in 1995 and (3) an increase of approximately
39,000 in the number of customers served.
Cost of gas increased 8.5% for the six-month period ended March 31, 1996,
compared with the same period in 1995 primarily due to an increase in the
amount recovered from customers under the purchased gas provisions of AGLC's
rate schedules. The increase in the cost of AGLC's gas supply was primarily
due to (1) increased volumes of gas sold as a result of weather that was 49%
colder than the same period in 1995 and (2) an increase in the cost of gas
purchased for system supply. The increase in cost of gas was offset partly
by a decrease in the cost of gas withdrawn from underground storage. AGLC
balances the cost of gas with revenues collected under the purchased gas
provisions of AGLC's rate schedules. Underrecoveries or overrecoveries of
gas costs are deferred and recorded as current assets or liabilities, thereby
eliminating the effect that recovery of gas costs would otherwise have on net
income.
Operating margin decreased 2.6% for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to revised firm
service rates, effective October 3, 1995, which shift margins from heating
months into non-heating months (see Note 3 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q). The decrease in operating margin
was offset partly by an increase of approximately 39,000 in the number of
customers served. AGLC's Weather Normalization Adjustment Riders stabilized
operating margin at the level which would occur with normal weather for the
six-month periods ended March 31, 1996 and 1995. As a result of the Weather
Normalization Adjustment Riders, weather conditions experienced do not have a
significant impact on the comparability of operating margin.
Operating expenses increased 1.8% for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to an increase of
$3.4 million in expenses related to AGLC's Integrated Resource Plan (IRP)
which are recovered through an IRP Cost Recovery Rider approved by the
Georgia Commission. AGLC balances IRP expenses which
<PAGE>
are included in operating expenses with revenues collected under the rider,
thereby eliminating the effect that recovery of IRP expenses would otherwise
have on net income. Operating expenses excluding IRP expenses decreased 0.2%
primarily due to decreased labor costs as a result of AGLC's recent corporate
restructuring. Total other operating expenses decreased primarily due to
corporate restructuring costs of $67.5 million recorded in the six-month
period ended March 31, 1995. See Note 6 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q.
Other income increased $3.8 million for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to (1) income from
investment in Sonat Marketing effective August 31, 1995 and (2) an increase
in the recovery of carrying costs attributable to an increase in
underrecovered deferred purchased gas costs.
Interest charges decreased $0.2 million for the six-month period ended March
31, 1996, compared with the same period in 1995 primarily due to decreased
long-term debt outstanding.
Income taxes increased $25.1 million for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to increased
taxable income.
Net income for the six-month period ended March 31, 1996, was $74.1 million,
compared with net income of $36.9 million in 1995. Earnings per share of
common stock were $1.34 for the six-month period ended March 31, 1996,
compared with earnings per share of $0.72 in 1995. The increases in net
income and earnings per share were primarily due to (1) corporate
restructuring costs of $41.4 million (after income taxes) included in the
six-month period ended March 31, 1995 and (2) an increase of approximately
39,000 in the number of customers served. The increases in net income and
earnings per share were offset partly by revised firm service rates approved
by the Georgia Commission which shift margins from heating months into
non-heating months. See Note 3 to Notes to Condensed Consolidated Financial
Statements in this Form 10-Q. The increase in earnings per share was also
offset partly by an increase in the average number of common shares
outstanding.
Twelve-Month Periods Ended March 31, 1996 and 1995
Explained below are the major factors that had a significant effect on
results of operations for the twelve-month period ended March 31, 1996,
compared with the same period in 1995.
Operating revenues decreased 1.9% for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to a decrease in
the cost of AGLC's gas supply recovered from customers under the purchased
gas provisions of AGLC's rate schedules, as explained in the following
paragraph. The decrease in operating revenues was offset partly by (1)
increased volumes of gas sold as a result of weather that was 48% colder than
the same period in 1995 and (2) an increase of approximately 38,000 in the
number of customers served.
Cost of gas decreased 4.1% for the twelve-month period ended March 31, 1996,
compared with the same period in 1995 primarily due to a decrease in the
amount recovered from customers under the purchased gas provisions of AGLC's
rate schedules. The decrease in cost of gas was offset partly by increased
volumes of gas sold as a result of weather that was 48% colder than the same
period in 1995. AGLC balances the cost of gas with revenues collected under
the purchased gas provisions of AGLC's rate schedules. Underrecoveries or
overrecoveries of gas costs are deferred and recorded as current assets or
liabilities, thereby eliminating the effect that recovery of gas costs would
otherwise have on net income.
Operating margin increased 1% for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to the recovery of
increased expenses related to AGLC's IRP which are recovered through an IRP
Cost Recovery Rider approved by the Georgia Commission. AGLC balances IRP
expenses which are included in operating expenses with revenues collected
under the rider, thereby eliminating the effect that recovery of IRP expenses
would otherwise have on net income. Operating margin was also positively
affected by an increase of approximately 38,000 in
<PAGE>
the number of customers served. The increase in operating margin was offset
substantially by revised firm service rates, effective October 3, 1995, which
shift margins from heating months into non-heating months (see Note 3 to
Notes to Condensed Consolidated Financial Statements in this Form 10-Q).
AGLC's Weather Normalization Adjustment Riders stabilized operating margin at
the level which would occur with normal weather for the twelve-month periods
ended March 31, 1996 and 1995. As a result of the Weather Normalization
Adjustment Riders, weather conditions experienced do not have a significant
impact on the comparability of operating margin.
Operating expenses increased 1.8% for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to an increase of
$12.6 million in expenses related to AGLC's IRP which are recovered through
an IRP Cost Recovery Rider approved by the Georgia Commission. Operating
expenses excluding IRP expenses decreased 2.2% primarily due to decreased
labor costs as a result of AGLC's recent corporate restructuring. Total other
operating expenses decreased primarily due to a decrease in restructuring
costs of $64.7 million. See Note 6 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q.
Other income increased $3 million for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to (1) income from
investment in Sonat Marketing effective August 31, 1995 and (2) interest
income from increased short-term investments.
Interest charges decreased 3.1% for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to decreased
amounts of long-term and short-term debt outstanding.
Income taxes increased $27.4 million for the twelve-month period ended March
31, 1996, compared with the same period in 1995 primarily due to increased
taxable income.
Net income for the twelve-month period ended March 31, 1996, was $63.6
million, compared with net income of $21.1 million in 1995. Earnings per
share of common stock were $1.17 for the twelve-month period ended March 31,
1996, compared with earnings per share of $0.42 in 1995. The increases in
net income and earnings per share were primarily due to (1) a decrease in
corporate restructuring costs of $39.7 million (after income tax), (2)
decreased operating expenses as a result of AGLC's recent corporate
restructuring, (3) increased other income and (4) an increase of
approximately 38,000 in the number of customers served. The increases in net
income and earnings per share were offset partly by revised firm service
rates approved by the Georgia Commission which shift margins from heating
months into non-heating months. See Note 3 to Notes to Condensed
Consolidated Financial Statements in this Form 10-Q. The increase in
earnings per share was also offset partly by an increase in the average
number of common shares outstanding.
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<PAGE>
Financial Condition - Resources and AGLC
AGLC's business is highly seasonal in nature and typically shows a
substantial increase in accounts receivable from customers and accounts
payable to gas suppliers from September 30 to March 31 as a result of colder
weather. AGLC also uses gas stored underground and liquefied natural gas to
serve its customers during periods of colder weather. As a result, accounts
receivable increased $156.4 million and inventory of gas stored underground
and liquefied natural gas decreased $107 million during the six months ended
March 31, 1996. Also, during the six months ended March 31, 1996, accounts
payable to pipeline suppliers increased $23.6 million. Accounts receivable
increased $46.8 million from March 31, 1995, to March 31, 1996, primarily due
to increased (1) operating revenues and (2) loans to customers resulting from
financing programs associated with AGLC's IRP. Accounts payable increased
$30.7 million from March 31, 1995, to March 31, 1996, primarily due to a
$25.9 million increase in accounts payable to pipeline suppliers.
