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 December 31, 1996
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification Number
1-9905 ATLANTA GAS LIGHT COMPANY 58-0145925
( 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. Yes X No
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of December 31, 1996.
Common Stock
All of the Registrant's Common Stock, $5.00 Par Value, is owned by AGL Resources
Inc.
<PAGE>
ATLANTA GAS LIGHT COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended December 31, 1996
Table of Contents
Item Page
Number PART I -- FINANCIAL INFORMATION Number
1 Financial Statements (Unaudited)
Condensed Consolidated Income Statements 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 6
Notes to Condensed Consolidated Financial Statements 7
2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 11
PART II -- OTHER INFORMATION
1 Legal Proceedings 15
5 Other Information 15
6 Exhibits and Reports on Form 8-K 19
SIGNATURES 20
Page 2 of 20
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PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
<TABLE>
<CAPTION>
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED
DECEMBER 31, 1996 AND 1995
(MILLIONS, EXCEPT PER SHARE DATA)
Three Months Twelve Months
---------------- -------------------
1996 1995 1996 1995
- -------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Operating Revenues ..................... $ 364.9 $ 328.8 $ 1,253.7 $ 1,063.0
Cost of Gas ............................ 219.0 188.8 748.9 572.5
- -------------------------------------------------------------------------------------
Operating Margin ....................... 145.9 140.0 504.8 490.5
- -------------------------------------------------------------------------------------
Other Operating Expenses
Operating expenses ............... 86.7 80.8 339.4 327.3
Restructuring costs .............. 25.8
- -------------------------------------------------------------------------------------
Total other operating expenses 86.7 80.8 339.4 353.1
- -------------------------------------------------------------------------------------
Income Taxes ........................... 17.0 17.2 43.3 32.6
- -------------------------------------------------------------------------------------
Operating Income ....................... 42.2 42.0 122.1 104.8
- -------------------------------------------------------------------------------------
Other Income
Other income and deductions ...... 1.2 1.6 12.2 2.3
Income taxes ..................... (0.5) (0.6) (4.7) (0.8)
- -------------------------------------------------------------------------------------
Total other income-net ....... 0.7 1.0 7.5 1.5
- -------------------------------------------------------------------------------------
Income Before Interest Charges ......... 42.9 43.0 129.6 106.3
Interest Charges ....................... 13.6 12.8 49.9 47.1
- -------------------------------------------------------------------------------------
Net Income ............................. 29.3 30.2 79.7 59.2
- -------------------------------------------------------------------------------------
Dividends on Preferred Stock ........... 1.1 1.1 4.4 4.4
=====================================================================================
Earnings Available for Common Stock .... $ 28.2 $ 29.1 $ 75.3 $ 54.8
=====================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
Page 3 of 20 Pages
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<TABLE>
<CAPTION>
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
December 31, September 30,
--------------------- -------------
ASSETS 1996 1995 1996
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Utility Plant ....................................... $ 1,982.7 $ 1,943.1 $ 1,969.0
Less accumulated depreciation ................. 615.8 595.8 607.8
- -------------------------------------------------------------------------------------------
Utility plant-net ......................... 1,366.9 1,347.3 1,361.2
- -------------------------------------------------------------------------------------------
Other Property and Investments
(less accumulated depreciation of $2.4 at
December 31, 1995) ............................ 12.5
- -------------------------------------------------------------------------------------------
Current Assets
Cash and cash equivalents ..................... 5.8 7.9
Receivables (less allowance for uncollectible
accounts of $3.8 at December 31, 1996, $5.2
at December 31, 1995, and $2.7 at September 214.9 198.2 91.3
30, 1996)
Receivables from associated companies ......... 9.7
Inventories
Natural gas stored underground ............ 113.1 87.4 144.0
Liquefied natural gas ..................... 17.4 11.6 16.8
Materials and supplies .................... 6.1 8.5 7.9
Other ..................................... 2.0 0.1
Deferred purchased gas adjustment ............. 31.4 7.5 4.7
Other ......................................... 7.2 9.2 10.3
- -------------------------------------------------------------------------------------------
Total current assets ...................... 399.8 330.2 283.0
- -------------------------------------------------------------------------------------------
Deferred Debits and Other Assets
Unrecovered environmental response costs ...... 40.7 34.7 38.0
Unrecovered Integrated Resource Plan costs .... 9.6 7.5 10.0
Investment in joint ventures .................. 32.6
Other ......................................... 36.7 32.6 36.0
- -------------------------------------------------------------------------------------------
Total deferred debits and other assets .... 87.0 107.4 84.0
===========================================================================================
Total Assets ........................................ $ 1,853.7 $ 1,797.4 $ 1,728.2
===========================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
Page 4 of 20 Pages
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<TABLE>
<CAPTION>
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
December 31, September 30,
----------------- -------------
CAPITALIZATION AND LIABILITIES 1996 1995 1996
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Capitalization
Common stock, $5 par value, shares issued and
outstanding of 55.4 at December 31, 1996, 55.2 at
December 31, 1995, and 55.4 at September 30, 1996 .. $ 276.8 $ 275.8 $ 276.8
Premium on capital stock ............................... 166.2 163.7 166.2
Earnings reinvested .................................... 68.0 136.8 59.7
- ----------------------------------------------------------------------------------------------------
511.0 576.3 502.7
- ----------------------------------------------------------------------------------------------------
Preferred stock, cumulative $100 par or stated value,
shares issued and outstanding of 0.6 at December 31,
1996, December 31, 1995, and September 30, 1995 .... 58.5 58.5 58.5
Long-term debt ......................................... 584.5 554.5 554.5
- ----------------------------------------------------------------------------------------------------
Total capitalization ............................... 1,154.0 1,189.3 1,115.7
- ----------------------------------------------------------------------------------------------------
Current Liabilities
Short-term debt ........................................ 188.8 156.3 152.0
Accounts payable-trade ................................. 100.9 83.1 72.7
Payable to associated companies ........................ 2.7
Customer deposits ...................................... 29.9 29.8 27.8
Interest ............................................... 18.3 17.5 25.7
Taxes .................................................. 23.7 10.9 16.0
Other .................................................. 30.0 35.2 26.9
- ----------------------------------------------------------------------------------------------------
Total current liabilities .......................... 391.6 332.8 323.8
- ----------------------------------------------------------------------------------------------------
Long-Term Liabilities
Accrued environmental response costs ................... 31.3 28.6 30.4
Payable to AGL Resources - accrued pension costs ....... 6.6 9.8 4.9
Payable to AGL Resources - accrued postretirement
benefits costs ..................................... 34.5 31.4 36.2
Deferred credits ...................................... 60.4 64.5 60.9
- ----------------------------------------------------------------------------------------------------
Total long-term liabilities ........................ 132.8 134.3 132.4
- ----------------------------------------------------------------------------------------------------
Accumulated Deferred Income Taxes ............................ 175.3 141.0 156.3
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities ......................... $ 1,853.7 $ 1,797.4 $ 1,728.2
====================================================================================================
</TABLE>
See notes to condensed consolidated financial statements.
