Annual Report — [x] Reg. S-K Item 405 — Form 10-K
Filing Table of Contents
Document/Exhibit Description Pages Size
1: 10-K405 Annual Report -- [x] Reg. S-K Item 405 52 256K
2: EX-3.(A) Articles of Incorporation/Organization or By-Laws 4 23K
3: EX-3.(B) Articles of Incorporation/Organization or By-Laws 140 449K
4: EX-4 Instrument Defining the Rights of Security Holders 37 151K
5: EX-10.(A) Material Contract 10 34K
6: EX-10.(B) Material Contract 7 27K
7: EX-10.(C) Material Contract 2 12K
8: EX-10.(D) Material Contract 7 23K
9: EX-10.(E) Material Contract 3 15K
10: EX-10.(F) Material Contract 7 21K
11: EX-10.(G) Material Contract 6 17K
12: EX-10.(H) Material Contract 5 16K
13: EX-10.(I) Material Contract 5 14K
14: EX-12 Exhibit 12-1 1 8K
15: EX-27 Financial Data Schedule (Pre-XBRL) 2 9K
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1995
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 2-26983
THE PEOPLES GAS LIGHT AND COKE COMPANY
(Exact name of registrant as specified in its charter)
ILLINOIS 36-1613900
(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
24TH FLOOR, 130 EAST RANDOLPH DRIVE, CHICAGO, ILLINOIS 60601-6207
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (312) 240-4000
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes [ X ] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (#229.405 of this chapter) is not contained herein, and will
not be contained, to the best of registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ X ]
State the aggregate market value of the voting stock held by non-affiliates of
the registrant:
None.
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date:
Common Stock, without par value, 24,817,566 shares outstanding at November
30, 1995.
DOCUMENTS INCORPORATED BY REFERENCE
None
CONTENTS
Page
Item No. No.
-------- -----
PART I
1. Business 3
2. Properties 7
3. Legal Proceedings 8
4. Submission of Matters to a Vote of Security Holders 8
PART II
5. Market for the Company's Common Stock and Related
Stockholder Matters 8
6. Selected Financial Data 9
7. Management's Discussion and Analysis of Results
of Operations and Financial Condition 10
8. Financial Statements and Supplementary Data 16
9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure 37
PART III
10. Directors and Executive Officers of the Company 38
11. Executive Compensation 40
12. Security Ownership of Certain Beneficial Owners and
Management 45
13. Certain Relationships and Related Transactions 46
PART IV
14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K 47
Signatures 49
Exhibit Index 50
- 2 -
THE PEOPLES GAS LIGHT AND COKE COMPANY
ANNUAL REPORT ON FORM 10-K
FISCAL YEAR ENDED SEPTEMBER 30, 1995
PART I
ITEM 1. BUSINESS
GENERAL
The Peoples Gas Light and Coke Company (Company) is a corporation created
by a special act of the General Assembly of the State of Illinois (State),
approved February 12, 1855, as amended on February 7, 1865.
The Company, an operating public utility, is engaged primarily in the
purchase, storage, distribution, sale, and transportation of natural gas. It
has approximately 840,000 residential, commercial, and industrial retail sales
and transportation customers within the City of Chicago (City). The Company had
2,989 employees at September 30, 1995.
At September 30, 1995, the common stock of the Company and of its
affiliate, North Shore Gas Company (North Shore Gas), was wholly owned by
Peoples Energy Corporation (Peoples Energy).
COMPETITION
The Company is authorized by statute and/or certificates of public
convenience and necessity to conduct operations in the territory that it serves.
The Company holds a perpetual, non-exclusive franchise from the City.
Absent extraordinary circumstances, potential competitors are barred from
constructing competing gas distribution systems in the Company's service
territory by a judicial doctrine known as the "first in the field" doctrine. In
addition, the high cost of installing duplicate distribution facilities would
render the construction of a competing system impractical.
Competition in varying degrees exists between natural gas and other fuels
or forms of energy available to consumers in the Company's service area. The
capital cost of heating and cooling facilities in new high-rise buildings is
higher for gas than for electricity. This circumstance, combined with stagnant
high-rise construction activity, has adversely affected the ability of the
Company to attach commercial high-rise buildings.
State and federal regulators are currently evaluating ways in which the
generation and distribution of electricity may be deregulated so that end users
may purchase electricity from producers other than their local electric utility
and require such local utility to transport the electricity so purchased, a
concept commonly referred to as "retail wheeling." In the event retail wheeling
were permitted in the Company's service territory, the cost of electricity would
be expected to decline, thereby reducing the advantage of lower operating costs
that natural gas currently enjoys over electricity.
- 3 -
A substantial portion of the gas that the Company delivers to its customers
consists of gas that the Company's customers purchase directly from producers
and marketers rather than from the Company. The direct customer purchases have
no effect on net income because the Company provides transportation service for
such gas volumes and recovers margins similar to those applicable to
conventional gas sales.
A pipeline may seek to provide transportation service directly to end-
users. Such direct service by a pipeline to an end-user would bypass the local
distributor's service and reduce the distributor's earnings. However, none of
the Company's pipeline suppliers has undertaken any service bypassing the
Company. The Company has a bypass rate approved by the Illinois Commerce
Commission (Commission) which allows the Company to renegotiate rates with
customers that are potential bypass candidates.
SALES AND RATES
The Company sells natural gas having an average heating value of
approximately 1,000 British thermal units (Btu's) per cubic foot.* Sales are
made and service rendered by the Company pursuant to a rate schedule on file
with the Commission containing various service classifications largely
reflecting customers' different uses and levels of consumption. The Gas Charge
is determined in accordance with the provisions in Rider 2, Gas Charge and
Refund Adjustments, to recover the costs incurred by the Company to purchase,
transport, manufacture, and store gas supplies. The level of the Gas Charge
under the Company's rate schedule is adjusted monthly to reflect increases or
decreases in natural gas supplier charges, purchased storage service costs,
transportation charges, and liquefied petroleum gas costs. In addition, under
the tariffs of the Company, the difference for any fiscal year between costs
recoverable through the Gas Charge and the revenues billed to customers under
the Gas Charge is refunded or recovered over a 12-month billing cycle beginning
the following January 1. Consistent with these tariff provisions, such
difference for any month is recorded either as a current liability or a current
asset (with a contra entry to Gas Costs), and the fiscal year-end balance is
amortized over the 12-month period beginning the following January 1. The
Company also has been recovering, through its rates, pipeline charges billed for
transition costs resulting from the implementation of Federal Energy Regulatory
Commission (FERC) Order No. 636. (See Notes 1J, 2A, and 2B of the Notes to
Consolidated Financial Statements.)
The business of the Company is influenced by seasonal weather conditions
because a large element of the Company's customer load consists of space
heating. Weather-related deliveries can, therefore, have a significant positive
or negative impact on net income. (For discussion of the effect of the seasonal
nature of gas sales on cash flow, see Liquidity in Item 7.)
The basic marketing plan of the Company is to maintain its existing share
in all market segments and develop opportunities emerging from changes in the
utility environment and technological equipment advances for new, expanded, or
current natural gas applications, including cogeneration, prime movers, natural
gas-fueled vehicles, and natural gas space conditioning.
STATE LEGISLATION AND REGULATION
The Company is subject to the jurisdiction of and regulation by the
Commission, which has general supervisory and regulatory powers over practically
all phases of the public utility business in Illinois, including rates and
charges, issuance of securities, services and facilities, systems of accounts,
investments, safety standards, transactions with affiliated interests, as
defined in the Illinois Public Utilities Act, and other matters.
-------------------------------------------------------------------------------
* All volumes of natural gas set forth in this report are stated on a 1,000 Btu
(per cubic foot) billing basis.
(100 cubic feet = 1 therm; 10 therms = 1 Dekatherm)
- 4 -
In 1992, the Commission issued an order in its consolidated proceedings,
initiated in 1991, regarding the appropriate ratemaking treatment of
environmental costs relating to past manufactured gas operations incurred by
Illinois utilities, including the Company and North Shore Gas. In its order,
the Commission approved rate recovery of such environmental costs but required
that the recovery occur over a five-year period without recovery of carrying
charges on unrecovered balances. The part of the Commission's order that
disallowed recovery of carrying charges on unrecovered balances has been
reversed on appeal by the Illinois Supreme Court, which has remanded the case to
the Commission. (See Note 2A of the Notes to Consolidated Financial Statements.
Also see Note 15 "Events (Unaudited) Subsequent to the Auditors' Report Dated
November 1, 1995.")
On September 15, 1993, the Commission entered an order initiating an
investigation into the appropriate means of recovery by Illinois gas utilities
of pipeline charges for FERC Order No. 636 transition costs. The Illinois
Appellate Court affirmed the Commission's order on rehearing on September 21,
1995. (See Notes 1J, 2A, and 2B of the Notes to Consolidated Financial
Statements.)
The Company filed proposed changes in rates with the Commission in December
1994. (See Note 2A of Notes to Consolidated Financial Statements. Also see
Note 15 "Events (Unaudited) Subsequent to the Auditors' Report Dated November 1,
1995.")
On September 29, 1995, the Company filed a petition with the Commission for
approval of a performance-based rate program for gas costs. (See Liquidity -
Regulatory Actions in Item 7.)
FEDERAL LEGISLATION AND REGULATION
By Order entered on December 6, 1968 (Holding Company Act Release No.
16233), the Securities and Exchange Commission, pursuant to Section 3(a)(1) of
the Public Utility Holding Company Act of 1935 (Act), exempted Peoples Energy
and its subsidiary companies as such (including the Company) from the provisions
of the Act, other than Section 9(a)(2) thereof.
Most of the gas distributed by the Company is transported to the Company's
distribution system by interstate pipelines. In their provision of gas sales
services (gathering, transportation and storage services, and gas supply)
pipelines are regulated by the FERC under the Natural Gas Act (NGA) and the
Natural Gas Policy Act of 1978 (NGPA). (See "Sales and Rates" and "Current Gas
Supply" in Item 1.)
The Company is subject to federal and state environmental laws. The
Company is conducting environmental investigations and work at certain sites
that were the location of former manufactured gas plant operations. (See Note 3
of the Notes to Consolidated Financial Statements.)
In 1992, the FERC issued Order No. 636 and successor orders that required
substantial restructuring of the service obligations of interstate pipelines.
(See Notes 1J, 2A, and 2B of the Notes to Consolidated Financial Statements.)
ENVIRONMENTAL MATTERS
See Note 3 of the Notes to Consolidated Financial Statements.
CURRENT GAS SUPPLY
The Company has entered into various long-term and short-term firm gas
supply contracts. When used in conjunction with contract storage and company-
owned storage and peak-shaving facilities, such supply is deemed sufficient to
meet current and foreseeable peak and annual market requirements.
- 5 -
Although the Company believes North American supply to be sufficient to
meet U.S. market demands for the foreseeable future, it is unable to quantify or
otherwise make specific representations regarding national supply availability.
The following tabulation shows the expected design peak-day availability of
gas in thousands of dekatherms (MDth) during the 1995-96 heating season for the
Company:
[Download Table]
Design Peak-Day Year of
Availability Contract
Source (MDth) Expiration
-------------- ---------------- -------------
Firm direct purchases (1) 704 1996-2000
Liquefied petroleum 40
Storage gas
Leased (2) 563 1998-2000
Peoples - Manlove (3) 1,017
Customer-owned (4) 170
-----
Total expected design
peak-day availability 2,494
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-----
(1) Consists of firm gas purchases from non-pipeline suppliers delivered
utilizing firm pipeline transportation. The majority of the gas purchase
contracts are negotiated annually. The term of the transportation
contracts varies with the longest term being 5 years.
(2) Consists of leased storage services required to meet design day
requirements with contract length varying from 3 to 5 year terms.
(3) Manlove Field, the Company's underground storage facility located near
Champaign, Illinois, has a seasonal top-gas capacity (excluding volumes
required to support late-season peaking requirements) of approximately
33,000 MDth, of which approximately 1,914 MDth is dedicated to North Shore
Gas. The Company also owns a liquefied natural gas (LNG) plant at Manlove
Field for the primary purpose of supporting late-season deliverability from
the storage facility. The LNG plant has a storage capacity of 2,000 MDth
and is capable of regasifying 300 MDth of gas per day. For the 1995-96
heating season, Manlove Field complex will have a maximum design peak-day
delivery capability of approximately 1,080 MDth (including 63 MDth for the
use of North Shore Gas).
(4) Consists of gas supplies purchased directly from producers and marketers by
the Company's commercial, industrial, and larger residential customers.
- 6 -
The sources of gas supply (including gas transported for customers) in
thousands of dekatherms (MDth) for the Company for the three fiscal years ended
September 30, 1995, 1994, and 1993, were as follows:
[Download Table]
1995 1994 1993
Source:
Natural Gas Pipeline Co. (a) -- 14,378 63,996
Midwestern Gas Transmission Company (b) -- -- 7,217
Other suppliers (c) 104,932 134,104 76,006
Synthetic natural gas (d) 7,622 8,350 9,723
Liquefied petroleum gas produced 14 30 14
Customer-owned gas - received 93,225 91,187 91,046
Underground storage - net 26,896 (2,196) (1,762)
Company use, franchise requirements,
and unaccounted-for gas (3,733) (4,261) (4,772)
-------- -------- --------
Total (e) 228,956 241,592 241,468
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-------- -------- --------
(a) The DMQ-1 supply contract terminated on November 30, 1993.
(b) The CD-1 supply contract terminated on August 31, 1993.
(c) The Company purchases significant quantities of gas directly from various
suppliers. Commencing December 1, 1993, Natural unbundled its rates and
all purchases are from non-pipeline suppliers.
(d) The SNG facility terminated production during fiscal 1995. (See Results of
Operations - Other Matters - SNG Plant Closing in Item 7.)
(e) See "Gas Sold and Transported" in Item 6.
SYNTHETIC NATURAL GAS SUPPLY
The Company owned and operated an SNG plant, the McDowell Energy Center,
located near Joliet, Illinois that used refinery fuel gas and a variety of
natural gas liquids, including ethane, naphtha, natural gasoline, normal butane,
propane, and ethane/propane mix as feedstock for the production of SNG. The SNG
facility terminated production in fiscal 1995. (See Results of Operations -
Other Matters - SNG Plant Closing in Item 7.)
