SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1996
Commission Registrant; State of Incorporation; I.R.S. Employer
File Number Address; and Telephone Number Identification Number
1-14174 AGL RESOURCES INC. 58-2210952
(A Georgia Corporation)
303 PEACHTREE STREET, NE
ATLANTA, GEORGIA 30308
404-584-4000
1-9905 ATLANTA GAS LIGHT COMPANY 58-014925
(A Georgia Corporation)
303 PEACHTREE STREET, NE
ATLANTA, GEORGIA 30308
404-584-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months and (2) has been subject to
such filing requirements for the past 90 days.
AGL RESOURCES INC. Yes No
(This quarterly report on Form 10-Q is the first report required
to be filed by AGL Resources Inc. since it became subject to the
filing requirements of the Securities Exchange Act of 1934.)
ATLANTA GAS LIGHT COMPANY Yes X No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of March 31, 1996.
AGL RESOURCES INC.
Common Stock, $5.00 Par Value
Shares Outstanding at March 31, 1996 . . . . . . . . . . 55,362,112
ATLANTA GAS LIGHT COMPANY
Common Stock, $5.00 Par Value
Shares Outstanding and Held by AGL Resources Inc.
at March 31, 1996 . . . . . . . . . . . . . . . . . . . 55,352,415
AGL RESOURCES INC. and
ATLANTA GAS LIGHT COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 1996
Table of Contents
Item Page
Number PART I - FINANCIAL INFORMATION Number
1 Financial Statements (Unaudited)
AGL Resources Inc.
Condensed Consolidated Income Statements 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of Cash Flows 6
Atlanta Gas Light Company
Condensed Consolidated Income Statements 7
Condensed Consolidated Balance Sheets 8
Condensed Consolidated Statements of Cash Flows 10
Notes to Condensed Consolidated Financial Statements 11
2 Management's Discussion and Analysis of Results of
Operations and Financial Condition 14
AGL Resources Inc.
Atlanta Gas Light Company
PART II - OTHER INFORMATION
1 Legal Proceedings 19
2 Changes in Securities 19
4 Submission of Matters to a Vote of Security Holders 20
5 Other Information 21
6 Exhibits and Reports on Form 8-K 24
SIGNATURES 25
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements
In the opinion of AGL Resources Inc. (Resources), the unaudited condensed
consolidated financial statements, included herein, reflect all normal
recurring accruals necessary for a fair statement of the results of the
interim periods reflected. Resources is the parent holding company of
Atlanta Gas Light Company (AGLC), AGL Energy Services, Inc. and AGL
Investments, Inc. AGLC comprises substantially all of Resources' assets,
revenues and earnings. All nonutility operating transactions are
included in "Other Income -- Other Income and Deductions" in Resources'
Consolidated Income Statements.
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS, SIX MONTHS AND TWELVE MONTHS ENDED
MARCH 31, 1996 AND 1995
(MILLIONS, EXCEPT PER SHARE DATA)
Three Months Six Months Twelve Months
1996 1995 1996 1995 1996 1995
Operating Revenues $478.8 $448.2 $807.6 $777.0 $1,093.6 $1,114.8
Cost of Gas 308.0 269.9 496.8 458.0 610.6 636.6
------ ------ ------ ------ -------- --------
Operating Margin 170.8 178.3 310.8 319.0 483.0 478.2
------ ------ ------ ------ -------- --------
Other Operating Expenses:
Operating Expenses 91.8 88.0 172.6 169.5 331.1 325.3
Restructuring Costs 23.0 67.5 2.8 67.5
------ ------ ------ ------ -------- --------
Total Other Operating
Expenses 91.8 111.0 172.6 237.0 333.9 392.8
Income Taxes 24.8 18.4 42.0 19.0 39.0 13.2
------ ------ ------ ------ -------- --------
Operating Income 54.2 48.9 96.2 63.0 110.1 72.2
------ ------ ------ ------ -------- --------
Other Income:
Other Income and Deductions 6.7 1.0 8.3 2.4 8.0 3.4
Income Taxes (2.4) (0.4) (3.0) (0.9) (2.8) (1.2)
------ ------ ------ ------ -------- --------
Other Income - Net 4.3 0.6 5.3 1.5 5.2 2.2
------ ------ ------ ------ -------- --------
Income Before Income
Deductions 58.5 49.5 101.5 64.5 115.3 74.4
Income Deductions:
Interest Charges 12.4 12.2 25.2 25.4 47.3 48.8
Dividends on Preferred Stock
of Subsidiary 1.1 1.1 2.2 2.2 4.4 4.5
------ ------ ------ ------ -------- --------
Net Income $45.0 $36.2 $74.1 $36.9 $63.6 $21.1
====== ====== ====== ====== ======== ========
Earnings Per Share of
Common Stock $0.81 $0.71 $1.34 $0.72 $1.17 $0.42
Cash Dividends Paid Per
Share of Common Stock $0.265 $0.26 $0.53 $0.52 $1.05 $1.04
Average Number of Common Shares
Outstanding (Millions) 55.3 51.3 55.2 51.2 54.4 50.9
See notes to condensed consolidated financial statements.
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
March 31, September 30,
1996 1995 1995
ASSETS
Utility Plant $1,969.3 $1,872.7 $1,919.9
Less Accumulated Depreciation 607.1 571.5 583.3
-------- -------- --------
Utility Plant - Net 1,362.2 1,301.2 1,336.6
-------- -------- --------
Other Property and Investments (less
accumulated depreciation) 51.5 18.6 46.3
-------- -------- --------
Current Assets:
Cash and Cash Equivalents 4.5 36.2 3.7
Receivables (less allowance for
uncollectible accounts of $6.4 at
March 31, 1996, $7.2 at March 31, 1995
and $4.4 at September 30, 1995) 225.7 178.9 69.3
Inventories:
Natural Gas Stored Underground 14.5 22.5 111.2
Liquefied Natural Gas 4.0 11.5 14.3
Materials and Supplies 8.0 9.0 8.0
Other 0.4 3.7 2.6
Deferred Purchased Gas Adjustment 19.3
Other 8.4 7.8 10.9
-------- -------- --------
Total Current Assets 284.8 269.6 220.0
-------- -------- --------
Deferred Debits and Other Assets:
Unrecovered Environmental Response