Prior to the implementation of Order 636, the cost of bundled pipeline sales
service was reviewed and approved by the Federal Energy Regulatory Commission
(FERC). Because of diminished review by FERC following the implementation of
Order 636, local distribution companies such as AGLC may face greater
accountability and risks from their purchasing practices for gas supply,
transportation and storage services. The purchasing practices of AGLC are
subject to review by the Georgia Commission under legislation enacted by the
Georgia General Assembly. The legislation establishes procedures for review
and approval of gas supply plans for gas utilities and gas cost adjustment
factors applicable to firm service customers of gas utilities. Pursuant to
AGLC's approved gas supply plan for fiscal year 1996, gas supply purchases
are being recovered under the purchased gas provisions of AGLC's rate
schedules. The plan also allows recovery from the customers of AGLC of Order
636 transition costs that are currently being charged by AGLC's pipeline
suppliers. For further discussion of the effects of FERC Order 636 on AGLC,
see Part II, Item 5, "Other Information - Federal Regulatory Matters" of this
Form 10-Q.
AGLC currently estimates that its portion of transition costs resulting from
FERC Order 636 restructuring proceedings from all of its pipeline suppliers,
that have been filed to be recovered to date, could be as high as
approximately $101.4 million. Such filings currently are pending before FERC
for final approval, and the transition costs are being collected subject to
refund. Approximately $76.5 million of such costs have been incurred by AGLC
as of March 31, 1996, and are being recovered from its customers under the
purchased gas provisions of AGLC's rate schedules.
As noted above, AGLC recovers the cost of gas under the purchased gas
provisions of AGLC's rate schedules. AGLC was in an underrecovery position
of $19.3 million as of March 31, 1996, and an overrecovery position of $6.3
million as of September 30, 1995, and $67.6 million as of March 31, 1995.
Cash and cash equivalents decreased $31.7 million for the twelve-month period
ended March 31, 1996, primarily due to investing activities.
The expenditures for plant and other property totaled $56.8 million and
$123.6 million for the six-month and twelve-month periods ended March 31,
1996, respectively. On August 31, 1995, AGLC signed an agreement with Sonat
Inc. to form a joint venture to acquire the business of Sonat Marketing
Company, a wholly owned subsidiary of Sonat Inc. AGLC invested $32.6 million
in Sonat Marketing Company, L.P., for a 35% ownership interest.
AGLC has accrued liabilities of $28.6 million as of March 31, 1996, September
30, 1995 and March 30, 1995, for estimated future expenditures which are
expected to be made over a period of several years in connection with or
related to MGP sites. The Georgia Commission has approved the recovery by
AGLC of Environmental Response Costs, as defined in Note 4 to Notes to
Condensed Consolidated Financial Statements in this Form 10-Q, commencing
October 1, 1992, pursuant to the ERCRR. The staff of the Georgia Commission
has undertaken a financial and management process audit related to the MGP
sites, clean-up activities at the sites and Environmental Response Costs
which have been incurred for purposes of the ERCRR. Although the result of
such audit is not known, management does not expect the audit to have a
significant effect
<PAGE>
on AGLC's consolidated financial statements. See Part II, Item 5, "Other
Information - Environmental Matters" in this Form 10-Q.
On November 3, 1995, AGLC's Board of Directors declared a two-for-one stock
split of the common stock effected in the form of a 100% stock dividend to
shareholders of record on November 17, 1995, and paid on December 1, 1995.
All references to number of shares and to per share amounts in the condensed
consolidated financial statements and related notes have been restated
retroactively to reflect the stock split.
On June 16, 1995, AGLC issued and sold approximately 3.0 million shares of
its common stock, par value $5.00 per share, at a price of $16.81 per share,
in an underwritten public offering. Net proceeds of $48.6 million from that
sale of common stock were used to finance AGLC's capital expenditure program
and for other corporate purposes.
Short-term debt increased $15.5 million and $66.5 million for the six-month
and twelve-month periods ended March 31, 1996, respectively, primarily to
meet increased working capital requirements.
Accrued pension costs decreased $8.8 million and $23.5 million for the
six-month and twelve-month periods ended March 31, 1996, respectively,
primarily due to plan contributions.
On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option to
bypass AGLC's facilities and receive natural gas from other suppliers. A
bypass avoidance contract (Negotiated Contract) can be renewable, provided
that the initial term does not exceed five years, unless a longer term
specifically is authorized by the Georgia Commission. The rate provided by
the Negotiated Contract may be lower than AGLC's filed rate, but not less
than AGLC's marginal cost of service to the potential Bypass Customer.
Service pursuant to a Negotiated Contract may commence without Georgia
Commission action, once a copy of the contract is filed with the Georgia
Commission. Negotiated Contracts may be rejected by the Georgia Commission
within 90 days of filing; absent such action, however, the Negotiated
Contracts remain effective. None of the 44 Negotiated Contracts filed with
the Georgia Commission have been rejected.
The Georgia Commission also approved a bypass loss recovery mechanism to
operate until the earlier of September 30, 1998, or until the effective date
of new rates for AGL resulting from a general rate case. See Note 5 to Notes
to Condensed Consolidated Financial Statements in this Form 10-Q.
PART II -- OTHER INFORMATION
"Part II -- Other Information" is intended to supplement information
contained in the Annual Report on Form 10-K for the fiscal year ended
September 30, 1995 and should be read in conjunction therewith.
Item 1. Legal Proceedings
See Item 5.
Item 2. Changes in Securities
Effective March 6, 1996, each outstanding share of common stock of
Atlanta Gas Light Company was exchanged for and converted into one share
of common stock of AGL Resources Inc., in connection with the formation
of a holding company (See Note 1 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q).
Effective March 6, 1996, AGLC's Board of Directors adopted a Shareholder
Rights Plan designed to protect Resources' shareholders from unfavorable
takeover attempts that are not negotiated by the Board of Directors. The
plan was not adopted in response to any effort to acquire control of
Resources, and the Board is not aware of any effort to do so. On March
6, 1996, Resources' Board of Directors declared a dividend of one
preferred share
<PAGE>
purchase right (Right) for each outstanding share of common stock, par
value $5 per share of Resources. The dividend was paid on March 22,
1996, to the shareholders of record on that date. The description and
terms of the Rights are set forth in a Rights Agreement dated as of March
6, 1996, between Resources and Wachovia Bank of North Carolina, N.A.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of AGLC was held on March 6, 1996.
"Broker non-votes" were not considered in determining whether a quorum
existed for purposes of the Annual Meeting and were not considered as
votes in determining the outcome of any proposal. At the Annual Meeting
the shareholders:
a) Approved a holding company restructuring pursuant to the Agreement
and Plan of Merger between Atlanta Gas Light Company and AGL Resources
Inc.