ITEM 2. PROPERTIES
All of the principal plants and properties of the Company have been
maintained in the ordinary course of business and are believed to be in
satisfactory operating condition. The following is a brief description of the
principal plants and operating units of the Company.
The distribution system of the Company, at September 30, 1995, consisted of
approximately 4,000 miles of distribution mains and necessary pressure
regulators, approximately 495,000 services (pipe connecting the mains with
piping on the customers' premises), and approximately 888,000 meters installed
on customers' premises. The Company has liquefied petroleum gasification and
storage facilities. In addition, it owns and has a substantial investment in
office and service buildings, garages, repair shops, and motor vehicles,
together with the equipment, tools, and fixtures necessary to conduct utility
business. (See also Results of Operations - Other Matters - SNG Plant Closing
in Item 7.)
- 7 -
The Company's SNG plant mentioned in Item 1 had a design peak-day
production capability of 170 MDth of gas. The plant included feedstock
pipelines, structures, and equipment to transport, store, and process the
feedstock into pipeline-quality gas and to deliver the gas into the Company's
transmission system.
The Company has gas storage easements covering approximately 32,000 acres
located at Manlove Field near Champaign, Illinois, overlying an aquifer-type
underground natural gas storage reservoir at Manlove Field, together with wells,
pipes, compressors, dehydration, metering, and other equipment required to
operate the facility. At September 30, 1995, the Company had approximately
128,000 MDth of gas stored in the reservoir, of which approximately 94,000 MDth
was cushion gas. (Cushion gas is gas injected into the storage reservoir to
hold back surrounding or underlying water and to provide the pressure necessary
to make the wells deliver inventory gas at desired levels.)
Also located at Manlove Field is an LNG plant, which has a storage capacity
of 2,000 MDth and is capable of regasifying 300 MDth of gas per day. Such gas,
together with the gas withdrawn from the Manlove Field reservoir, and the gas
transmitted by Trunkline Gas Company, is carried to Chicago in Company-owned
transmission mains totaling 254 miles.
Most of the principal plants and properties of the Company, other than
mains, services, meters, and regulators, are located on property owned in fee.
Substantially all gas mains are located in public streets and alleys. A small
portion of the distribution facilities is located on private property under
easement grants. Meters and house regulators in use and a portion of services
are located on premises being served. Certain SNG facilities, certain storage
wells and other facilities of the Manlove Field storage reservoir, and certain
portions of the transmission system are located on land held pursuant to leases,
easements, or permits. Such land rights, as well as the gas storage easements
for the reservoir, have been obtained from the apparent record owners of the
land involved, in some cases without joinder of all such owners, and all such
leases, easements, and permits may be subject to mortgages or other liens to
which the Company is not a party.
Substantially all of the physical properties now owned or hereafter
acquired by the Company are subject to (a) the first-mortgage lien of the
Company's mortgage to First Trust of Illinois, National Association, as Trustee,
to secure the principal amount of the Company's outstanding first and refunding
mortgage bonds and (b) in certain cases, other exceptions and defects that do
not interfere with the use of the property.
ITEM 3. LEGAL PROCEEDINGS
See Notes 2, 3, and 4 of the Notes to Consolidated Financial Statements.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company is a wholly owned subsidiary of Peoples Energy.
- 8 -
ITEM 6. SELECTED FINANCIAL DATA (a)
[Enlarge/Download Table]
For fiscal years ended September 30, 1995 1994 1993 1992 1991
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OPERATING RESULTS (thousands)
Operating Revenues:
Residential $ 648,762 $ 820,383 $ 807,674 $ 684,004 $ 695,795
Commercial 101,436 139,078 135,838 115,026 125,836
Industrial 20,807 35,587 36,193 30,985 37,332
Transportation of customer-owned gas (b) 109,626 98,943 106,198 122,326 103,778
Other 18,312 17,181 15,517 14,366 12,880
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Total Operating Revenues $ 898,943 $ 1,111,172 $ 1,101,420 $ 966,707 $ 975,621
Less -- Gas costs 387,675 566,903 555,256 463,221 490,045
-- Revenue taxes 100,562 121,773 121,051 109,053 109,854
-----------------------------------------------------------------------------------------------------------------------------
Net Operating Revenues $ 410,706 $ 422,496 $ 425,113 $ 394,433 $ 375,722
Net income applicable to common stock $ 53,666 $ 63,825 $ 63,637 $ 57,728 $ 60,220
Dividends declared on common stock $ 56,833 $ 55,343 $ 55,095 $ 10,175 $ 54,102
-----------------------------------------------------------------------------------------------------------------------------
ASSETS AT YEAR-END (thousands)
Property, plant and equipment $ 1,815,407 $ 1,760,004 $ 1,702,401 $ 1,616,046 $ 1,543,439
Less -- Accumulated depreciation 628,258 596,808 557,855 529,540 499,689
-----------------------------------------------------------------------------------------------------------------------------
Net Property, Plant and Equipment $ 1,187,149 $ 1,163,196 $ 1,144,546 $ 1,086,506 $ 1,043,750
Total assets $ 1,561,481 $ 1,548,792 $ 1,506,107 $ 1,380,201 $ 1,345,718
Capital expenditures -- construction $ 81,081 $ 74,623 $ 108,863 $ 92,052 $ 83,342
-----------------------------------------------------------------------------------------------------------------------------
CAPITALIZATION AT YEAR-END (thousands)
Common equity $ 528,308 $ 531,475 $ 522,993 $ 514,865 $ 467,312
Preferred stock -- -- -- 12,850 16,750
Long-term debt 549,150 549,150 447,150 433,500 436,350
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Total Capitalization $ 1,077,458 $ 1,080,625 $ 970,143 $ 961,215 $ 920,412
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CAPITALIZATION AT YEAR-END (per cent)
Common equity 49 49 54 54 51
Preferred stock -- -- -- 1 2
Long-term debt 51 51 46 45 47
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Total Capitalization 100 100 100 100 100
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GAS SOLD AND TRANSPORTED (thousands of dekatherms)
Gas Sales:
Residential 111,509 122,648 124,190 123,557 119,661
Commercial 19,206 22,565 22,656 22,601 23,865
Industrial 4,357 6,320 6,670 6,505 7,743
Transportation of customer-owned gas (b) 93,884 90,059 87,952 87,528 82,798
-----------------------------------------------------------------------------------------------------------------------------
Total Gas Sales and Transportation 228,956 241,592 241,468 240,191 234,067
Margin per Dth delivered $1.79 $1.75 $1.76 $1.64 $1.61
-----------------------------------------------------------------------------------------------------------------------------
NUMBER OF CUSTOMERS (average)
Residential 784,290 786,271 787,672 790,017 789,329
Commercial 43,198 43,299 43,243 43,261 42,596
Industrial 2,963 3,125 3,260 3,243 3,235
Transportation (b) 9,308 8,768 8,335 8,029 8,420
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Total Customers 839,759 841,463 842,510 844,550 843,580
-----------------------------------------------------------------------------------------------------------------------------
DEGREE DAYS 5,897 6,701 6,679 6,320 5,927
Per cent of normal (6,536) 90 103 102 97 91
-----------------------------------------------------------------------------------------------------------------------------
(a) The Company is a wholly owned subsidiary of Peoples Energy; therefore,
per-share data are omitted.
(b) Includes commercial, industrial, and larger residential customers.
- 9 -
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET INCOME
Net income applicable to common stock decreased $10.2 million, to $53.7
million, in fiscal 1995 from 1994, due principally to weather that was 12 per
cent warmer than in 1994, decreasing net income by about $10.2 million. Other
significant variations resulted from a decrease in the provision for
uncollectible accounts reflecting lower revenues that were largely offset by
increases in interest expense, certain operation and maintenance costs, and an
adjustment to income tax expense in the prior period. In addition, fiscal 1995
benefited from the sale of certain oil and gas rights.
In 1994, net income applicable to common stock increased $188,000 to $63.8
million. Results for the fiscal year included the recording of one-half of an
Internal Revenue Service (IRS) income tax settlement that increased net income
by $9.7 million. (See Note 7D of the Notes to Consolidated Financial
Statements.) However, this benefit was largely offset by increased operating
costs related to the provision for uncollectible accounts, labor, and
depreciation.
Earnings for fiscal 1996 are expected to be positively affected by the
Company's higher rates for service that were put into effect in November 1995.
(See Note 2A of the Notes to Consolidated Financial Statements. Also see Note
15 "Events (Unaudited) Subsequent to the Auditors' Report Dated
November 1, 1995.")
A summary of variations affecting income between years is presented below,
with explanations of significant differences following:
[Enlarge/Download Table]
Fiscal 1995 Fiscal 1994
over 1994 over 1993
------------------------- -------------------------
Amount Amount
(000's) Per Cent (000's) Per Cent
------------------------------------------------------------------------------------------------------------
Net operating revenues (a) $(11,790) (2.8) $(2,617) (0.6)
Operation and maintenance expenses (17,497) (7.6) 9,766 4.4
Depreciation expense 1,346 2.3 3,209 5.9
Income taxes 751 2.7 (5,538) (16.8)
Other income (7,587) (43.6) 12,943 289.4
Income deductions 5,247 12.6 3,477 9.1
Net income applicable to common stock (10,159) (15.9) 188 0.3
------------------------------------------------------------------------------------------------------------
(a) Operating revenues, net of gas costs and revenue taxes.
NET OPERATING REVENUES
Gross revenues of the Company are affected by changes in the unit cost of
the Company's gas purchases and do not include the cost of gas supplies for
customers who purchase gas directly from producers and marketers rather than
from the Company. The direct customer purchases have no effect on net income
because the Company provides transportation service for such gas volumes and
recovers margins similar to those applicable to conventional gas sales. Changes
in the unit cost of gas do not significantly affect net income because the
Company's tariffs provide for dollar-for-dollar recovery of gas costs. (See
Note 1J of the Notes to Consolidated Financial Statements.) The Company's
tariffs also provide for dollar-for-dollar recovery of the cost of revenue taxes
imposed by the state and the City.
- 10 -
Since income is not significantly affected by changes in revenue from
customers' gas purchases from producers or marketers rather than from the
Company, changes in gas costs, or changes in revenue taxes, the discussion below
pertains to "net operating revenues" (operating revenues, net of gas costs and
revenue taxes). The Company considers net operating revenues to be a more
pertinent measure of operating results than gross revenues.
Net operating revenues decreased $11.8 million, to $410.7 million, due
primarily to a decline in natural gas deliveries of 12.6 Bcf, to 229 Bcf,
reflecting weather that was 12 per cent warmer than in 1994 and 10 per cent
warmer than normal.
In 1994, net operating revenues amounted to $422.5 million, virtually flat
as compared with fiscal 1993, reflecting natural gas deliveries that were
essentially at the same level in both periods. The total fiscal 1994 weather
impact was comparable with fiscal 1993. Customers' energy conservation measures
had a negative effect in 1994.
See Other Matters - Operating Statistics for details of selected financial
and operating information by gas service classification.
OPERATION AND MAINTENANCE EXPENSES
Operation and maintenance expenses decreased $17.5 million, to $213.4
million, in 1995, due chiefly to recognizing approximately $12.7 million for the
fiscal 1995 portion of the IRS settlement (see Note 7D of the Notes to
Consolidated Financial Statements), and a decrease in the provision for
uncollectible accounts of $9.1 million, reflecting reduced sales revenues from
lower gas costs and warmer weather. These items were partially offset by
increased expenses for reengineering activities ($2.3 million) and the
distribution system ($2.5 million).
In 1994, operation and maintenance expenses increased $9.8 million, to
$230.9 million, due mainly to an increase in the Company's provision for
uncollectible accounts and higher labor costs that arose mainly from weather-
related overtime work and from start-up costs for new customer-service programs.
Partially offsetting these items were a reduced workforce and lower employee
benefits expenses for pensions and group insurance. Fiscal 1994 results reflect
an increase of $9.5 million in the provision for uncollectible accounts.
Without the increase in the provision for uncollectible accounts, operation and
maintenance expenses would have increased by $297,000 over fiscal 1993 levels.
DEPRECIATION EXPENSE
Depreciation expense increased $1.3 million, to $59.2 million, in 1995, and
$3.2 million, to $57.8 million, in 1994, due mainly to depreciable property
additions.
INCOME TAXES
Income taxes increased $751,000, to $28.2 million, due primarily to the
recording of the deferred tax effects of the income tax settlement in operating
expenses in 1995 together with an adjustment made in 1994 to reduce taxes
accrued. Also, the amortization of deferred tax credits was lower in 1995.
These increases were largely offset by decreased pre-tax income in 1995.
In 1994, income taxes decreased $5.5 million, to $27.4 million, due
principally to lower pre-tax income.
- 11 -
OTHER INCOME
Other income declined $7.6 million, to $9.8 million, in 1995, due
principally to the 1994 recognition of the IRS settlement of $9.7 million after
income taxes. (See Notes 7D and 9 of the Notes to Consolidated Financial
Statements.) Also, the current fiscal year reflects lower interest income
($2 million) on amounts recoverable from customers and the absence of the prior
year's interest ($1.1 million) from proceeds held in a trust fund generated from
the Company's December 1993 bond issuance. These decreases were partially
offset by higher interest income ($5.2 million) resulting from larger cash
balances and higher interest rates.
In 1994, other income increased $12.9 million, to $17.4 million, due
primarily to recording the aforementioned IRS settlement. Also, the fiscal year
included higher interest income reflecting larger cash balances and the December
1993 bond issuance.
INCOME DEDUCTIONS
Income deductions increased $5.2 million, to $46.7 million, in 1995, due
mainly to increased interest expense on the following items: amounts refundable
to customers, long-term debt, and budget accounts.
In 1994, income deductions rose by $3.5 million, to $41.5 million, due
primarily to increased interest on long-term debt reflecting additional debt
outstanding.