Costs 34.7 34.2 34.9
Unrecovered Integrated Resource
Plan Costs 8.0 12.5 9.9
Other 24.2 27.1 26.9
-------- -------- --------
Total Deferred Debits and Other
Assets 66.9 73.8 71.7
-------- -------- --------
Total $1,765.4 $1,663.2 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
March 31, September 30,
1996 1995 1995
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock, $5 Par Value, Shares Issued and
Outstanding of 55.4 at March 31, 1996,
51.4 at March 31, 1995 and 54.9 at
September 30, 1995 $276.8 $128.7 $137.3
Premium on Capital Stock 166.3 249.9 297.7
Earnings Reinvested 167.2 160.4 122.3
-------- -------- --------
Total Common Stock Equity 610.3 539.0 557.3
Preferred Stock of Subsidiary,
Cumulative $100 Par or Stated Value,
Shares Issued and Outstanding of 0.6
at March 31, 1996, March 31, 1995
and September 30, 1995 58.5 58.5 58.5
Long-Term Debt 554.5 554.5 554.5
-------- -------- --------
Total Capitalization 1,223.3 1,152.0 1,170.3
-------- -------- --------
Current Liabilities:
Redemption Requirements on Preferred
Stock 0.3 0.3 0.3
Short-Term Debt 66.5 51.0
Accounts Payable 81.5 50.8 72.3
Deferred Purchased Gas Adjustment 67.6 6.3
Customer Deposits 29.1 30.1 29.5
Interest 25.3 25.0 25.4
Taxes 27.8 22.6 3.7
Other 43.5 41.0 42.4
-------- -------- --------
Total Current Liabilities 274.0 237.4 230.9
-------- -------- --------
Accrued Environmental Response Costs 28.6 28.6 28.6
Accrued Pension Costs 1.5 25.0 10.3
Accrued Postretirement Benefits Costs 33.6 30.8 30.1
Deferred Credits 63.2 65.8 65.6
Accumulated Deferred Income Taxes 141.2 123.6 138.8
-------- -------- --------
Total $1,765.4 $1,663.2 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS AND TWELVE MONTHS ENDED MARCH 31, 1996 AND 1995
(MILLIONS)
Six Months Twelve Months
1996 1995 1996 1995
Cash Flows from Operating Activities:
Net Income $74.1 $36.9 $63.6 $21.1
Adjustments to Reconcile Net Income to Net
Cash Flow from Operating Activities:
Non-Cash Restructuring Costs 66.6 2.8 66.6
Depreciation and Amortization 33.4 31.5 64.4 60.8
Deferred Income Taxes 2.4 (11.0) 17.6 (2.8)
Non-Cash Compensation Expense 2.3 4.2 4.3 8.3
Other (1.2) (1.3) (2.3) (2.3)
Changes in Certain Assets and
Liabilities (45.3) 90.7 (96.7) 44.8
------- ------- ------- -------
Net Cash Flow from Operating
Activities 65.7 217.6 53.7 196.5
------- ------- ------- -------
Cash Flows from Financing Activities:
Short-Term Borrowings, Net 15.5 (95.4) 66.5
Redemption of Long-Term Debt (15.0) (15.0)
Sale of Common Stock, Net of Expenses 1.0 1.0 50.4 2.1
Dividends on Common Stock (24.4) (21.6) (47.1) (43.1)
------- ------- ------- -------
Net Cash Flow from Financing
Activities (7.9) (131.0) 69.8 (56.0)
------- ------- ------- -------
Cash Flows from Investing Activities:
Utility Plant Expenditures (57.9) (53.5) (125.2) (111.7)
Non-Utility Capital Expenditures 1.1 (0.9) 1.6 (0.9)
Investment in Joint Venture (32.6)
Cost of Removal, Net of Salvage (0.2) 0.7 1.0 0.3
------- ------- ------- -------
Net Cash Flow from Investing
Activities (57.0) (53.7) (155.2) (112.3)
------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents 0.8 32.9 (31.7) 28.2
Cash and Cash Equivalents at
Beginning of Period 3.7 3.3 36.2 8.0
------- ------- ------- -------
Cash and Cash Equivalents at
End of Period $4.5 $36.2 $4.5 $36.2
======= ======= ======== =======
Cash Paid During the Period for:
Interest $25.5 $25.5 $48.4 $47.3
Income Taxes $12.7 $20.7 $20.6 $26.3
See notes to condensed consolidated financial statements.
In the opinion of Atlanta Gas Light Company (AGLC), the unaudited
condensed consolidated financial statements, included herein, reflect all
normal recurring accruals necessary for a fair statement of the results
of the interim periods reflected. All nonutility operating transactions
are included in "Other Income -- Other Income and Deductions" in AGLC's
Consolidated Income Statements.
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS, SIX MONTHS AND TWELVE MONTHS ENDED
MARCH 31, 1996 AND 1995
(MILLIONS)
Three Months Six Months Twelve Months
1996 1995 1996 1995 1996 1995
Operating Revenues $478.8 $448.2 $807.6 $777.0 $1,093.6 $1,114.8
Cost of Gas 308.0 269.9 496.8 458.0 610.6 636.6
------ ------ ------ ------ -------- --------
Operating Margin 170.8 178.3 310.8 319.0 483.0 478.2
------ ------ ------ ------ -------- --------
Other Operating Expenses:
Operating Expenses 91.2 88.0 172.0 169.5 330.5 325.3
Restructuring Costs 23.0 67.5 2.8 67.5
------ ------ ------ ------ -------- --------
Total Other Operating
Expenses 91.2 111.0 172.0 237.0 333.3 392.8
Income Taxes 25.1 18.4 42.3 19.0 39.3 13.2
------ ------ ------ ------ -------- --------
Operating Income 54.5 48.9 96.5 63.0 110.4 72.2
------ ------ ------ ------ -------- --------
Other Income:
Other Income and Deductions 6.7 1.0 8.3 2.4 8.0 3.4
Income Taxes (2.4) (0.4) (3.0) (0.9) (2.8) (1.2)
------ ------ ------ ------ -------- --------
Other Income - Net 4.3 0.6 5.3 1.5 5.2 2.2
------ ------ ------ ------ -------- --------
Income Before Interest
Charges 58.8 49.5 101.8 64.5 115.6 74.4
Interest Charges 12.4 12.2 25.2 25.4 47.3 48.8
------ ------ ------ ------ -------- --------
Net Income 46.4 37.3 76.6 39.1 68.3 25.6
Dividends on Preferred Stock 1.1 1.1 2.2 2.2 4.4 4.5
------ ------ ------ ------ -------- --------
Earnings Available for Common
Stock $45.3 $36.2 $74.4 $36.9 $63.9 $21.1
====== ====== ====== ====== ======== ========
See notes to condensed consolidated financial statements.