Affirmative Negative Abstentions
35,845,639 3,340,529 774,134
65.0% 6.1% 1.4%
b) Elected for a one-year term all nominees for director listed in AGLC's
Proxy Statement. The number of votes "for" each nominee and the number
of votes "withheld" with respect to each nominee is as follows:
For Withheld
1. Frank Barron, Jr. 47,876,477 945,289
2. W. Waldo Bradley 45,681,163 3,140,603
3. Otis A. Brumby, Jr. 47,837,148 984,618
4. David R. Jones 47,752,722 1,069,044
5. Kenneth D. Lewis 47,862,596 959,170
6. Albert G. Norman, Jr. 47,632,000 1,190,766
7. D. Raymond Riddle 47,832,463 989,303
8. Dr. Betty L. Siegel 47,752,928 1,068,838
9. Ben J. Tarbutton, Jr. 47,856,961 964,805
10. Charles McKenzie Taylor 47,846,904 974,862
11. Felker W. Ward, Jr. 47,837,218 984,548
c) Approved an amendment to the Atlanta Gas Light Company Long-Term Stock
Incentive Plan of 1990.
Affirmative Negative Abstentions
43,339,387 4,062,289 1,420,090
88.8% 8.3% 2.9%
d) Approved the Atlanta Gas Light Company Non-Employee Directors Equity
Compensation Plan.
Affirmative Negative Abstentions
42,634,704 4,416,194 1,770,868
87.3% 9.1% 3.6%
<PAGE>
Item 5. Other Information
Federal Regulatory Matters
Order No. 636
AGLC currently estimates that its portion of transition costs (which
include unrecovered gas costs, gas supply realignment (GSR) costs and various
stranded costs resulting from unbundling of interstate pipeline sales
service) from all of its pipeline suppliers filed with the Federal Energy
Regulatory Commission (FERC) to be recovered could be as high as
approximately $101.4 million. AGLC's estimate is based on the most recent
estimates of transition costs filed by its pipeline suppliers with the FERC
and assumes that FERC approval of Southern Natural Gas Company's (Southern)
restructuring settlement agreement is not overturned on judicial review.
Such filings by AGLC's pipeline suppliers are pending final FERC approval.
Approximately $76.5 million of transition costs have been incurred by AGLC
as of March 31, 1996, and are being recovered from customers under the
purchased gas provisions of AGLC's rate schedules. Details concerning the
status of the Order No. 636 restructuring proceedings involving the pipelines
that serve AGLC directly are set forth below.
SOUTHERN GSR Cost Recovery Proceeding. On April 11, 1996, the FERC
issued an order constituting final approval of the settlement agreement
between AGLC, Southern, and other customers which resolves virtually all
pending Southern proceedings before the FERC and the courts. The settlement
resolves Southern's pending general rate proceedings, which relate to
Southern's rates charged from January 1, 1991, through the present. The
settlement provides for rate reductions and refund offsets against GSR costs.
It also resolves Southern's Order No. 636 transition cost proceedings and
provides for revisions to Southern's tariff. The FERC's approval of the
settlement is subject to petitions for judicial review by parties opposing
the settlement. The April 11, 1996, order is also subject to potential
requests for rehearing addressing aspects of the order relating to issues in
addition to matters resolved by the settlement.
Southern filed on March 29, 1996 to reduce its volumetric GSR surcharge
for consenting parties to the restructuring settlement to reflect actual GSR
costs incurred by Southern through December 31, 1995. Southern continues to
make quarterly and monthly transition cost filings to recover costs from
contesting parties to the settlement, and the FERC has ordered that such
costs may be recovered by Southern, subject to the outcome of a hearing for
contesting parties. However, GSR and other transition cost charges to AGLC
are in accordance with the settlement. Assuming the FERC's approval of the
settlement is upheld on judicial review, AGLC's share of Southern's
transition costs is estimated to be $84.4 million. As of March 31, 1996,
$67.8 million of such costs have already been incurred by AGLC.
TENNESSEE GSR Cost Recovery Proceeding. Tennessee Gas Pipeline
Company (Tennessee) has continued to make quarterly GSR cost recovery filings
with the FERC. On March 29, 1996, Tennessee filed with the FERC to recover
an additional $35.4 million in GSR costs. AGLC protested this filing, but
the FERC has not yet acted upon Tennessee's filing. AGLC's estimated
liability for GSR costs as a result of Tennessee's filings is approximately
$9.4 million, subject to possible reduction based upon the hearing FERC
established to investigate Tennessee's costs. AGLC is actively participating
in Tennessee's GSR cost recovery proceeding. As of March 31, 1996, $4.9
million of such costs have already been incurred by AGLC.
FERC Rate Proceedings
TENNESSEE On April 5, 1996, Tennessee filed with the FERC a comprehensive
settlement to resolve all issues in its current rate case. The settlement,
which is subject to approval by the FERC, provides for a reduction of
approximately $83 million in the cost of service underlying Tennessee's rates
in effect since July 1, 1995, and also provides for Tennessee to share a
portion of costs associated with firm capacity relinquished by its customers.
AGLC filed comments supporting the settlement on April 25, 1996. AGLC's
estimated annual reduction in cost is $2.2 million. The FERC has not yet
acted on the proposed settlement.
<PAGE>
TRANSCO On February 21, 1996, Transcontinental Gas Pipe Line Corporation
(Transco) filed an application with the FERC seeking authority to transfer
onshore and offshore production area facilities to an affiliated company. If
granted, Transco's proposal would result in the facilities becoming
unregulated. AGLC filed comments which raised questions concerning, but did
not oppose, Transco's application. The FERC has not yet acted on Transco's
application.
Arcadian
On April 22, 1996, AGLC filed to withdraw portions of its request for
rehearing of the FERC's order approving the November 12, 1993 settlement
between Arcadian and Southern. The arguments that AGLC proposes to withdraw,
pursuant to the restructuring settlement with Southern, are those that allege
that Southern's discounted rates to Arcadian constitute an anticompetitive
"price squeeze" against AGLC.
AGLC cannot predict the outcome of these federal proceedings nor can it
determine the ultimate effect, if any, such proceedings may have on AGLC.
Although the outcome of such proceedings is not known, management does not
expect the outcome to have a significant effect on AGLC's consolidated
financial statements.
State Regulatory Matters
Bypass and Other Competitive Issues
On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option to
bypass AGLC's facilities and receive natural gas from other suppliers. A
bypass avoidance contract (Negotiated Contract) can be renewable, provided
the initial term does not exceed five years, unless a longer term
specifically is authorized by the Georgia Commission. The rate provided by
the Negotiated Contract may be lower than AGLC's filed rate, but not less
than AGLC's marginal cost of service to the potential Bypass Customer.
Service pursuant to a Negotiated Contract may commence without Georgia
Commission action, once a copy of the contract is filed with the Georgia
Commission. Negotiated Contracts may be rejected by the Georgia Commission
within 90 days of filing; absent such action, however, the Negotiated
Contracts remain effective. None of the 44 Negotiated Contracts filed to
date with the Georgia Commission have been rejected.
On November 20, 1995, the Georgia Commission issued a Notice of Inquiry
(NOI) to assist it in developing state regulatory guidelines to respond to
growing competition in natural gas markets and to actively move the local
distribution of natural gas toward a more competitive future. The Commission
received comments from a broad and representative cross-section of the
industry concerning suggested ways to open the industry to more competition.
The Commission is expected to issue a policy statement related to key issues
identified in the NOI in the near future.
On January 8, 1996, proposed legislation was introduced in the Georgia
General Assembly which would allow local gas companies to negotiate contract
prices and terms for gas services to large commercial and industrial
customers absent Georgia Commission mandated rates. The General Assembly
delayed approval of HB 1153, The Natural Gas Fair Pricing Act, during the
1996 session. Senate and House committees have been created to study and
recommend a comprehensive course of action by December 31, 1996, for
deregulating the natural gas industry.