OTHER MATTERS
EFFECT OF WEATHER. Weather variations affect the volumes of gas delivered for
heating purposes and, therefore, can have a significant positive or negative
impact on net income and coverage ratios.
ACCOUNTING STANDARDS. Effective October 1, 1993, the Company adopted Statement
of Financial Accounting Standards (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions." This statement requires the
accrual of the expected costs of such benefits during the employees' years of
service. (See Note 6B of the Notes to Consolidated Financial Statements.)
Effective October 1, 1994, the Company adopted SFAS No. 112, "Employers'
Accounting for Postemployment Benefits." This statement requires the accrual of
certain benefits provided to former or inactive employees after employment but
before retirement. (See Note 6C of the Notes to Consolidated Financial
Statements.)
FERC ORDER 636 COSTS. In 1992, the FERC issued Order No. 636 and successor
orders that required substantial restructuring of the service obligations of
interstate pipelines. (See Notes 1J, 2A, and 2B of the Notes to Consolidated
Financial Statements.)
On September 15, 1993, the Commission entered an order initiating an
investigation into the appropriate means of recovery by Illinois gas utilities
of pipeline charges for FERC Order 636 transition costs. The Illinois Appellate
Court affirmed the Commission's order on rehearing on September 21, 1995. (See
Notes 1J, 2A, and 2B of the Notes to Consolidated Financial Statements.)
REENGINEERING STUDY. The Company is undertaking a major project to reengineer
its business processes with the goal of increasing efficiency, responsiveness to
customer needs, and cost effectiveness. The project commenced in September 1994
and is expected to continue for at least two years.
- 12 -
SNG PLANT CLOSING. The Company has closed its synthetic gas-making plant
located near Joliet, Illinois. The decision was effected after a cost-benefit
analysis was performed, which showed that, as of December 1, 1995, it no longer
would be cost-effective to use the plant as a source of gas, given new, more
economical supply arrangements that will take effect this winter. Those supply
arrangements are the result of initiatives undertaken by the Company to
restructure its gas supply portfolio in response to FERC Order 636. The rates
approved by the Commission in the Company's most recent rate case reflect the
annual effect of a five-year amortization of the undepreciated investment in the
plant and decommissioning expenses.
OPERATING STATISTICS. The following table represents gas distribution margin
components:
[Download Table]
For fiscal years ended September 30,
------------------------------------------------
1995 1994 1993
-------- ----------- -----------
Operating Revenues (thousands):
Gas sales
Residential $648,762 $ 820,383 $ 807,674
Commercial 101,436 139,078 135,838
Industrial 20,807 35,587 36,193
-------- ---------- ---------
771,005 995,048 979,705
-------- ---------- ---------
Transportation
Residential 36,617 34,337 37,226
Commercial 43,459 39,770 42,271
Industrial 29,550 24,836 26,701
-------- ---------- ---------
109,626 98,943 106,198
-------- ---------- ---------
Other 18,312 17,181 15,517
-------- ---------- ---------
Total Operating Revenues 898,943 1,111,172 1,101,420
Less-- Gas Costs 387,675 566,903 555,256
-- Revenues Taxes 100,562 121,773 121,051
-------- ---------- ---------
Net Operating Revenues $410,706 $ 422,496 $ 425,113
-------- ---------- ---------
-------- ---------- ---------
Deliveries (MDth):
Gas Sales
Residential 111,509 122,648 124,190
Commercial 19,206 22,565 22,656
Industrial 4,357 6,320 6,670
-------- ---------- ---------
135,072 151,533 153,516
-------- ---------- ---------
Transportation
Residential 24,232 24,487 24,468
Commercial 36,130 36,344 35,120
Industrial 33,522 29,228 28,364
-------- ---------- ---------
93,884 90,059 87,952
-------- ---------- ---------
Total Gas Sales
and Transportation 228,956 241,592 241,468
-------- ---------- ---------
-------- ---------- ---------
Margin per Dth delivered $ 1.79 $ 1.75 $ 1.76
- 13 -
LIQUIDITY
SOURCE OF FUNDS. The Company has access to outside capital markets and to
internal sources of funds that together provide sufficient resources to meet
capital requirements. It does not anticipate any changes that would materially
alter its current liquidity position.
Due to the seasonal nature of gas usage, a major portion of cash
collections occurs between December and May. Because of timing differences in
the receipt and disbursement of cash and the level of construction requirements,
the Company may borrow on a short-term basis. Short-term borrowings are repaid
with cash from operations, other short-term borrowings, or refinanced on a
permanent basis with debt or equity, depending on capital market conditions and
capital structure considerations.
CREDIT LINES. The Company has lines of credit of approximately $131.1 million
of which North Shore Gas may borrow up to $30 million. At September 30, 1995,
the Company and North Shore Gas had unused credit available from banks of $130.2
million. (See Note 11 of the Notes to Consolidated Financial Statements.)
CASH FLOW ACTIVITIES. Net cash provided by operating activities in 1995
increased by $25.9 million, due primarily to changes related to gas in storage,
other assets, and deferred income taxes. These items were offset, in part, by
reductions in gas costs recoverable and net receivables. In 1994, net cash
provided by operating activities increased by approximately $70.7 million, due
mainly to changes related to net receivables, gas costs recoverable, and gas
sales revenue refundable. Such items were partially offset by decreases
associated with deferred credits and accounts payable.
Net cash used in investing activities for 1995, 1994, and 1993 mainly
represents the level of capital expenditures in the respective years.
Net cash used in financing activities in 1995 includes drawdowns for
utility construction activities of the remaining balance of the trust fund
associated with prior financing. In 1994, net cash used in financing activities
reflects the new debt issues during the year, primarily used for construction
projects. Net cash provided by financing activities in 1993 includes the debt
issuance during the period, primarily to refund previously issued debt and
preferred stock.
INTEREST COVERAGE. The fixed charges coverage ratios for the Company for fiscal
1995, 1994, and 1993 were 2.76, 3.28, and 3.57, respectively. The decrease in
the ratio for the current fiscal year primarily reflects lower pre-tax income
resulting from warmer weather. (See Results of Operations - Net Income.) In
addition, the ratios for fiscal years 1995 and 1994 reflect the recording of an
IRS settlement in income. (See Note 7D of the Notes to Consolidated Financial
Statements.)
DEBT RATINGS. The long-term debt of the Company is rated Aa3 by Moody's
Investors Service and AA- by Standard & Poor's Corporation. There has been no
change in these ratings since fiscal 1985. The commercial paper of the Company
has the top rating from the major rating agencies.
ENVIRONMENTAL MATTERS. The Company is conducting environmental investigations
and work at certain sites that were the location of former manufactured gas
operations. (See Note 3 of the Notes to Consolidated Financial Statements.)
- 14 -
REGULATORY ACTIONS. In 1992, the Commission issued an order in its consolidated
proceedings, initiated in 1991, regarding the appropriate ratemaking treatment
of environmental costs relating to past manufactured gas operations incurred by
Illinois utilities, including the Company and North Shore Gas. In its order,
the Commission approved rate recovery of such environmental costs but required
that the recovery occur over a five-year period without recovery of carrying
charges on unrecovered balances. The part of the Commission's order that
disallowed recovery of carrying charges on unrecovered balances has been
reversed on appeal by the Illinois Supreme Court, which has remanded the case to
the Commission. (See Note 2A of the Notes to Consolidated Financial Statements.
Also see Note 15 "Events (Unaudited) Subsequent to the Auditors' Report Dated
November 1, 1995.")
The Company filed proposed changes in rates with the Commission in December
1994. (See Note 2A of the Notes to Consolidated Financial Statements. Also see
Note 15 "Events (Unaudited) Subsequent to the Auditors' Report Dated November 1,
1995.")
On September 29, 1995, the Company filed a petition with the Commission for
approval of a performance-based rate program (PBR Program) for gas costs. The
objectives of the PBR Program are to provide incentives to minimize gas supply
and capacity costs in a changing market and to pursue innovative gas supply-
related opportunities. Under specified conditions and up to certain limits, the
Company would share equally with gas sales customers the savings or costs from
the program. The PBR Program would be for a pilot period covering fiscal years
1996 through 1998 and was filed pursuant to a new provision of the Illinois
Public Utilities Act which allows experiments in performance-based rates. The
Commission has commenced hearings on the PBR Program proposals.
CAPITAL RESOURCES
CAPITAL SPENDING. Capital expenditures for additions, replacements, and
improvements to the utility plant were $81.1 million in 1995, $74.6 million in
1994, and $108.9 million in 1993.
Expenditures in fiscal 1995 increased $6.5 million over 1994 and included
$10.8 million for computer and office equipment.
The decline in fiscal 1994 expenditures from 1993 was partly the result of
completing certain major projects that were undertaken to enhance gas supply.
Expenditures in 1994 included $9 million for enhancement of the Company's
underground storage site. Expenditures for that project in fiscal 1993 amounted
to $10.7 million.
Additional expenditures in fiscal 1993 included $7.7 million for a
liquefied natural gas vaporizer replacement project at Manlove Field.
Capital expenditures for fiscal 1996 are expected to be about $81.7
million, an increase of $600,000 from the 1995 level. The estimate of
expenditures for 1996 includes a continuation of the Company's cast iron main
replacement program.
The Company anticipates that future cash needs for capital expenditures and
debt maturities will be met through internally generated funds, intercompany
loans from Peoples Energy, borrowing arrangements with banks and/or the issuance
of commercial paper on an interim basis, and periodic long-term financing
involving equity or first mortgage bonds.
- 15 -
BONDS ISSUED. On June 29, 1995, the City of Chicago issued $50 million
aggregate principal amount of 6.10 per cent gas supply refunding revenue bonds,
1995 Series A, which were collateralized by an equal amount of the Company's 30-
year first mortgage bonds. On August 1, 1995, the proceeds were used to redeem
$50 million aggregate principal amount of previously issued gas supply revenue
bonds. Other funds provided by the Company were used for the payment of
expenses of issuance, including the underwriters' fee. (See Note 12A of the
Notes to Consolidated Financial Statements.)
Additional bonds are issuable by the Company, upon approval by the
Commission, subject to limitations imposed by certain restrictive provisions of
the Company's open-end mortgages and supplements thereto. These restrictions
are not expected to have an impact on the Company's ability to issue additional
debt, as needed.
BONDS REDEEMED. On November 14, 1995, the Company notified the trustee of its
intention to redeem approximately $87 million aggregate principal amount of
Series U and V gas supply revenue bonds. Such redemption, from general
corporate funds, is expected to be completed on December 29, 1995.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page
----
Statement of Management's Responsibility 17
Report of Independent Public Accountants 18
Consolidated Statements of Income for fiscal years ended
September 30, 1995, 1994, and 1993 19
Consolidated Statements of Retained Earnings for fiscal
years ended September 30, 1995, 1994, and 1993 19
Consolidated Statements of Cash Flows for fiscal years ended
September 30, 1995, 1994, and 1993 20
Consolidated Balance Sheets at September 30, 1995 and 1994 21
Consolidated Capitalization Statements at September 30, 1995
and 1994 22
Notes to Consolidated Financial Statements 23
- 16 -
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
The financial statements and other financial information included in this
report were prepared by management, who is responsible for the integrity and
objectivity of the presented data. The consolidated financial statements of the
Company and its subsidiaries were prepared in conformity with generally accepted
accounting principles and necessarily include some amounts that are based on the
best estimates and judgments of management.
The Company maintains internal accounting systems and related administrative
controls, along with internal audit programs, that are designed to provide
reasonable assurance that the accounting records are accurate and assets are
safeguarded from loss or unauthorized use. Consequently, management believes
that the accounting records and controls are adequate to produce reliable
financial statements.
Arthur Andersen LLP, the Company's independent public accountants approved by
Peoples Energy's shareholders, as a part of their audit of the financial
statements, selectively reviews and tests certain aspects of internal accounting
controls solely to determine the nature, timing, and extent of audit tests.
Management has made available to Arthur Andersen LLP all of the Company's
financial records and related data and believes that all representations made to
the independent public accountants during their audit were valid and
appropriate.
The Audit Committee of the Board of Directors of Peoples Energy, comprised of
six outside directors, meets periodically with management, the internal
auditors, and Arthur Andersen LLP, jointly and separately, to assure that
appropriate responsibilities are discharged. These meetings include discussion
and review of accounting principles and practices, internal accounting controls,
audit results, and the presentation of financial information in the annual
report.
- 17 -
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Peoples Gas Light and Coke Company:
We have audited the accompanying consolidated balance sheets and consolidated
capitalization statements of The Peoples Gas Light and Coke Company (an Illinois
corporation, hereinafter referred to as the Company and a wholly owned
subsidiary of Peoples Energy Corporation) and subsidiary companies at September
30, 1995 and 1994, and the related consolidated statements of income, retained
earnings, and cash flows for each of the three years in the period ended
September 30, 1995. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Company and subsidiary
companies at September 30, 1995 and 1994, and the results of their operations
and cash flows for each of the three years in the period ended
September 30, 1995, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The financial statement schedule listed
in Item 14(a)2 is presented for purposes of complying with the Securities and
Exchange Commission's rules and is not part of the basic financial statements.