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
March 31, September 30,
1996 1995 1995
ASSETS
Utility Plant $1,969.3 $1,872.7 $1,919.9
Less Accumulated Depreciation 607.1 571.5 583.3
-------- -------- --------
Utility Plant - Net 1,362.2 1,301.2 1,336.6
-------- -------- --------
Other Property and Investments (less
accumulated depreciation) 51.5 18.6 46.3
-------- -------- --------
Current Assets:
Cash and Cash Equivalents 4.5 36.2 3.7
Receivables (less allowance for
uncollectible accounts of $6.4 at
March 31, 1996, $7.2 at March 31, 1995
and $4.4 at September 30, 1995) 225.7 178.9 69.3
Inventories:
Natural Gas Stored Underground 14.5 22.5 111.2
Liquefied Natural Gas 4.0 11.5 14.3
Materials and Supplies 8.0 9.0 8.0
Other 0.4 3.7 2.6
Deferred Purchased Gas Adjustment 19.3
Other 9.2 7.8 10.9
-------- -------- --------
Total Current Assets 285.6 269.6 220.0
-------- -------- --------
Deferred Debits and Other Assets:
Unrecovered Environmental Response
Costs 34.7 34.2 34.9
Unrecovered Integrated Resource
Plan Costs 8.0 12.5 9.9
Other 24.2 27.1 26.9
-------- -------- --------
Total Deferred Debits and
Other Assets 66.9 73.8 71.7
-------- -------- --------
Total $1,766.2 $1,663.2 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
March 31, September 30,
1996 1995 1995
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock, $5 Par Value, Shares Issued and
Outstanding of 55.4 at March 31, 1996,
51.4 at March 31, 1995 and 54.9 at
September 30, 1995 $276.8 $128.7 $137.3
Premium on Capital Stock 166.2 249.9 297.7
Earnings Reinvested 167.6 160.4 122.3
-------- -------- --------
Total Common Stock Equity 610.6 539.0 557.3
Preferred Stock, Cumulative $100 Par
or Stated Value, Shares Issued and
Outstanding of 0.6 at March 31, 1996,
March 31, 1995 and September 30,
1995 58.5 58.5 58.5
Long-Term Debt 554.5 554.5 554.5
-------- -------- --------
Total Capitalization 1,223.6 1,152.0 1,170.3
-------- -------- --------
Current Liabilities:
Redemption Requirements on Preferred
Stock 0.3 0.3 0.3
Short-Term Debt 66.5 51.0
Accounts Payable 81.5 50.8 72.3
Deferred Purchased Gas Adjustment 67.6 6.3
Customer Deposits 29.1 30.1 29.5
Interest 25.3 25.0 25.4
Taxes 28.0 22.6 3.7
Other 43.9 41.0 42.4
-------- -------- --------
Total Current Liabilities 274.6 237.4 230.9
-------- -------- --------
Accrued Environmental Response Costs 28.6 28.6 28.6
Accrued Pension Costs 1.5 25.0 10.3
Accrued Postretirement Benefits Costs 33.6 30.8 30.1
Deferred Credits 63.2 65.8 65.6
Accumulated Deferred Income Taxes 141.1 123.6 138.8
-------- -------- --------
Total $1,766.2 $1,663.2 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE SIX MONTHS AND TWELVE MONTHS ENDED MARCH 31, 1996 AND 1995
(MILLIONS)
Six Months Twelve Months
1996 1995 1996 1995
Cash Flows from Operating Activities:
Net Income $76.6 $39.1 $68.3 $25.6
Adjustments to Reconcile Net Income to Net
Cash Flow from Operating Activities:
Non-Cash Restructuring Costs 66.6 2.8 66.6
Depreciation and Amortization 33.4 31.5 64.4 60.8
Deferred Income Taxes 2.4 (11.0) 17.6 (2.8)
Non-Cash Compensation Expense 2.1 4.2 4.1 8.3
Other (1.2) (1.3) (2.3) (2.3)
Changes in Certain Assets and
Liabilities (45.4) 90.7 (96.8) 44.8
------- ------- ------- -------
Net Cash Flow from Operating
Activities 67.9 219.8 58.1 201.0
------- ------- ------- -------
Cash Flows from Financing Activities:
Short-Term Borrowings, Net 15.5 (95.4) 66.5
Redemption of Long-Term Debt (15.0) (15.0)
Sale of Common Stock, Net of Expenses 1.0 1.0 50.4 2.1
Common Stock Dividends (24.4) (21.6) (47.1) (43.1)
Dividends on Preferred Stock (2.2) (2.2) (4.4) (4.5)
------- ------- ------- -------
Net Cash Flow from Financing
Activities (10.1) (133.2) 65.4 (60.5)
------- ------- ------- -------
Cash Flows from Investing Activities:
Utility Plant Expenditures (57.9) (53.5) (125.2) (111.7)
Non-Utility Capital Expenditures 1.1 (0.9) 1.6 (0.9)
Investment in Joint Venture (32.6)
Cost of Removal, Net of Salvage (0.2) 0.7 1.0 0.3
------- ------- ------- -------
Net Cash Flow from Investing
Activities (57.0) (53.7) (155.2) (112.3)
------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents 0.8 32.9 (31.7) 28.2
Cash and Cash Equivalents at
Beginning of Period 3.7 3.3 36.2 8.0
------- ------- ------- -------
Cash and Cash Equivalents at
End of Period $4.5 $36.2 $4.5 $36.2
======= ======= ======= =======
Cash Paid During the Period for:
Interest $25.5 $25.5 $48.4 $47.3
Income Taxes $12.7 $20.7 $20.6 $26.3
See notes to condensed consolidated financial statements.
AGL RESOURCES INC. AND ATLANTA GAS LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Formation of Holding Company
AGL Resources Inc. (Resources) is a Georgia corporation incorporated on
November 27, 1995, in a corporate restructuring, for the primary purpose
of becoming the parent company of Atlanta Gas Light Company (AGLC) and
its subsidiaries. The restructuring was completed upon shareholder
approval on March 6, 1996, at which time each outstanding share of AGLC
common stock was converted into one share of Resources common stock.
Under the restructuring plan, Resources will engage in utility activities
through AGLC and its wholly owned subsidiary, Chattanooga Gas Company
(Chattanooga), and in unregulated business activities through AGL Energy
Services, Inc. (AGL Energy Services), AGL Investments, Inc. (AGL
Investments) and their subsidiaries. The consolidated financial
statements of Resources include the accounts of AGLC as though Resources
had existed in all periods shown and had owned all of AGLC's outstanding
common stock prior to March 6, 1996.
On March 6, 1996, AGLC became the primary subsidiary of Resources. AGLC
will transfer ownership of its nonutility businesses, Georgia Gas
Company, Georgia Gas Service Company, Georgia Energy Company and Trustees
Investments, Inc., to AGL Investments. In addition, AGLC will transfer
its interest in Sonat Marketing Company L.P. (Sonat Marketing) to AGL
Energy Services. Those transfers are expected to be accomplished through
a dividend-in-kind during the third quarter of fiscal 1996. The
consolidated financial statements of AGLC include the accounts of all
subsidiaries owned by AGLC prior to March 6, 1996.
2. Interim Financial Statements
Certain information and footnote disclosure normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been omitted from these condensed consolidated
financial statements pursuant to applicable rules and regulations of the
Securities and Exchange Commission. These financial statements should be
read in conjunction with the financial statements and the notes thereto
included in the annual reports on Form 10-K of AGLC for the fiscal years
ended September 30, 1995 and 1994. Certain 1995 amounts have been
restated or reclassified for comparability with 1996 amounts.
In addition, on November 3, 1995, AGLC's Board of Directors declared a
two-for-one stock split of the common stock effected in the form of a
100% stock dividend to shareholders of record on November 17, 1995, and
paid on December 1, 1995. AGLC recorded a debit to premium on capital
stock and a credit to common stock of $137.5 million to transfer the
amount of the par value of the stock dividend to common stock. All
references to number of shares and to per share amounts in the Condensed
Consolidated Financial Statements and Management's Discussion and
Analysis of Results of Operations and Financial Condition have been
retroactively adjusted to reflect the stock dividend.
3. Earnings
Since sales of natural gas are dependent to a large extent on weather,
the majority of AGLC's income is realized during the winter
months. Earnings for three-month and six-month periods are not
indicative of the earnings for a twelve-month period.
On October 3, 1995, AGLC implemented revised firm service rates pursuant
to an order on rehearing of the rate design issues of AGLC's 1993
rate case that was issued by the Georgia Public Service Commission
(Georgia Commission) on September 25, 1995. Although neutral with
respect to total annual margins, the new rates shift margins from heating
months (November - March) into non-heating months, thereby affecting the
comparisons between interim earnings for fiscal 1996 and 1995. Annual
operating margins for fiscal 1996 will not be affected by the new rates.
4. Environmental Matters - AGLC
AGLC has identified nine sites in Georgia where it currently owns all or
part of a manufactured gas plant (MGP) site. In addition, AGLC has
identified three other sites in Georgia which AGLC does not now own, but
which may have been associated with the operation of MGPs by AGLC or its
predecessors. There are three sites in Florida which have been
investigated by environmental authorities in connection with which AGLC
may be contacted as a potentially responsible party.
