UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ......... to ..........
Commission File Number 1-7584
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-1079400
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2800 Post Oak Boulevard
P. O. Box 1396
Houston, Texas 77251
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (713) 215-2000
None
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
--- ---
The number of shares of Common Stock, par value $1.00 per share, outstanding as
of September 30, 2000 was 100.
REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL INSTRUCTIONS H(1)(a) AND
(b) OF FORM 10-Q AND IS THEREFORE FILING THIS FORM 10-Q WITH THE REDUCED
DISCLOSURE FORMAT.
<PAGE>
PART I - FINANCIAL INFORMATION
ITEM 1. Financial Statements.
Company or Group of Companies for Which Report Is Filed:
Transcontinental Gas Pipe Line Corporation and Subsidiaries (Transco)
The accompanying interim condensed consolidated financial statements of
Transco do not include all notes in annual financial statements and therefore
should be read in conjunction with the consolidated financial statements and
notes thereto in Transco's 1999 Annual Report on Form 10-K and 2000 first and
second Quarterly Reports on Form 10-Q. The accompanying condensed consolidated
financial statements have not been audited by independent auditors but include
all adjustments both normal recurring and others which, in the opinion of
Transco's management, are necessary to present fairly its financial position at
September 30, 2000, and results of operations for the three and nine months
ended September 30, 2000 and 1999 and cash flows for the nine months ended
September 30, 2000 and 1999.
Certain matters discussed in this report, excluding historical information,
include forward-looking statements. Although Transco believes such
forward-looking statements are based on reasonable assumptions, no assurance can
be given that every objective will be achieved. Such statements are made in
reliance on the "safe harbor" protections provided under the Private Securities
Litigation Reform Act of 1995. Additional information about issues that could
lead to material changes in performance is contained in Transco's 1999 Annual
Report on Form 10-K and 2000 first and second Quarterly Reports on Form 10-Q.
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
----------------- ------------------
ASSETS
<S> <C> <C>
Current Assets:
Cash $ 425 $ 843
Receivables:
Affiliates 6,344 14,761
Others 56,506 46,394
Advances to affiliates 615,538 481,707
Transportation and exchange gas receivables:
Affiliates - 354
Others 28,290 45,611
Inventories 72,314 77,200
Deferred income taxes 59,273 68,081
Other 18,676 17,071
----------------- -----------------
Total current assets 857,366 752,022
----------------- -----------------
Long-Term advances to affiliates 20,679 13,689
----------------- -----------------
Investments, at cost plus equity in undistributed earnings 61,781 58,093
----------------- -----------------
Property, Plant and Equipment:
Natural gas transmission plant 4,689,933 4,452,101
Less-Accumulated depreciation and amortization 934,095 791,061
----------------- -----------------
Total property, plant and equipment, net 3,755,838 3,661,040
----------------- -----------------
Other Assets 172,910 174,336
----------------- -----------------
$ 4,868,574 $ 4,659,180
================= =================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEET (Continued)
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
---------------- -----------------
LIABILITIES AND STOCKHOLDER'S EQUITY
<S> <C> <C>
Current Liabilities:
Payables:
Affiliates $ 153,293 $ 53,440
Others 81,457 102,534
Advances from affiliates 5,320 -
Transportation and exchange gas payables:
Affiliates 3,003 868
Others 5,545 7,569
Accrued liabilities 182,561 133,176
Reserve for rate refunds 118,704 159,632
Current maturities of long-term debt 200,000 -
---------------- ----------------
Total current liabilities 749,883 457,219
---------------- ----------------
Long-Term Debt, less current maturities 774,974 975,330
---------------- ----------------
Other Long-Term Liabilities:
Deferred income taxes 865,529 879,506
Other 118,232 123,897
---------------- ----------------
Total other long-term liabilities 983,761 1,003,403
---------------- ----------------
Commitments and contingencies (Note 3)
Common Stockholder's Equity:
Common stock $1.00 par value:
100 shares authorized, issued and outstanding - -
Premium on capital stock and other paid-in capital 1,652,430 1,652,430
Retained earnings 707,526 570,798
---------------- ----------------
Total common stockholder's equity 2,359,956 2,223,228
---------------- ----------------
$ 4,868,574 $ 4,659,180
================ ================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended
September 30,
----------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Operating Revenues:
Natural gas sales $ 294,956 $ 195,715
Natural gas transportation 157,203 152,964
Natural gas storage 36,033 33,825
Other 3,270 1,705
----------------- -----------------
Total operating revenues 491,462 384,209
----------------- -----------------
Operating Costs and Expenses:
Cost of natural gas sales 294,956 195,715
Cost of natural gas transportation 10,405 6,893
Operation and maintenance 44,112 41,241
Administrative and general 27,185 31,242
Depreciation and amortization 42,359 40,268
Taxes - other than income taxes 8,736 9,107
Other 668 901
----------------- -----------------
Total operating costs and expenses 428,421 325,367
----------------- -----------------
Operating Income 63,041 58,842
----------------- -----------------
Other (Income) and Other Deductions:
Interest expense 20,738 20,282
Interest income - affiliates (11,157) (6,640)
Allowance for equity and borrowed funds used during construction (AFUDC) (5,720) (1,479)
Equity in earnings of unconsolidated affiliates (2,146) (442)
Miscellaneous other (income) deductions, net (1,274) 37
----------------- -----------------
Total other (income) deductions 441 11,758
----------------- -----------------
Income before Income Taxes 62,600 47,084
Provision for Income Taxes 23,738 17,762
----------------- -----------------
Net Income $ 38,862 $ 29,322
================= =================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
----------------------------------------
2000 1999
----------------- -----------------
<S> <C> <C>
Operating Revenues:
Natural gas sales $ 749,540 $ 512,063
Natural gas transportation 552,235 506,681
Natural gas storage 108,165 102,718
Other 5,805 6,571
----------------- -----------------
Total operating revenues 1,415,745 1,128,033
----------------- -----------------
Operating Costs and Expenses:
Cost of natural gas sales 749,547 512,063
Cost of natural gas transportation 36,415 28,534
Operation and maintenance 129,083 123,550
Administrative and general 90,583 98,806
Depreciation and amortization 123,205 120,655
Taxes - other than income taxes 29,203 26,116
Other 2,479 2,673
----------------- -----------------
Total operating costs and expenses 1,160,515 912,397
----------------- -----------------
Operating Income 255,230 215,636
----------------- -----------------
Other (Income) and Other Deductions:
Interest expense 57,521 52,209
Interest income - affiliates (30,170) (18,034)
Allowance for equity and borrowed funds used during construction (AFUDC) (11,835) (3,473)
Equity in earnings of unconsolidated affiliates (5,917) (1,155)
Miscellaneous other (income) deductions, net (2,582) 1,756
----------------- -----------------
Total other deductions 7,017 31,303
----------------- -----------------
Income before Income Taxes 248,213 184,333
Provision for Income Taxes 93,430 70,458
----------------- -----------------
Net Income $ 154,783 $ 113,875
================= =================
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(Thousands of Dollars)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------------
2000 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 154,783 $ 113,875
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 126,464 124,528
Deferred income taxes (5,168) 4,270
Reserve for transportation and exchange imbalances 6,429 -
Equity in earnings of unconsolidated affiliates, net of distributions (1,662) (1,155)
Allowance for equity funds used during construction (AFUDC) (8,163) (2,414)
Changes in operating assets and liabilities:
Receivables (9,799) (31)
Receivables sold 8,100 13,000
Transportation and exchange gas receivables 11,246 25,593
Inventories 4,498 4,989
Payables 86,353 47,309
Transportation and exchange gas payables 111 2,780
Accrued liabilities 50,652 (28,470)
Reserve for rate refunds (40,928) (78,994)
Other, net (6,205) (36,571)
------------- -------------
Net cash provided by operating activities 376,711 188,709
------------- -------------
Cash flows from financing activities:
Advances from affiliate, net 97 -
------------- -------------
Net cash provided by financing activities 97 -
------------- -------------
Cash flows from investing activities:
Property, plant and equipment:
Additions, net of equity AFUDC (236,731) (108,590)
Changes in accounts payable (8,936) (7,596)
Advances to affiliates, net (135,598) (51,633)
Investments in affiliates, net (2,049) (21,331)
Other, net 6,088 895
------------- -------------
Net cash used in investing activities (377,226) (188,255)
------------- -------------
Net increase (decrease) in cash (418) 454
Cash at beginning of period 843 1,470
------------- -------------
Cash at end of period $ 425 $ 1,924
============= =============
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest (exclusive of amount capitalized) $ 55,327 $ 76,797
Income taxes paid 44,753 68,796
Income tax refunds received (118) -
The accompanying condensed notes are an integral part of these condensed consolidated financial statements.