The financial statement schedule has been subjected to the auditing procedures
applied in the audit of the basic financial statements and, in our opinion,
fairly states, in all material respects, the financial data required to be set
forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois
November 1, 1995
- 18 -
CONSOLIDATED STATEMENTS OF INCOME
[Enlarge/Download Table]
The Peoples Gas Light and Coke Company
-----------------------------------------------------------------------------------------
For fiscal years ended September 30, 1995 1994 1993
-----------------------------------------------------------------------------------------
(Thousands)
Operating Revenues:
Gas sales $ 771,005 $ 995,048 $ 979,705
Transportation of customer-owned gas 109,626 98,943 106,198
Other 18,312 17,181 15,517
------------------------------------------------------------------------------------------
Total Operating Revenues 898,943 1,111,172 1,101,420
------------------------------------------------------------------------------------------
Operating Expenses:
Gas costs 387,675 566,903 555,256
Operation (see Note 7D) 174,701 196,045 188,742
Maintenance 38,730 34,883 32,420
Depreciation 59,170 57,824 54,615
Taxes-- Income 28,164 27,413 32,951
-- State and local revenue 100,562 121,773 121,051
-- Other 19,369 18,434 18,492
------------------------------------------------------------------------------------------
Total Operating Expenses 808,371 1,023,275 1,003,527
------------------------------------------------------------------------------------------
Operating Income 90,572 87,897 97,893
------------------------------------------------------------------------------------------
Other Income:
Interest income 8,669 4,549 1,402
Miscellaneous (see Note 9) 1,160 12,867 3,071
------------------------------------------------------------------------------------------
Total Other Income 9,829 17,416 4,473
------------------------------------------------------------------------------------------
Gross Income 100,401 105,313 102,366
------------------------------------------------------------------------------------------
Income Deductions:
Interest on long-term debt 39,758 38,029 34,907
Other interest 6,079 2,634 2,408
Amortization of debt discount and expense 749 689 616
Miscellaneous 149 136 80
------------------------------------------------------------------------------------------
Total Income Deductions 46,735 41,488 38,011
------------------------------------------------------------------------------------------
Net Income 53,666 63,825 64,355
------------------------------------------------------------------------------------------
Preferred stock dividends -- -- 718
Net Income Applicable to Common Stock $ 53,666 $ 63,825 $ 63,637
------------------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
[Enlarge/Download Table]
The Peoples Gas Light and Coke Company
----------------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1995 1994 1993
----------------------------------------------------------------------------------------------------
(Thousands)
Balance at Beginning of Year $ 366,168 $ 357,686 $ 349,558
Add -- Net Income 53,666 63,825 64,355
Deduct -- Dividends declared on common stock 56,833 55,343 55,095
-- Dividends declared on preferred stock -- -- 718
-- Preferred stock redemption premiums -- -- 414
----------------------------------------------------------------------------------------------------
Balance at End of Year $ 363,001 $ 366,168 $ 357,686
----------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- 19 -
CONSOLIDATED STATEMENTS OF CASH FLOWS
[Enlarge/Download Table]
The Peoples Gas Light and Coke Company
----------------------------------------------------------------------------------------------------
For fiscal years ended September 30, 1995 1994 1993
----------------------------------------------------------------------------------------------------
(Thousands)
OPERATING ACTIVITIES:
Net Income $ 53,666 $ 63,825 $ 64,355
Adjustments to reconcile net income to net cash:
Depreciation 59,170 57,824 54,615
Deferred income taxes and investment tax
credits -- net 7,742 (8,914) 7,580
Change in deferred credits and other liabilities (8,752) (24,610) 25,659
Change in other assets (2,327) (14,105) (333)
Other 55 36 56
Change in current assets and liabilities:
Receivables -- net 17,356 31,493 (46,401)
Accrued unbilled revenues (890) 8,638 (5,726)
Materials and supplies 7,721 2,109 1,409
Gas in storage 41,433 (3,930) (2,988)
Gas costs recoverable 9,892 31,023 (19,282)
Accounts payable (7,334) (6,584) 23,099
Customer gas service and credit deposits (4,531) 1,050 (5,062)
Accrued taxes 271 1,442 9,176
Gas sales revenue refundable 27,391 33,905 (1,314)
Accrued interest 821 1,933 245
Other (279) 369 (272)
----------------------------------------------------------------------------------------------------
Net Cash Provided by Operating Activities 201,405 175,504 104,816
----------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES:
Capital expenditures -- construction (81,081) (74,623) (108,863)
Other assets (2,042) (1,850) (3,792)
Other temporary cash investments -- -- (200)
Other capital investments 1,153 2,023 993
----------------------------------------------------------------------------------------------------
Net Cash Used in Investing Activities (81,970) (74,450) (111,862)
----------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES:
Interim loans -- net -- (62,300) 54,300
Issuance of long-term debt 50,000 102,000 75,000
Trust fund -- utility construction 31,493 (31,493) --
-- bond redemption (237) -- --
Retirement of long-term debt (50,000) -- (63,245)
Redemption of preferred stock -- (3,400) (11,814)
Dividends paid on preferred stock -- (71) (949)
Dividends paid on common stock (56,584) (55,591) (51,124)
----------------------------------------------------------------------------------------------------
Net Cash Provided by (Used in) Financing Activities (25,328) (50,855) 2,168
----------------------------------------------------------------------------------------------------
Net Increase (Decrease) in Cash and Cash Equivalents 94,107 50,199 (4,878)
Cash and Cash Equivalents at Beginning of Year 58,108 7,909 12,787
----------------------------------------------------------------------------------------------------
Cash and Cash Equivalents at End of Year $152,215 $ 58,108 $ 7,909
----------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- 20 -
CONSOLIDATED BALANCE SHEETS
[Enlarge/Download Table]
The Peoples Gas Light and Coke Company
---------------------------------------------------------------------------------------------------------
At September 30, 1995 1994
---------------------------------------------------------------------------------------------------------
(Thousands)
PROPERTIES AND OTHER ASSETS
---------------------------------------------------------------------------------------------------------
Capital Investments:
Property, plant and equipment, at original cost $1,815,407 $1,760,004
Less -- Accumulated depreciation 628,258 596,808
---------------------------------------------------------------------------------------------------------
Net property, plant and equipment 1,187,149 1,163,196
Other investments 5,027 6,235
---------------------------------------------------------------------------------------------------------
Total Capital Investments -- Net 1,192,176 1,169,431
---------------------------------------------------------------------------------------------------------
Current Assets:
Cash 2,599 3,173
Cash equivalents 149,616 54,935
Other temporary cash investments, at cost
that approximates market value 600 600
Trust fund -- utility construction -- 31,493
-- bond redemption 237 --
Receivables --
Customers, net of allowance for uncollectible
accounts of $18,315 and $23,400, respectively 52,142 68,786
Other 2,665 3,377
Accrued unbilled revenues 18,451 17,561
Materials and supplies, at average cost 13,843 21,564
Gas in storage, at last-in, first-out cost 82,151 123,584
Gas costs recoverable through rate adjustments 2,132 12,024
Prepayments 1,927 1,649
---------------------------------------------------------------------------------------------------------
Total Current Assets 326,363 338,746
---------------------------------------------------------------------------------------------------------
Other Assets:
Regulatory assets (see Note 1B) 29,707 25,876
Deferred charges 13,235 14,739
---------------------------------------------------------------------------------------------------------
Total Other Assets 42,942 40,615
---------------------------------------------------------------------------------------------------------
Total Properties and Other Assets $1,561,481 $1,548,792
---------------------------------------------------------------------------------------------------------
CAPITALIZATION AND LIABILITIES
---------------------------------------------------------------------------------------------------------
Capitalization (see Consolidated Capitalization Statements) $1,077,458 $1,080,625
---------------------------------------------------------------------------------------------------------
Current Liabilities:
Interim loans 900 900
Accounts payable 87,693 95,027
Dividends payable on common stock 14,146 13,898
Customer gas service and credit deposits 35,012 39,543
Accrued taxes 26,962 26,691
Gas sales revenue refundable through rate adjustments 68,558 41,167
Accrued interest 11,025 10,204
---------------------------------------------------------------------------------------------------------
Total Current Liabilities 244,296 227,430
---------------------------------------------------------------------------------------------------------
Deferred Credits and Other Liabilities:
Deferred income taxes -- primarily accelerated depreciation (see Note 7B) 189,850 176,416
Investment tax credits being amortized over
the average lives of related property 34,228 35,836
Other 15,649 28,485
---------------------------------------------------------------------------------------------------------
Total Deferred Credits and Other Liabilities 239,727 240,737
---------------------------------------------------------------------------------------------------------
Total Capitalization and Liabilities $1,561,481 $1,548,792
---------------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- 21 -
CONSOLIDATED CAPITALIZATION STATEMENTS
[Enlarge/Download Table]
The Peoples Gas Light and Coke Company
----------------------------------------------------------------------------------------------------
At September 30, 1995 1994
----------------------------------------------------------------------------------------------------
(Thousands, except number of shares)
Common Stockholder's Equity:
Common stock, without par value --
Authorized 40,000,000 shares
Outstanding 24,817,566 shares $ 165,307 $ 165,307
Retained earnings (see Consolidated Statements
of Retained Earnings) 363,001 366,168
----------------------------------------------------------------------------------------------------
Total Common Stockholder's Equity 528,308 531,475
----------------------------------------------------------------------------------------------------
Long-Term Debt:
Exclusive of sinking fund payments and maturities
due within one year
First and Refunding Mortgage Bonds --
8% Series U, due June 1, 1999 43,375 43,375
8% Series V, due June 1, 1999 43,375 43,375
Adjustable-Rate Series W (4.20% and 3% through
September 30, 1995 and September 30, 1994, respectively),
due October 1, 1999 (see Note 12B) 10,400 10,400
6.875% Series X, due March 1, 2015 50,000 50,000
7.50% Series Y, due March 1, 2015 50,000 50,000
7.50% Series Z, due March 1, 2015 50,000 50,000
10-1/4% Series AA, due March 1, 2015 (redeemed on August 1,
1995 -- see Note 12A) -- 50,000
8.10% Series BB, due May 1, 2020 75,000 75,000
6.37% Series CC, due May 1, 2003 75,000 75,000
5-3/4% Series DD, due December 1, 2023 75,000 75,000
Adjustable-Rate Series EE (4.95% and 2.55% through
November 30, 1995 and November 30, 1994, respectively),
due December 1, 2023 (see Note 12B) 27,000 27,000
6.10% Series FF, due June 1, 2025 (see Note 12A) 50,000 --
----------------------------------------------------------------------------------------------------
Total Long-Term Debt 549,150 549,150
----------------------------------------------------------------------------------------------------
Total Capitalization $1,077,458 $1,080,625
----------------------------------------------------------------------------------------------------
The Notes to Consolidated Financial Statements are an integral part of these
statements.
- 22 -
THE PEOPLES GAS LIGHT AND COKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1A PRINCIPLES OF CONSOLIDATION
All subsidiaries are included in the consolidated financial statements.
All significant intercompany transactions have been eliminated in consolidation.
Certain items previously reported for years prior to 1995 have been reclassified
to conform with the current-year presentation.
1B REGULATED OPERATIONS
The Company's utility operations are subject to regulation by the
Commission. Regulated operations are accounted for in accordance with SFAS No.
71, "Accounting for the Effects of Certain Types of Regulation." This standard
controls the application of generally accepted accounting principles for
companies whose rates are determined by an independent regulator such as the
Commission. Regulatory assets represent certain costs that are expected to be
recovered from customers through the ratemaking process. When incurred, such
costs are deferred as assets in the balance sheet and subsequently recorded as
expenses when those same amounts are reflected in rates.
The following regulatory assets were reflected in Other Assets in the
Consolidated Balance Sheets at September 30, 1995 and 1994:
[Enlarge/Download Table]
-----------------------------------------------------------------------------------------------
1995 1994
-----------------------------------------------------------------------------------------------
(Thousands)
Environmental costs, net of recoveries (see Note 3) $10,660 $10,294
Transition costs from pipeline supplier (see Note 2B) 6,400 9,100
Interest on gas sales revenue refundable 2,289 2,407
Regulatory income tax assets (see Note 1I) 3,680 1,965
Energy conservation plan expenses 1,033 865
Discount, premium, expenses, and loss on reacquired bonds 2,942 723
SNG plant -- decommissioning 1,982 --
Other 721 522
-----------------------------------------------------------------------------------------------
Total regulatory assets $29,707 $25,876
-----------------------------------------------------------------------------------------------
1C CONCENTRATION OF CREDIT RISK
The Company provides natural gas service to approximately 840,000 customers
within the City of Chicago. Credit risk for the Company is spread over a
diversified base of residential, commercial, and industrial retail sales and
transportation customers.
The Company encourages customers to participate in its long-standing budget
payment program that allows the cost of higher gas consumption levels associated
with the heating season to be spread over a 12-month billing cycle. Customers'
payment records are continually monitored and credit deposits are required, when
appropriate, to minimize uncollectible write-offs.
- 23 -
1D REVENUE RECOGNITION
Gas sales revenues for retail customers are recorded on the accrual basis
for all gas delivered during the month, including an estimate for gas delivered
but unbilled at the end of each month.
1E PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment is stated at original cost and includes
appropriate amounts of payroll taxes, employee benefit costs, administrative
costs, and an allowance for funds used during construction.
1F MAINTENANCE AND DEPRECIATION
The Company charges the cost of maintenance and repairs of property and
minor renewals and improvements of property to maintenance expense. When
depreciable property is retired, its original cost is charged to the accumulated
provision for depreciation.
The provision for depreciation substantially reflects the systematic
amortization of the original cost of depreciable property over estimated useful
lives on the straight-line method. Additionally, actual dismantling cost, net
of salvage, is included in the provision for depreciation in the month incurred.
The amounts provided are designed to cover not only losses due to wear and tear
that are not restored by maintenance, but also losses due to obsolescence and
inadequacy.
The provision for depreciation, expressed as an annual percentage of
original cost of depreciable property, is as follows:
[Download Table]
For fiscal years ended September 30, 1995 1994 1993
------------------------------------ ----- ----- -----
Provision for depreciation 3.6% 3.6% 3.6%
1G STATEMENT OF CASH FLOWS
For purposes of the balance sheet and the statement of cash flows, the
Company considers all short-term liquid investments with maturities of three
months or less to be cash equivalents.
Income taxes and interest paid (excluding capitalized interest) were as
follows:
[Download Table]
For fiscal years ended September 30, 1995 1994 1993
------------------------------------- ---- ---- ----
(Thousands)
Income taxes paid $15,501 $42,670 $22,213
Interest paid 41,378 38,353 36,912
1H ACCOUNTS PAYABLE
The Company utilizes controlled disbursement banking arrangements under which
certain bank accounts have negative book balances due to checks in transit. The
negative balances are classified as Accounts Payable.
1I INCOME TAXES
The Company follows the liability method of accounting for deferred income
taxes. Under the liability method, deferred income taxes have been recorded
using currently enacted tax rates for the
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differences between the tax basis of assets and liabilities and the basis
reported in the financial statements. Due to the effects of regulation on the
Company, certain adjustments made to deferred income taxes are, in turn, debited
or credited to regulatory assets or liabilities. (See Note 7B.)