Environmental Matters
AGLC has identified nine sites in Georgia where it currently owns all or
part of an MGP site. In addition, AGLC has identified three other sites in
Georgia which AGLC does not now own, but which may have been associated with
the operation of MGPs by AGLC or its predecessors. There are three sites in
Florida which have been investigated by environmental authorities in
connection with which AGLC may be contacted as a potentially responsible
party.
<PAGE>
Under a thorough analysis of potentially applicable requirements, AGLC
has estimated that, under the most favorable circumstances reasonably
possible, the future cost of investigating and remediating the former MGP
sites, excluding those sites for which no remediation is expected or the
cost of which cannot be estimated, could be as low as $28.6 million.
Alternatively, AGLC has estimated that, under the least favorable
circumstances reasonably possible, the future cost of investigating and
remediating those same former MGP sites could be as high as $109 million,
excluding those sites for which no remediation is expected or the cost of
which cannot be estimated. AGLC cannot estimate at this time the amount of
any other future expenses or liabilities, or the impact on these estimates of
future environmental regulatory changes, that may be associated with or
related to the MGP sites, including expenses or liabilities relating to any
litigation. At the present time, no amount within the range can be identified
as a better estimate than any other estimate. Therefore, a liability for the
low end of this range and a corresponding regulatory asset have been recorded
in the financial statements.
The Georgia Commission has approved the recovery by AGLC of
Environmental Response Costs, as defined below, effective October 1, 1992,
pursuant to AGLC's ERCRR. For purposes of the ERCRR, Environmental Response
Costs include investigation, testing, remediation and litigation costs and
expenses or other liabilities relating to or arising from MGP sites.
In connection with the ERCRR, the staff of the Georgia Commission has
undertaken a financial and management process audit related to the MGP sites,
clean-up activities at the sites and Environmental Response Costs which have
been incurred for purposes of the ERCRR. Although the result of such audit
is not known, management does not expect the audit to have a significant
effect on AGLC's consolidated financial statements.
With regard to legal proceedings related to the former MGP sites, AGLC is
or expects to be a party to claims or counterclaims on an ongoing basis.
Among such matters, AGLC intends to continue to pursue insurance coverage and
contribution from potentially responsible parties. Management currently
believes that the outcome of MGP-related litigation in which AGLC is involved
will not have a material adverse effect on the financial condition and
results of operations of AGLC.
As a result of the ERCRR, AGLC expects that it will be able to recover
all of its Environmental Response Costs. See Note 4 to Notes to Condensed
Consolidated Financial Statements in this Form 10-Q.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) - Gas Sales Agreement between Seller and Atlanta Gas Light Company,
as Buyer.
27 - Financial Data Schedules
(a) AGL Resources Inc.
(b) Atlanta Gas Light Company
(b) Reports on Form 8-K.
On March 6, 1996, Resources filed a Current Report on Form 8-K dated
March 6, 1996, containing: "Item 5 - Other Events"; Exhibit 1 - Rights
Agreement, dated as of March 6, 1996, between Resources and Wachovia Bank
of North Carolina, N.A.; Exhibit 2 - Press Release, dated March 6, 1996;
and Exhibit 3 - Form of Letter to Shareholders, dated March 22, 1996.
On March 6, 1996, Resources filed a Current Report on form 8-K dated
March 6, 1996, containing "Item 5 - Other Events" and Exhibit 1 - Press
Release, dated March 6, 1996.
On March 6, 1996, AGLC filed a Current Report on Form 8-K dated March 6,
1996, containing "Item 5 - Other Events" and Exhibit 1 - Press Release,
dated March 6, 1996.
(The remainder of this page was intentionally left blank.)
<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.
AGL Resources Inc.
(Registrant)
Date May 15, 1996 /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President
(Principal Financial and Accounting Officer)
Atlanta Gas Light Company
(Registrant)
Date May 15, 1996 /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President
(Principal Financial Officer)
Date May 15, 1996 /s/ J. Michael Riley
J. Michael Riley
Vice President - Finance and Accounting
(Principal Accounting Officer)
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<PAGE>
GAS SALES AGREEMENT
BETWEEN
AS SELLER
AND
ATLANTA GAS LIGHT COMPANY
AS BUYER
CONFIDENTIAL
<PAGE>
INDEX
PAGE
I. DEFINITIONS 1
II. GOVERNMENTAL AUTHORIZATIONS 3
III. RESERVATIONS OF SELLER 3
IIV. QUANTITY OF GAS 4
IV. NON-PERFORMANCE 5
V. DELIVERY PRESSURE 7
VI. POINTS OF DELIVERY AND OWNERSHIP 7
VII. TERM OF AGREEMENT 8
VIII. PRICE 9
IX. QUALITY OF GAS 11
X. METERING AND MEASUREMENT 11
XI. BILLING AND PAYMENT 11
XII. TRANSPORTATION 13
XIII. GOVERNMENTAL REGULATIONS 14
XIV. FORCE MAJEURE 16
XV. WARRANTY OF TITLE 18
XVI. RESPONSIBILITY 18
XVII. GENERAL PROVISIONS 18
EXHIBIT A 23
<PAGE>
GAS SALES AGREEMENT
THIS AGREEMENT, effective as of the date set forth in Article VIII below,
between as "Seller", and ATLANTA GAS LIGHT COMPANY, as
"Buyer",
W I T N E S S E T H :
WHEREAS, Buyer is a local distribution company; and
WHEREAS, Seller owns and\or purchases supplies of natural gas
for resale; and
WHEREAS, Buyer desires to purchase from Seller, and Seller
desires to sell to Buyer natural gas in the quantities and upon
the terms and conditions hereinafter set forth;
NOW, THEREFORE, in consideration of the premises and mutual
covenants herein contained, Buyer and Seller agree as follows:
ARTICLE I
DEFINITIONS
1.01 The following words and terms, wherever used in this contract, shall have
the meanings set forth below:
(a) Subject to the provisions of Section 7.02 herein, "A" Receipt Point(s)
shall mean those receipt points on Southern Natural Gas Company's pipeline
system at which Seller has a firm obligation to deliver the quantity requested
by Buyer up to the applicable maximum nomination quantity. The "A" Receipt
Point(s) and the corresponding maximum nomination quantity are set forth on
Exhibit "A" attached hereto and incorporated herein for all purposes.
(b) "A-1" Receipt Points shall mean all receipt points (other than those "A"
Receipt Points identified on Exhibit A of this contract.) on Southern's system
(including Seller's Supply Pool No. ).
(c) "BTU" shall mean British Thermal Unit which is the amount of heat required
to raise the temperature of one pound of water from 59 degrees Fahrenheit to 60
degrees Fahrenheit, measured with respect to gas at a pressure of 14.73 psia and
saturated with
PAGE 1
<PAGE>
water vapor. BTU values for purposes of payment, however, shall be assumed to
be measured on a dry basis.
(d) "Business day" shall mean each day of the week, other than Saturday and
Sunday, which is not a holiday recognized by Southern.
(e) "Buyer's city gate" shall mean any of the interconnection(s) of the
facilities of Buyer and Southern.
(f) "Buyer's Transportation Agreement" shall mean Buyer's agreement(s) with
Southern, as may be in effect from time to time, for transportation of gas from
the "A" and/or "A-1" Receipt Points to Buyer's city gate.
(g) "Daily Contract Maximum" or "DCM" shall, subject to the other terms and
provisions of this Contract, be equal to of gas per day inclusive of any
gas retained by Southern for compressor fuel and line loss makeup. The parties
understand that the gas so retained may change from time to time during the term
of this contract.
