<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
______________
FORM 10-Q
__________
(MARK ONE)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1994 OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM _______ TO _______
COMMISSION FILE NUMBER 0-17605
YANKEE ENERGY SYSTEM, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
CONNECTICUT 06-1236430
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)
599 RESEARCH PARKWAY
MERIDEN, CONNECTICUT 06450-1030
(ADDRESS OF PRINCIPAL EXECUTIVE (ZIP CODE)
OFFICES)
REGISTRANT'S TELEPHONE NUMBER (203) 639-4000
NOT APPLICABLE
(FORMER NAME, FORMER ADDRESS AND FORMER FISCAL YEAR, IF CHANGED
SINCE LAST REPORT)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes _X__ No ____
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
NUMBER OF SHARES OF COMMON STOCK ($5.00 PAR VALUE)
OUTSTANDING AT JULY 31, 1994 10,287,683
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
TABLE OF CONTENTS
PAGE NO.
PART I. FINANCIAL INFORMATION
<CAPTION>
Item 1. Financial Statements
<S> <C>
Consolidated Balance Sheets - June
30, 1994 and September 30, 1993 2-3
Consolidated Statements of Income -
Three and Nine Months Ended
June 30, 1994 and 1993 4
Consolidated Statements of Cash Flows -
Nine Months Ended June 30, 1994 and 1993 5
Notes to Consolidated Financial
Statements 6-7
Report on Review by Independent
Public Accountants 8
<CAPTION>
<S> <C>
Item 2. Management's Discussion and Analysis
of Financial Condition and Results
of Operations 9-13
PART 11. OTHER INFORMATION
<CAPTION>
<S> <C>
Item 5. Other Information 14
Item 6. Exhibits and Reports on Form 8-K 14
Signatures 15
</TABLE>
<PAGE>
<TABLE>
PART 1. FINANCIAL INFORMATION
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30, SEPTEMBER 30,
1994 1993
____ ____
(UNAUDITED)
(Thousands of Dollars)
<S> <C> <C>
ASSETS
Utility Plant, at original cost $ 456,124 $ 445,912
Less: Accumulated provision for
depreciation 161,447 149,300
_________ _________
294,677 296,612
Construction work in progress 15,051 11,772
_________ _________
Total Net Utility Plant 309,728 308,384
_________ _________
Other Property and Investments 25,935 23,543
_________ _________
Current Assets:
Cash and temporary cash investments 33,578 6,509
Accounts receivable, net 33,275 20,214
Fuel supplies 6,299 15,702
Other materials and supplies 1,704 2,393
Accrued utility revenues 7,312 5,016
Prepaid taxes --- 3,894
Other 2,391 4,618
_________ _________
Total Current Assets 84,559 58,346
_________ _________
Deferred Gas Costs --- 2,776
Recoverable Pipeline
Transition Costs 10,593 7,531
Recoverable Environmental
Cleanup Costs 36,075 36,104
Recoverable Income Taxes (Note 4) 28,540 ---
Recoverable Postretirement Benefits
(Note 4) 1,064 ---
Other Deferred Debits 6,614 4,609
Total Assets $ 503,108 $ 441,293
________ _________
________ _________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<CAPTION>
JUNE 30, SEPTEMBER 30,
1994 1993
____ ____
(UNAUDITED)
(Thousands of Dollars)
<S> <C> <C>
CAPITALIZATION AND LIABILITIES
Capitalization:
Common shares - $5.00 par value.