Page 5 of 20 Pages
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<TABLE>
<CAPTION>
ATLANTA GAS LIGHT COMPANY AND SUBISIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE THREE MONTHS AND TWELVE MONTHS ENDED DECEMBER 31, 1996
(MILLIONS)
Three Months Twelve Months
----------------- -----------------
1996 1995 1996 1995
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cash Flows from Operating Activities
Net income .................................. $ 29.3 $ 30.2 $ 79.7 $ 59.2
Adjustments to reconcile net income to
net cash flow from operating activities
Depreciation and amortization ........... 16.5 16.6 65.7 63.4
Deferred income taxes ................... 2.4 2.3 24.8 19.6
Noncash compensation expense ............ (0.4) 1.8 0.4 5.6
Noncash restructuring costs ............. 8.4
Other ................................... (0.2) (0.6) (0.8) (2.1)
Changes in certain assets and liabilities ... (78.0) (114.8) (45.3) 6.9
- --------------------------------------------------------------------------------------------
Net cash flow from operating activities (30.4) (64.5) 124.5 161.0
- --------------------------------------------------------------------------------------------
Cash Flows from Financing Activities
Sale of common stock, net of expenses ....... 0.3 0.7 50.2
Short-term borrowings, net .................. 36.8 105.3 32.5 7.7
Redemptions of long-term debt ............... (15.0)
Sale of long-term debt ...................... 30.0 30.0
Common stock dividends paid to parent ....... (15.1) (12.2) (56.7) (45.7)
Preferred stock dividends ................... (1.1) (1.1) (4.4) (4.4)
- --------------------------------------------------------------------------------------------
Net cash flow from financing activities 50.6 92.3 2.1 (7.2)
- --------------------------------------------------------------------------------------------
Cash Flows from Investing Activities
Utility plant expenditures .................. (29.0) (27.1) (134.0) (122.2)
Investment in joint venture ................. (32.6)
Nonutility capital expenditures ............. 1.2 (0.1) 1.7
Cash received from joint venture ............ 2.0
Cost of removal, net of salvage ............. 0.9 0.2 (0.3) 0.9
- --------------------------------------------------------------------------------------------
Net cash flow from investing activities (28.1) (25.7) (132.4) (152.2)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in cash and
cash equivalents .................... (7.9) 2.1 (5.8) 1.6
Cash and cash equivalents at
beginning of year ................... 7.9 3.7 5.8 4.2
- --------------------------------------------------------------------------------------------
Cash and cash equivalents at
end of year ......................... $ 0.0 $ 5.8 $ 0.0 $ 5.8
============================================================================================
Supplemental Information
Cash paid during the year for
Interest ................................ $ 21.1 $ 20.8 $ 46.1 $ 48.4
Income taxes ............................ $ 0.2 $ 19.3 $ 20.3
See notes to condensed consolidated financial statements.
Page 6 of 20 Pages
</TABLE>
<PAGE>
ATLANTA GAS LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Implementation of Holding Company Reorganization
On March 6, 1996, following shareholder approval, Atlanta Gas Light
Company (AGLC) completed a corporate restructuring in which a new company,
AGL Resources Inc. (AGL Resources), became the holding company for AGLC,
AGLC's wholly owned natural gas utility subsidiary, Chattanooga Gas Company
(Chattanooga), and AGLC's nonregulated subsidiaries. The consolidated
financial statements of AGLC include the financial statements of AGLC and
Chattanooga and unless noted specifically or otherwise required by the
context, references to AGLC include the operations and activities of AGLC
and Chattanooga.
Ownership of AGLC's nonregulated business, Georgia Gas Company (natural
gas production activities), has been transferred to AGL Energy Services,
Inc. (AGL Energy Services). Ownership of AGLC's other nonregulated
businesses, Georgia Energy Company (natural gas vehicle conversions),
Georgia Gas Service Company (propane sales) and Trustees Investments, Inc.
(real estate holdings), has been transferred to AGL Investments, Inc. (AGL
Investments). AGLC's interest in Sonat Marketing Company L.P. has been
transferred to AGL Gas Marketing, Inc., a wholly owned subsidiary of AGL
Investments. The transfer of AGLC's nonregulated businesses to those
subsidiaries of AGL Resources was effected through a noncash dividend of
$45.9 million during fiscal 1996.