Each company within the consolidated group nets its income tax related
regulatory assets and liabilities. At September 30, 1995 and 1994, net
regulatory income tax assets recorded in Other Assets amounted to $3.7 million
and $2 million, while net regulatory income tax liabilities recorded in Other
Liabilities equaled $100,000 and $100,000, respectively.
Investment tax credits have been deferred and are being amortized through
credits to income over the book lives of related property.
The preceding deferred-tax and tax-credit accounting conforms with
regulations of the Commission.
1J RECOVERY OF GAS COSTS, INCLUDING CHARGES FOR TRANSITION COSTS
Under the tariffs of the Company, the difference for any fiscal year between
costs recoverable through the Gas Charge and revenues billed to customers under
the Gas Charge is refunded or recovered over a 12-month billing cycle beginning
the following January 1. Consistent with these tariff provisions, such
difference for any month is recorded either as a current liability or as a
current asset (with a contra entry to Gas Costs), and the fiscal year-end
balance is amortized over the 12-month period beginning the following January 1.
The Commission conducts annual proceedings regarding, for each gas utility,
the reconciliation of revenues from the Gas Charge and related costs incurred
for gas. In such proceedings, costs recovered by a utility through the Gas
Charge are subject to challenge. Such proceedings regarding the Company for
fiscal years 1992 through 1995 are currently pending before the Commission.
Pursuant to FERC Order No. 636 and successor orders, pipelines are allowed to
recover from their customers so-called transition costs. These costs arise from
the restructuring of pipeline service obligations required by the 636 Orders.
The Company is currently recovering pipeline charges for transition costs
through the Gas Charge. (See Notes 2A and 2B.)
1K GAS IN STORAGE
Storage injections are priced at the fiscal-year average of costs of natural
gas purchased and SNG produced. The Company's SNG production costs include
costs of feedstock plus plant operation and maintenance costs. (See Results of
Operations - Other Matters - SNG Plant Closing.) Withdrawals from storage are
priced on the last-in, first-out (LIFO) cost method. The estimated current
replacement cost of gas in inventory at September 30, 1995 and 1994 exceeded the
LIFO cost by approximately $108 million and $175 million, respectively.
2. RATES AND REGULATION
2A UTILITY RATE PROCEEDINGS
RATE ORDER. On December 16, 1994, the Company filed with the Commission
proposed changes in rates. The Company is seeking changes in rates that are
designed to increase annual revenues by about $41 million, exclusive of
additional charges for revenue taxes, based on a rate of return on original-cost
rate base of 9.55 per cent, which reflects an 11.8 per cent cost of common
equity.
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On October 16, 1995, the Commission's hearing examiners issued a recommended
order under which the Company would receive a revenue increase of approximately
$32.3 million based on a 9.19 per cent rate of return on original-cost rate
base, which reflects an 11.10 per cent cost of common equity. The Commission is
expected to issue its order no later than mid November 1995. The Company cannot
predict the outcome of its rate increase request.
ENVIRONMENTAL COST RECOVERY. In 1992, the Commission issued an order in its
consolidated proceedings, initiated in 1991, regarding the appropriate
ratemaking treatment of environmental costs incurred by Illinois utilities,
including the Company and North Shore Gas, in connection with the investigation
and treatment of residues associated with past manufactured gas operations
("environmental costs"). In its order, the Commission approved rate recovery of
environmental costs over a five-year period, but required the utilities to
"share" the environmental costs by disallowing rate recovery of carrying charges
on unrecovered balances. Reimbursements of environmental costs from insurance
carriers or other entities are to be netted against costs and reflected in rates
over a five-year period. In 1992, several parties, including the Company and
North Shore Gas, appealed the Commission's order to the Illinois Appellate
Court. In 1993, the Third District Appellate Court issued its opinion affirming
the Commission's order in the consolidated proceedings, which decision was
subsequently appealed to the Illinois Supreme Court. In April 1995, the
Illinois Supreme Court upheld in part and reversed in part the Commission's
order. The Supreme Court upheld the Commission in ruling that environmental
costs are recoverable through rates. The Supreme Court also ruled that the
Commission's approval of a rate recovery method called a "rider" (the method
utilized by the Company and North Shore Gas) as the preferred mechanism for
recovery of environmental costs is within the Commission's authority. The
Supreme Court reversed the part of the Commission's order that required the
utilities to share environmental costs by disallowing recovery of carrying
charges on unrecovered balances. The order was remanded to the Commission for
further proceedings consistent with the Supreme Court's opinion. The Commission
has until December 20, 1995 to issue its order on remand. (See Note 3.)
FERC ORDER 636 COST RECOVERY. On September 15, 1993, the Commission entered an
order initiating an investigation into the appropriate means of recovery by
Illinois gas utilities of pipeline charges for FERC Order 636 transition costs.
The Commission issued a final order in this proceeding on March 9, 1994. The
order provides for the full recovery of transition costs from the Company's gas
service customers and transportation customers to the extent they contract for
firm standby service. The Citizens Utility Board and State's Attorney of Cook
County filed an application for rehearing of the March 9 order with the
Commission. In its orders on rehearing, the Commission continued to provide for
full recovery of transition costs, but directed that, effective
November 1, 1994, gas supply realignment (GSR) costs (one of the four categories
of transition costs) be recovered on a uniform volumetric basis from all
transportation and sales customers. In December 1994, a group of industrial
transportation customers of Illinois utilities appealed the Commission's orders
on rehearing to the Illinois Appellate Court. The Illinois Appellate Court, on
September 21, 1995, affirmed the Commission's order. A group of industrial
transportation customers of Illinois utilities gave notice of their intent to
appeal the Appellate Court's order to the Illinois Supreme Court. If the
Illinois Supreme Court accepts the appeal, any change made by it to the
Commission's order would have a prospective effect only. (See Notes 1J and 2B.)
2B FERC Orders 636, 636-A, and 636-B
FERC Order 636 and successor orders require pipelines to make separate rate
filings to recover transition costs. There are four categories of such costs,
the largest of which for the Company is GSR costs. The Company is subject to
charges for transition cost recovery by Natural Gas Pipeline Company of America
(Natural). Charges by Natural for transition costs commenced on
January 1, 1994. On September 29, 1994, the FERC approved a Stipulation and
Agreement (Agreement) filed by Natural. The
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Agreement places a cap on the amount of GSR costs recoverable by Natural from
the Company. For the Company, that cap is approximately $103 million. However,
subject to this cap, the level of costs that the Company will incur is dependent
primarily upon the future market price of natural gas and pipeline negotiations
with producers. The Company is currently recovering transition costs through
the Gas Charge. At September 30, 1995, the Company has made payments of $44.5
million and has accrued an additional $6.4 million toward the cap.
The 636 Orders are not expected to have a material adverse effect on
financial position or results of operations of the Company. (See Notes 1J and
2A.)
3. ENVIRONMENTAL MATTERS
The Company, its predecessors, and certain former affiliates operated
facilities in the past for manufacturing gas and storing manufactured gas. In
connection with manufacturing and storing gas, various by-products and waste
materials were produced, some of which might have been disposed of rather than
sold. Under certain laws and regulations relating to the protection of the
environment, the Company might be required to undertake remedial action with
respect to some of these materials, if found at the sites.
The current owner of a site in McCook, Illinois, near Chicago, has advised
the Company that the owner has found what appear to be wastes associated with
by-products of the gas manufacturing process under its property. The owner has
asserted that these wastes are the responsibility of the Company. The Company
is currently evaluating this claim.
The Company, in cooperation with the Illinois Environmental Protection Agency
(IEPA), is conducting investigations of other sites (a total of 29) to determine
whether remedial action might be necessary. The investigations were initiated
pursuant to an informal request by the IEPA. To the best of the Company's
knowledge, similar informal requests have been made by the IEPA to other major
Illinois gas and electric utilities. The Company has engaged environmental
consulting firms to assist in its investigations. At this time, except for the
110th Street Station site (discussed below), it is not known what, if any,
remedial action will be necessary at the sites or, if necessary, what the cost
of any such action would be. As discussed below, the Company may conduct a
remedial investigation/feasibility study (RI/FS) at the Division Street site
under the supervision of the IEPA. In addition, the Company is conducting
investigations under the supervision of the IEPA at the 110th Street Station and
Equitable Distribution Station sites.
In August 1988, the IEPA conducted an inspection at the Company's Division
Street property in Chicago. During the inspection, the IEPA and the Company
took several soil samples for laboratory analysis. The analysis of the samples
collected by the Company indicates the presence of certain substances within the
soil of the Division Street property that could be attributable to former
manufactured gas operations. The Company may conduct an RI/FS of the property
under the supervision of the IEPA.
The Company has been sued by a prior owner and has received demands from the
current owner of a site in Chicago formerly called Pitney Court Station. The
former owner alleges damages of over $1 million arising from alleged
contamination by the Company resulting from past gas manufacturing activities on
the property. The current owner has demanded that the Company assume
responsibility for investigation and remediation of the alleged contamination.
The Company is currently evaluating these claims.
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The Company has observed what appear to be gas purification wastes on a site
in Chicago, formerly called the 110th Street Station, and property contiguous
thereto. The Company has fenced the site and the contiguous property and is
conducting a study under the supervision of the IEPA to determine the
feasibility of a limited removal action.
The current owners at a site in Chicago, formerly called South Station, have
advised the Company that they have found what appear to be gas manufacturing
wastes underneath their property. The owners have demanded monetary
compensation from the Company because of the presence of such wastes. The
Company is currently evaluating this claim.
In 1994, the Company became aware of a planned residential development at a
site in Chicago, formerly called the Equitable Distribution Station. The
Company is conducting a preliminary investigation under the supervision of the
IEPA to determine whether gas manufacturing wastes are present at the site.
The Company is accruing and deferring the costs it incurs in connection with
all of the sites, including related legal expenses, pending recovery through
rates or from insurance carriers or other entities. At September 30, 1995, the
total of the costs deferred by the Company, net of recoveries and amounts billed
to other entities, was $10.7 million. This amount includes an estimate of the
costs of the investigations initiated at the request of the IEPA at the sites
referred to above. The amount also includes an estimate of the costs of
remediation at the 110th Street Station site in Chicago, at the minimum amount
of the current estimated range of such costs. The costs of remediation at the
other sites cannot be determined until more is known about the nature and extent
of contamination and the remedial action, if any, to be required by the IEPA.
While the Company intends to seek contribution from other entities for the costs
incurred at the sites, the full extent of such contributions cannot be
determined at this time.
The Company has filed suit against a number of insurance carriers for the
recovery of environmental costs relating to its former manufactured gas
operations. The suit asks the court to declare that the insurers are liable
under policies in effect between 1938 and 1985 for costs incurred or to be
incurred by the Company in connection with former manufactured gas sites in
Chicago. The Company is also asking the court to award damages stemming from
the insurers' breach of their contractual obligation to defend and indemnify the
Company against these costs. At this time, management cannot determine the
timing and extent of the Company's recovery of costs from its insurance
carriers. Accordingly, the costs deferred at September 30, 1995 have not been
reduced to reflect recoveries from insurance carriers.
Costs incurred by the Company for environmental activities relating to former
manufactured gas operations will be recovered from insurance carriers or other
entities or through rates for utility service. Accordingly, management believes
that the costs incurred by the Company in connection with the sites will not
have a material adverse effect on financial position or results of operations.
The Company is recovering the costs of environmental activities relating to its
former manufactured gas operations under a rate mechanism approved by the
Commission. At September 30, 1995, it had recovered $409,000 of such costs
through rates. (See Note 2A for a discussion of proceedings regarding the
recovery of such costs through utility rates.)
4. GAS OVER-PRESSURE CONDITION
On January 17, 1992, an over-pressure condition occurred in the gas mains of
the Company serving an approximately one-square-mile area of the Near Northwest
Side of the City of Chicago. The over-pressure condition caused a major
explosion and numerous fires. The Company is aware of four
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deaths and 14 personal injuries allegedly resulting from the explosion and
fires. The Company also has been informed that damage occurred in an estimated
28 buildings. There was also damage, such as broken windows, wall cracks, and
water damage, to additional buildings.
A number of lawsuits have been filed against the Company as a result of the
over-pressure condition. The lawsuits include wrongful-death claims and several
class actions that seek to certify as a class those persons who suffered bodily
harm and/or property damage. All of the suits allege negligence and seek
compensatory damages. Some of the lawsuits also seek punitive damages. These
suits have not quantified the alleged damages except for certain amounts that
are not material.
In January 1993, the National Transportation Safety Board (NTSB) completed
its report regarding its investigation of the over-pressure incident that
occurred on January 17, 1992. In its report, the NTSB stated that "the probable
cause of the over-pressure accident and the resulting losses was the failure of
Peoples Gas Light Coke Company to adequately train its gas operations section
employees in recognizing and correctly responding to abnormal situations, which
consequently led to the failure of the gas operations section crew to properly
monitor and control the pressure of the gas being supplied to the low-pressure
gas system during a routine inspection."
In June 1993, the Staff of the Illinois Commerce Commission (Commission
Staff) released its report concerning the over-pressure incident. In its
report, the Commission Staff concluded that employee error was the probable
cause of the over-pressurization. The report was critical of the Company's
training of its personnel in its gas operations section and of some of the
Company's practices at the time of the incident.
The Company strongly disagrees with the criticisms by the NTSB and the
Commission Staff of the training given by the Company to personnel in its gas
operations section. The Company also disagrees with some of the findings and
conclusions of the Commission Staff, including several of the Commission Staff's
findings and its theory, analysis, and conclusions pertaining to the probable
cause of the over-pressurization.
The Company carries substantial insurance coverage. If liability were found
on the part of the Company, management believes that any costs incurred for
damages will be adequately covered by insurance. However, the Company's primary
insurance carrier has asserted that under Illinois law, liability for punitive
damages is not insurable. The Company has advised the insurance carrier that it
disagrees and intends to assert all of its rights against the carrier including
its right to obtain recovery for punitive damages, if any. Management is not
aware of any conduct on its part or by employees of the Company that would give
rise to punitive damages under Illinois law. Accordingly, management believes
that the incident will not have a material adverse effect on financial position
or results of operations of the Company.