Authorized 20,000,000 shares; 10,287,683
shares outstanding at June 30, 1994
and September 30, 1993 $ 51,438 $ 51,438
Capital surplus, paid in 85,012 84,930
Retained earnings 22,408 8,796
Employee stock ownership
plan guarantee (2,200) (2,600)
_________ _______
Total Common Shareholders' Equity 156,658 142,564
Preferred stock subject to
mandatory redemption (Note 3) 15,000 15,000
Long-term debt, net of
current portion 130,333 153,633
________ _______
Total Capitalization 301,991 311,197
________ _______
Current Liabilities:
Notes payable to banks 6,900 ---
Long-term debt, current portion 26,667 8,667
Accounts payable 15,026 16,739
Accrued interest 4,354 4,081
Accrued taxes 10,657 ---
Refundable energy costs 1,411 3,703
Pipeline transition costs payable 1,510 2,691
Other 4,147 4,026
________ ________
Total Current Liabilities 70,672 39,907
________ ________
Accumulated Deferred Income Taxes 37,451 38,441
Unfunded Deferred Income Taxes (Note 4) 28,525 ---
Accumulated Deferred Investment
Tax Credits 9,929 10,212
Reserve for Environmental Cleanup Costs 35,000 35,000
Unfunded Postretirement Benefits (Note 4) 1,064 ---
Gas Cost Overcollections 12,802 ---
Other Deferred Credits 5,674 6,536
________ _______
Commitments and Contingencies (Note 2)
Total Capitalization and
Liabilities $ 503,108 $ 441,293
________ ________
________ ________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
__________________
1994 1993
____ ____
(Thousands of Dollars, Except
Share Information)
<S> <C> <C>
Operating Revenues $ 53,612 $ 51,000
Less: Cost of Gas 27,384 24,505
_______ _______
Revenues, net of cost of gas 26,228 26,495
________ _______
Other Operating Expenses:
Operations 13,534 13,526
Maintenance 1,908 1,750
Depreciation 4,562 4,535
Federal and state income taxes (1,088) (601)
Taxes other than income taxes 4,955 5,134
_______ _______
Total Other Operating Expenses 23,871 24,344
_______ _______
Operating Income 2,357 2,151
Other Income, net 995 994
________ _______
Income Before Interest Charges 3,352 3,145
Interest Charges, net 3,641 3,865
________ _______
Income Before Preferred Dividends (289) (720)
Preferred Dividends 274 274
________ ______
Net Income $ (563) $ (994)
_______ ______
_______ ______
Total Earnings per Common Share $ (0.05) $ (0.10)
_______ ______
_______ ______
Average Common Shares Outstanding 10,287,683 10,287,683
___________ __________
___________ __________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
__________________
1994 1993
____ ____
(Thousands of Dollars, Except
Share Information)
<S> <C> <C>
Operating Revenues $ 279,767 $ 265,608
Less: Cost of Gas 149,690 139,707
_______ _______
Revenues, net of cost of gas 130,077 125,901
_______ _______
Other Operating Expenses:
Operations 40,272 39,226
Maintenance 5,550 4,876
Depreciation 13,257 13,016
Federal and state income taxes 20,087 18,885
Taxes other than income taxes 19,134 19,436
_______ _______
Total Other Operating Expenses 98,300 95,439
_______ _______
Operating Income 31,777 30,462
Other Income, net 2,188 2,537
_______ _______
Income Before Interest Charges 33,965 32,999
Interest Charges, net 10,424 11,520
_______ _______
Income Before Preferred Dividends 23,541 21,479
Preferred Dividends 823 823
_______ ______
Net Income $ 22,718 $ 20,656
_______ ______
_______ ______
Total Earnings per Common Share $ 2.21 $ 2.01
_______ ______
_______ ______
Average Common Shares Outstanding 10,287,683 10,287,683
___________ __________
___________ __________
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<TABLE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<CAPTION>
NINE MONTHS ENDED
JUNE 30,
1994 1993
____ ____
(Thousands of Dollars)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Income before preferred dividends $ 23,541 $ 21,479
Adjusted for the following:
Depreciation 13,257 13,016
Iroquois and other equity earnings (2,532) (2,897)
Deferred income taxes net (1,257) 4,198
Deferred gas cost activity and other
non-cash items 9,089 8,220
Changes in working capital:
Accounts receivable and accrued
utility revenues (15,357) (13,627)
Accounts payable (1,713) (1,393)
Accrued taxes 14,551 7,477
Other working capital
(excludes cash) 9,758 3,438
________ _______
Net cash provided by
operating activities 49,337 39,911
_________ _______
CASH FLOWS FROM FINANCING ACTIVITES:
Net proceeds from common stock issuance --- 21,436
Long-term debt issuance --- 20,000
Retirement of long-term debt (5,300) (20,750)
Increase(decrease)in short-term debt 6,900 (15,300)
Cash dividends-preferred stock (823) (823)
Cash dividends-common stock (9,104) (8,676)
_________ ________
Net cash used for
financing activities (8,327) (4,113)
________ ________
INVESTMENT IN PLANT AND OTHER:
Utility Plant, net of allowance for other
funds used during construction (14,042) (11,851)
Other property and investments --- (1,598)
Investment in nonutility plant (1,000) ---
Iroquois distribution 1,101 4,515
_______ _______
Net cash used for plant and other
investments (13,941) (8,934)
________ _______
NET INCREASE IN CASH
FOR THE PERIOD 27,069 26,864
Cash, beginning of period 6,509 462
________ _______
Cash, end of period $ 33,578 $ 27,326
________ _______
________ _______
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash paid during the period for:
Interest, net of amounts capitalized $ 10,605 $ 11,129
Income taxes $ 8,017 $ 9,116
</TABLE>
The accompanying notes are an integral part of these financial
statements.