AGL Resources Service Company (Service Company) was formed during
fiscal 1996 to provide corporate support services to AGLC, AGL Resources
and its other subsidiaries. The transfer of related assets and accumulated
deferred income tax liabilities from AGLC to Service Company and other
nonregulated subsidiaries of AGL Resources was effected through noncash
dividends of $34.3 million during the fourth quarter of fiscal 1996 and
$4.8 million during the first quarter of fiscal 1997. As a result of those
noncash dividends, utility plant-net decreased by $48.4 million,
accumulated deferred income tax decreased by $9.3 million, and earnings
reinvested decreased by $39.1 million. Expenses of Service Company are
allocated to AGLC, AGL Resources and its other subsidiaries.
2. Interim Financial Statements
In the opinion of management, 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. 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, 1996 and 1995. Certain 1995 amounts have been
reclassified for comparability with 1996 amounts.
3 . Earnings
Since consumption of natural gas is dependent to a large extent on
weather, the majority of AGLC's income is realized during the winter
months. Earnings for a three-month period 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 of
earnings for the twelve-month periods ended December 31, 1996, and 1995.
Page 7 of 20 Pages
<PAGE>
4. Environmental Matters
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 also three sites in Florida which have been
investigated by environmental authorities in connection with which AGLC may
be contacted as a potentially responsible party.
AGLC's response to MGP sites in Georgia is proceeding under two state
regulatory programs. First, AGLC has entered into consent orders with the
Georgia Environmental Protection Division (EPD) with respect to four sites:
Augusta, Griffin, Savannah and Valdosta. Under these consent orders, AGLC
is obliged to investigate and, if necessary, remediate impacts at the site.
AGLC developed a proposed Corrective Action Plan (CAP) for the Griffin site
and has now conducted certain follow-up investigations in response to EPD's
comments. Assessment activities were conducted at Augusta and are planned
for Savannah during January 1997. In addition, AGLC is in the process of
planning certain interim remedial measures at the Augusta MGP site. Those
measures are expected to be implemented principally during fiscal 1997.
Second, AGLC's response to all Georgia sites is proceeding in
substantial compliance with Georgia's Hazardous Site Response Act (HSRA).
AGLC submitted to EPD formal notifications pertaining to all of its owned
MGP sites, and EPD had listed seven sites (Athens, Augusta, Brunswick,
Griffin, Savannah, Valdosta and Waycross) on the state's Hazardous Site
Inventory (HSI). EPD has not listed the Macon site on the HSI at this time.
EPD has also listed the Rome site, which AGLC has acquired, on the HSI.
Under the HSRA regulations, the four sites subject to consent orders are
presumed to require corrective action; EPD will determine whether
corrective action is required at the four remaining sites (Athens,
Brunswick, Rome and Waycross) in due course. In that respect, however, AGLC
has submitted Compliance Status Reports (CSRs) for the Athens, Brunswick
and Rome MGP sites, and AGLC has concluded that these sites do not meet
applicable risk reduction standards. Accordingly, some degree of response
action is likely to be required at those sites.
AGLC has estimated that, under the most favorable circumstances
reasonably possible, the future cost to AGLC of investigating and
remediating the former MGP sites could be as low as $31.3 million.
Alternatively, AGLC has estimated that, under reasonably possible
unfavorable circumstances, the future cost to AGLC of investigating and
remediating the former MGP sites could be as high as $117.3 million. Those
estimates have been adjusted from the September 30, 1996 estimates to
reflect settlements of property damage claims at certain sites. If
additional sites were added to those for which corrective action now
appears reasonably likely, or if substantially more stringent cleanups were
required, or if site conditions are markedly worse than those now
anticipated, the costs could be higher. In addition, those costs do not
include other expenses, such as property damage claims, for which AGLC may
ultimately be held liable, but for which neither the existence nor the
amount of such liabilities can be reasonably forecast. Within the stated
range of $31.3 million to $117.3 million, no amount within the range can be
reliably identified as a better estimate than any other estimate.
Therefore, a liability at the low end of this range and a corresponding
regulatory asset have been recorded in the financial statements.
AGLC has two means of recovering the expenses associated with the
former MGP sites. First, the Georgia Commission has approved the recovery
by AGLC of Environmental Response Costs, as defined, pursuant to an
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, cleanup activities at the sites and
environmental response costs that have been incurred for purposes of the
ERCRR. On October 10, 1996, the Georgia Commission issued an order to
prohibit funds collected through the ERCRR from being used for the payment
of any damage award, including punitive damages, as a result of any
litigation associated with any of the MGP sites in which AGLC is involved.
AGLC is
Page 8 of 20 Pages
<PAGE>
currently pursuing judicial review of the October 10, 1996, order.
Second, AGLC intends to seek recovery of appropriate costs from its
insurers and other potentially responsible parties. With respect to its
insurers, in 1991, AGLC filed a declaratory judgement action against 23 of
its insurance companies. After the trial court entered a judgement adverse
to AGLC and AGLC appealed that ruling, the Eleventh Circuit Court of
Appeals held that the case did not present a case or controversy when
filed, and the case was remanded with instructions to dismiss. Since the
Eleventh Circuit's decision, AGLC has settled with, or is close to
settlement with, most of the major insurers. AGLC has not determined what
actions it will take with respect to non-settling insurers.
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 competes to supply natural gas to interruptible customers who are
capable of switching to alternative fuels, including propane, fuel and
waste oils, electricity and, in some cases, combustible wood by-products.
AGLC also competes to supply gas to interruptible customers who might seek
to bypass its distribution system.
AGLC can price distribution services to interruptible customers four
ways. First, multiple rates are established under the rate schedules of
AGLC's tariff approved by the Georgia Commission. If an existing tariff
rate does not produce a price competitive with a customer's relevant
competitive alternative, three alternate pricing mechanisms exist:
Negotiated Contracts, Interruptible Transportation and Sales Maintenance
(ITSM) discounts and Special Contracts.