5. LONG-TERM LEASE
In October 1993, the Company entered into a new 15-year lease to relocate its
headquarters office. The relocation was substantially completed in February
1995 prior to the expiration of the old lease. The Company is accounting for
the new lease as an operating lease in accordance with SFAS No. 13, "Accounting
for Leases."
The rental obligation consists of a base rent of $2.3 million plus operating
expenses and taxes. The base rent escalates by 2 per cent each year through the
10th year. Base rent in the 11th year is approximately $3.6 million with annual
increases of 2 per cent each year through the 15th year. Rental expense will be
comparable with the former lease at the Company's previous headquarters
location.
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Rental expenses under the lease arrangements were $6.4 million in fiscal 1995
and $6.1 million for each of the fiscal years 1994 and 1993.
6. RETIREMENT AND POSTEMPLOYMENT BENEFITS
6A PENSION BENEFITS
The Company participates in two defined benefit pension plans covering
substantially all employees. These plans provide pension benefits that
generally are based on an employee's length of service, compensation during the
five years preceding retirement, and social security benefits. Annual
contributions are made to the plans based upon actuarial determinations and in
consideration of tax regulations and funding requirements under federal law.
The Company also has a non-qualified pension plan that provides certain
employees with pension benefits in excess of qualified plan limits imposed by
federal tax law.
Net pension cost for all plans for fiscal 1995, 1994, and 1993 included the
following components:
[Enlarge/Download Table]
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1995 1994 1993
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(Millions)
Service cost - benefits earned during year $ 13.4 $ 14.7 $ 15.9
Interest cost on projected benefit obligations 27.9 28.0 28.2
Actual return on plan assets (gain) loss (80.5) (14.6) (53.6)
Net amortization and deferral 43.2 (23.7) 16.2
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Net pension cost $ 4.0 $ 4.4 $ 6.7
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The calculation of pension cost assumed a long-term rate of return on
assets of 7.5 per cent for 1993 through 1995.
The following table shows the estimated funded status of the Company's
pension plans at September 30, 1995 and 1994:
[Enlarge/Download Table]
1995 1994
(Millions)
Plan assets at market value $546.1 $500.3
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Actuarial present value of plan benefits:
Vested 288.3 311.2
Non-vested 42.8 35.9
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Accumulated benefit obligation 331.1 347.1
Effect of projected future compensation increases 93.5 94.2
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Projected benefit obligation 424.6 441.3
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Excess of plan assets over projected benefit obligation 121.5 59.0
Less:
Unrecognized transition asset 26.8 29.6
Unrecognized prior service cost (4.9) (5.3)
Unrecognized net gain (loss) 102.4 36.4
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Accrued pension liability $ (2.8) $ (1.7)
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The projected benefit obligation, which is based on an October 1
measurement date, was determined using a discount rate of 7 per cent for 1995
and 6.5 per cent for 1994, and assumed future compensation increases of 5 per
cent for each year. Plan assets consist primarily of marketable equity and
fixed-income securities.
6B OTHER POSTRETIREMENT BENEFITS
The Company also provides certain health care and life insurance benefits
for retired employees. Substantially all employees may become eligible for such
benefit coverage if they reach retirement age while working for the companies.
The plans are funded based upon actuarial determinations and in consideration of
tax regulations and funding requirements under federal law.
The Company adopted SFAS No. 106 effective October 1, 1993. SFAS No. 106
requires the accrual of the expected costs of such benefits during the
employees' years of service. Due to regulatory treatment, the adoption of SFAS
No. 106 did not have a material effect on financial position or results of
operations.
Net postretirement benefit cost for all plans for fiscal 1995 and 1994
included the following components:
[Download Table]
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1995 1994
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(Millions)
Service cost - benefits earned during year $ 2.5 $ 2.8
Interest cost on projected benefit obligations 7.2 7.1
Actual return on plan assets (gain) loss (3.6) (0.3)
Amortization of transition obligation 4.5 4.5
Net amortization and deferral 2.4 (0.2)
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Net postretirement benefit cost $ 13.0 $ 13.9
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The calculation of postretirement benefit cost assumed a long-term rate of
return on assets of 7.5 per cent for 1994 and 1995.
The Company recognized total postretirement costs of $13 million during
fiscal 1995. Of this amount, $5.7 million was funded through trust funds for
future benefit payments. Such costs during fiscal year 1994 were $13.9 million,
of which $7.7 million was funded.
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The following table sets forth the estimated funded status for the
postretirement health care and life insurance plans at September 30, 1995 and
1994:
[Download Table]
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1995 1994
--------------------------------------------------------------------------------
(Millions)
Plan assets at market value $ 31.1 $ 20.6
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Accumulated postretirement benefit obligation (APBO):
Retirees 66.1 56.3
Fully eligible active plan participants 13.3 15.5
Other active plan participants 24.6 26.8
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Total APBO 104.0 98.6
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Excess (deficiency) of plan assets over the APBO (72.9) (78.0)
Less:
Unrecognized transition obligation (81.1) (85.6)
Unrecognized net gain 7.4 7.3
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Accrued postretirement benefit asset $ 0.8 $ 0.3
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The total APBO, which is based on an October 1 measurement date, was
determined using a discount rate of 6.5 per cent for 1995 and 7.75 per cent for
1994, and assumed future compensation increases of 5 per cent for each year.
The unfunded obligation is being amortized over 20 years. Plan assets consist
primarily of marketable equity and fixed-income securities.
For measurement purposes, a health care cost trend rate of 9.6 per cent was
assumed for fiscal 1996, and that rate thereafter will decline to 3.75 per cent
in 2003 and subsequent years. The health care cost trend rate assumption has a
significant effect on the amounts reported. Increasing the assumed health care
cost trend rate by one percentage point for each future year would have
increased the APBO at September 30, 1995, by $6.9 million and the aggregate of
service and interest cost components of the net periodic postretirement benefit
cost by $900,000 annually.
6C POSTEMPLOYMENT BENEFITS
In November 1992, the Financial Accounting Standards Board issued SFAS No.
112. This statement requires the accrual of certain benefits provided to former
or inactive employees after employment but before retirement. The Company
adopted SFAS No. 112 effective October 1, 1994. Implementation of this
statement did not have a material effect on financial position or results of
operations.
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7. TAX MATTERS
7A PROVISION FOR INCOME TAXES
[Download Table]
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For fiscal years ended September 30, 1995 1994 1993
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(Thousands)
Current:
Federal $17,311 $32,308 $21,285
State 3,208 7,133 4,138
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Total current income taxes 20,519 39,441 25,423
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Deferred:
Federal 7,115 (6,665) 6,667
State 2,243 (642) 2,348
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Total deferred income taxes 9,358 (7,307) 9,015
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Investment tax credits - net:
Federal (1,784) (1,823) (1,848)
State 167 216 413
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Total investment tax credits
- net (1,617) (1,607) (1,435)
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Total provision for income taxes 28,260 30,527 33,003
Less -- Included in other income or
operation expense 97 3,114 52
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Total provision for operating income
taxes $28,163 $27,413 $32,951
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7B DEFERRED INCOME TAXES
Set forth in the table below are the temporary differences which gave rise
to the net deferred income tax liabilities (see Note 1I):
[Download Table]
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At September 30, 1995 1994
-------------------------------------------------------------------------------
(Thousands)
Deferred tax liabilities:
Property - accelerated depreciation and
other property related items $209,825 $204,548
Other 8,416 4,361
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Total deferred income tax liabilities 218,241 208,909
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Deferred tax assets:
Unamortized investment tax credits (13,576) (14,213)
Uncollectible accounts (7,429) (9,282)
Other (7,386) (8,998)
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Total deferred income tax assets (28,391) (32,493)
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Net deferred income tax liabilities $189,850 $176,416
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7C TAX RATE RECONCILIATION
The following is a reconciliation between the computed federal income tax
expense (tax rate of 35 per cent for 1995 and 1994, and 34.75 per cent for 1993,
times pre-tax book income) and the total provision for federal income tax
expenses:
[Enlarge/Download Table]
For fiscal years ended September 30, 1995 1994 1993
-----------------------------------------------------------------------------------------------------------------------------------
Per Cent Per Cent Per Cent
of of of
Amount Pre-tax Amount Pre-tax Amount Pre-tax
(000's) Income (000's) Income (000's) Income
-----------------------------------------------------------------------------------------------------------------------------------
Computed federal income
tax expense $26,708 35.00 $30,675 35.00 $31,434 34.75
Amortization of investment
tax credits (1,784) (2.34) (1,823) (2.08) (1,848) (2.04)
Nontaxable-tax settlement principal (1,772) (2.32) (1,772) (2.02) -- --
Other, net (510) (0.67) (3,260) (3.72) (3,482) (3.85)
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Total provision for federal
income taxes $22,642 29.67 $23,820 27.18 $26,104 28.86
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7D INCOME TAX SETTLEMENT
On September 30, 1993, the Company received notification from the IRS that
settlement of past income tax returns had been reached for fiscal years 1978
through 1990. The IRS settlement resulted in payments of principal and interest
to the Company in 1994 in total amount of approximately $25 million, or $19.4
million after income taxes. The Company has received regulatory authorization
to defer the recognition of the settlement amount in income for fiscal year
1993, and to recognize its portion of the settlement amount in income for fiscal
years 1994 and 1995. The Company has represented to the Commission that, having
received this accounting authorization, it would not file a request for an
increase in base rates before December 1994. The regulatory treatment of the
IRS settlement having been resolved in November 1993, the Company included $12.7
million, or $9.7 million after income taxes, in income in 1994. The amount
after income taxes was included in Other Income -- Miscellaneous. At
September 30, 1994, approximately $12.7 million was included in Deferred Credits
and Other Liabilities -- Other.
As a result of the Commission's accounting authorization, the fiscal year
1995 portion of the settlement amount for the Company was amortized (credited)
to operation expense. The effect was to offset increases in costs that the
Company would incur during the year. In fiscal 1995, the Company amortized
approximately $12.7 million, or $9.7 million after income taxes.
8. ASSETS SUBJECT TO LIEN
The Indenture of Mortgage, dated January 2, 1926, as supplemented, securing
the first and refunding mortgage bonds issued by the Company, constitutes a
direct, first-mortgage lien on substantially all property owned by the Company.
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9. OTHER INCOME - MISCELLANEOUS
[Enlarge/Download Table]
For fiscal years ended September 30, 1995 1994 1993
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(Thousands)
Amortization of net gain on sale of Peoples Gas Building $ 576 $ 1,151 $1,151
Interest on amounts recoverable from customers 99 2,083 1,361
Income tax settlement (see Note 7D) -- 321 321
Income taxes on income tax settlement (see Note 7D) -- 12,710 --
Amortization of gain on reacquired bonds 317 (3,016) --
Other 168 (382) 238
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Total other income - miscellaneous $1,160 $12,867 $3,071
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10. CAPITAL COMMITMENTS
Total contract and purchase order commitments of the Company at
September 30, 1995, amounted to approximately $4.4 million.
11. SHORT-TERM BORROWINGS AND CREDIT LINES
[Download Table]
At September 30, 1995 1994
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(Thousands)
Bank Loans
Peoples Gas
8.75% due November 6, 1995 $ 900 $ --
7.75% due December 22, 1994 -- 900
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Available lines of credit
Unused bank lines $130,150 $130,150
----------------------------------------------------------------
Short-term cash needs of the Company and North Shore Gas are met through
intercompany loans from Peoples Energy, bank loans, and/or the issuance of
commercial paper. The outstanding total amount of bank loans and commercial
paper issuances cannot at any time exceed total bank credit then in effect.
At September 30, 1995 and 1994, the Company and North Shore Gas had
combined lines of credit totaling $131.1 million. Of this amount, North Shore
Gas can borrow up to $30 million. Agreements covering $93.7 million of the
total will expire on June 26, 1996; the agreement covering the remaining $37.4
million will expire on January 31, 1997. Such lines of credit cover projected
short-term credit needs of the Company and North Shore Gas and support the long-
term debt treatment of the Company's adjustable-rate mortgage bonds. (See Note
12B.) Payment for the lines of credit is by fee.
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12. LONG-TERM DEBT
12A Issuance of Bonds
On June 29, 1995, the City of Chicago issued $50 million aggregate
principal amount of 6.10 per cent gas supply refunding revenue bonds, 1995
Series A, which were collateralized by an equal amount of the Company's 30-year
first mortgage bonds. On August 1, 1995, the proceeds were used to redeem
$50 million aggregate principal amount of previously issued gas supply revenue
bonds. Other funds provided by the Company were used for the payment of
expenses of issuance, including the underwriters' fee.
12B Interest-Rate Adjustments
The rate of interest on the City of Joliet 1984 Series C Bonds, which are
secured by the Company's Adjustable-Rate First Mortgage Bonds, Series W, is
subject to adjustment annually on October 1. Owners of the Series C Bonds have
the right to tender such bonds at par during a limited period prior to that
date. The Company is obligated to purchase any such bonds tendered if they
cannot be remarketed. All Series C Bonds that were tendered prior to October 1,
1995, have been remarketed. The interest rate on such bonds is 4 per cent for
the period October 1, 1995, through September 30, 1996.
The rate of interest on the City of Chicago 1993 Series B Bonds, which are
secured by the Company's Adjustable-Rate First Mortgage Bonds, Series EE, is
subject to adjustment annually on December 1. Owners of the Series B Bonds have
the right to tender such bonds at par during a limited period prior to that
date. The Company is obligated to purchase any such bonds tendered if they
cannot be remarketed. The interest rate on such bonds is 4.95 per cent for the
period December 1, 1994, through November 30, 1995.
The Company classifies these adjustable-rate bonds as long-term liabilities
since it would refinance them on a long-term basis if they could not be
remarketed. In order to ensure its ability to do so, the Company established a
$37.4 million three year line of credit with The Northern Trust Company. (See
Note 11.)