</TABLE>
<PAGE>
TRANSCONTINENTAL GAS PIPE LINE CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. CORPORATE STRUCTURE AND CONTROL
Transcontinental Gas Pipe Line Corporation (Transco) is a wholly-owned
subsidiary of Williams Gas Pipeline Company (WGP). WGP is
a wholly-owned subsidiary of The Williams Companies, Inc. (Williams).
2. BASIS OF PRESENTATION
The condensed consolidated financial statements include the accounts of
Transco and its majority-owned subsidiaries. Companies in which Transco and its
subsidiaries own 20 percent to 50 percent of the voting common stock and/or
exercise significant influence are accounted for under the equity method.
The condensed consolidated financial statements have been prepared from
the books and records of Transco without audit. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted.
These condensed consolidated financial statements should be read in conjunction
with the consolidated financial statements and the notes thereto included in
Transco's 1999 Annual Report on Form 10-K and 2000 first and second Quarterly
Reports on Form 10-Q.
Through an agency agreement, Williams Energy Services Company (WESCO), an
affiliate of Transco, manages all jurisdictional merchant gas sales of Transco,
receives all margins associated with such business and, as Transco's agent,
assumes all market and credit risk associated with Transco's jurisdictional
merchant gas sales. Consequently, Transco's merchant gas sales service has no
impact on its operating income or results of operations.
Because of its rate structure and historical maintenance schedule, Transco
typically experiences lower operating income in the second and third quarters as
compared to the first and fourth quarters.
In June 1998, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for
Derivative Instruments and Hedging Activities." In June 1999, the FASB issued
SFAS No. 137, which deferred the effective date of SFAS No. 133. This was
followed in June 2000 by the issuance of SFAS No. 138, "Accounting for Certain
Derivative Instruments and Certain Hedging Activities," which amends SFAS No.
133. SFAS No. 133 and 138 establish accounting and reporting standards for
derivative financial instruments. The standards require that all derivative
financial instruments be recorded on the balance sheet at their fair value.
Changes in fair value of derivatives will be recorded each period in earnings if
the derivative is not a hedge. If a derivative is a hedge, changes in the fair
value of the derivative will either be recognized in earnings along with the
change in fair value of the hedged asset, liability or firm commitment also
recognized in earnings or recognized in other comprehensive income until the
hedged item is recognized in earnings. For a derivative recognized in other
comprehensive income, the ineffective portion of a derivative's change in fair
value will be recognized immediately in earnings. Transco will adopt these
standards effective January 1, 2001.
<PAGE>
Based on Transco's implementation efforts to date and the fair value of
its identified derivative positions existing at September 30, 2000, Transco does
not expect that the impact of adopting the standards will be material to its
financial position or results of operations. However, changing market prices and
the possibility of entering into new derivative positions in the fourth quarter
of 2000 and the fact that Transco continues to pursue its implementation
efforts, causes the impact to Transco's financial position or results of
operations to remain uncertain.
The FASB issued Interpretation No. 44, "Accounting for Certain
Transactions Involving Stock Compensation." This interpretation modifies the
current practice of accounting for certain stock award agreements and is
generally effective beginning July 1, 2000. The impact of this interpretation on
Transco's results of operations and financial position was not material.
Certain reclassifications have been made in the 1999 financial statements
to conform to the 2000 presentation.
3. CONTINGENT LIABILITIES AND COMMITMENTS
There have been no new developments from those described in Transco's 1999
Annual Report on Form 10-K or 2000 first and second Quarterly Reports on Form
10-Q other than as described below.
Legal Proceedings
ROYALTY CLAIMS AND LITIGATION In August 1996, a lawsuit was filed against
Transco and certain Transco affiliates by a royalty owner in a gas producing
field in Brooks County, Texas alleging a claim for incorrect computation of
royalties. Transco was alleged to have purchased gas from the field. Transco
filed an answer denying liability for the claim. In August 2000, this lawsuit
was settled. Although Transco did not make any contribution to the settlement,
one producer participating in the settlement has asserted against Transco a
claim for indemnification in the amount of approximately $6.7 million. Transco
has denied the producer's claim.