Under a thorough analysis of potentially applicable requirements, AGLC
has estimated that, under the most favorable circumstances reasonably
possible, the future cost of investigating and remediating the former MGP
sites, excluding those sites for which no remediation is expected or the
cost of which cannot be estimated, could be as low as $28.6 million.
Alternatively, AGLC has estimated that, under the least favorable
circumstances reasonably possible, the future cost of investigating and
remediating those same former MGP sites could be as high as $109 million,
excluding those sites for which no remediation is expected or the cost
of which cannot be estimated. AGLC cannot estimate at this time the
amount of any other future expenses or liabilities, or the impact on
these estimates of future environmental regulatory changes, that may be
associated with or related to the MGP sites, including expenses or
liabilities relating to any litigation. At the present time, no amount
within the range can be identified as a better estimate than any other
estimate. Therefore, a liability for the low end of this range and a
corresponding regulatory asset have been recorded in the financial
statements.
The Georgia Commission has approved the recovery by AGLC of Environmental
Response Costs, as defined below, pursuant to AGLC's Environmental
Response Cost Recovery Rider (ERCRR). For purposes of the ERCRR,
Environmental Response Costs include investigation, testing, remediation
and litigation costs and expenses or other liabilities relating to or
arising from MGP sites.
In connection with the ERCRR, the staff of the Georgia Commission has
undertaken a financial and management process audit related to the MGP
sites, clean-up activities at the sites and Environmental Response Costs
which have been incurred for purposes of the ERCRR. Although the result
of such audit is not known, management does not expect the audit to have
a significant effect on AGLC's consolidated financial statements.
With regard to legal proceedings related to the former MGP sites, AGLC is
or expects to be a party to claims or counterclaims on an ongoing basis.
Among such matters, AGLC intends to continue to pursue insurance coverage
and contribution from potentially responsible parties. Management
currently believes that the outcome of MGP-related litigation in which
AGLC is involved will not have a material adverse effect on the financial
condition and results of operations of AGLC.
See Part I, Item 2 and Part II, Item 5, "Other Information -
Environmental Matters," of this Form 10-Q for additional information
regarding environmental response activities associated with MGP sites.
5. Competition - AGLC
AGLC competes to supply natural gas to interruptible customers who are
capable of switching to alternative fuels, including fuel oil, coal,
propane, electricity and, in some cases, combustible wood by-products.
AGLC also competes to supply gas to interruptible customers who might
otherwise seek to bypass AGLC's distribution system.
On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option to
bypass AGLC's facilities and receive natural gas from other suppliers. A
bypass avoidance contract (Negotiated Contract) can be renewable,
provided that the initial term does not exceed five years,
unless a longer term is specifically authorized by the Georgia
Commission. The rate provided by the Negotiated Contract may be lower
than AGLC's filed rate, but not less than AGLC's marginal cost of service
to the potential Bypass Customer. Service pursuant to a Negotiated
Contract may commence without Georgia Commission action, once a copy of
the contract is filed with the Georgia Commission. Negotiated Contracts
may be rejected by the Georgia Commission within 90 days of filing;
absent such action, however, the Negotiated Contracts remain effective.
None of the 44 Negotiated Contracts filed with the Georgia Commission
have been rejected. The settlement also provides for a bypass loss
recovery mechanism to operate until the earlier of September 30, 1998, or
the effective date of new rates for AGLC resulting from a general rate
case.
In addition to Negotiated Contracts, which are designed to serve existing
and potential Bypass Customers, AGLC's Interruptible Transportation and
Sales Maintenance (ITSM) Rider continues to permit discounts for
short-term transactions to compete with alternative fuels. Revenue
shortfalls, if any, from interruptible customers as measured by the
test-year interruptible revenues determined by the Georgia Commission in
AGLC's 1993 rate case will continue to be recovered under the ITSM Rider.
The settlement approved by the Georgia Commission also provides that AGLC
may file contracts (Special Contracts) for Georgia Commission approval if
the service cannot be provided through the ITSM Rider, existing rate
schedules or the Negotiated Contract procedures. An example of an
application for a Special Contract would be to provide for a long-term
service contract to compete with alternative fuels where physical bypass
was not the relevant competition. Currently, AGLC has filed, and the
Georgia Commission has approved, Special Contracts with five industrial
customers.
6. Corporate Restructuring - AGLC
In November 1994, AGLC announced a corporate restructuring plan in
response to increased competition and the changes in the federal and
state regulatory environments in which AGLC operates. The restructuring
plan provided for reengineering AGLC's business processes and
streamlining AGLC's statewide field organizations. As a result of
restructuring, AGLC has combined offices and established
centralized customer service centers. During the twelve months ended
March 31, 1996, AGLC reduced the number of employees by approximately 650
through voluntary retirement and severance programs and attrition. AGLC
recorded corporate restructuring costs of $1.7 million (after income
taxes) during the twelve months ended March 31, 1996, and a cumulative
total of $43.1 (after income taxes) related to the early retirement and
severance programs, office closings and costs to exit AGLC's appliance
merchandising and real estate investment operations. As a result of the
corporate restructuring, AGLC has experienced considerable reductions in
annual operating expenses from the levels incurred in fiscal 1994.
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Item 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
RESULTS OF OPERATIONS AND FINANCIAL CONDITION
As of March 6, 1996, AGL Resources Inc. (Resources) became the parent company
of Atlanta Gas Light Company (AGLC) and its subsidiaries. The restructuring
was completed upon shareholder approval on March 6, 1996, at which time each
outstanding share of AGLC common stock was converted into one share of
Resources common stock. The following discussion and analysis reflects the
combined results of operations and financial condition since Resources
reflects principally the operations of AGLC.
Results of Operations - Resources and AGLC
Three-Month Periods Ended March 31, 1996 and 1995
Explained below are the major factors that had a significant effect on
results of operations for the three-month period ended March 31, 1996,
compared with the same period in 1995.
Operating revenues increased 6.8% for the three-month period ended March 31,
1996, compared with the same period in 1995 primarily due to (1) an increase
in the cost of AGLC's gas supply recovered from customers under the purchased
gas provisions of AGLC's rate schedules, as explained in the following
paragraph, (2) increased volumes of gas sold as a result of weather that was
30% colder than the same period in 1995 and (3) an increase of approximately
41,000 in the number of customers served.
Cost of gas increased 14.1% for the three-month period ended March 31, 1996,
compared with the same period in 1995 primarily due to an increase in the
amount recovered from customers under the purchased gas provisions of AGLC's
rate schedules. The increase in the cost of AGLC's gas supply was primarily
due to (1) increased volumes of gas sold as a result of weather that was 30%
colder than the same period in 1995 and (2) an increase in the cost of gas
purchased for system supply. AGLC balances the cost of gas with revenues
collected under the purchased gas provisions of AGLC's rate schedules.
Underrecoveries or overrecoveries of gas costs are deferred and recorded as
current assets or liabilities, thereby eliminating the effect that recovery
of gas costs would otherwise have on net income.