<PAGE>
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1) GENERAL
The accompanying unaudited consolidated financial statements
should be read in conjunction with the Annual Report of
Yankee Energy System, Inc. (Yankee Energy or the Company) on
Form 10-K for the fiscal year ended September 30, 1993 (1993
Form 10-K), including the audited financial statements (and
notes thereto) incorporated by reference therein, and the
Company's quarterly reports on Form 10-Q for the quarters
ended December 31, 1993 and March 31, 1994. In the opinion
of the Company, the accompanying unaudited consolidated
financial statements contain all adjustments (consisting
only of normal recurring accruals) necessary to present
fairly the financial position of the Company as of June 30,
1994, and its results of operations for the three and nine
months ended June 30, 1994 and 1993 and cash flows for the
nine months ended June 30, 1994 and 1993. The results of
operations for the three and nine months ended June 30, 1994
and 1993 are not necessarily indicative of the results
expected for a full year, due mainly to the highly seasonal
nature of the gas business.
2) COMMITMENTS AND CONTINGENCIES
TRANSITION COSTS - ORDER NO. 636: The three major pipeline
systems serving Yankee Gas Services Company (Yankee Gas),
Iroquois Gas Transmission System, Tennessee Gas Pipeline
Company, and Algonquin Gas Transmission Company and its
affiliate, Texas Eastern Transmission Company, have all
restructured their services pursuant to Federal Energy
Regulatory Commission (FERC) Order No. 636. Through June
30, 1994, Yankee Gas has paid approximately $9.1 million of
transition costs. These payments, as well as an additional
$1.5 million representing an additional transition cost
liability likely to be incurred by Yankee Gas, have been
deferred for future recovery. This estimate of $10.6
million may be subject to revision following future FERC
orders. Yankee Gas' management anticipates full recovery of
transition costs consistent with the recent Connecticut
Department of Public Utility Control (DPUC) decision
concerning gas costs.
On July 8, 1994, the DPUC issued a decision on the
implementation of FERC Order No. 636 by the Connecticut Gas
Local Distribution Companies (LDCs). The DPUC will allow
the LDCs to offset the transition costs incurred under Order
No. 636 with any recoveries from refunds or deferred gas
costs credits for the 1992-1993 period and all subsequent
annual deferred gas costs, gas supplier refunds and twenty-
five percent of interruptible margins earned in excess of
target amounts. With the exception of all subsequent annual
deferred gas costs credits, the DPUC will order all
transition cost recovery dollars to be applied immediately
on a monthly basis to the transition costs which have been
or are subsequently billed. All subsequent annual deferred
gas cost credits will be applied on an annual basis.
There have been been no other material developments in this
area. For a detailed description of the items that comprise
commitments and contingencies of the Company, see the 1993
Form 10-K.
3) PREFERRED STOCK
On July 1, 1994, Yankee Gas redeemed all 600,000 shares
outstanding of its 9.125 percent cumulative preferred stock,
$25 par value. The Company used cash on hand to pay both
the $15 million par amount and an early redemption premium
of $879,900.
<PAGE>
4) ADOPTION OF NEW ACCOUNTING STANDARDS
INCOME TAXES: Effective October 1, 1993, Yankee Energy
adopted the provisions of Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (FAS 109).