(h) "Day" shall mean a period beginning at 7:00 a.m. (Central Time) on a
calendar day and ending at 7:00 a.m. (Central Time) on the next calendar day.
(i) "Dekatherm" or "dt" shall mean the quantity of heat energy which is one (1)
MMBtu.
(j) "FERC" shall mean Federal Energy Regulatory Commission.
(k) "FERC approved tariffs" shall mean a compilation of all of the effective
rate schedules of a natural gas company and a copy of each form of service
agreement as required by Section 154.1 et seq of FERC's Rules and Regulations
promulgated under the Natural Gas Act.
(l) "Gas" or "natural gas" shall include casinghead gas produced with crude
oil, natural gas from gas wells, coalbed methane gas, synthetic gas, coal
gasification gas and residue gas resulting from processing any of the foregoing.
(m) "Mcf" shall mean one thousand (1,000) cubic feet of natural gas and "MMcf"
shall mean one million (1,000,000) cubic feet of natural gas.
(n) "MMBTU" shall mean one million (1,000,000) British Thermal Units.
PAGE 2
<PAGE>
(o) "Month" shall mean a period beginning at 7:00 a.m. (Central Time) on the
first day of a calendar month and ending at 7:00 a.m. (Central Time) on the
first day of the next calendar month.
(p) "Normalized Firm Load" shall mean the total average daily throughput for
Buyer's firm service customers weather normalized in accordance with the
normal heating degree days on the basis of ten (10) year normal weather.
(q) "Southern" shall mean Southern Natural Gas Company as transporter under
Buyer's Transportation Agreements.
(r) "Third party seller(s)" shall mean the party or parties from whom Seller
purchases gas.
(s) "Wellhead Contracts" shall mean all of the firm gas sales agreements
between Buyer and its suppliers entered .
(t) "Year" shall mean a period of three hundred sixty-five (365) consecutive
days with a one day adjustment for leap years.
ARTICLE II
GOVERNMENTAL AUTHORIZATIONS
2.01 Each of the parties hereto agrees to proceed with diligence in a good
faith effort to obtain, cause to be obtained or to assist the other party in
obtaining all such governmental authorizations as may be necessary to enable
each party to perform or cause to be performed its obligations under this
contract. Each party shall promptly notify the other party in writing when it
has obtained or caused to be obtained all the governmental authorizations
necessary to its ability to perform under this contract.
ARTICLE III
RESERVATIONS OF SELLER
3.01 Subject to the other terms and provisions of this contract, Seller
expressly reserves unto itself the right, at its sole cost and expense, to
separate and extract liquid and liquefiable hydrocarbons, other than methane,
from the gas delivered hereunder upstream of Buyer's city gate, together with
such methane as cannot be separated from the ethane and heavier
PAGE 3
<PAGE>
hydrocarbons separated or extracted from the gas, provided that Seller, by such
extraction, shall not reduce the total heating value per cubic foot below a
level acceptable to Southern and provided that by such extraction the gas will
not be rendered incapable of meeting the quality specifications described in
Article X. All liquid and liquefiable hydrocarbons so recovered shall be owned
and disposed of by Seller. Notwithstanding Article XVII hereof, Seller agrees
to indemnify and hold Buyer harmless from any and all claims, liability,
damages, and expenses which may occur or be asserted by reason of Seller's
processing of gas hereunder.
3.02 In the event Seller exercises its right to process the gas delivered
hereunder, Seller agrees to make up, at mutually agreeable point(s), gas
quantities in kind at no cost, risk, or expense to Buyer, attributable to plant
volume reduction (PVR) resulting from such processing.
ARTICLE IV
QUANTITY OF GAS
4.01 Subject to the other terms and provisions of this contract, beginning on
the effective date of this Agreement, and daily throughout the term hereof,
Seller agrees to make available to Buyer and Buyer agrees to nominate and
purchase at the "A" Receipt Points a quantity of gas equal to the Daily Contract
Maximum ("DCM"). For purposes of this contract, Buyer shall be deemed to have
received and purchased a quantity of gas equal to the quantity nominated by
Buyer hereunder and confirmed and scheduled by Southern ("Confirmed Nominated
Quantity") unless Buyer is limited by Southern to deliveries at Buyer's city
gate equal to the actual quantity delivered at the applicable "A" and/or "A-1"
Receipt Point(s). In the event actual receipts at the "A" and/or "A-1" Receipt
Point(s) vary from the Confirmed Nominated Quantity, Seller shall be responsible
pursuant to Article XIII, for any penalties or charges (including cash-out
costs) incurred under Buyer's Transportation Agreement as a result of such
variance.
4.02 Seller expressly warrants and agrees that it will on the effective date
hereof and thereafter for so long as this contract remains in effect have
available for sale and delivery hereunder, sufficient gas to meet on each day
Seller's obligation to deliver the DCM.
PAGE 4
<PAGE>
4.03 If Seller is unable to deliver the nominated contract quantities up to the
DCM at the "A" Receipt Points on any day, Seller will notify Buyer of such
deficiency by telephone and by facsimile machine as soon as possible and Seller
will deliver deficiency quantities from Seller's supplies that are not committed
to other buyer(s) under long term firm sales agreements located behind "A-1"
Receipt Points. In such event Seller will supply Buyer such deficiency
quantities, up to the volume for which Buyer can obtain transportation capacity
on Southern, as are available at "A-1" Receipt Points on a pro rata basis with
all of Seller's other firm sales customers prior to making any interruptible
sales. Any such deficiency quantities scheduled and delivered at "A-1" Receipt
Points shall be credited against Seller's delivery obligation under Section 4.01
above.
4.04 Notwithstanding anything herein to the contrary, Seller shall not, on any
day, deliver to Buyer at any "A" Receipt Point a quantity of gas less than
Buyer's pro rata share of Buyer's supply at such "A" Receipt Point. For
purposes of this provision Buyer's pro rata share shall equal [(X/Y) x Z] where
X equals the quantity of gas nominated by Buyer hereunder at the applicable "A"
Receipt Point, Y equals the total quantity nominated by all of Seller's firm
sales customers with contracts utilizing the applicable "A" Receipt Point as a
firm point of delivery thereunder and Z equals the total quantity of gas that
Seller is able to deliver at the applicable "A" Receipt Point on such day.
ARTICLE V
NON-PERFORMANCE
5.01 (a) If on any day Seller fails to deliver any portion of the gas requested
by Buyer for delivery in accordance with Article IV (including any such failure
attributable to capacity constraints at "A-1" Receipt Points unless such
deliveries were being made at "A-1" Receipt Points due to lack of transportation
capacity at "A" Receipt Point(s)), Buyer, upon notification of such deficiency
from Seller, shall use due diligence to replace such gas with gas from other
sources. If Buyer is able to replace all or a portion of such gas with gas from
other sources (Replacement Gas Quantities), then Seller shall pay to Buyer,
without prejudice to other
PAGE 5
<PAGE>
remedies available to Buyer for such failure to deliver replacement costs in an
amount equal to (i) the difference between (a) the effective price per dekatherm
(including the applicable Commodity Price) that would have been applicable to
such gas hereunder and (b) the weighted average price per dekatherm of the
Replacement Gas reasonably utilized by Buyer on the day Seller failed to deliver
hereunder, multiplied by (ii) the total volume of Replacement Gas Quantities.