Operating margin decreased 4.2% for the three-month period ended March 31,
1996, compared with the same period in 1995 primarily due to revised firm
service rates, effective October 3, 1995, which shift margins from heating
months into non-heating months (see Note 3 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q). The decrease in operating margin
was offset partly by an increase of approximately 41,000 in the number of
customers served. AGLC's Weather Normalization Adjustment Riders stabilized
operating margin at the level which would occur with normal weather for the
three-month periods ended March 31, 1996 and 1995. As a result of the
Weather Normalization Adjustment Riders, weather conditions experienced do
not have a significant impact on the comparability of operating margin.
Operating expenses increased 4.3% for the three-month period ended March 31,
1996, compared with the same period in 1995 primarily due to increased (1)
depreciation expense recorded as a result of increased property subject to
depreciation and (2) expenses related to employee benefits. The increase in
operating expenses was offset partly by decreased labor costs as a result of
AGLC's recent corporate restructuring. Total other operating expenses
decreased primarily due to corporate restructuring costs of $23 million
recorded in the three-month period ended March 31, 1995. See Note 6 to Notes
to Condensed Consolidated Financial Statements in this Form 10-Q.
Other income increased $3.7 million for the three-month period ended March
31, 1996, compared with the same period in 1995 primarily due to (1)
income from investment in Sonat Marketing effective August 31, 1995 and (2)
an increase in the recovery of carrying costs attributable to an increase in
underrecovered deferred purchased gas costs.
Interest charges increased 1.6% for the three-month period ended March 31,
1996, compared with the same period in 1995 primarily due to increased
amounts of short-term debt outstanding.
Income taxes increased $8.4 million for the three-month period ended March
31, 1996, compared with the same period in 1995 primarily due to increased
taxable income.
Net income for the three-month period ended March 31, 1996, was $45 million,
compared with net income of $36.2 million in 1995. Earnings per share of
common stock were $0.81 for the three-month period ended March 31, 1996,
compared with earnings per share of $0.71 in 1995. The increases in net
income and earnings per share were primarily due to (1) corporate
restructuring costs of $13 million (after income taxes) included in the
three-month period ended March 31, 1995 and (2) an increase of approximately
41,000 in the number of customers served. The increases in net income and
earnings per share were offset partly by revised firm service rates approved
by the Georgia Commission which shift margins from heating months into
non-heating months. See Note 3 to Notes to Condensed Consolidated Financial
Statements in this Form 10-Q. The increase in earnings per share was also
offset partly by an increase in the average number of common shares
outstanding.
Six-Month Periods Ended March 31, 1996 and 1995
Explained below are the major factors that had a significant effect on
results of operations for the six-month period ended March 31, 1996, compared
with the same period in 1995.
Operating revenues increased 3.9% for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to (1) an increase
in the cost of AGLC's gas supply recovered from customers under the purchased
gas provisions of AGLC's rate schedules, as explained in the following
paragraph, (2) increased volumes of gas sold as a result of weather that was
49% colder than the same period in 1995 and (3) an increase of approximately
39,000 in the number of customers served.
Cost of gas increased 8.5% for the six-month period ended March 31, 1996,
compared with the same period in 1995 primarily due to an increase in the
amount recovered from customers under the purchased gas provisions of AGLC's
rate schedules. The increase in the cost of AGLC's gas supply was primarily
due to (1) increased volumes of gas sold as a result of weather that was 49%
colder than the same period in 1995 and (2) an increase in the cost of gas
purchased for system supply. The increase in cost of gas was offset partly
by a decrease in the cost of gas withdrawn from underground storage. AGLC
balances the cost of gas with revenues collected under the purchased gas
provisions of AGLC's rate schedules. Underrecoveries or overrecoveries of
gas costs are deferred and recorded as current assets or liabilities, thereby
eliminating the effect that recovery of gas costs would otherwise have on net
income.
Operating margin decreased 2.6% for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to revised firm
service rates, effective October 3, 1995, which shift margins from heating
months into non-heating months (see Note 3 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q). The decrease in operating margin
was offset partly by an increase of approximately 39,000 in the number of
customers served. AGLC's Weather Normalization Adjustment Riders stabilized
operating margin at the level which would occur with normal weather for the
six-month periods ended March 31, 1996 and 1995. As a result of the Weather
Normalization Adjustment Riders, weather conditions experienced do not have a
significant impact on the comparability of operating margin.
Operating expenses increased 1.8% for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to an increase of
$3.4 million in expenses related to AGLC's Integrated Resource Plan (IRP)
which are recovered through an IRP Cost Recovery Rider approved by the
Georgia Commission. AGLC balances IRP expenses which
are included in operating expenses with revenues collected under the rider,
thereby eliminating the effect that recovery of IRP expenses would otherwise
have on net income. Operating expenses excluding IRP expenses decreased 0.2%
primarily due to decreased labor costs as a result of AGLC's recent corporate
restructuring. Total other operating expenses decreased primarily due to
corporate restructuring costs of $67.5 million recorded in the six-month
period ended March 31, 1995. See Note 6 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q.
Other income increased $3.8 million for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to (1) income from
investment in Sonat Marketing effective August 31, 1995 and (2) an increase
in the recovery of carrying costs attributable to an increase in
underrecovered deferred purchased gas costs.
Interest charges decreased $0.2 million for the six-month period ended March
31, 1996, compared with the same period in 1995 primarily due to decreased
long-term debt outstanding.
Income taxes increased $25.1 million for the six-month period ended March 31,
1996, compared with the same period in 1995 primarily due to increased
taxable income.
Net income for the six-month period ended March 31, 1996, was $74.1 million,
compared with net income of $36.9 million in 1995. Earnings per share of
common stock were $1.34 for the six-month period ended March 31, 1996,
compared with earnings per share of $0.72 in 1995. The increases in net
income and earnings per share were primarily due to (1) corporate
restructuring costs of $41.4 million (after income taxes) included in the
six-month period ended March 31, 1995 and (2) an increase of approximately
39,000 in the number of customers served. The increases in net income and
earnings per share were offset partly by revised firm service rates approved
by the Georgia Commission which shift margins from heating months into
non-heating months. See Note 3 to Notes to Condensed Consolidated Financial
Statements in this Form 10-Q. The increase in earnings per share was also
offset partly by an increase in the average number of common shares
outstanding.
Twelve-Month Periods Ended March 31, 1996 and 1995
Explained below are the major factors that had a significant effect on
results of operations for the twelve-month period ended March 31, 1996,
compared with the same period in 1995.
Operating revenues decreased 1.9% for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to a decrease in
the cost of AGLC's gas supply recovered from customers under the purchased
gas provisions of AGLC's rate schedules, as explained in the following
paragraph. The decrease in operating revenues was offset partly by (1)
increased volumes of gas sold as a result of weather that was 48% colder than
the same period in 1995 and (2) an increase of approximately 38,000 in the
number of customers served.
Cost of gas decreased 4.1% for the twelve-month period ended March 31, 1996,
compared with the same period in 1995 primarily due to a decrease in the
amount recovered from customers under the purchased gas provisions of AGLC's
rate schedules. The decrease in cost of gas was offset partly by increased
volumes of gas sold as a result of weather that was 48% colder than the same
period in 1995. AGLC balances the cost of gas with revenues collected under
the purchased gas provisions of AGLC's rate schedules. Underrecoveries or
overrecoveries of gas costs are deferred and recorded as current assets or
liabilities, thereby eliminating the effect that recovery of gas costs would
otherwise have on net income.