FAS 109 supersedes previously issued income tax accounting
standards. Yankee Energy recorded, as of October 1, 1993,
an additional deferred tax liability and a regulatory asset,
representing the probable future rate recovery from
customers when such deferred tax liability becomes payable.
The deferred tax liability primarily represents certain
temporary differences between the book and tax basis of
utility plant for which deferred taxes had not previously
been recorded in accordance with the regulatory rate
practices of the DPUC. The adoption of FAS 109 did not have
a material effect on the Company's results of operations or
financial position.
POSTRETIREMENT BENEFITS: Effective October 1, 1993, Yankee
Energy adopted the provisions of Statement of Financial
Accounting Standards No. 106, "Employers' Accounting
forPostretirement Benefits Other Than Pensions" (FAS 106).
The provisions of FAS 106 require that Yankee Energy record
the cost of postretirement benefits over the employees'
active service periods rather than on an as-paid basis as
was Yankee Energy's prior practice. Yankee Energy's
unrecognized transitional benefit obligation liability was
approximately $20 million as of October 1, 1993. Yankee
Energy's annual costs for postretirement benefit obligations
other than pensions, including amortization of the
transition obligation over a twenty-year period, will be
approximately $3.1 million in fiscal 1994, based on the
provisions of FAS 106. A one percentage point increase in
the inflation rate from the assumed rate would increase the
unrecognized transitional benefit obligation liability by
approximately $3.3 million as of October 1, 1993, and would
increase the service cost and interest cost components of
postretirement benefit cost by approximately $0.5 million
annually. The DPUC is allowing $1.728 million of associated
expenses to be recovered in rates and has indicated its
objective to grant full rate recovery within a reasonable
time frame of all FAS 106 related expenses. On this basis,
the Company is deferring for future recovery the difference
between the annual estimated expense and the portion
currently being collected in rates. The adoption of FAS 106
increased assets and liabilities but did not have a negative
impact on the Company's results of operations or financial
position.
5) RECLASSIFICATIONS
Certain prior year amounts have been reclassified to conform
with current year classifications.
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Management of
Yankee Energy System, Inc.:
We have reviewed the accompanying consolidated balance sheet of
Yankee Energy System, Inc. (a Connecticut corporation) and
subsidiaries (the Company) as of June 30, 1994, and the related
consolidated statements of income for the three-month and
nine-month periods then ended and cash flows for the nine-month
period then ended. These financial statements are the
responsibility of the Company's management.
We conducted our review in accordance with standards established
by the American Institute of Certified Public Accountants. A
review of interim financial information consists principally of
applying analytical procedures to financial data and making
inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion
regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material
modifications that should be made to the financial statements
referred to above for them to be in conformity with generally
accepted accounting principles.
As discussed in Note 4, effective October 1, 1993, the Company
changed their method of accounting for postretirement benefits
other than pensions and income taxes.
Arthur Andersen & Co.
Hartford, Connecticut
July 28, 1994
<PAGE>
YANKEE ENERGY SYSTEM, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of Financial Condition
and Results of Operations
This section contains management's assessment of the financial
condition of Yankee Energy System, Inc. (the Company or Yankee
Energy) and the principal factors which had an impact on the
results of operations in the periods presented. This discussion
should be read in conjunction with the Company's Annual Report on
Form 10-K for the year ended September 30, 1993, including the
audited consolidated financial statements (and notes thereto)
incorporated by reference therein and the Company's quarterly
reports on Form 10-Q for the quarters ended December 31, 1993 and
March 31, 1994.
FINANCIAL CONDITION
OVERVIEW
For the three months ended June 30, 1994, the Company's loss per
common share was $0.05 compared to $0.10 for the three months
ended June 30, 1993. For the nine months ended June 30, 1994,
earnings were $2.21 per share compared to $2.01 for the nine
months ended June 30, 1993.
Improvement in earnings per share for the three month period was
due primarily to lower interest charges and lower tax expense
while revenues net of the cost of gas from the Company's utility
subsidiary, Yankee Gas Services Company (Yankee Gas), remained
fairly constant. For the nine month period, the earnings
increase was primarily due to higher revenues, associated with
colder weather and lower interest costs, partially offset by
normal increases in operating expenses and income taxes. Weather
during the nine month period was 4.7 percent colder than the same
period last year and 5.3 percent colder than normal.