12C Sinking Fund Requirements and Maturities
At September 30, 1995, long-term debt sinking fund requirements and
maturities for the next five years are $86.8 million in 1999 and $10.4 million
in 2000.
12D Fair Value of Financial Instruments
At September 30, 1995, the carrying amount of the Company's long-term debt
of $549.2 million had an estimated fair value of $583.8 million. At September
30, 1994, the carrying amount of the Company's long-term debt of $549.2 million
had an estimated fair value of $585.7 million. The estimated fair value of the
Company's long-term debt is based on quoted market prices or yields for issues
with similar terms and remaining maturities. Since the Company is subject to
regulation, any gains or losses related to the difference between the carrying
amount and the fair value of financial instruments would not be realized by the
Company's shareholder. The carrying amount of all other financial instruments
approximates fair value.
- 36 -
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The fluctuation in quarterly results is primarily due to the seasonal
nature of the gas distribution business. Results for the first quarter of fiscal
1994 include the recording of one-half of an IRS settlement, in income,
increasing net income by $9.6 million. The fiscal 1995 portion of the
settlement was amortized to operation expense over the entire year. (See Note
7D).
[Download Table]
Net Income
Operating Operating Applicable to
Fiscal Quarters Revenues Income Common Stock
--------------------------------------------------------------------------------
(Thousands)
1995
Fourth $100,391 $(2,872) $(11,371)
Third 163,725 12,606 3,819
Second 368,148 49,344 39,469
First 266,679 31,494 21,749
1994
Fourth $104,565 $(6,365) $(14,123)
Third 181,164 10,020 1,979
Second 495,246 50,895 41,976
First 330,197 33,347 33,993
15. EVENTS (UNAUDITED) SUBSEQUENT TO THE AUDITORS' REPORT DATED
NOVEMBER 1, 1995
RATES AND REGULATION
Utility Rate Proceedings
RATE ORDER. On November 8, 1995, subsequent to the date of the auditors'
report, the Commission issued an order approving changes in rates of the Company
that are designed to increase annual revenues by approximately $30.8 million,
exclusive of additional charges for revenue taxes. The Company was allowed a
rate of return on original-cost rate base of 9.19 per cent, which reflects an
11.10 per cent cost of common equity. The new rates were implemented on
November 14, 1995. Various parties, including the Company, filed petitions
for rehearing of the Commission's order. On December 20, 1995, the
Commission denied those petitions. The parties may appeal the Commission's
order to the Illinois Appellate Court. (See Note 2A.)
ENVIRONMENTAL COST RECOVERY. On November 21, 1995, subsequent to the date of
the auditors' report, the Commission entered its order on remand in its
consolidated proceedings regarding the appropriate ratemaking treatment of
environmental costs incurred by Illinois utilities, including the Company and
North Shore Gas, in connection with the investigation and treatment of residues
associated with past manufactured gas operations. Consistent with the Illinois
Supreme Court's April 20, 1995 decision, the Commission, in its order on remand,
reversed its earlier order to allow utilities to recover carrying charges on
such environmental costs incurred on and after April 20, 1995, the date of the
Supreme Court's decision. (See Note 2A.)
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
- 37 -
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
IDENTIFICATION OF DIRECTORS
[Download Table]
Company
Name, Principal Occupation, Age at Directorship
and Other Directorships 11-30-95 Since
------------------------------------------------ -------- ------------
Kenneth S. Balaskovits 53 1993
Vice President and Controller
of the Company, Peoples Energy,
and North Shore Gas; Director of
North Shore Gas.
J. Bruce Hasch 57 1986
President and Chief Operating Officer of
the Company, Peoples Energy, and North
Shore Gas; Director of Peoples Energy
and North Shore Gas.
James Hinchliff 55 1985
Senior Vice President and General Counsel
of the Company, Peoples Energy,
and North Shore Gas; Director of
North Shore Gas.
Michael S. Reeves 60 1988
Executive Vice President of the Company,
Peoples Energy, and North Shore Gas;
Director of Peoples Energy and
North Shore Gas.
Richard E. Terry 58 1982
Chairman of the Board and Chief Executive
Officer of the Company, Peoples Energy, and
North Shore Gas; Director of Peoples Energy
and North Shore Gas. Mr. Terry is also a
director of Harris Bankcorp, Inc., Harris
Trust and Savings Bank, Bankmont Financial
Corp., and Amsted Industries.
- 38 -
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (Continued)
IDENTIFICATION OF EXECUTIVE OFFICERS
[Download Table]
Position at Age at Position
Name November 30, 1995 11-30-95 Held Since
---------------------- ------------------------------- -------- ----------
Kenneth S. Balaskovits Vice President and Controller 53 1993
Frank H. Blackmore Vice President 60 1989
Emmet P. Cassidy Secretary and Treasurer 62 1989
Patrick J. Doyle Vice President 58 1985
Joan T. Gagen Vice President 44 1994
J. Bruce Hasch President and Chief Operating 57 1990
Officer
James Hinchliff Senior Vice President and 55 1989
General Counsel
John C. Ibach Vice President 48 1992
Thomas J. O'Sullivan Division Vice President 53 1992
Thomas M. Patrick Vice President 49 1989
James D. Pitts, Jr. Vice President 57 1989
Michael S. Reeves Executive Vice President 60 1987
Norman F. Sidler, Jr. Division Vice President 56 1991
Richard E. Terry Chairman of the Board and 58 1990
Chief Executive Officer
Directors and executive officers of the Company were elected to serve for a
term of one year or until their successors are duly elected and qualified,
except for Messrs. O'Sullivan and Sidler, who were appointed.
There are no family relationships among directors and executive officers of
the Company.
All of the directors and executive officers of the Company have been
continuously employed by the Company and/or its affiliates in various capacities
for at least five years.
- 39 -
ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth information concerning annual and long-term
compensation and grants of stock options, stock appreciation rights and
restricted stock awards under Peoples Energy's Long-Term Incentive Compensation
Plan. All compensation was paid by the Company and its affiliates (Peoples
Energy and North Shore Gas) for services in all capacities during the three
fiscal years set forth below, to (1) the Chief Executive Officer and (2) the
four most highly compensated executive officers of the Company other than the
Chief Executive Officer.
SUMMARY COMPENSATION TABLE
[Enlarge/Download Table]
Long Term Compensation
Annual Compensation Awards
------------------- -------------------------
Restricted All Other
Stock Options/ Compen-
Name and Awards(1)(2) SARs sation(3)
Principal Position Year Salary($) Bonus($) ($) (#) ($)
----------------------- ---- --------- -------- ------------ -------- ----------
Richard E. Terry 1995 $455,300 $137,200 $137,119 21,400 $12,354
Chairman and 1994 421,250 117,100 113,281 14,400 12,638
Chief Executive Officer 1993 415,000 30,400 110,413 14,600 12,277
J. Bruce Hasch 1995 319,800 61,500 76,606 11,800 9,594
President and 1994 304,500 75,300 73,438 9,400 9,135
Chief Operating Officer 1993 300,000 19,600 71,844 9,600 9,324
Michael S. Reeves 1995 241,100 39,000 48,925 7,600 7,233
Executive Vice 1994 229,500 47,800 47,656 6,200 6,885
President 1993 226,100 12,400 46,131 6,200 6,783
James Hinchliff 1995 241,100 39,000 48,925 7,600 7,233
Senior Vice President 1994 229,500 47,800 47,656 6,200 6,885
and General Counsel 1993 226,100 12,400 46,131 6,200 6,783
Thomas M. Patrick 1995 176,800 39,200 30,900 4,800 5,304
Vice President 1994 167,500 28,100 29,688 3,800 5,025
1993 165,000 7,700 29,494 4,000 4,950
(1) Restricted stock awards are valued at the closing market price as of the
date of grant. The total number of restricted shares held by the named
executive officers and the aggregate market value of such shares at
September 30, 1995 were as follows: Mr. Terry, 12,825 shares, valued at
$352,688; Mr. Hasch, 7,845 shares, valued at $215,738; Mr. Reeves, 5,190
shares, valued at $142,725; Mr. Hinchliff, 5,190 shares, valued at
$142,725; and Mr. Patrick, 3,220 shares, valued at $88,550. Dividends are
paid on the restricted shares at the same time and at the same rate as
dividends paid to all shareholders of common stock. Aggregate market value
is based on a per share price of $27.50, the closing price of Peoples
Energy's stock on the New York Stock Exchange on September 29, 1995.
- 40 -
ITEM 11. EXECUTIVE COMPENSATION (Continued)
(2) Restricted stock awards granted to date vest in equal annual increments
over a five-year period. If a recipient's employment with the Company
terminates, other than by reason of death, disability, or retirement after
attaining age 65, the recipient forfeits all rights to the unvested portion
of the restricted stock award. In addition, the Compensation-Nominating
Committee (and with respect to the CEO, the Compensation-Nominating
Committee, subject to the approval of the non-management directors) may, in
its sole discretion, accelerate the vesting of any restricted stock awards
granted under the Long-Term Incentive Compensation Plan. Total restricted
stock awarded to the named individuals for 1993 constitutes 10,050 shares,
of which 2,010 shares vested in 1994; 2,010 shares vested in 1995; 2,010
shares will vest in 1996; 2,010 shares will vest in 1997; and the remaining
2,010 shares will vest in 1998. Total restricted stock awarded to the
named individuals for 1994 constitutes 9,975 shares, of which 1,995 shares
vested in 1995; 1,995 shares will vest in 1996; 1,995 shares will vest in
1997; 1,995 shares will vest in 1998; and the remaining 1,995 shares will
vest in 1999. Total restricted stock awarded to the named individuals for
1995 constitutes 13,300 shares of which 2,660 shares will vest in 1996;
2,660 shares will vest in 1997; 2,660 shares will vest in 1998; 2,660
shares will vest in 1999; and the remaining 2,660 shares will vest in 2000.
(3) Company contributions to the Capital Accumulation Plan accounts of the
named executive officers during the above fiscal years. Employee
contributions under the plan are subject to a maximum limitation under the
Internal Revenue Code of 1986. The Company pays an employee who is subject
to this limitation an additional 50 cents for each dollar that the employee
is prevented from contributing solely by reason of such limitation. The
amounts shown in the table above reflect, if applicable, this additional
Company payment.
- 41 -
ITEM 11. EXECUTIVE COMPENSATION (Continued)
[Enlarge/Download Table]
OPTIONS/SAR GRANTS IN FISCAL 1995
INDIVIDUAL GRANTS
------------------------------------------------------
% of Total
Options/SARs
Options/ Granted to Exercise Grant
SARs Employees or Base Date
Granted in Fiscal Price Expiration Present
Name (#)(1) Year (2) ($/Share) Date Value($)(3)
------------------- -------- ------------ --------- ---------- -----------
Richard E. Terry 21,400 15% $25.69 05-Oct-04 $97,370
Chairman and
Chief Executive
Officer
J. Bruce Hasch 11,800 8 25.69 05-Oct-04 53,690
President and
Chief Operating
Officer
Michael S. Reeves 7,600 5 25.69 05-Oct-04 34,580
Executive Vice
President
James Hinchliff 7,600 5 25.69 05-Oct-04 34,580
Senior Vice President
and General Counsel
Thomas M. Patrick 4,800 3 25.69 05-Oct-04 21,840
Vice President
(1) The grant of an Option enables the recipient to purchase Peoples Energy
common stock at a purchase price equal to the fair market value of the
shares on the date the Option is granted. The grant of an SAR enables the
recipient to receive, for each SAR granted, cash in an amount equal to the
excess of the fair market value of one share of Peoples Energy common stock
on the date the SAR is exercised over the fair market value of such common
stock on the date the SAR was granted. Options or SARs that expire
unexercised become available for future grants. Before an Option or SAR
may be exercised, the recipient must complete 12 months of continuous
employment subsequent to the grant of the Option or SAR. Options and SARs
may be exercised within 10 years from the date of grant, subject to earlier
termination in case of death, retirement, or termination of employment.
(2) Based on 71,500 Options and 71,500 SARs granted to all employees during
fiscal 1995.
(3) Present value is determined using a variation of the Black-Scholes Model.
The model assumes: a) that Options and SARs are exercised two years after
the date of grant -- the average time Options and SARs were held by
recipients under Peoples Energy's Long-Term Incentive Compensation Plan
over the past ten years; b) use of an interest rate equal to the interest
rate on a U.S. Treasury security with a maturity date corresponding to the
assumed exercise date; c) a level of volatility calculated using weekly
stock prices for the two years prior to the date of grant; d) that no
adjustments were made for an expected dividend yield; and e) that no
adjustments were made for non-transferability or risk of forfeiture. This
is a theoretical value for the Options and SARs. The amount realized from
an Option or an SAR ultimately depends upon the excess of the market value
of Peoples Energy's stock over the exercise price on the date the option or
SAR is exercised.
- 42 -
ITEM 11. EXECUTIVE COMPENSATION (Continued)
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1995
AND FISCAL YEAR-END OPTION/SAR VALUES
[Enlarge/Download Table]
Number of Value of Unexercised In-
Unexercised Options/SARs the-Money Options/SARs at
Shares at Fiscal Year-End(#) Fiscal Year-End ($)
Acquired On Value --------------------------- --------------------------
Name Exercise(#) Realized ($) Exercisable Unexercisable Exercisable Unexercisable
------------------ ----------- ------------ ----------- ------------- ----------- -------------
Richard E. Terry 0 $0.00 29,000 21,400 $0.00 $38,734
Chairman and
Chief Executive
Officer
J. Bruce Hasch 0 0.00 19,000 11,800 0.00 21,358
President and
Chief Operating
Officer
Michael S. Reeves 0 0.00 12,400 7,600 0.00 13,756
Executive Vice
President
James Hinchliff 0 0.00 12,400 7,600 0.00 13,756
Senior Vice President
and General Counsel
Thomas M. Patrick 0 0.00 7,800 4,800 0.00 8,688
Vice President
- 43 -
ITEM 11. EXECUTIVE COMPENSATION (Continued)
PENSION PLAN TABLE
[Download Table]
Years of Service
Average Annual ---------------------------------------------------------------
Compensation 20 25 30 35 40
-------------- ------- ------- ------- ------- --------
$150,000 $54,872 $68,590 $82,308 $91,683 $101,058
200,000 74,872 93,590 112,308 124,808 137,308
250,000 94,872 118,590 142,308 157,933 173,558
300,000 114,872 143,590 172,308 191,058 209,808
350,000 134,872 168,590 202,308 224,183 246,058
400,000 154,872 193,590 232,308 257,308 282,308
450,000 174,872 218,590 262,308 290,433 318,558
500,000 194,872 243,590 292,308 323,558 354,808
550,000 214,872 268,590 322,308 356,683 391,058
600,000 234,872 293,590 352,308 389,808 427,308
650,000 254,872 318,590 382,308 422,933 463,558
The above table illustrates various annual straight-life benefits at normal
retirement (age 65) for the indicated levels of average annual compensation and
various periods of service, assuming no future changes in Peoples Energy's
pension benefits. The compensation used in the computation of annual retirement
benefits is substantially equivalent to the salary and bonus reported in the
Summary Compensation Table. The benefit amounts shown reflect reduction for
applicable Social Security benefits.