Operating margin increased 1% for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to the recovery of
increased expenses related to AGLC's IRP which are recovered through an IRP
Cost Recovery Rider approved by the Georgia Commission. AGLC balances IRP
expenses which are included in operating expenses with revenues collected
under the rider, thereby eliminating the effect that recovery of IRP expenses
would otherwise have on net income. Operating margin was also positively
affected by an increase of approximately 38,000 in
the number of customers served. The increase in operating margin was offset
substantially by revised firm service rates, effective October 3, 1995, which
shift margins from heating months into non-heating months (see Note 3 to
Notes to Condensed Consolidated Financial Statements in this Form 10-Q).
AGLC's Weather Normalization Adjustment Riders stabilized operating margin at
the level which would occur with normal weather for the twelve-month periods
ended March 31, 1996 and 1995. As a result of the Weather Normalization
Adjustment Riders, weather conditions experienced do not have a significant
impact on the comparability of operating margin.
Operating expenses increased 1.8% for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to an increase of
$12.6 million in expenses related to AGLC's IRP which are recovered through
an IRP Cost Recovery Rider approved by the Georgia Commission. Operating
expenses excluding IRP expenses decreased 2.2% primarily due to decreased
labor costs as a result of AGLC's recent corporate restructuring. Total other
operating expenses decreased primarily due to a decrease in restructuring
costs of $64.7 million. See Note 6 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q.
Other income increased $3 million for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to (1) income from
investment in Sonat Marketing effective August 31, 1995 and (2) interest
income from increased short-term investments.
Interest charges decreased 3.1% for the twelve-month period ended March 31,
1996, compared with the same period in 1995 primarily due to decreased
amounts of long-term and short-term debt outstanding.
Income taxes increased $27.4 million for the twelve-month period ended March
31, 1996, compared with the same period in 1995 primarily due to increased
taxable income.
Net income for the twelve-month period ended March 31, 1996, was $63.6
million, compared with net income of $21.1 million in 1995. Earnings per
share of common stock were $1.17 for the twelve-month period ended March 31,
1996, compared with earnings per share of $0.42 in 1995. The increases in
net income and earnings per share were primarily due to (1) a decrease in
corporate restructuring costs of $39.7 million (after income tax), (2)
decreased operating expenses as a result of AGLC's recent corporate
restructuring, (3) increased other income and (4) an increase of
approximately 38,000 in the number of customers served. The increases in net
income and earnings per share were offset partly by revised firm service
rates approved by the Georgia Commission which shift margins from heating
months into non-heating months. See Note 3 to Notes to Condensed
Consolidated Financial Statements in this Form 10-Q. The increase in
earnings per share was also offset partly by an increase in the average
number of common shares outstanding.
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Financial Condition - Resources and AGLC
AGLC's business is highly seasonal in nature and typically shows a
substantial increase in accounts receivable from customers and accounts
payable to gas suppliers from September 30 to March 31 as a result of colder
weather. AGLC also uses gas stored underground and liquefied natural gas to
serve its customers during periods of colder weather. As a result, accounts
receivable increased $156.4 million and inventory of gas stored underground
and liquefied natural gas decreased $107 million during the six months ended
March 31, 1996. Also, during the six months ended March 31, 1996, accounts
payable to pipeline suppliers increased $23.6 million. Accounts receivable
increased $46.8 million from March 31, 1995, to March 31, 1996, primarily due
to increased (1) operating revenues and (2) loans to customers resulting from
financing programs associated with AGLC's IRP. Accounts payable increased
$30.7 million from March 31, 1995, to March 31, 1996, primarily due to a
$25.9 million increase in accounts payable to pipeline suppliers.
Prior to the implementation of Order 636, the cost of bundled pipeline sales
service was reviewed and approved by the Federal Energy Regulatory Commission
(FERC). Because of diminished review by FERC following the implementation of
Order 636, local distribution companies such as AGLC may face greater
accountability and risks from their purchasing practices for gas supply,
transportation and storage services. The purchasing practices of AGLC are
subject to review by the Georgia Commission under legislation enacted by the
Georgia General Assembly. The legislation establishes procedures for review
and approval of gas supply plans for gas utilities and gas cost adjustment
factors applicable to firm service customers of gas utilities. Pursuant to
AGLC's approved gas supply plan for fiscal year 1996, gas supply purchases
are being recovered under the purchased gas provisions of AGLC's rate
schedules. The plan also allows recovery from the customers of AGLC of Order
636 transition costs that are currently being charged by AGLC's pipeline
suppliers. For further discussion of the effects of FERC Order 636 on AGLC,
see Part II, Item 5, "Other Information - Federal Regulatory Matters" of this
Form 10-Q.
AGLC currently estimates that its portion of transition costs resulting from
FERC Order 636 restructuring proceedings from all of its pipeline suppliers,
that have been filed to be recovered to date, could be as high as
approximately $101.4 million. Such filings currently are pending before FERC
for final approval, and the transition costs are being collected subject to
refund. Approximately $76.5 million of such costs have been incurred by AGLC
as of March 31, 1996, and are being recovered from its customers under the
purchased gas provisions of AGLC's rate schedules.
As noted above, AGLC recovers the cost of gas under the purchased gas
provisions of AGLC's rate schedules. AGLC was in an underrecovery position
of $19.3 million as of March 31, 1996, and an overrecovery position of $6.3
million as of September 30, 1995, and $67.6 million as of March 31, 1995.
Cash and cash equivalents decreased $31.7 million for the twelve-month period
ended March 31, 1996, primarily due to investing activities.
The expenditures for plant and other property totaled $56.8 million and
$123.6 million for the six-month and twelve-month periods ended March 31,
1996, respectively. On August 31, 1995, AGLC signed an agreement with Sonat
Inc. to form a joint venture to acquire the business of Sonat Marketing
Company, a wholly owned subsidiary of Sonat Inc. AGLC invested $32.6 million
in Sonat Marketing Company, L.P., for a 35% ownership interest.
AGLC has accrued liabilities of $28.6 million as of March 31, 1996, September
30, 1995 and March 30, 1995, for estimated future expenditures which are
expected to be made over a period of several years in connection with or
related to MGP sites. The Georgia Commission has approved the recovery by
AGLC of Environmental Response Costs, as defined in Note 4 to Notes to
Condensed Consolidated Financial Statements in this Form 10-Q, commencing
October 1, 1992, pursuant to the ERCRR. The staff of the Georgia Commission
has undertaken a financial and management process audit related to the MGP
sites, clean-up activities at the sites and Environmental Response Costs
which have been incurred for purposes of the ERCRR. Although the result of
such audit is not known, management does not expect the audit to have a
significant effect
on AGLC's consolidated financial statements. See Part II, Item 5, "Other
Information - Environmental Matters" in this Form 10-Q.
On November 3, 1995, AGLC's Board of Directors declared a two-for-one stock
split of the common stock effected in the form of a 100% stock dividend to
shareholders of record on November 17, 1995, and paid on December 1, 1995.
All references to number of shares and to per share amounts in the condensed
consolidated financial statements and related notes have been restated
retroactively to reflect the stock split.
On June 16, 1995, AGLC issued and sold approximately 3.0 million shares of
its common stock, par value $5.00 per share, at a price of $16.81 per share,
in an underwritten public offering. Net proceeds of $48.6 million from that
sale of common stock were used to finance AGLC's capital expenditure program
and for other corporate purposes.
Short-term debt increased $15.5 million and $66.5 million for the six-month
and twelve-month periods ended March 31, 1996, respectively, primarily to
meet increased working capital requirements.