Summary
While no assurances may be given, Transco does not believe that the
ultimate resolution of the foregoing matters and those described in Transco's
1999 Annual Report on Form 10-K and 2000 first and second Quarterly Reports on
Form 10-Q, taken as a whole and after consideration of amounts accrued, recovery
from customers, insurance coverage or other indemnification arrangements, will
have a materially adverse effect upon Transco's future financial position,
results of operations or cash flow requirements.
<PAGE>
4. DEBT AND FINANCING ARRANGEMENTS
Long-term Debt
Williams and certain of its subsidiaries, including Transco, are parties
to a $700 million credit agreement (Credit Agreement), under which Transco can
borrow up to $400 million if the funds available under the Credit Agreement have
not been borrowed by Williams or other subsidiaries. This agreement excludes
Williams Communications Group Inc. (WCG). Interest rates vary with current
market conditions based on the base rate of Citibank N.A., three-month
certificates of deposit of major United States money market banks, federal funds
rate or the London Interbank Offered Rate. The Credit Agreement contains
restrictions which limit, under certain circumstances, the issuance of
additional debt, the attachment of liens on any assets and any change of
ownership of Transco. As of September 30, 2000, Transco had no outstanding
borrowings under this agreement.
Current Maturities of Long-term Debt
The $200 million of current maturities of long-term debt consists of 7.08%
Debentures that mature on July 15, 2026, but are subject to redemption, at
anytime after July 15, 2001, at Transco's option, in whole or part, at a
specified redemption price, plus accrued and unpaid interest to the date of
redemption. The holder of each 7.08% Debenture may elect between May 15, 2001
and June 15, 2001 to have such 7.08% Debenture repaid on July 15, 2001 at 100%
of the principal amount. The 7.08% Debentures have no sinking fund provisions.
If the holders of the 7.08% Debentures elect to have the 7.08% Debentures
repaid, Transco intends to refinance the debt on a long-term basis by accessing
public and private markets and utilizing any shelf availability under the
registration statement previously filed with the Securities and Exchange
Commission.
Sale of Receivables
Transco is a party to an agreement that expires on January 26, 2001
pursuant to which Transco can sell to an investor up to $100 million of
undivided interest in certain of its trade receivables. At September 30, 2000
and December 31, 1999, interests in these receivables held by the investor were
$100 million and $92 million, respectively.
5. FUEL TRACKER
1999 FUEL TRACKER (Docket No. TM99-6-29) On March 1, 1999, Transco made
its annual filing pursuant to its FERC Gas Tariff to recalculate the fuel
retention percentages applicable to Transco's transportation and storage rate
schedules, to be effective April 1, 1999. Included in the filing were two
adjustments that increased the estimated gas required for operations in prior
periods by approximately 8 billion cubic feet. By letter order dated March 31,
1999, the FERC accepted the filing to be effective April 1, 1999, subject to
refund and to further FERC action.
On February 23, 2000, the FERC issued an order disallowing the major
portions of the adjustments reflected in the March 1, 1999 filing. The FERC
determined that Transco's tariff does not permit those adjustments, and as a
result, the passthrough of those prior period adjustments must be determined on
a case by case basis, based on the relative equities involved. Based on its
analysis of the facts in this case, the FERC found in the February 23, 2000
order that the equities weighed against Transco. On October 30, 2000, the FERC
issued an order granting rehearing. The FERC found that its decision to disallow
the adjustments amounted to a "penalty" that is not equitable to Transco. The
FERC therefore permits Transco to make the adjustments, but requires Transco to
collect the revenue associated with the adjustments over a seven-year period.
Transco must file tariff sheets and supporting documentation on or before
November 29, 2000 to implement the FERC's decision. Transco is evaluating the
effects of the decision.
<PAGE>
ITEM 2. Management's Narrative Analysis of Results of Operations.
The following discussion should be read in conjunction with the
consolidated financial statements, notes and management's narrative analysis
contained in Items 7 and 8 of Transco's 1999 Annual Report on Form 10-K and in
Transco's 2000 first and second Quarterly Reports on Form 10-Q and with the
condensed consolidated financial statements and notes contained in this report.