(b) If on any day Seller fails to deliver any portion of the gas requested by
Buyer for delivery in accordance with Article IV (including any such failure
attributable to capacity constraints at "A-1" Receipt Points unless such
deliveries were being made at "A-1" Receipt Points due to lack of transportation
capacity at "A" Receipt Point(s)), and if Buyer, after receiving notification of
such deficiency, is unable, having used due diligence, to replace all or any
portion of such gas from other sources (Unreplaced Gas Quantities) on the day on
which the deficiency occurred, then Seller shall pay to Buyer, without prejudice
to other remedies available to Buyer for such failure to deliver, costs in an
amount equal to the product of (i) the weighted average price per dekatherm of
the fuel reasonably utilized by Buyer on the day Seller failed to deliver
hereunder, and (ii) the volume of Unreplaced Gas Quantities.
In exercising due diligence to obtain replacement fuel, Buyer shall not be
required to utilize available underground storage or LNG supplies if, in Buyer's
judgment, such utilization would be imprudent.
(c) Anything to the contrary notwithstanding, the provisions of Section 5.01(a)
and (b) shall not apply if Seller's failure to deliver is due to a force majeure
condition or an adverse governmental action, as such terms are defined below, or
the failure of Buyer to provide sufficient transportation capacity pursuant to
Section 13.02.
PAGE 6
<PAGE>
ARTICLE VI
DELIVERY PRESSURE
6.01 Seller shall deliver natural gas to Buyer at Southern's line pressure at
the point(s) of receipt designated in Article VII hereof.
ARTICLE VII
POINTS OF DELIVERY AND OWNERSHIP
7.01 Gas purchased and sold hereunder shall be delivered by Seller to Buyer at
the applicable "A" or "A-1" Receipt Point(s). Title shall pass to Buyer at the
time of delivery.
7.02
PAGE 7
<PAGE>
ARTICLE VIII
TERM OF AGREEMENT
8.01 Subject to the other provisions hereof, this contract shall be effective
on and shall remain in full force and effect for a primary
term through .
8.02 If, at the end of the primary term, Seller is willing to extend the term
of this contract for a successive term, Seller shall give Buyer written notice
thereof at least 90 days prior to the termination date of this Contract, such
notice to include the volume of gas Seller will make available to Buyer and the
term of such sale. Buyer will have 60 days from the date of such notice to give
Seller written notice as to whether or not it is agreeable to such extension.
8.03
PAGE 8
<PAGE>
ARTICLE IX
PRICE
9.01 The amount payable by Buyer each month shall be equal to the total of the
Confirmed Nominated Quantities for the applicable month multiplied by the
"Commodity Price" or the "Alternate Commodity Price" applicable in such month,
adjusted pursuant to Article XII below for any cash-out payments that may apply.
The Commodity Price shall be established monthly by negotiation pursuant to
Section 9.02 and is subject to adjustment pursuant to Section 9.05. If the
parties are unable to agree on the Commodity Price, the Alternate Commodity
Price, determined in accordance with Section 9.03, shall apply.
9.02 Upon the written request of either party to the other, each month the
parties shall negotiate in good faith to establish the Commodity Price
applicable in the ensuing month (the Delivery Month). If the parties agree on
the Commodity Price for any month on or before the 5th business day prior to the
first day of such month (the "Agreement Due Date"), Seller shall no later than
one day after such agreement is reached send to Buyer a written confirmation of
such price ("Confirmation").
9.03 If Buyer and Seller are unable to agree on the Commodity Price for the
Delivery Month on or before the Agreement Due Date, the Alternate Commodity
Price shall be applicable in such month and shall be equal to the arithmetic
average of the following:
(a)
(b)
PAGE 9
<PAGE>
9.04 Upon the written request of either party to the other, Buyer and Seller
shall promptly enter into good faith negotiations to determine whether the
Section 9.03 procedure for establishing the Alternate Commodity Price should be
modified to reflect the prices of natural gas in futures contracts, such as
those traded on the New York Mercantile Exchange, or some mutually agreeable
representative pricing mechanism, in order to achieve an Alternate Commodity
Price that most accurately tracks the price of spot gas in the then-current gas
market delivered to the Receipt Points. Pending the outcome of any such
negotiation, the Alternate Commodity Price shall be determined in accordance
with Section 9.03. If the negotiations result in a mutually agreed upon revised
method for determining the Alternate Commodity Price, the revised method shall
become effective for the Delivery Month first following the month during which
the agreement was reached. If the negotiations do not result in a mutually
agreed upon revised method, the matter shall not be subject to arbitration and
the Section 9.03 procedures shall remain in effect.
9.05
PAGE 10
<PAGE>
ARTICLE X
QUALITY OF GAS
10.01 The gas delivered hereunder shall be merchantable gas which shall
comply with the quality requirements stated in Southern's FERC Approved Tariff.
ARTICLE XI
METERING AND MEASUREMENT
11.01 The unit of measurement of the gas shall be one dekatherm of gas. The
gas delivered hereunder shall be measured and metered by Southern at the
applicable "A" and/or "A-1" Receipt Point(s) in accordance with the provisions,
specifications and standards set forth in Southern's FERC Approved Tariff. Each
party shall preserve or cause to be preserved for at least one (1) year all test
data, charts, allocation statements and other similar records available to it,
unless a longer period is prescribed by applicable regulation.
ARTICLE XII
BILLING AND PAYMENT
12.01 On or before the tenth (10th) day of each month, Seller shall render
to Buyer a statement showing the Confirmed Nominated Quantity of gas for the
preceding month and the Price therefore either (i) reduced by any cash-out
payments due Southern for any portion of the Confirmed Nominated Quantity not
tendered by Seller at the applicable "A" or "A-1" Receipt Point(s), or (ii)
increased by any cash-out payments received by Buyer under Southern's tariff for
any gas delivered to Buyer at the "A" or "A-1" Receipt Points in excess of the
Confirmed Nominated Quantity. Buyer shall pay Seller the amount of such
statement on or before the twentieth (20th) day of each month or the tenth
(10th) day following the date of Buyer's receipt of such statement, whichever is
later.
PAGE 11
<PAGE>
12.02 On or before the fifth (5th) day of each month following a month
during which Buyer purchased replacement gas and/or fuel, Buyer shall render to
Seller a statement showing the amount and cost of such replacement quantities.
Replacement costs owed by Seller pursuant to the terms of this contract for any
month shall be credited against Buyer's statement in the next month and against
statements in subsequent month(s) as necessary.
12.03 If either party fails to pay any statement in whole or in part when
due, in addition to any other rights or remedies available to the invoicing
party, interest at a rate equal to the applicable average prime rate for
producer refunds established by the FERC from time to time as prescribed at 18
C.F.R. 154.102(c) (2) (iii) (A) shall accrue on unpaid amounts, including on
unpaid interest compounded daily, beginning on the payment due date of Seller's
statement and ending when such statement is paid. The preceding provisions of
this Article XII notwithstanding, if a good faith dispute arises between Buyer
and Seller concerning a statement, Buyer shall pay that portion of the statement
not in dispute on or before such due date, both parties shall continue to
perform their obligations under the contract during such dispute, and, upon the
ultimate determination of the disputed portion of the statement, Buyer shall pay
Seller the remaining amount owed plus the interest accrued thereon.
12.04 Each party shall have the right to examine the books and records of
the other party to the extent necessary, given reasonable notice, to verify
calculations of all charts, allocation statements and other documents used in
the buy/sell transaction, measurement, and/or transportation of gas delivered
hereunder (to the extent such charts are available to the party) within ten (10)
days after the last charge for each billing period is received by Buyer.
PAGE 12
<PAGE>
ARTICLE XIII
TRANSPORTATION
13.01 Seller shall arrange and pay for the transportation of the gas sold
hereunder to the applicable "A" or "A-1" Receipt Point(s). Any provision herein
to the contrary notwithstanding, as part of Seller's obligation to arrange such
transportation, Seller shall indemnify and hold Buyer harmless from all
injuries, claims, liabilities and damages irrespective of the cause thereof
(other than Buyer's gross negligence) which arise out of or in connection with
such transportation.