Accrued pension costs decreased $8.8 million and $23.5 million for the
six-month and twelve-month periods ended March 31, 1996, respectively,
primarily due to plan contributions.
On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option to
bypass AGLC's facilities and receive natural gas from other suppliers. A
bypass avoidance contract (Negotiated Contract) can be renewable, provided
that the initial term does not exceed five years, unless a longer term
specifically is authorized by the Georgia Commission. The rate provided by
the Negotiated Contract may be lower than AGLC's filed rate, but not less
than AGLC's marginal cost of service to the potential Bypass Customer.
Service pursuant to a Negotiated Contract may commence without Georgia
Commission action, once a copy of the contract is filed with the Georgia
Commission. Negotiated Contracts may be rejected by the Georgia Commission
within 90 days of filing; absent such action, however, the Negotiated
Contracts remain effective. None of the 44 Negotiated Contracts filed with
the Georgia Commission have been rejected.
The Georgia Commission also approved a bypass loss recovery mechanism to
operate until the earlier of September 30, 1998, or until the effective date
of new rates for AGL resulting from a general rate case. See Note 5 to Notes
to Condensed Consolidated Financial Statements in this Form 10-Q.
PART II -- OTHER INFORMATION
"Part II -- Other Information" is intended to supplement information
contained in the Annual Report on Form 10-K for the fiscal year ended
September 30, 1995 and should be read in conjunction therewith.
Item 1. Legal Proceedings
See Item 5.
Item 2. Changes in Securities
Effective March 6, 1996, each outstanding share of common stock of
Atlanta Gas Light Company was exchanged for and converted into one share
of common stock of AGL Resources Inc., in connection with the formation
of a holding company (See Note 1 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q).
Effective March 6, 1996, AGLC's Board of Directors adopted a Shareholder
Rights Plan designed to protect Resources' shareholders from unfavorable
takeover attempts that are not negotiated by the Board of Directors. The
plan was not adopted in response to any effort to acquire control of
Resources, and the Board is not aware of any effort to do so. On March
6, 1996, Resources' Board of Directors declared a dividend of one
preferred share
purchase right (Right) for each outstanding share of common stock, par
value $5 per share of Resources. The dividend was paid on March 22,
1996, to the shareholders of record on that date. The description and
terms of the Rights are set forth in a Rights Agreement dated as of March
6, 1996, between Resources and Wachovia Bank of North Carolina, N.A.
Item 4. Submission of Matters to a Vote of Security Holders
The Annual Meeting of Shareholders of AGLC was held on March 6, 1996.
"Broker non-votes" were not considered in determining whether a quorum
existed for purposes of the Annual Meeting and were not considered as
votes in determining the outcome of any proposal. At the Annual Meeting
the shareholders:
a) Approved a holding company restructuring pursuant to the Agreement
and Plan of Merger between Atlanta Gas Light Company and AGL Resources
Inc.
Affirmative Negative Abstentions
35,845,639 3,340,529 774,134
65.0% 6.1% 1.4%
b) Elected for a one-year term all nominees for director listed in AGLC's
Proxy Statement. The number of votes "for" each nominee and the number
of votes "withheld" with respect to each nominee is as follows:
For Withheld
1. Frank Barron, Jr. 47,876,477 945,289
2. W. Waldo Bradley 45,681,163 3,140,603
3. Otis A. Brumby, Jr. 47,837,148 984,618
4. David R. Jones 47,752,722 1,069,044
5. Kenneth D. Lewis 47,862,596 959,170
6. Albert G. Norman, Jr. 47,632,000 1,190,766
7. D. Raymond Riddle 47,832,463 989,303
8. Dr. Betty L. Siegel 47,752,928 1,068,838
9. Ben J. Tarbutton, Jr. 47,856,961 964,805
10. Charles McKenzie Taylor 47,846,904 974,862
11. Felker W. Ward, Jr. 47,837,218 984,548
c) Approved an amendment to the Atlanta Gas Light Company Long-Term Stock
Incentive Plan of 1990.
Affirmative Negative Abstentions
43,339,387 4,062,289 1,420,090
88.8% 8.3% 2.9%
d) Approved the Atlanta Gas Light Company Non-Employee Directors Equity
Compensation Plan.
Affirmative Negative Abstentions
42,634,704 4,416,194 1,770,868
87.3% 9.1% 3.6%
Item 5. Other Information
Federal Regulatory Matters
Order No. 636
AGLC currently estimates that its portion of transition costs (which
include unrecovered gas costs, gas supply realignment (GSR) costs and various
stranded costs resulting from unbundling of interstate pipeline sales
service) from all of its pipeline suppliers filed with the Federal Energy
Regulatory Commission (FERC) to be recovered could be as high as
approximately $101.4 million. AGLC's estimate is based on the most recent
estimates of transition costs filed by its pipeline suppliers with the FERC
and assumes that FERC approval of Southern Natural Gas Company's (Southern)
restructuring settlement agreement is not overturned on judicial review.
Such filings by AGLC's pipeline suppliers are pending final FERC approval.
Approximately $76.5 million of transition costs have been incurred by AGLC
as of March 31, 1996, and are being recovered from customers under the
purchased gas provisions of AGLC's rate schedules. Details concerning the
status of the Order No. 636 restructuring proceedings involving the pipelines
that serve AGLC directly are set forth below.
SOUTHERN GSR Cost Recovery Proceeding. On April 11, 1996, the FERC
issued an order constituting final approval of the settlement agreement
between AGLC, Southern, and other customers which resolves virtually all
pending Southern proceedings before the FERC and the courts. The settlement
resolves Southern's pending general rate proceedings, which relate to
Southern's rates charged from January 1, 1991, through the present. The
settlement provides for rate reductions and refund offsets against GSR costs.
It also resolves Southern's Order No. 636 transition cost proceedings and
provides for revisions to Southern's tariff. The FERC's approval of the
settlement is subject to petitions for judicial review by parties opposing
the settlement. The April 11, 1996, order is also subject to potential
requests for rehearing addressing aspects of the order relating to issues in
addition to matters resolved by the settlement.
Southern filed on March 29, 1996 to reduce its volumetric GSR surcharge
for consenting parties to the restructuring settlement to reflect actual GSR
costs incurred by Southern through December 31, 1995. Southern continues to
make quarterly and monthly transition cost filings to recover costs from
contesting parties to the settlement, and the FERC has ordered that such
costs may be recovered by Southern, subject to the outcome of a hearing for
contesting parties. However, GSR and other transition cost charges to AGLC
are in accordance with the settlement. Assuming the FERC's approval of the
settlement is upheld on judicial review, AGLC's share of Southern's
transition costs is estimated to be $84.4 million. As of March 31, 1996,
$67.8 million of such costs have already been incurred by AGLC.
TENNESSEE GSR Cost Recovery Proceeding. Tennessee Gas Pipeline
Company (Tennessee) has continued to make quarterly GSR cost recovery filings
with the FERC. On March 29, 1996, Tennessee filed with the FERC to recover
an additional $35.4 million in GSR costs. AGLC protested this filing, but
the FERC has not yet acted upon Tennessee's filing. AGLC's estimated
liability for GSR costs as a result of Tennessee's filings is approximately
$9.4 million, subject to possible reduction based upon the hearing FERC
established to investigate Tennessee's costs. AGLC is actively participating
in Tennessee's GSR cost recovery proceeding. As of March 31, 1996, $4.9
million of such costs have already been incurred by AGLC.