RESULTS OF OPERATIONS
Net Income and Operating Income
Transco's net income for the nine months ended September 30, 2000 was
$154.8 million compared to net income of $113.9 million for the nine months
ended September 30, 1999. Operating income for the nine months ended September
30, 2000 was $255.2 million compared to $215.6 million for the nine months ended
September 30, 1999. The higher operating income of $39.6 million was primarily
the result of higher gas transportation and storage revenues and lower
administrative and general expenses, partly offset by higher cost of natural gas
transportation, operations and maintenance expense, depreciation and
amortization expense and taxes other than income taxes, as discussed below. The
increase in net income was attributable to the increased operating income, as
well as higher interest income from affiliates, higher allowance for funds used
during construction due primarily to a greater amount of capital projects under
construction and higher equity in earnings of unconsolidated affiliates due
primarily to earnings from Pine Needle LNG Company and Cardinal Pipeline Company
that were placed in service during 1999, partially offset by higher net interest
expense due primarily to adjustments to estimates of interest associated with
the recovery of prior years' tracked gas costs.
Because of its rate structure and historical maintenance schedule, Transco
typically experiences lower operating income in the second and third quarters as
compared to the first and fourth quarters.
Transportation Revenues
Transco's operating revenues related to its transportation services for
the nine months ended September 30, 2000 were $552.2 million, compared to $506.7
million for the nine months ended September 30, 1999. The higher transportation
revenues of $45.5 million were due to a positive adjustment in the second
quarter of 2000 to the reserve for rate refunds in Transco's general rate case
Docket No. RP97-71 ($62.7 million), and higher demand revenues ($14.4 million)
due to the FERC's March 17, 2000 order as discussed below. This was partly
offset by a positive adjustment in the second quarter of 1999 to the reserve for
rate refunds in Transco's general rate case Docket No. RP95-197 ($28.1 million)
and a decrease in commodity revenues ($5.3 million) due primarily to lower
production area interruptible transportation revenues and the spin down of the
Tilden/McMullen facilities effective April 1, 2000.
Based on Transco's evaluation of the FERC's March 17, 2000 order and
requests by several parties for rehearing of the FERC's order, Transco reduced
its reserve for rate refunds ($62.7 million of principal and $8.5 million of
interest) in the second quarter of 2000 to reflect its conclusion that the risk
associated with certain of the issues in this proceeding has been eliminated.
<PAGE>
As shown in the table below, Transco's total market-area deliveries for
the nine months ended September 30, 2000 increased 29.8 trillion British Thermal
Units (TBtu) (2.8%) when compared to the same period in 1999. This is primarily
the result of increased deliveries related to incremental projects. Transco's
production area deliveries for the nine months ended September 30, 2000
increased 54.0 TBtu (33.5%) when compared to the same period in 1999 due
primarily to increased liquefiables transportation.
As a result of a straight fixed-variable (SFV) rate design, increases or
decreases in firm transportation volumes in comparable facilities have no
significant impact on operating income; however, because interruptible
transportation rates have components of fixed and variable cost recovery,
increases or decreases in interruptible transportation volumes do have an impact
on operating income.
Nine months
Ended September 30,
-------------------------
Transco System Deliveries (Tbtu) 2000 1999
---------- ----------
Market-area deliveries:
Long-haul transportation 571.8 626.8
Market-area transportation 520.0 435.2
---------- ----------
Total market-area deliveries 1,091.8 1,062.0
Production-area transportation 215.0 161.0
---------- ----------
Total system deliveries 1,306.8 1,223.0
========== ==========
Average Daily Transportation Volumes (TBtu) 4.8 4.5
Average Daily Firm Reserved Capacity (TBtu) 6.3 6.3
Transco's facilities are divided into seven rate zones. Four are located in
the production area and three are located in the market area. Long-haul
transportation is gas that is received in one of the production-area zones and
delivered in a market-area zone. Market-area transportation is gas that is both
received and delivered within market-area zones. Production-area transportation
is gas that is both received and delivered within production-area zones.