On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option of
bypassing AGLC's facilities (Bypass Customers) to receive natural gas from
other suppliers. The bypass avoidance contracts (Negotiated Contracts) 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, after 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 in effect. None of the Negotiated Contracts
filed to date 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. Under the recovery
mechanism, AGLC is allowed to recover from other customers 75% of the
difference between (a) the nongas cost revenue that was received from the
potential Bypass Customer during the most recent 12-month period and (b)
the nongas cost revenue that is calculated to be received from the lower
Negotiated Contract rate applied to the same volumetric level. Concerning
the remaining 25% of the difference, AGLC is allowed to retain a 44% share
of capacity release revenues in excess of $5 million until AGLC is made
whole for discounts from Negotiated Contracts. To the extent there are
additional capacity release revenues, AGLC is allowed to retain 15% of such
amounts.
In addition to Negotiated Contracts, which are designed to serve
existing and potential Bypass Customers, AGLC's 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
Page 9 of 20 Pages
<PAGE>
schedules, or Negotiated Contract procedures. A Special Contract, for
example, could involve AGLC providing a long-term service contract to
compete with alternative fuels where physical bypass is not the relevant
competition.
Pursuant to the approved settlement, AGLC has filed and is providing
service pursuant to 46 Negotiated Contracts. Additionally, the Georgia
Commission has approved Special Contracts between AGLC and five
interruptible customers.
On July 22, 1996, Chattanooga filed a plan with the Tennessee
Regulatory Authority (TRA) that permits Chattanooga to negotiate contracts
with customers in Tennessee who have long-term competitive options,
including bypass. On November 27, 1996, the TRA approved a settlement that
permits Chattanooga to negotiate contracts with large commercial or
industrial customers who are capable of bypassing Chattanooga's
distribution system. The settlement provides for approval on an
experimental basis, with the TRA to review the measure two years from the
approval date. The pricing terms provided in any such contract may be
neither less than Chattanooga's marginal cost of providing service nor
greater than the filed tariff rate generally applicable to such service.
Chattanooga can recover 50% of the difference between the contract rate and
the applicable tariff rate through the balancing account of the purchased
gas adjustment provisions of Chattanooga's rate schedules.
6. Corporate Restructuring
In November 1994 AGLC announced a corporate restructuring plan and
began its implementation during fiscal 1995. As a result of the
restructuring, AGLC combined offices, established centralized customer
service centers and reduced the average number of employees through
voluntary retirement, severance programs and attrition. Restructuring costs
of $43.1 million and $14.7 million, after income taxes, were recorded
during fiscal and calendar year 1995, respectively. The principal financial
effects of the restructuring charges were to increase obligations with
respect to pension benefits and postretirement benefits other than
pensions.
(The remainder of this page was intentionally left blank.)
Page 10 of 20 Pages
<PAGE>
Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
On March 6, 1996, Atlanta Gas Light Company (AGLC) completed a
corporate restructuring in which a new company, AGL Resources Inc. (AGL
Resources) became the holding company for AGLC and its subsidiaries. During
calendar 1996, ownership of AGLC's nonregulated businesses was transferred to
AGL Resources and its various subsidiaries. Unless noted specifically or
otherwise required by the context, references to AGLC include the operations and
activities of AGLC and Chattanooga. The following discussion and analysis
reflects events affecting AGLC's results of operations and financial condition
and factors expected to impact its future operations. See Note 1 in Notes to
Condensed Consolidated Financial Statements in this Form 10-Q.
Results of Operations
Three-Month Periods Ended December 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 December 31, 1996,
compared with the same period in 1995.
Operating revenues increased 11% for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1) an
increase in the cost of the gas supply recovered from customers under the
purchased gas provisions of AGLC's rate schedules, as explained in the following
paragraph, and (2) growth in the number of customers served. The increase in
operating revenues was offset partly by decreased volumes of gas sold as a
result of weather that was 26% warmer than the same period in 1995.
AGLC balances the cost of gas with revenues collected from customers
under the purchased gas provisions of its 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. Cost of gas increased 16% for the three-month
period ended December 31, 1996, compared with the same period in 1995. The
increase in the cost of AGLC's gas supply was primarily due to (1) an increase
in the cost of gas purchased for system supply and (2) an increase in the cost
of gas withdrawn from underground storage. The increase in cost of gas was
offset partly by decreased volumes of gas sold as a result of weather that was
26% warmer than the same period in 1995.
Operating margin increased 4.2% for the three-month period ended December
31, 1996, compared with the same period in 1995 primarily due to growth in the
number of customers served. Weather normalization adjustment riders (WNARs)
approved by the Georgia Commission and the TRA stabilized operating margin at
the level which would occur with normal weather for the three-month periods
ended December 31, 1996 and 1995. As a result of the WNARs, weather conditions
experienced do not have a significant impact on the comparability of operating
margin.
Operating expenses increased 7.3% for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1)
increased labor and labor-related expenses, (2) increased uncollectible accounts
expense and (3) increased depreciation expense recorded as a result of increased
property subject to depreciation.
Other income decreased $0.3 million for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to the
transfer of AGLC's nonregulated businesses to AGL Resources and its subsidiaries
subsequent to December 1995 (See Note 1 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q). The decrease in other income was offset
partly by (1) the recovery from customers of carrying costs not included in base
rates related to storage gas inventories, (2) an increase in the recovery of
carrying costs attributable to AGLC's Integrated
Page 11 of 20 Pages
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Resource Plan and (3) the recovery of carrying costs attributable to an increase
in underrecovered deferred purchased gas costs.
Income taxes decreased $0.3 million for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to
decreased taxable income.