Results of Operations
Comparison of the Third Quarter of Fiscal 1994 with the Third
Quarter of Fiscal 1993
Revenues and Sales
Operating revenues increased $2.6 million in the third quarter of
fiscal 1994 compared with the same period in the prior fiscal
year. The components of the change in operating revenues are as
follows:
<PAGE>
<TABLE>
<CAPTION>
Changes in
Operating Revenues
Increase/(Decrease)
(Millions of Dollars)
<S> <C>
Firm and other (excluding gas cost recoveries):
Sales, transportation and other $0.1
____
Subtotal - Firm and other 0.1
____
Interruptible sales and transportation
(excluding gas cost recoveries): (0.3)
____
Total: Excluding gas cost recoveries (0.2)
Plus: Gas cost recoveries 2.8
____
Total change in operating revenues $ 2.6
____
____
</TABLE>
The corresponding changes in the Company's throughput were as
follows:
<TABLE>
<CAPTION>
Quarter Ended June 30,
(Mcf - thousands)
1994 1993 Increase
<S> <C> <C> <C>
Firm sales and transportation 5,527 5,200 327
Interruptible sales and
transportation 2,263 1,915 348
_____ _____ ___
Total 7,790 7,115 675
_____ _____ ___
_____ _____ ___
</TABLE>
Firm and other revenues (excluding gas cost recoveries) increased
for the third quarter of fiscal 1994 compared to the same period
in fiscal 1993 due to a 5.9 percent increase in firm sales
primarily due to colder weather.
Competitive gas costs in the month of June, 1994 making gas
economical for customers able to use alternative fuels and an
increased demand from a large electric generation facility
resulted in an increase in interruptible throughput this quarter.
However, higher per unit gas costs in the first two months of the
quarter ended June 30, 1994 as compared to the same period last
year resulted in a decrease in interruptible margin.
Gas cost recoveries increased due to higher sendout in the second
quarter of fiscal 1994 compared to the same period in fiscal 1993
and higher per-unit gas costs.
Expenses
Cost of gas increased $2.9 million for the three months ended
June 30, 1994 compared to the three months ended June 30, 1993
due to higher sendout and higher per-unit gas costs. In
addition, a decrease in gas supplier refunds and the lack of the
fiscal 1994 refund of the prior period overcollection contributed
to the current period increase.
<PAGE>
The components of cost of gas were as follows:
<TABLE>
<CAPTION>
Quarter Ended June 30,
1994 1993
(Millions of Dollars)
<S> <C> <C>
Actual gas purchases $34.1 $32.3
Effect of purchased gas adjustment
(PGA) clause (6.7) (7.8)
______ ______
Total expense $27.4 $24.5
_____ _____
_____ _____
</TABLE>
Federal and state income taxes, including the portion contained
in Other Income, decreased $0.4 million due to a lower effective
tax rate in fiscal 1994 compared to the same period in fiscal
1993.
Taxes other than income taxes decreased $0.2 million for the
three months ended June 30, 1994 compared to the three months
ended June 30, 1993 primarily due to the additional unemployment
tax expense recorded in fiscal 1993 associated with claims paid
to Yankee Gas bargaining unit employees during a ten-week work
stoppage.
Interest charges decreased $0.2 million for the three months
ended June 30, 1994 compared to the same period ended June 30,
1993 due to lower interest in fiscal 1994 on the Company's PGA
balance.
Comparison of the First Nine Months of Fiscal 1994 with the First
Nine Months of Fiscal 1993
Revenues and Sales
Operating revenues increased $14.2 million in the first nine
months of fiscal 1994 compared with the same period in the prior
year. The components of the change in operating revenues are as
follows:
The components of the change in operating revenues are as
follows:
<TABLE>
<CAPTION>
Change in
Operating Revenues
Increase/(Decrease)
(Millions of Dollars)
<S> <C>
Firm and other revenues
(excluding gas cost recoveries):
Regulatory decision $ 0.2
Sales, transportation and other 4.5
____
Subtotal - Firm and other 4.7
Interruptible sales and transportation
(excluding gas cost recoveries): (0.4)
_____
Subtotal - Interruptible (0.4)
Total - Excluding gas cost
recoveries 4.3
Plus: Gas cost recoveries 9.9
___
Total change in operating revenues $14.2
____
____
</TABLE>
<PAGE>
The corresponding changes in the Company's throughput were as
follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
(Mcf - thousands)
<S> <C> <C> <C>
1994 1993 Increase
____ ____ __________
Firm sales and
transportation 30,075 28,624 1,451
Interruptible sales
and transportation 6,356 6,209 147
_____ _____ _____
Total 36,431 34,833 1,598
______ ______ ___
______ ______ ___
</TABLE>
Firm and other revenues (excluding gas costs recoveries)
increased in fiscal 1994 primarily due to a 5.1 percent firm
sales increase in the first nine months of fiscal 1994 compared
with the same period in the prior year reflecting colder weather
than the prior period.