See Note 5 of the Notes to Condensed Consolidated Financial Statements for
a discussion of recent developments in Transco's rate and regulatory matters. On
October 30, 2000, Transco received a favorable order from the FERC related to
its 1999 fuel tracker filing in Docket No. TM99-6-29. Transco is evaluating the
effects of the decision.
Sales Revenues
Transco makes jurisdictional merchant gas sales to customers pursuant to a
blanket sales certificate issued by the FERC, with most of those sales being
made through a Firm Sales (FS) program which gives customers the option to
purchase daily quantities of gas from Transco at market-responsive prices in
exchange for a demand charge payment.
<PAGE>
Through an agency agreement with Transco, WESCO, an affiliate of Transco,
manages Transco's jurisdictional merchant gas sales, excluding Transco's cash
out sales in settlement of gas imbalances. The long-term purchase agreements
managed by WESCO remain in Transco's name, as do the corresponding sales of such
purchased gas. Therefore, Transco continues to record natural gas sales revenues
and the related accounts receivable and cost of natural gas sales and the
related accounts payable for the jurisdictional merchant sales that are managed
by WESCO. Through the agency agreement, WESCO receives all margins associated
with jurisdictional merchant gas sales business and, as Transco's agent, assumes
all market and credit risk associated with Transco's jurisdictional merchant gas
sales. Consequently, Transco's merchant gas sales service has no impact on
Transco's operating income or results of operations.
Transco's operating revenues for the nine months ended September 30, 2000,
related to its sales services, including Transco's cash out sales in settlement
of gas imbalances, increased $237.5 million to $749.5 million, when compared to
the same period in 1999. The increase was primarily due to higher cash out sales
related to the settlement of imbalances, and a higher average sales price of
$3.42 per dekatherm (dt) for the nine months ending September 30, 2000, versus
$2.19 for the same period of 1999, partially offset by lower merchant gas sales
volumes.
Nine months
Ended September 30,
-------------------------
Gas Sales Volumes (TBtu) 2000 1999
-------- --------
Long-term sales 140.0 150.1
Short-term sales 30.4 28.1
-------- --------
Total gas sales 170.4 178.2
======== ========
Storage Revenues
Transco's operating revenues related to storage services increased $5.4
million to $108.2 million for the nine months ended September 30, 2000 when
compared to the same period in 1999. This revenue increase is primarily due to
$4.2 million of higher storage demand charges and a $1.4 million increase to
recover higher underground storage rates charged by others.
Other Operating Revenues
Other operating revenues decreased $0.8 million to $5.8 million for the
nine months ended September 30, 2000 when compared to the same period in 1999,
primarily due to lower Parking and Borrowing Service revenues.
<PAGE>
Operating Costs and Expenses
Excluding the cost of natural gas sales of $749.5 million for the nine
months ended September 30, 2000 and $512.1 million for the comparable period in
1999, Transco's operating expenses for the nine months ended September 30, 2000,
were approximately $10.6 million higher than the comparable period in 1999. This
increase was primarily attributable to higher cost of natural gas
transportation, operation and maintenance expense, depreciation and amortization
and taxes other than income taxes, partially offset by lower administrative and
general expense. The higher cost of natural gas transportation was due to a $6.4
million loss accrual associated with the settlement of historical transportation
and exchange gas imbalances in the first and second quarters. The higher
operation and maintenance expense was primarily attributable to higher
underground gas storage rates charged by others ($1.6 million), employee
expenses ($0.8 million), labor ($0.8 million), professional services ($0.8
million), and materials ($0.9 million). The higher depreciation and amortization
was due primarily to plant and property additions. The higher taxes other than
income taxes was due to a 1999 adjustment ($2.4 million) to a prior year
estimate for franchise, payroll and sales and use tax accruals. Lower
administrative and general expense was due to lower professional services ($3.6
million), resulting from lower year 2000 computer systems costs, lower pension
expense ($2.3 million), lower postretirement benefits other than pensions
expense ($1.6 million) and lower office rent ($0.8 million), partially offset by
higher employee expenses ($1.1 million).
<PAGE>
CAPITAL RESOURCES AND LIQUIDITY
Method of Financing
Transco funds its capital requirements with cash flows from operating
activities, including the sale of trade receivables, by accessing capital
markets, by repayments of funds advanced to Williams or WGP, by borrowings under
the Credit Agreement and short-term money market facilities and, if required,
advances from WGP. At September 30, 2000, there were no outstanding borrowings
under the Credit Agreement and no short-term money market facilities were in
place.