Interest charges increased $0.8 million for the three-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to
increased amounts of short-term and long-term debt outstanding.
Earnings available for common stock for the three-month period ended
December 31, 1996, was $28.2 million, compared with $29.1 million for the
three-month period ended December 31, 1995. The decrease in earnings available
for common stock was primarily due to increased other operating expenses. The
decrease in earnings available for common stock was offset partly by increased
operating margin.
Twelve-Month Periods Ended December 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 December 31, 1996,
compared with the same period in 1995.
Operating revenues increased 17.9% for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1) an
increase in the cost of the gas supply recovered from customers under the
purchased gas provisions of AGLC's rate schedules, as explained in the following
paragraph and (2) growth in the number of customers served.
AGLC balances the cost of gas with revenues collected from customers
under the purchased gas provisions of its 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. Cost of gas increased 30.8% for the twelve-month
period ended December 31, 1996, compared with the same period in 1995. The
increase in the cost of AGLC's gas supply was primarily due to an increase in
the cost of gas purchased for system supply.
Operating margin increased 2.9% for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1)
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), (2) growth in the number
of customers served and (3) a revenue increase granted by the TRA effective
November 1, 1995. WNARs stabilized operating margin at the level which would
occur with normal weather for the twelve-month periods ended December 31, 1996
and 1995. As a result of the WNARs, weather conditions experienced do not have a
significant impact on the comparability of operating margin.
Operating expenses increased 3.7% for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1)
increased depreciation expense recorded as a result of increased property
subject to depreciation and (2) increased uncollectible accounts expense. Total
other operating expenses decreased primarily due to restructuring costs of $25.8
million recorded during the twelve-month period ended December 31, 1995. See
Note 6 to Notes to Condensed Consolidated Financial Statements in this Form
10-Q.
Other income increased $6.0 million for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to (1)
the recovery of carrying costs attributable to an increase in underrecovered
deferred purchased gas costs and (2) recoveries of environmental response costs
from insurance carriers and third parties.
Income taxes increased $14.6 million for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to
increased taxable income.
Page 12 of 20 Pages
<PAGE>
Interest charges increased $2.8 million for the twelve-month period ended
December 31, 1996, compared with the same period in 1995 primarily due to
increased amounts of short-term and long-term debt outstanding.
Earnings available for common stock for the twelve-month period ended
December 31, 1996, was $75.3 million, compared with $54.8 million for the
twelve-month period ended December 31, 1995. The increase in earnings available
for common stock was primarily due to (1) restructuring costs of $14.7 million
(after income taxes) recorded in 1995, (2) increased operating margin and (3)
increased other income. The increase in earnings available for common stock was
offset partly by increased other operating expenses.
Financial Condition
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 December 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 $123.6 million and inventory of gas stored underground decreased $30.9
million during the three months ended December 31, 1996. As a result of weather
that was 13.2% warmer than normal during the three-month period ended December
31, 1996, significant usage of liquefied natural gas was not necessary to meet
system demand. Accounts payable increased $28.2 million during the three months
ended December 31, 1996, primarily due to a $38.4 million increase in accounts
payable to gas suppliers.
Accounts receivable increased $16.7 million from December 31, 1995 to
December 31, 1996, primarily due to increased operating revenues. Inventory of
gas stored underground and liquefied natural gas increased $31.5 million from
December 31, 1995 to December 31, 1996, primarily due to an increase in the cost
of gas injected into storage. Accounts payable increased $17.8 million from
December 31, 1995 to December 31, 1996, primarily due to a $14.5 million
increase in accounts payable to gas suppliers.
The purchasing practices of AGLC are subject to review by the Georgia
Commission under legislation enacted by the Georgia General Assembly (Gas Supply
Plan Legislation). The Gas Supply Plan Legislation establishes procedures for
review and approval, in advance, 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 1997, 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.
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 $113.6 million. This estimate assumes both that FERC approval of
Southern Natural Gas Company's restructuring settlement agreement is not
overturned on judicial review and that FERC does not alter its Gas Supply
Realignment (GSR) recovery policies on remand from the United States Court of
Appeals for the District of Columbia Circuit. Such filings currently are pending
final FERC approval, and the transition costs are being collected subject to
refund. Approximately $85.2 million of such costs have been incurred by AGLC as
of December 31, 1996, recovery of which is provided under the purchased gas
provisions of AGLC's rate schedules. 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.
As noted above, AGLC recovers the cost of gas under the purchased gas
provisions of its rate schedules. AGLC was in an underrecovery position of $31.4
million as of December 31, 1996, $7.5 million as of December 31, 1995, and $4.7
million as of September 30, 1996. Under the provisions of AGLC's rate schedules,
any underrecoveries of gas costs are included in current assets and have no
effect on net income.
Cash and cash equivalents decreased $7.9 million and $5.8 million for the
three-month and twelve-month periods ended December 31, 1996, respectively,
primarily to offset other working capital requirements.
Page 13 of 20 Pages
<PAGE>
The expenditures for plant and other property totaled $29 million and
$134.1 million for the three-month and twelve-month periods ended December 31,
1996, respectively.
Service Company was formed during fiscal 1996 to provide corporate
support services to AGLC, AGL Resources and its other subsidiaries. The transfer
of related assets and accumulated deferred income tax liabilities from AGLC to
Service Company and other nonregulated subsidiaries was effected through noncash
dividends of $34.3 million during the fourth quarter of fiscal 1996 and $4.8
million during the first quarter of fiscal 1997. As a result of those noncash
dividends, utility plant-net decreased by $48.4 million, accumulated deferred
income tax decreased by $9.3 million, and earnings reinvested decreased by $39.1
million. Expenses of Service Company are allocated to AGL Resources and its
subsidiaries.