Average annual compensation is the average 12-month compensation for the
highest 60 consecutive months of the last 120 months of service prior to
retirement. Compensation is total salary paid to an employee by the Company
and/or its affiliates, including bonuses under Peoples Energy's Short-Term
Incentive Compensation Plan, pre-tax contributions under Peoples Energy's
Capital Accumulation Plan, pre-tax contributions under Peoples Energy's Health
and Dependent Care Spending Accounts Plan, and pre-tax contributions for life
and health care insurance, but excluding moving allowances, exercise of stock
options and SARs, and other compensation that has been deferred.
At September 30, 1995, the credited years of retirement benefit service for
the individuals listed in the Summary Compensation Table were as follows: Mr.
Terry, 31 years; Mr. Hasch, 35 years; Mr. Reeves, 39 years; Mr. Hinchliff, 23
years; and Mr. Patrick, 19 years. The benefits shown in the foregoing table are
subject to maximum limitations under the Employee Retirement Income Security Act
of 1974, as amended, and the Internal Revenue Code of 1986, as amended. Should
these benefits at the time of retirement exceed the then-permissible limits of
the applicable Act, the excess would be paid by the Company as supplemental
pensions pursuant to Peoples Energy's Supplemental Retirement Benefit Plan. The
benefits shown give effect to these supplemental pension benefits.
- 44 -
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
At November 30, 1995, voting securities of the Company were beneficially
owned as follows:
[Download Table]
Title of Number of Per Cent of
Class Name and Address Shares Owned Class
------------ ----------------------------- ------------ -----------
Common Stock Peoples Energy Corporation
without 130 East Randolph Drive
par value Chicago, Illinois 60601-6207 24,817,566 100
---------- ---
---------- ---
SECURITY OWNERSHIP OF MANAGEMENT
No equity securities of the Company are beneficially owned directly or
indirectly by any director or officer of the Company.
Shares of common stock, without par value, of Peoples Energy beneficially
owned directly or indirectly by all directors and certain executive officers of
the Company and all directors and executive officers of the Company as a group
at November 30, 1995, are as follows:
[Download Table]
Shares of Peoples Energy
Common Stock Beneficially
Name Owned at November 30, 1995 (1)
----------------------- ------------------------------
Kenneth S. Balaskovits* 11,980 (2)(3)
J. Bruce Hasch* 47,127 (2)(3)
James Hinchliff* 31,595 (2)(3)
Thomas M. Patrick 14,458 (2)(3)
Michael S. Reeves* 36,246 (2)(3)
Richard E. Terry* 69,504 (2)(3)
All directors and officers of the Company
as a group, including those named above
(14 in number) 330,432 (1)(2)(3)
* Director of the Company
(1) The total of 330,432 shares held by all directors and executive officers as
a group is less than one per cent of Peoples Energy's outstanding common
stock. Unless otherwise indicated, each individual has sole voting and
investment power with respect to the shares of common stock attributed to
him in the table.
(2) Includes shares that the following have a right to acquire within 60 days
following November 30, 1995, through the exercise of stock options granted
under Peoples Energy's Long-Term Incentive Compensation Plan: Messrs.
Balaskovits, 5,500; Hasch, 15,400; Hinchliff, 10,000; Patrick, 6,300;
Reeves, 10,000; Terry, 25,200; and all executive officers of the Company,
as a group, 140,200.
- 45 -
(3) Includes shares of restricted stock awarded under Peoples Energy's Long-
Term Incentive Compensation Plan, the restrictions on which had not lapsed
at November 30, 1995, as follows: Messrs. Balaskovits, 2,970; Hasch,
8,240; Hinchliff, 5,290; Patrick, 3,355; Reeves, 5,290; Terry, 14,055; and
all executive officers as a group, 45,665. Owners of shares of restricted
stock have the right to vote such shares and to receive dividends thereon,
but have no investment power with respect to such shares until the
restrictions thereon lapse.
CHANGES IN CONTROL
None.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company provides general corporate and support services to Peoples
Energy pursuant to an Intercompany Service Agreement (Agreement), the terms of
which were approved by the Commission. In fiscal 1995, the Company furnished
general corporate services in the amount of $3,799,257 and support services in
the amount of $92,979 to Peoples Energy under the Agreement.
- 46 -
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K
(a) 1. Financial Statements: Page
See Part II, Item 8. 16
2. Financial Statement Schedules:
Schedule
Number
--------
VIII Valuation and Qualifying Accounts 48
3. Exhibits:
See Exhibit Index on page 50.
(b) Reports on Form 8-K filed during the final quarter of fiscal year 1995:
None.
- 47 -
SCHEDULE VIII
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(Thousands)
[Enlarge/Download Table]
Column A Column B Column C Column D Column E
------------------------------------------------- ------------ --------- -------------------- --------
Additions Deductions
--------- -------------------- --------
Charged Charges for the
Balance to costs purpose for which the Balance
at beginning and reserves or deferred at end of
Description of period expenses credits were created period
------------------------------------------------- ------------ --------- --------------------- ---------
Fiscal Year Ended September 30, 1995
RESERVES (deducted from assets in balance sheet):
Uncollectible items $23,400 $22,063 $27,148 $18,315
Fiscal Year Ended September 30, 1994
RESERVES (deducted from assets in balance sheet):
Uncollectible items $18,934 $31,162 $26,696 $23,400
Fiscal Year Ended September 30, 1993
RESERVES (deducted from assets in balance sheet):
Uncollectible items $16,169 $21,693 $18,928 $18,934
- 48 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, as amended, the registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
THE PEOPLES GAS LIGHT AND COKE COMPANY
Date: December 21, 1995 By: /s/ RICHARD E. TERRY
---------------------------------
Richard E. Terry
Chairman of the Board and Chief
Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed below by the following persons on behalf of
the registrant and in the capacities indicated on December 21, 1995.
/s/ RICHARD E. TERRY Chairman of the Board and Chief Executive
-----------------------------
Richard E. Terry Officer and Director
(Principal Executive Officer)
/s/ KENNETH S. BALASKOVITS Vice President and Controller and Director
-------------------------------
Kenneth S. Balaskovits (Principal Financial and Accounting Officer)
/s/ J. BRUCE HASCH Director
-----------------------------
J. Bruce Hasch
/s/ JAMES HINCHLIFF Director
-----------------------------
James Hinchliff
/s/ MICHAEL S. REEVES Director
-----------------------------
Michael S. Reeves
- 49 -
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
EXHIBIT INDEX
(a) The exhibits listed below are filed herewith and made a part hereof:
Exhibit
Number Description of Document
------- -------------------------------------------------------------
3(a) Amendment to the Articles of Incorporation of the Registrant,
dated April 24, 1995.
3(b) Articles of Incorporation of the Registrant, as last amended,
dated April 24, 1995.
4 Supplemental Indenture dated June 1, 1995.
10(a) ETS Service Agreement between the Company and ANR Pipeline
Company, dated September 21, 1994.
10(b) FSS Service Agreement between the Company and ANR Pipeline
Company, dated September 21, 1994.
10(c) Storage Rate Schedule NSS Agreement between the Company and
Natural Gas Pipeline Company of America, dated
October 19, 1995.
10(d) Transportation Rate Schedule FTS Agreement between the Company
and Natural Gas Pipeline Company of America, dated
October 19, 1995.
10(e) Storage Rate Schedule DSS Agreement between the Company and
Natural Gas Pipeline Company of America, dated
December 1, 1995.
10(f) Transportation Rate Schedule FTS Agreement between the Company
and Natural Gas Pipeline Company of America, dated
December 1, 1995.
10(g) Firm Transportation Service Agreement Under Rate Schedule FT
between the Company and Trunkline Gas Company, dated as of
April 1, 1995.
10(h) Quick Notice Transportation Service Agreement Under Rate Schedule
QNT between the Company and Trunkline Gas Company, dated as of
December 1, 1995.
10(i) Quick Notice Transportation Service Agreement Under Rate Schedule
QNT between the Company and Trunkline Gas Company, dated as of
December 1, 1995.
12 Statement re: Computation of Ratio of Earnings to
Fixed Charges.
27 Financial Data Schedule
- 50 -
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
EXHIBIT INDEX (Continued)
(b) Exhibits listed below have been filed heretofore with the Securities and
Exchange Commission pursuant to the Securities Act of 1933, as amended,
and/or the Securities Exchange Act of 1934, as amended, and are
incorporated herein by reference. The file number and exhibit number of
each such exhibit are stated in the description of such exhibits.
3(c) By-Laws of the Registrant, as amended on December 7, 1994
(Registrant Form 10-K for fiscal year ended September 30,
1994, Exhibit 3(d)).
4(a) First and Refunding Mortgage, dated January 2, 1926, from
Chicago By-Product Coke Company to Illinois Merchants Trust
Company, Trustee, assumed by the Company by Indenture dated
March 1, 1928 (May 17, 1935, Exhibit B-6a, Exhibit B-6b A-2
File No. 2-2151, 1936); Supplemental Indenture dated as of
May 20, 1936, from the Company to Continental Illinois
National Bank and Trust Company of Chicago, Trustee (Form 8-K
for the year 1936, Exhibit B-6f); Supplemental Indenture
dated as of March 10, 1950 (Form 8-K for the month of March
1950, Exhibit B-6i); Supplemental Indenture dated as of
June 1, 1951 (File No. 2-8989, Post-Effective, Exhibit 7-
4(b)); Supplemental Indenture dated as of July 15, 1966 (Form
8-K for the month of July 1966, Exhibit 2); Supplemental
Indenture dated as of August 15, 1967 (File No. 2-26983,
Post-Effective, Exhibit 2-4); Supplemental Indenture dated as
of September 15, 1970 (File No. 2-38168, Post-Effective
Exhibit 2-2); Supplemental Indenture dated as of April 1,
1972 (File No. 2-43367, Post-Effective Exhibit 2-2);
Supplemental Indenture dated as of July 15, 1973 (File No. 2-
48430, Exhibit 4-2); Supplemental Indenture dated as of June
1, 1984, Exhibit 4-1, Supplemental Indenture dated June 1,
1984, Exhibit 4-2, Supplemental Indenture dated
October 1, 1984, Exhibit 4-3 (Form 10-K for fiscal year ended
September 30, 1984); Supplemental Indentures dated March 1,
1985, Exhibits 4-1, 4-2, 4-3, 4-4, respectively (Form 10-K
for fiscal year ended September 30, 1985); Supplemental
Indenture dated May 1, 1990 (Form 10-K for the fiscal year
ended September 30, 1990, Exhibit 4); Supplemental Indenture
dated as of April 1, 1993 (Form 8-K dated as of May 5, 1933,
Exhibit 1); Supplemental Indenture dated as of
December 1, 1993 (Form 10-Q for the quarterly period ended
December 31, 1993, Exhibit 4(a)); Supplemental Indenture
dated as of December 1, 1993 (Form 10-Q for the quarterly
period ended December 31, 1993, Exhibit 4(b)).
10(j) Firm Transportation Service Agreement Under Rate Schedule FTS
between the Company and Natural Gas Pipeline Company of
America, dated as of August 13, 1990 (Registrant Form 10-K
for the fiscal year ended September 30, 1993, Exhibit 10(b));
Firm Transportation Service Agreement Under Rate Schedule FTS
between the Company and Natural Gas Pipeline Company of
America, dated as of October 8, 1990 (Registrant Form 10-K
for the fiscal year ended September 30, 1993, Exhibit 10(c));
Firm Transportation Service Agreement Under Rate Schedule FTS
between the Company and Natural Gas Pipeline Company of
America, dated as of January 1, 1992 (Registrant Form 10-K
for the fiscal year ended September 30, 1993, Exhibit 10(e));
Firm Transportation Service Agreement Under Rate Schedule FTS
between the Company and Natural Gas Pipeline Company of
America, dated as of January 1, 1992 (Registrant Form 10-K
for the fiscal year ended September 30, 1993, Exhibit 10(f));
Firm Transportation Service Agreement Under Rate Schedule FTS
between the Company and Natural Gas Pipeline Company of
America, dated as of
- 51 -
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
EXHIBIT INDEX (Continued)
10(j) January 1, 1992 (Registrant Form 10-K for the fiscal year
cont'd ended September 30, 1993, Exhibit 10(g)); Firm Transportation
Service Agreement Under Rate Schedule FTS between the Company
and Natural Gas Pipeline Company of America, dated as of
February 1, 1992 (Registrant Form 10-K for the fiscal year
ended September 30, 1993, Exhibit 10(h)); Firm Transportation
Service Agreement Under Rate Schedule FT between the Company
and Trunkline Gas Company, dated as of December 1, 1993
(Registrant Form 10-K for the fiscal year ended September 30,
1994, Exhibit 10).
10(k) Lease dated October 20, 1993, between Prudential Plaza
Associates, as Landlord, and the Company, as Tenant
(Registrant Form 10-Q for the quarterly period ended
December 31, 1993, Exhibit 10(a)).
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Dates Referenced Herein and Documents Incorporated by Reference
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