13.02 Buyer shall arrange and pay for the transportation of the gas
purchased hereunder from the applicable "A" or "A-1" Receipt Point(s) to Buyer's
City Gate. If Buyer is unable to obtain transportation capacity on Southern at
"A" Receipt Points, then Seller shall make gas available to Buyer at "A-1"
Receipt Points in accordance with Section 4.06.
13.03 All deliveries of gas by Seller and receipts by Buyer under this
contract shall be made in accordance with Southern's FERC approved tariff.
Buyer will nominate quantities for receipt under Buyer's Transportation
Agreement(s) with Southern at the applicable "A" or "A-1" Receipt Point(s),
hereunder in an amount equal to the DCM. Buyer will timely notify Seller if
Southern does not confirm any portion of the quantities nominated for receipt at
such "A" or "A-1" Receipt Point(s). As set forth in Section 4.01, Buyer shall
be deemed to have received and purchased a quantity of gas equal to the
Confirmed Nominated Quantity; provided that Buyer is not prohibited by Southern
from taking delivery at Buyer's City Gate of a quantity of gas equal to the
Confirmed Nominated Quantity.
13.04 Subject to Sections 13.05, 13.06, and 13.07 below, the parties agree
that any costs, expenses, or losses (including any cash-out payments or
imbalance penalties) under Buyer's Transportation Agreement due to (a)
imbalances at the "A" or "A-1" Receipt Point(s) shall be the responsibility of
Seller and (b) imbalances at Buyer's City Gate shall be the responsibility of
Buyer.
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Buyer and Seller shall cooperate to remedy any transportation discrepancy for
quantities delivered under this contract.
13.05 Without waiver of any other remedies, in the event any charges,
penalties, costs or expenses are incurred or payable to Southern as a result of
Seller's failure to give Buyer timely notice of any increase or decrease in
daily quantities to be delivered at any Receipt Point from the quantities
nominated and scheduled by Buyer in accordance with Article IV, Seller shall be
responsible for such charges, penalties, costs or expenses.
13.06 Without waiver of any other remedies, in the event any charges,
penalties, costs or expenses are incurred or payable to Southern as a result of
Buyer's failure to give Seller timely notice of any increase or decrease in
daily quantities to be accepted at any point of delivery or redelivery point
from the quantities nominated and scheduled by Buyer in accordance with Article
IV, Buyer shall be responsible for such charges, penalties, costs or expenses.
13.07 For the purpose of Sections 13.05 and 13.06, notice will be deemed
timely if, under the circumstances, it should have given the party receiving
such notice reasonably sufficient time to notify Southern of such changes in
quantities by the time required under the terms of Southern's FERC Approved
Tariff.
ARTICLE XIV
GOVERNMENTAL REGULATIONS
14.01 This contract shall be subject to all valid applicable state, federal
and local laws, rules and regulations; provided, that either party hereto shall
be entitled to regard all laws, rules and regulations issued by any federal or
state regulatory body as valid and may act in accordance therewith until such
time as the same may be held invalid by final judgment in a court of competent
jurisdiction. Nothing herein shall be taken to preclude Buyer or Seller or both
from contesting the validity of any such law(s), rule(s) or regulation(s).
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14.02 In the event that the FERC, Congress or any other governmental body
asserting jurisdiction ("governmental authority") (i) imposes price controls on
natural gas (ii) prohibits or prevents any of the transactions described in (a)
this contract, (b) any agency agreement between Buyer and Seller or (c) any
transportation agreement between Southern and Buyer or Seller covering the
transportation of the gas delivered hereunder; (iii) directly or indirectly
materially and adversely conditions such transactions in a form that is
unacceptable in the sole judgment of the party affected thereby, or (iv) adopts
any law, action, rule or order which directly or indirectly, materially and
adversely affects a party's rights or obligations hereunder (each of the events
described above being referred to herein as an "adverse governmental action"),
or if a governmental authority declares that an adverse governmental action
shall be effective on a future date, then the party affected by such adverse
governmental action (the "affected party") shall notify the other party of such
adverse governmental action. Buyer and Seller shall then promptly commence
negotiations in good faith in order to equitably adjust the rights and
obligations of the parties in the light of such adverse governmental action. If
the parties are unable to reach agreement, the affected party may terminate this
contract at any time on or after the effective date of such adverse governmental
action by giving written notice of termination to the other party. However, if
such adverse governmental action becomes effective in any month from October
through April inclusive, upon Buyer's request, Seller shall continue to deliver
gas hereunder until the following May 1, provided that: (i) Seller is able to
obtain sufficient supplies of gas to satisfy Buyer's requirements hereunder
without affecting Seller's ability to fulfill Seller's other firm sales contract
obligations that are not suspended by such adverse governmental action, and (ii)
Buyer or Seller can arrange the necessary transportation, and (iii) Buyer shall
agree in writing to keep Seller whole on a monthly basis with respect to all
increased costs Seller may incur by so continuing to perform this contract. Any
provision herein to the contrary notwithstanding, the affected party may
terminate its performance of this contract effective immediately if continued
performance hereof would cause such party to be in violation of any enforceable
law, action, rule, order or regulation under this article.
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14.03 Buyer shall use due diligence to maximize its sales of gas in its
franchise area on reasonable terms and conditions. Notwithstanding Buyer's due
diligence, Buyer's ability to resell gas available for purchase under this
contract may be adversely affected by such factors as conservation, and
competition from other sellers of natural gas (including by-pass). If, at any
time, after the effective date hereof, Buyer determines that it no longer
requires some or all of the gas available to it under this contract because of
loss of firm load or loss of load due to by-pass, Buyer may reduce the DCM by an
amount equal to or less than (a) in the event of the loss of firm load, the
product of (i) the difference between Buyer's Normalized Firm Load as of
September 30, 1994 and Buyer's Normalized Firm Load as of the then most recent
September 30, and (ii) a fraction the numerator of which shall be the DCM under
this contract and the denominator of which shall be the total of the DCM's under
the Wellhead Contracts then in effect, and/or (b) in the event of loss of load
due to by-pass(es), the product of (i) the total volume attributable to the
by-pass(es) and (ii) a fraction the numerator of which shall be the DCM under
this contract and the denominator of which shall be the total of the DCM's under
the Wellhead Contracts then in effect.
ARTICLE XV
FORCE MAJEURE
15.01 No failure or delay in performance, whether in whole or in part, by
either Seller or Buyer shall be deemed to be a breach hereof when such failure
or delay is occasioned by or due to any acts of God, strikes, lockouts, or other
industrial disturbances, acts of the public enemy, sabotage, wars, blockades,
insurrections, riots, epidemics, landslides, lightning, earthquakes, floods,
storms, fires, washouts, arrests and restraints of rulers and peoples, civil
disturbances, explosions, breakage or accident to machinery or lines of pipe,
hydrate obstructions of lines of pipe, lack of pipeline capacity due to a force
majeure event experienced by persons transporting or storing gas for Buyer or
Seller, repairs, maintenance, improvement, replacement or alterations to plants,
lines of pipe or related facilities, partial or complete failure to perform by
persons transporting or storing gas for Buyer or Seller, inability of either
party to obtain necessary
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machinery, materials or permits or to obtain easements or rights of way,
freezing of a well or delivery facility, well blowouts, craterings, the act of
any court or governmental authority, or any other cause, whether of the kind
herein enumerated or otherwise, not reasonably within the control of the party
claiming suspension and which, by the exercise of due diligence, such party is
unable to prevent or overcome; provided, however, that the settlement of strikes
or lockouts shall be entirely within the discretion of the party having the
difficulty, and the requirement that any force majeure shall be remedied with
the exercise of diligence shall not require the settlement of strikes or
lockouts by acceding to the demands of opposing parties when such course is
inadvisable in the discretion of the party having difficulty. Under no
circumstances shall failure of the gas supply reserves being purchased by Seller
be deemed an event of force majeure.