AGLC has accrued liabilities of $31.3 million as of December 31, 1996,
$28.6 million as of December 31, 1995, and $30.4 million as of September 30,
1996, 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, pursuant to the ERCRR. In connection with the ERCRR, the staff
of the Georgia Commission has undertaken a financial and management process
audit related to the MGP sites, cleanup activities at the sites and
environmental response costs that have been incurred for purposes of the ERCRR.
On October 10, 1996, the Georgia Commission issued an order to prohibit funds
collected through the ERCRR from being used for the payment of any damage award,
including punitive damages, as a result of any litigation associated with any of
the MGP sites in which AGLC is involved. AGLC is currently pursuing judicial
review of the October 10, 1996, order.
Short-term debt increased $36.8 million and $32.5 million for the
three-month and twelve-month periods ended December 31, 1996, respectively,
primarily to meet increased working capital requirements.
Long-term debt outstanding increased $30 million during the three-month
and twelve-month periods ended December 31, 1996, as a result of the issuance of
$30 million in principal amount of Medium-Term Notes, Series C in November 1996.
The notes were issued under a registration statement filed with the Securities
and Exchange Commission in September 1993 covering the periodic offer and sale
of up to $300 million in principal amount of Medium-Term Notes, Series C. As of
December 31, 1996, AGLC had issued $224.5 million in principal amount of
Medium-Term Notes Series C, with maturity dates ranging from ten to 30 years and
with interest rates ranging from 5.9% to 7.2%. The notes are issued under an
Indenture dated as of December 1, 1989, as supplemented and modified, and are
unsecured and rank on a parity with all other unsecured indebtedness of AGLC.
Net proceeds from the issuance of Medium-Term Notes were used to fund capital
expenditures, to repay short-term debt and for other corporate purposes.
On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option of
bypassing AGLC's facilities (Bypass Customers) to receive natural gas from other
suppliers. The bypass avoidance contracts (Negotiated Contracts) 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, after 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 in effect.
None of the Negotiated Contracts filed to date 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. See Note 5 to Notes to
Condensed Consolidated Financial Statements in this Form 10-Q.
On July 22, 1996, Chattanooga filed a plan with the TRA that permits
Chattanooga to negotiate contracts with customers in Tennessee who have
long-term competitive options, including bypass. On November 27, 1996, the TRA
Page 14 of 20 Pages
<PAGE>
approved a settlement that permits Chattanooga to negotiate contracts with large
commercial or industrial customers who are capable of bypassing Chattanooga's
distribution system. The settlement provides for approval on an experimental
basis, with the TRA to review the measure two years from the approval date. The
pricing terms provided in any such contract may be neither less than
Chattanooga's marginal cost of providing service nor greater than the filed
tariff rate generally applicable to such service. Chattanooga can recover 50% of
the difference between the contract rate and the applicable tariff rate through
the balancing account of the purchased gas adjustment provisions of
Chattanooga's rate schedules.
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, 1996 and should be read in conjunction therewith.
Item 1. Legal Proceedings
See Item 5.
Item 5. Other Information
Federal Regulatory Matters
Order No. 636
AGLC currently estimates that its portion of transition costs (which
include unrecovered gas costs, GSR costs and various stranded costs resulting
from unbundling of interstate pipeline sales service) from all of its pipeline
suppliers filed with the FERC to date to be recovered could be as high as
approximately $113.6 million. AGLC's estimate is based on the most recent
estimates of transition costs filed by its pipeline suppliers with the FERC, and
assumes both that FERC approval of Southern Natural Gas Company's (Southern)
restructuring settlement agreement is not overturned on judicial review and that
FERC does not alter its GSR recovery policies on remand from the United States
Court of Appeals for the District of Columbia Circuit in United Distribution
Cos. v. FERC, in which the court questioned the FERC's GSR recovery policy. Such
filings by AGLC's pipeline suppliers are pending final FERC approval.
Approximately $85.2 million of transition costs have been incurred by AGLC as of
December 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. 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,
since AGLC is a consenting party, its GSR and other transition cost charges are
in accordance with Southern's restructuring 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 $88 million. This estimate would
not be affected by the remand of Order No. 636, unless FERC's approval of the
settlement is not upheld on judicial review. As of December 31, 1996, $74.7
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 December 26, 1996, Tennessee filed with the FERC to recover an
additional $33 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 $17.4 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 December 31, 1996, $5.7 million of such costs have
already been incurred by AGLC. In addition, Tennessee and its customers have
reached an agreement in principle which would resolve all outstanding transition
cost issues; it is not possible, however, to say when this agreement will be
fully documented and filed with the FERC as a settlement, or whether the FERC
would approve such a settlement.
Page 15 of 20 Pages
<PAGE>
FERC Rate Proceedings
ANR PIPELINE On January 10, 1997, the presiding administrative law judge (ALJ)
issued an initial decision in ANR's rate proceeding. The ALJ upheld AGLC's
position that ANR's proposed rate for certain transportation services Southern
purchases from ANR, for the benefit of AGLC, was excessive. Under the initial
decision, Southern would receive approximately $7 million in refunds from ANR,
which amount would be flowed through to AGLC. The initial decision would also
reduce the rate for future service by approximately $3.5 million annually. AGLC
had sought a prospective annual reduction of up to $4.5 million. The initial
decision is subject to the possible filing of exceptions before the FERC, and
thus is not yet final.
Arcadian
On December 30, 1996, AGLC filed a petition in the United States Court of
Appeals for the Eleventh Circuit, seeking judicial review of the FERC's November
26, 1996, order rejecting AGLC's request for rehearing of the FERC's approval of
the settlement between Southern and Arcadian Corporation. On January 6, 1997,
AGLC moved to consolidate this appeal with its two prior appeals of the FERC's
orders in the Arcadian proceeding, which appeals had been held in abeyance
pending action by the FERC on AGLC's rehearing request before the FERC. The
court has not yet acted on AGLC's motion, and AGLC's three appeals remain
pending before the court.