In 1997, Transco filed a registration statement with the Securities and
Exchange Commission and, at September 30, 2000, $200 million of shelf
availability remains under this registration statement which may be used to
issue debt securities. Interest rates and market conditions will affect amounts
borrowed, if any, under this arrangement. Transco believes any additional
financing arrangements, if required, can be obtained on reasonable terms.
As a participant in Williams' cash management program, Transco has made
advances to Williams or WGP. At September 30, 2000, there were no advances due
Transco by Williams. At September 30, 2000, the advances due Transco by WGP
totaled $636.2 million of which $20.7 million associated with WGP's long-term
investments was classified as a long-term advance in the accompanying Condensed
Consolidated Balance Sheet.
Capital Expenditures
As shown in the table below, Transco's capital expenditures and investments
in affiliates for the nine months ended September 30, 2000 were $247.7 million,
compared to $137.5 million for the nine months ended September 30, 1999.
Nine months
Ended September 30,
----------------------
Capital Expenditures and Investments in Affiliates 2000 1999
-------- ---------
(In Millions)
Market-area projects $ 101.6 $ 25.5
Supply-area projects 2.1 (1.8)
Maintenance of existing facilities and other projects 142.0 92.5
Investment in affiliates 2.0 21.3
-------- ---------
Total capital expenditures and investments in affiliates $ 247.7 $ 137.5
======== =========
Transco's capital expenditures budget for 2000 and future capital projects
are discussed in its 1999 Annual Report on Form 10-K and 2000 first and second
Quarterly Reports on Form 10-Q. The following describes significant developments
related to those projects and any new projects proposed by Transco.
<PAGE>
SOUTHCOAST EXPANSION PROJECT Transco's SouthCoast Expansion Project was
placed in service on November 1, 2000. SouthCoast creates approximately 200
million cubic feet per day (MMcf/d) of additional firm transportation capacity
on Transco's system from the terminus of Transco's existing Mobile Bay Lateral
in Choctaw County, Alabama, to delivery points in Transco's Rate Zone 4 (Alabama
and Georgia). The project has an estimated cost of approximately $108 million.
MOMENTUM EXPANSION PROJECT In August 2000, Transco announced an open
season for parties interested in subscribing to firm transportation service
under its Momentum Expansion Project, a proposed expansion of the Transco
pipeline system from Station 65 in Louisiana to Station 165 in Virginia designed
to meet increasing natural gas demand in the southeastern United States. The
project has a target in-service date of May 1, 2003. Transco plans to file for
FERC approval of the project during the second quarter of 2001.
MARKETLINK EXPANSION PROJECT On May 13, 1998, Transco filed an application
with the FERC for approval to construct and operate mainline and Leidy Line
facilities to create an additional 676 MMcf/d of firm transportation capacity to
serve increased demand in the mid-Atlantic and south Atlantic regions of the
United States by a targeted in-service date of November 1, 2000. The estimated
cost of the proposed facilities is $529 million. On December 17, 1999, the FERC
issued an interim order giving Transco conditional approval for MarketLink,
along with the Independence Pipeline Project and ANR Pipeline Company's Supply
Link Project, but withholding final certificate authorization until Independence
Pipeline Company (Independence) and ANR Pipeline Company (ANR) file long-term,
executed contracts with nonaffiliated shippers for at least 35% of the capacity
of their respective projects. Transco filed for rehearing of the interim order.
On April 26, 2000, the FERC issued an order on rehearing which authorized
Transco to proceed with the Market Link project subject to certain conditions.
On May 23, 2000, Transco filed a letter with the FERC accepting the MarketLink
certificate. On June 22, 2000, Congressman Bill Pascrell, Jr. and the State of
New Jersey filed separate petitions with the U.S. Court of Appeals for the
District of Columbia seeking review of the FERC orders relating to this project.