FERC Rate Proceedings
TENNESSEE On April 5, 1996, Tennessee filed with the FERC a comprehensive
settlement to resolve all issues in its current rate case. The settlement,
which is subject to approval by the FERC, provides for a reduction of
approximately $83 million in the cost of service underlying Tennessee's rates
in effect since July 1, 1995, and also provides for Tennessee to share a
portion of costs associated with firm capacity relinquished by its customers.
AGLC filed comments supporting the settlement on April 25, 1996. AGLC's
estimated annual reduction in cost is $2.2 million. The FERC has not yet
acted on the proposed settlement.
TRANSCO On February 21, 1996, Transcontinental Gas Pipe Line Corporation
(Transco) filed an application with the FERC seeking authority to transfer
onshore and offshore production area facilities to an affiliated company. If
granted, Transco's proposal would result in the facilities becoming
unregulated. AGLC filed comments which raised questions concerning, but did
not oppose, Transco's application. The FERC has not yet acted on Transco's
application.
Arcadian
On April 22, 1996, AGLC filed to withdraw portions of its request for
rehearing of the FERC's order approving the November 12, 1993 settlement
between Arcadian and Southern. The arguments that AGLC proposes to withdraw,
pursuant to the restructuring settlement with Southern, are those that allege
that Southern's discounted rates to Arcadian constitute an anticompetitive
"price squeeze" against AGLC.
AGLC cannot predict the outcome of these federal proceedings nor can it
determine the ultimate effect, if any, such proceedings may have on AGLC.
Although the outcome of such proceedings is not known, management does not
expect the outcome to have a significant effect on AGLC's consolidated
financial statements.
State Regulatory Matters
Bypass and Other Competitive Issues
On February 17, 1995, the Georgia Commission approved a settlement that
permits AGLC to negotiate contracts with customers who have the option to
bypass AGLC's facilities and receive natural gas from other suppliers. A
bypass avoidance contract (Negotiated Contract) can be renewable, provided
the initial term does not exceed five years, unless a longer term
specifically is authorized by the Georgia Commission. The rate provided by
the Negotiated Contract may be lower than AGLC's filed rate, but not less
than AGLC's marginal cost of service to the potential Bypass Customer.
Service pursuant to a Negotiated Contract may commence without Georgia
Commission action, once a copy of the contract is filed with the Georgia
Commission. Negotiated Contracts may be rejected by the Georgia Commission
within 90 days of filing; absent such action, however, the Negotiated
Contracts remain effective. None of the 44 Negotiated Contracts filed to
date with the Georgia Commission have been rejected.
On November 20, 1995, the Georgia Commission issued a Notice of Inquiry
(NOI) to assist it in developing state regulatory guidelines to respond to
growing competition in natural gas markets and to actively move the local
distribution of natural gas toward a more competitive future. The Commission
received comments from a broad and representative cross-section of the
industry concerning suggested ways to open the industry to more competition.
The Commission is expected to issue a policy statement related to key issues
identified in the NOI in the near future.
On January 8, 1996, proposed legislation was introduced in the Georgia
General Assembly which would allow local gas companies to negotiate contract
prices and terms for gas services to large commercial and industrial
customers absent Georgia Commission mandated rates. The General Assembly
delayed approval of HB 1153, The Natural Gas Fair Pricing Act, during the
1996 session. Senate and House committees have been created to study and
recommend a comprehensive course of action by December 31, 1996, for
deregulating the natural gas industry.
Environmental Matters
AGLC has identified nine sites in Georgia where it currently owns all or
part of an MGP site. In addition, AGLC has identified three other sites in
Georgia which AGLC does not now own, but which may have been associated with
the operation of MGPs by AGLC or its predecessors. There are three sites in
Florida which have been investigated by environmental authorities in
connection with which AGLC may be contacted as a potentially responsible
party.
Under a thorough analysis of potentially applicable requirements, AGLC
has estimated that, under the most favorable circumstances reasonably
possible, the future cost of investigating and remediating the former MGP
sites, excluding those sites for which no remediation is expected or the
cost of which cannot be estimated, could be as low as $28.6 million.
Alternatively, AGLC has estimated that, under the least favorable
circumstances reasonably possible, the future cost of investigating and
remediating those same former MGP sites could be as high as $109 million,
excluding those sites for which no remediation is expected or the cost of
which cannot be estimated. AGLC cannot estimate at this time the amount of
any other future expenses or liabilities, or the impact on these estimates of
future environmental regulatory changes, that may be associated with or
related to the MGP sites, including expenses or liabilities relating to any
litigation. At the present time, no amount within the range can be identified
as a better estimate than any other estimate. Therefore, a liability for the
low end of this range and a corresponding regulatory asset have been recorded
in the financial statements.
The Georgia Commission has approved the recovery by AGLC of
Environmental Response Costs, as defined below, effective October 1, 1992,
pursuant to AGLC's ERCRR. For purposes of the ERCRR, Environmental Response
Costs include investigation, testing, remediation and litigation costs and
expenses or other liabilities relating to or arising from MGP sites.
In connection with the ERCRR, the staff of the Georgia Commission has
undertaken a financial and management process audit related to the MGP sites,
clean-up activities at the sites and Environmental Response Costs which have
been incurred for purposes of the ERCRR. Although the result of such audit
is not known, management does not expect the audit to have a significant
effect on AGLC's consolidated financial statements.
With regard to legal proceedings related to the former MGP sites, AGLC is
or expects to be a party to claims or counterclaims on an ongoing basis.
Among such matters, AGLC intends to continue to pursue insurance coverage and
contribution from potentially responsible parties. Management currently
believes that the outcome of MGP-related litigation in which AGLC is involved
will not have a material adverse effect on the financial condition and
results of operations of AGLC.
As a result of the ERCRR, AGLC expects that it will be able to recover
all of its Environmental Response Costs. See Note 4 to Notes to Condensed
Consolidated Financial Statements in this Form 10-Q.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
10(a) - Gas Sales Agreement between Seller and Atlanta Gas Light Company,
as Buyer.
27 - Financial Data Schedules
(a) AGL Resources Inc.
(b) Atlanta Gas Light Company
(b) Reports on Form 8-K.
On March 6, 1996, Resources filed a Current Report on Form 8-K dated
March 6, 1996, containing: "Item 5 - Other Events"; Exhibit 1 - Rights
Agreement, dated as of March 6, 1996, between Resources and Wachovia Bank
of North Carolina, N.A.; Exhibit 2 - Press Release, dated March 6, 1996;
and Exhibit 3 - Form of Letter to Shareholders, dated March 22, 1996.
On March 6, 1996, Resources filed a Current Report on form 8-K dated
March 6, 1996, containing "Item 5 - Other Events" and Exhibit 1 - Press
Release, dated March 6, 1996.
On March 6, 1996, AGLC filed a Current Report on Form 8-K dated March 6,
1996, containing "Item 5 - Other Events" and Exhibit 1 - Press Release,
dated March 6, 1996.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
AGL Resources Inc.
(Registrant)
Date May 15, 1996 /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President
(Principal Financial and Accounting Officer)
Atlanta Gas Light Company
(Registrant)
Date May 15, 1996 /s/ Robert L. Goocher
Robert L. Goocher
Executive Vice President
(Principal Financial Officer)
Date May 15, 1996 /s/ J. Michael Riley
J. Michael Riley
Vice President - Finance and Accounting
(Principal Accounting Officer)