AGLC cannot predict the outcome of these federal proceedings nor can it
determine the ultimate effect, if any, such proceedings may have on AGLC.
State Regulatory Matters
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. Negotiated Contracts may be rejected by the
Georgia Commission within 90 days of filing; none of the Negotiated Contracts
filed to date with the Georgia Commission have been rejected.
On May 21, 1996, the Georgia Commission adopted a Policy Statement
following its November 20, 1995 Notice of Inquiry concerning changes in state
regulatory guidelines to respond to trends toward increased competition in
natural gas markets. Among other things, the Policy Statement sets up a
distinction between competitive and natural monopoly services; favors
performance-based regulation in lieu of traditional cost-of-service regulation;
calls for unbundling interruptible service; directs the Georgia Commission's
staff to develop standards of conduct for utilities and their marketing
affiliates; and invites pilot programs for unbundling services to residential
and small business customers.
Consistent with specific goals in the Georgia Commission's Policy
Statement, AGLC filed on June 10, 1996, the Natural Gas Service Provider
Selection Plan (the Plan), a comprehensive plan for serving interruptible
markets. The Plan proposes further unbundling of services to provide large
customers more service options and the ability to purchase only those services
they require. Proposed tariff changes would allow AGLC to cease its sales
service function and the associated sales obligation for large customers;
implement delivery-only service for large customers on a firm and interruptible
basis; and provide pooling services to marketers. The Plan also includes
proposed standards of conduct for utilities and utility marketing affiliates.
Hearings on the proposal are in process before the Georgia Commission with a
decision expected by April 1997.
Another regulatory reform initiative is before the Georgia General
Assembly. The 1996 Georgia General Assembly considered, but delayed action on,
The Natural Gas Fair Pricing Act, which would have allowed local gas companies
to
Page 16 of 20 Pages
<PAGE>
negotiate contract prices and terms for gas services with large commercial and
industrial customers absent Georgia Commission-mandated rates. The Georgia
General Assembly stated through resolutions a desire to fashion a more
comprehensive approach to deregulation and unbundling of natural gas services in
Georgia. Those resolutions, adopted during the 1996 session, created Senate and
House committees to study and recommend a comprehensive course of action by
December 31, 1996, for deregulating natural gas markets in Georgia.
The separate Senate and House study committees conducted joint meetings
during September, October and November 1996, with the goal of crafting a
comprehensive deregulation bill for the 1997 Georgia General Assembly. The
committees issued a joint report in December 1996, setting forth the following
findings of fact: (1) unbundling gas services, and providing such services on an
open access, non-discriminatory basis, would foster a more competitive market
for the local distribution of natural gas; (2) performance-based ratemaking for
regulated, monopoly services could produce better results than current
cost-of-service ratemaking for consumers of natural gas and for local
distribution companies; (3) any company which proposes to serve firm
(residential and small business) natural gas consumers should be subject to
certification of its financial and technical expertise; (4) safeguards must be
in place to ensure pipeline safety and to protect against cross-subsidy, unfair
and deceptive acts and practices, and unfair competition as competition develops
in the local distribution of natural gas; (5) it is appropriate for a natural
gas local distribution company to recover from its firm customers "stranded
costs" that the Georgia Commission determines are prudently incurred; and (6) a
"one-size-fits-all" approach to introducing competition into Georgia's natural
gas markets may not be appropriate, due to the difference in size and markets
served of Georgia's natural gas distribution companies.
In response to the joint report of the study committees, Senate Bill 215
was introduced in the 1997 Georgia General Assembly. The Bill, entitled the
Natural Gas Competition and Deregulation Act, would unbundle services to all of
AGLC's natural gas customers, continue AGLC's role as the intrastate transporter
of natural gas, allow AGLC to assign firm delivery capacity to certificated
marketers who would sell the gas commodity, and create a secondary
transportation market for interruptible transportation capacity.
AGLC supports both the Plan under consideration by the Georgia Commission
and the Bill under consideration by the Georgia General Assembly. AGLC currently
makes no profit on the purchase and sale of gas because actual gas costs are
passed through to customers under the purchased gas provisions of AGLC's rate
schedules. Earnings are provided through revenues received for intrastate
transportation of the commodity. Consequently, allowing AGLC to cease its sales
service function and the associated sales obligation would not adversely affect
AGLC's ability to earn a return on its distribution system investment. In
addition, allowing gas to be sold to all customers by numerous marketers,
including nonregulated subsidiaries of AGL Resources, would provide new business
opportunities.
On July 22, 1996, Chattanooga filed a plan with the TRA that permits
Chattanooga to negotiate contracts with customers in Tennessee who have
long-term competitive options, including bypass. On November 27, 1996, the TRA
approved a settlement that permits Chattanooga to negotiate contracts with large
commercial or industrial customers who are capable of bypassing Chattanooga's
distribution system. The settlement provides for approval on an experimental
basis, with the TRA to review the measure two years from the approval date. The
pricing terms provided in any such contract may be neither less than
Chattanooga's marginal cost of providing service nor greater than the filed
tariff rate generally applicable to such service. Chattanooga can recover 50% of
the difference between the contract rate and the applicable tariff rate through
the balancing account of the purchased gas adjustment provisions of
Chattanooga's rate schedules.
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 also 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 17 of 20 Pages
<PAGE>
AGLC's response to MGP sites in Georgia is proceeding under two state
regulatory programs. First, AGLC has entered into consent orders with the EPD
with respect to four sites: Augusta, Griffin, Savannah and Valdosta. Under these
consent orders, AGLC is obliged to investigate and, if necessary, remediate
impacts at the site. AGLC developed a proposed CAP for the Griffin site and has
now conducted certain follow-up investigations in response to EPD's comments.