Interruptible margin decreased in fiscal 1994 due to higher gas
prices in fiscal 1994 compared to fiscal 1993 despite an
increased demand from a large electric generation facility during
the month of June, 1994.
Gas cost recoveries increased in fiscal 1994 due to higher firm
sales and a decrease in the fiscal 1994 refund of prior year
overcollections of gas costs from firm customers in fiscal 1993.
Expenses
Cost of gas increased $10.0 million for the first nine months in
fiscal 1994 due primarily to higher firm sales and a decrease in
the fiscal 1994 refund of prior period overcollections of gas
costs.
The components of cost of gas were as follows:
<TABLE>
<CAPTION>
Nine Months Ended June 30,
1994 1993
(Millions of Dollars)
<S> <C> <C>
Actual gas purchases $140.9 $137.2
Effect of purchased gas adjustment
(PGA) clause 8.8 2.5
_____ _____
Total expense $149.7 $139.7
______ ______
______ ______
</TABLE>
Operations and maintenance expense increased $1.7 million in the
first nine months of fiscal 1994 due to higher levels of payroll
and benefits expense.
Depreciation expense increased $0.2 million in the first nine
months of fiscal 1994 compared to the same period in fiscal 1993
primarily due to increased plant balance in the first nine months
of fiscal 1994.
Federal and state income taxes, including the portion contained
in Other Income, increased $1.4 million due primarily to higher
income from operations in the first nine months of fiscal 1994.
Other income (excluding federal and state income taxes) decreased
$0.2 million in the first nine months of fiscal 1994 due
primarily to lower earnings associated with Housatonic's
investment in Iroquois.
Interest charges decreased $1.1 million for the nine months ended
June 30, 1994 compared to the same period ended June 30, 1993 due
to an adjustment to the allowance for borrowed funds used during
construction in fiscal 1993 and lower interest on long-term debt
and on the Company's PGA balance in fiscal 1994.
<PAGE>
Liquidity and Capital Resources
Expenditures for utility plant and other investments totaled $15
million for the first nine months of fiscal 1994, reflecting a
$1.6 million increase from the same period in fiscal 1993. This
increase was due primarily to the deferral of construction
activities in the first quarter of fiscal 1993 resulting from a
ten-week work stoppage during that period. During the first nine
months of fiscal 1994, construction additions were supported by
cash from operations. The increase in cash flows from operations
during the first nine months of fiscal 1994 compared to the first
nine months of fiscal 1993 is due primarily to higher net income
and the amount and timing of payments for gas purchases.
The seasonal nature of gas revenues, inventory purchases and
construction expenditures create a need for short-term borrowing
to supplement internally generated funds. Yankee Gas has
arranged a $40 million revolving line of credit with a group of
five banks whereby funds may be borrowed on a short-term
revolving basis using either fixed or variable rate loans.
Yankee Gas also has another $22 million of credit lines available
on an uncommitted basis. At June 30, 1994, Yankee Gas had no
borrowings outstanding on its agreements. In addition, Yankee
Energy has $6.9 million outstanding at June 30, 1994 on a $7.0
million committed line of credit.
The long-term credit needs of Yankee Gas are being met by a first
mortgage bond indenture which provides for the issuance of bonds
from time to time, subject to certain issuance tests.
On July 1, 1994, Yankee Gas redeemed all 600,000 shares
outstanding of its 9.125 percent cumulative preferred stock, $25
par value. The Company used cash on hand to pay both the $15
million par amount and an early redemption premium of $879,900.