15.02 Such causes or contingencies affecting the performance of this
contract by any party hereto, however, shall not relieve such party of liability
in the event of its negligence or in the event of its failure to remedy the
situation and remove the cause in an adequate manner and with all reasonable
dispatch. Nor shall such causes or contingencies affecting the performance of
this contract relieve any party from its obligations to make payments of amounts
when due. Nor shall such causes or contingencies relieve any party of
liability, unless such party shall give notice and full particulars of the same
in writing or by telegraph to the other party as soon as possible after the
occurrence relied on, and like notice shall be given upon termination of such
force majeure conditions.
15.03 If, due to force majeure, the gas available for delivery by Seller is
insufficient to meet all of Seller's firm sales obligations to Buyer then
deliveries will be made in accordance with Section 5.01(c) of this Agreement.
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ARTICLE XVI
WARRANTY OF TITLE
16.01 Seller warrants title to all gas delivered by it, that it has the
right to sell or deliver the same, and that such gas is free from liens and
adverse claims of every kind. Seller shall pay or cause to be paid all taxes
and other sums due on the gathering and handling of the gas delivered by Seller.
Seller shall indemnify and save Buyer harmless from and against all suits,
actions, damages, costs and expenses arising from or out of any breach of this
provision.
ARTICLE XVII
RESPONSIBILITY
17.01 As between the parties hereto, Seller shall be deemed to be in
exclusive control and possession of the gas sold hereunder until such gas has
been delivered to the applicable "A" or "A-1" Receipt Point(s), after which
point Buyer shall be deemed to be in exclusive control and possession of such
gas.
17.02 The party deemed to be in control and possession of the gas sold
hereunder shall be responsible for and shall indemnify the other party with
respect to any claims, liabilities or damages arising therefrom when such gas is
in that party's control and possession.
ARTICLE XVIII
GENERAL PROVISIONS
18.01 In the event the Third Party Seller at the "A" Receipt Point(s)
exercises its right, pursuant to Section 2.2 of Article II of the sales contract
between such Third Party Seller and Seller, to have gas quantities permanently
released from such sales contract between such Third Party Seller and Seller,
then Seller shall have the right upon sixty (60) days prior written notice, to
reduce the DCM hereunder by the volume set forth in Seller's notice; provided,
however, that said reduction shall not exceed the volume released by the Third
Party Seller and shall constitute a pro rata share of the total reduction made
by Seller under all firm sales contracts as a result thereof.
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18.02 Upon sixty (60) days notice from Buyer, Seller shall provide to Buyer
(subject to Section 18.08) on the next anniversary of the effective date hereof,
a statement of the estimated average deliverability for the next year, to the
best of Seller's knowledge, information and belief at the time, of (a) (i)
Seller's gas supplies located behind the "A" Receipt Points and (ii) the total
of Seller's firm gas sales commitments with a term of one year or longer behind
the same "A" Receipt Points, and (b) (i) Seller's gas supplies located behind
"A-1" Receipt Points and (ii) the total of Seller's firm gas sales commitments
with a total of one year or longer behind the same "A-1" Receipt Points.
18.03 Except as otherwise provided in this contract, any notice, request,
demand, payment or statement provided for in this contract shall be in writing
and shall be (a) mailed by registered or certified mail and deemed duly
delivered when mailed or (b) delivered by any type of telecommunication or
delivered in hand, to the address of the parties hereto as follows:
BUYER:
For Notices (by mail):
Atlanta Gas Light Company
P. O. Box 4569
Atlanta, Georgia 30302-4569
Attention: Mr. Stephen J. Gunther
For Notices (by telephone):
(404) 584-3896
For Notices (by facsimile machine):
Facsimile Machine: (404) 584-3703
For Notices (by courier):
Atlanta Gas Light Company
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3249
Attention: Mr. Stephen J. Gunther
For Payment and Billing (by mail):
Atlanta Gas Light Company
P. O. Box 4569
Atlanta, Georgia 30302-4569
Attention: Gas Supply Analyst
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For Payment and Billing (by courier):
Atlanta Gas Light Company
303 Peachtree Street, N.E.
Atlanta, Georgia 30308-3249
Attention: Gas Supply Analyst
SELLER:
For Notices and Billing (by mail):
For Notices (by facsimile machine):
For Payment:
or to such other address as either party shall from time to time designate by
correspondence to the other party.
18.04 This contract shall not be assignable by either party in whole or in
part, except with the consent of the other party, which shall not be
unreasonably withheld. This contract shall inure to the benefit of and be
binding upon permitted successors and assigns.
18.05 This contract is for the sole and exclusive benefit of the parties
hereto. Nothing expressed or implied herein is intended to benefit any other
person, firm or corporation not a party hereto and none of such other persons
shall have any legal or equitable right, remedy or claim under this contract or
under any provision hereof.
18.06 This agreement constitutes the entire contract between the parties
pertaining to the subject matter hereof; supersedes all prior agreements and
understandings, whether oral or written, which the parties may have in
connection herewith; and may not be modified except by
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written agreement of the parties. The parties and their legal counsel have
cooperated in the drafting of this contract and it shall therefore be deemed
their joint work product and shall not be construed against either party by
reason of its preparation.
18.07 THE INTERPRETATION AND PERFORMANCE OF THIS CONTRACT SHALL BE IN
ACCORDANCE WITH AND CONTROLLED BY THE LAWS OF THE STATE OF GEORGIA, EXCEPT FOR
THE CHOICE OF LAW DOCTRINE THAT REFERS TO THE LAWS OF ANOTHER JURISDICTION.
18.08 The parties acknowledge that this contract and all documents and
information provided to either party pursuant to this contract contain
commercially sensitive information and each party agrees that it will not,
without the written consent of the other, disclose to any third party, this
contract or the terms or provisions thereof except to the extent, and only to
the extent, that disclosure is required (a) by law or by a court or
administrative agency having jurisdiction over the disclosing party; (b) to
obtain transportation of the gas purchased and sold hereunder; or (c) in the
course of an audit of the disclosing party, and further provided that upon
learning that disclosure is required by law or by a court or administrative
agency, the party required to make such disclosure shall immediately notify the
other party and shall take all reasonable steps requested by such other party to
limit the extent of such disclosure.
18.09 No waiver by either party of any one or more defaults by the other in
the performance of any provision of this contract shall operate or be construed
as a waiver of any future default or defaults, whether of a like or of a
different character.
18.10 The Exhibit(s) attached hereto are incorporated herein by reference
and made a part of this contract for all purposes.
18.11 The descriptive headings of the provisions of this contract are
formulated and used for convenience only and will not be deemed to effect the
meaning or construction of any such provision.
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IN WITNESS WHEREOF, this instrument is executed as of the day and year
first above written.
WITNESS:
Its ______________________________ Its _______________________________
WITNESS: ATLANTA GAS LIGHT COMPANY
Its: /s/ Charles R. Sanders /s/ Stephen J. Gunther
Title: Vice President
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EXHIBIT "A"
"A" RECEIPT POINT(S)
Maximum
SNG Point Description SNG Meter No. Nomination Quantity
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