Assessment activities were conducted at Augusta and are planned for Savannah
during January 1997 . In addition, AGLC is in the process of planning certain
interim remedial measures at the Augusta MGP site. Those measures are expected
to be implemented principally during fiscal 1997.
Second, AGLC's response to all Georgia sites is proceeding in substantial
compliance with Georgia's HSRA. AGLC submitted to EPD formal notifications
pertaining to all of its owned MGP sites, and EPD had listed seven sites
(Athens, Augusta, Brunswick, Griffin, Savannah, Valdosta and Waycross) on the
state's HSI. EPD has not listed the Macon site on the HSI at this time. EPD has
also listed the Rome site, which AGLC has acquired, on the HSI. Under the HSRA
regulations, the four sites subject to consent orders are presumed to require
corrective action; EPD will determine whether corrective action is required at
the four remaining sites (Athens, Brunswick, Rome and Waycross) in due course.
In that respect, however, AGLC has submitted CSRs for the Athens, Brunswick and
Rome MGP sites, and AGLC has concluded that these sites do not meet applicable
risk reduction standards. Accordingly, some degree of response action is likely
to be required at those sites.
AGLC has estimated that, under the most favorable circumstances
reasonably possible, the future cost to AGLC of investigating and remediating
the former MGP sites could be as low as $31.3 million. Alternatively, AGLC has
estimated that, under reasonably possible unfavorable circumstances, the future
cost to AGLC of investigating and remediating the former MGP sites could be as
high as $117.3 million. Those estimates have been adjusted from the September
30, 1996 estimates to reflect settlements of property damage claims at certain
sites. If additional sites were added to those for which action now appears
reasonably likely, or if substantially more stringent cleanups were required, or
if site conditions are markedly worse than those now anticipated, the costs
could be higher. In addition, those costs do not include other expenses, such as
property damage claims, for which AGLC may ultimately be held liable, but for
which neither the existence nor the amount of such liabilities can be reasonably
forecast. Within the stated range $31.3 million to $117.3 million, no amount
within the range can be reliably identified as a better estimate than any other
estimate. Therefore, a liability at the low end of this range and a
corresponding regulatory asset have been recorded in the financial statements.
AGLC has two means of recovering the expenses associated with the former
MGP sites. First, the Georgia Commission has approved the recovery by AGLC of
Environmental Response Costs, as defined, 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, cleanup activities at the sites and environmental
response costs that have been incurred for purposes of the ERCRR. On October 10,
1996, the Georgia Commission issued an order to prohibit funds collected through
the ERCRR from being used for the payment of any damage award, including
punitive damages, as a result of any litigation associated with any of the MGP
sites in which AGLC is involved. AGLC is currently pursuing judicial review of
the October 10, 1996, order.
Second, AGLC intends to seek recovery of appropriate costs from its
insurers and other potentially responsible parties. See Note 4 to Notes to
Condensed Consolidated Financial Statements in this Form 10-Q.
Other Legal Proceedings
With regard to other legal proceedings, AGLC is a party, as both
plaintiff and defendant, to a number of other suits, claims and counterclaims on
an ongoing basis. Management believes that the outcome of all litigation in
which it is involved will not have a material adverse effect on the consolidated
financial statements of AGLC.
Page 18 of 20 Pages
<PAGE>
New Joint Venture
During December 1996, AGL Resources signed a letter of intent with
Transco to form a joint venture, which would be known as Cumberland Pipeline
Company, to operate and market interstate pipeline capacity. The transaction is
subject to various corporate and regulatory approvals.
Initially, the 135-mile Cumberland pipeline will include existing
pipeline infrastructure owned by the two companies. Projected to enter service
by November 1, 2000, Cumberland will provide service to AGLC, Chattanooga and
other markets throughout the eastern Tennessee Valley and in northwest Georgia
and northeast Alabama.
Affiliates of Transco and AGL Resources each will own 50% of the new
pipeline company, and an affiliate of Transco will serve as operator. The
project will be submitted to the FERC for approval in the fourth quarter of
1997.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10.1 - Executive Compensation Plans and Arrangements.
10.1.a - Second Amendment to the AGL Resources Inc. Long-Term
Stock Incentive Plan of 1990 (Exhibit 10.1.a, AGL
Resources Form 10-Q for the quarter ended December 31,
1996).
10.1.b - Fourth Amendment to the AGL Resources Inc. Long-Term
Stock Incentive Plan of 1990 (Exhibit 10.1.b, AGL
Resources Form 10-Q for the quarter ended December 31,
1996).
10.1.c - Fifth Amendment to the AGL Resources Inc. Long-Term
Stock Incentive Plan of 1990 (Exhibit 10.1.c, AGL
Resources Form 10-Q for the quarter ended December 31,
1996).
10.1.d - First Amendment to the AGL Resources Inc.
Nonqualified Savings Plan (Exhibit 10.1.d, AGL
Resources Form 10-Q for the quarter ended December 31,
1996).
27 - Financial Data Schedule.
(b) Reports on Form 8-K.
None.
(The remainder of this page was intentionally left blank.)
Page 19 of 20 Pages
<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.
Atlanta Gas Light Company
(Registrant)
Date February 14, 1997 /s/David R. Jones
David R. Jones
President and Chief Executive Officer
Date February 14, 1997 /s/ J. Michael Riley
J. Michael Riley
Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
Page 20 of 20 Pages
<PAGE>
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<NAME> ATLANTA GAS LIGHT COMPANY
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<CASH-FLOW-OPERATIONS> (30)
<EPS-PRIMARY> 0.00
<EPS-DILUTED> 0.00
</TABLE>