On July 8, 1994, the DPUC issued a decision on the implementation
of the Federal Energy Regulatory Commission (FERC) Order No. 636
by Connecticut Gas Local Distribution Companies (LDCs). The DPUC
will allow the LDCs to offset the transition costs incurred under
Order No. 636 with any recoveries from refunds or deferred gas
costs credits for the 1992-1993 periods and all subsequent annual
deferred gas costs, gas supplier refunds and twenty-five percent
of interruptible margins earned in excess of target amounts.
With the exception of all subsequent annual deferred gas costs
credits, the DPUC will order all transition cost recovery dollars
to be applied immediately on a monthly basis to the transition
costs which have been or are subsequently billed. All subsequent
annual deferred gas cost credits will be applied on an annual
basis. Through June 30, 1994, Yankee Gas has paid approximately
$9.1 million of transition costs. These payments as well as an
additional $1.5 million representing an additional transition
cost liability likely to be incurred by Yankee Gas, have been
deferred for future recovery. This estimate of $10.6 million may
be subject to revision following future FERC orders. Yankee Gas'
management anticipates full recovery of transition costs
consistent with the recent Connecticut Department of Public
Utility Control (DPUC) decision concerning gas costs. <PAGE>
<PAGE>
PART II - OTHER INFORMATION
Item 5. Other Information
Iroquois Gas Transmission System, L.P. (Iroquois) has been
informed by the U. S. Attorney's Offices for the Northern,
Southern and Eastern Districts of New York that a civil
investigation is underway to determine whether Iroquois
committed civil environmental violations during
construction of the pipeline. In February, 1992, 26 alleged
violations were identified to Iroquois in writing. In
response, Iroquois denied that such violations occurred.
Iroquois subsequently was informed that alleged violations
were included in certain field reports prepared by a
Federal/State Inter-Agency Task Force which surveyed the
right-of-way in connection with the right-of-way restoration
program. Iroquois responded to the appropriate U. S.
Attorney's Offices that none of the matters referenced in
field reports issued to date represent violations of any law
or governmental authorization. No proceedings in connection
with this civil investigation have been commenced by the
federal government against Iroquois.
On December 3, 1993, Iroquois received notification from the
Enforcement Staff of the Federal Energy Regulatory
Commission's Office of the General Counsel
"Enforcement")that Enforcement has commenced a preliminary,
non-public investigation concerning Iroquois' construction
of certain of its pipeline facilities. That office has
requested certain information regarding such construction.
In addition, on December 27, 1993, Iroquois received a
similar request for information from the Army Corps of
Engineers requesting certain information regarding permit
compliance in connection with certain aspects of the
pipeline's construction. Iroquois is providing information
to these agencies in response to their requests. No
proceedings have been commenced against Iroquois in
connection with these agency inquiries.
A criminal investigation has been initiated against Iroquois
and its environmental consultant by the U. S. Attorney's
Office for the Northern District of New York in conjunction
with the U. S. Environmental Protection Agency ("EPA") and
the Federal Bureau of Investigation ("FBI"). According to a
press release issued by the FBI in June, 1992, areas under
investigation include possible environmental violations,
wire fraud, mail fraud, and providing false information or
concealment of information from federal agencies in
conjunction with the construction of the base pipeline. To
date no criminal charges have been filed, and the Assistant
U. S. Attorney in charge of the investigation has stated
that he is not yet ready to meet with Iroquois' attorneys to
fully discuss the specifics of the matter.
Based upon information currently available to the Company,
the Company believes that the ultimate resolution of these
matters will not have a material adverse effect on the
financial conditions or results of operations of the Company
and its subsidiaries.
Item 6. Exhibits and Reports on Form 8-K
a. Exhibits - None.
b. Reports on Form 8-K - None.
<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.
YANKEE ENERGY SYSTEM, INC.
__________________________
(Registrant)
Date: August 12, 1994 /s/ Michael E. Bielonko
___________________________
Michael E. Bielonko
Vice President, Treasurer and
Chief Financial Officer
Date: August 12, 1994 /s/ Nicholas A. Rinaldi
___________________________
Nicholas A. Rinaldi
Controller