On August 10, 2000, Transco filed a motion to dismiss, for lack of jurisdiction,
the petitions for review because petitioners failed to file requests for
rehearing of the FERC's final certificate order prior to initiating court review
of such order as required by the Natural Gas Act. On September 20, 2000, Transco
filed an application to amend the certificate of public convenience and
necessity issued in this proceeding to enable Transco to (a) phase the
construction of the MarketLink project to satisfy phased in-service dates
requested by the project shippers, and (b) redesign the recourse rate based on
phased construction of the project. The initial two phases of the project would
consist of 286 MMcf/d of firm transportation service with in-service dates of
November 1, 2001 and November 1, 2002. Transco did not propose in the amendment
to change the overall facilities certificated by the FERC in this proceeding.
<PAGE>
INDEPENDENCE PIPELINE PROJECT In March 1997, as amended in December 1997,
Independence filed an application with FERC for approval to construct and
operate a new pipeline consisting of approximately 400 miles of 36-inch pipe
from ANR Pipeline Company's existing compressor station at Defiance, Ohio to
Transco's facilities at Leidy, Pennsylvania. The Independence Pipeline Project
is proposed to provide approximately 916 MMcf/d of firm transportation capacity
by a requested in-service date of November 2000. Independence is owned equally
by wholly-owned subsidiaries of Transco, ANR, and National Fuel Gas Company. The
estimated cost of the project is $678 million, and Transco's equity
contributions are estimated to be approximately $68 million based on its
expected one-third ownership interest in the project. As mentioned above in
connection with the MarketLink Project, on December 17, 1999 the FERC gave
conditional approval for the Independence Pipeline project, subject to
Independence filing long-term, executed contracts with nonaffiliated shippers
for at least 35% of the capacity of the project. Independence filed for
rehearing of the interim order. On April 26, 2000, the FERC issued an order
denying rehearing and requiring that Independence submit by June 26, 2000,
agreements with nonaffiliated shippers for at least 35% of the capacity of the
project. Independence met this requirement, and on July 12, 2000, the FERC
issued an order granting the necessary certificate authorizations for the
Independence Pipeline Project. On September 28, 2000, the FERC issued an order
denying all requests for rehearing and requests for reconsideration of the
Independence certificate order filed by various parties.
SUNDANCE EXPANSION PROJECT On April 3, 2000, Transco filed an application
with the FERC for its Sundance Expansion Project, which would create
approximately 228 MMcf/d of additional firm transportation capacity from
Transco's Station 65 in Louisiana to delivery points in Georgia, South Carolina
and North Carolina. Approximately 38 miles of new pipeline along the existing
mainline system will be installed along with modifications to existing
compressor stations in Georgia, South Carolina and North Carolina. The project
has a target in-service date of May 2002 and an estimated cost of approximately
$134 million. On September 29, 2000, the FERC made a preliminary determination
that the Sundance expansion project is required by the public convenience and
necessity, and that Transco should be granted a certificate subject to the
completion of the FERC's pending environmental review.
Other Capital Requirements and Contingencies
Transco's capital requirements and contingencies are discussed in its 1999
Annual Report on Form 10-K and 2000 first and second Quarterly Reports on Form
10-Q. Other than as described in Note 3 of the Notes to Condensed Consolidated
Financial Statements, there have been no new developments from those described
in Transco's 1999 Annual Report on Form 10-K and 2000 first and second Quarterly
Reports on Form 10-Q with regard to other capital requirements and
contingencies.
Rate and Regulatory Refunds On November 1, 2000, Transco made rate refunds
of $95 million, including interest, for the period May 1, 1997 through February
29, 2000 under its Docket No. RP97-71 general rate case. Transco has provided
reserves which it believes are adequate for any additional rate refunds that may
be required.
CONCLUSION
Although no assurances can be given, Transco currently believes that the
aggregate of cash flows from operating activities, supplemented, when necessary,
by repayments of funds advanced to WGP, advances or capital contributions from
WGP and borrowings under the Credit Agreement will provide Transco with
sufficient liquidity to meet its capital requirements. When necessary, Transco
also expects to access public and private markets on reasonable terms to finance
its capital requirements.
<PAGE>
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See discussion in Note 3 of the Notes to Condensed Consolidated
Financial Statements included herein.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits.
None
(b) Reports on Form 8-K.
None
<PAGE>
SIGNATURE
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
TRANSCONTINENTAL GAS PIPE LINE
CORPORATION (Registrant)
Dated: November 13, 2000 By /s/ James C. Bourne
----------------------
James C. Bourne
Controller
(Principal Accounting Officer)
