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 June 30, 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
404-584-9470
1-9905 ATLANTA GAS LIGHT COMPANY 58-0145925
(A Georgia Corporation)
303 PEACHTREE STREET, NE
ATLANTA, GEORGIA 30308
404-584-4000
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months and (2) has been subject to such filing
requirements for the past 90 days.
AGL RESOURCES INC. Yes X No
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 June 30, 1996.
AGL RESOURCES INC.
Common Stock, $5.00 Par Value
Shares Outstanding at June 30, 1996 . . . . . . . . . . . . . . 55,526,692
ATLANTA GAS LIGHT COMPANY
Common Stock, $5.00 Par Value
Shares Outstanding and Held by AGL Resources Inc.
at June 30, 1996 . . . . . . . . . . . . . . 55,352,415
AGL RESOURCES INC. and
ATLANTA GAS LIGHT COMPANY
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 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 20
5 Other Information 20
6 Exhibits and Reports on Form 8-K 23
SIGNATURES 24
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS, NINE MONTHS AND TWELVE MONTHS ENDED
JUNE 30, 1996 AND 1995
(MILLIONS, EXCEPT PER SHARE DATA)
Three Months Nine Months Twelve Months
1996 1995 1996 1995 1996 1995
Operating Revenues . . $241.1 $177.5 $1,048.7 $954.5 $1,157.2 $1,101.1
Cost of Gas. . . . . . 141.0 84.8 637.8 542.8 666.8 615.4
----- ----- ------- ----- ------- -------
Operating Margin . . 100.1 92.7 410.9 411.7 490.4 485.7
----- ----- ------- ----- ------- -------
Other Operating Expenses:
Operating Expenses . 82.9 77.7 255.5 247.2 336.3 325.0
Restructuring Costs. 1.7 69.2 1.1 69.2
----- ----- ------- ----- ------- -------
Total Other Operating
Expenses . . . . . 82.9 79.4 255.5 316.4 337.4 394.2
Income Taxes . . . . . 2.2 1.1 44.2 20.1 40.1 14.7
----- ----- ------- ----- ------- -------
Operating Income . . 15.0 12.2 111.2 75.2 112.9 76.8
----- ----- ------- ----- ------- -------
Other Income:
Other Income and
Deductions. . . . 2.3 0.3 10.6 2.7 10.0 3.3
Income Taxes . . . . (0.9) (3.9) (0.9) (3.7) (1.1)
----- ----- ------- ----- ------- -------
Other Income - Net . 1.4 0.3 6.7 1.8 6.3 2.2
----- ----- ------- ----- ------- -------
Income Before Income
Deductions . . . . 16.4 12.5 117.9 77.0 119.2 79.0
Income Deductions:
Interest Charges . . 11.7 11.1 36.9 36.5 47.9 48.2
Dividends on Preferred
Stock of Subsidiary 1.1 1.1 3.3 3.3 4.4 4.5
----- ----- ------- ----- ------- -------
Net Income . . . . . . $3.6 $0.3 $77.7 $37.2 $66.9 $26.3
===== ===== ======= ===== ======= =======
Earnings Per Share of
Common Stock . . . $0.06 $0.01 $1.41 $0.72 $1.21 $0.51
Cash Dividends Paid Per
Share of Common Stock $0.265 $0.26 $0.795 $0.78 $1.055 $1.04
Average Number of Common Shares
Outstanding (Millions) 55.4 52.6 55.2 51.7 55.1 51.4
See notes to condensed consolidated financial statements.
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
June 30, September 30,
1996 1995 1995
ASSETS
Utility Plant. . . . . . . . . . $1,999.2 $1,890.2 $1,919.9
Less Accumulated Depreciation. . 619.3 575.4 583.3
-------- -------- --------
Utility Plant - Net. . . . . . 1,379.9 1,314.8 1,336.6
-------- -------- --------
Other Property and Investments (less
accumulated depreciation of $2.5 at
June 30, 1996, $3.0 at June 30, 1995
and $4.3 at September 30, 1995) 46.8 18.6 46.3
-------- -------- --------
Current Assets:
Cash and Cash Equivalents . . . 2.2 78.4 3.7
Receivables (less allowance for
uncollectible accounts of $3.2 at
June 30, 1996, $5.9 at June 30,
1995 and $4.4 at September 30,
1995) . . . . . . . . . . . . 143.1 102.0 69.3
Inventories:
Natural Gas Stored Underground 72.7 64.1 111.2
Liquefied Natural Gas . . . 9.7 12.4 14.3
Materials and Supplies . . . 8.4 9.5 8.0
Other. . . . . . . . . . . . 1.4 2.6 2.6
Other . . . . . . . . . . . . 10.1 9.5 10.9
-------- -------- --------
Total Current Assets . . . . 247.6 278.5 220.0
Deferred Debits and Other Assets:
Unrecovered Environmental Response
Costs . . . . . . . . . . . 36.0 34.7 34.9
Unrecovered Integrated Resource Plan
Costs . . . . . . . . . . . 9.5 11.2 9.9
Other . . . . . . . . . . . 23.0 23.3 26.9
-------- -------- --------
Total Deferred Debits and
Other Assets . . . . . . 68.5 69.2 71.7
-------- -------- --------
Total. . . . . . . . . . $1,742.8 $1,681.1 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
June 30, September 30,
1996 1995 1995
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock, $5 Par Value, Shares
Issued and Outstanding of 55.5 at
June 30, 1996, 54.8 at June 30,
1995 and 54.9 at September 30,
1995. . . . . . . . . . . . $277.6 $136.9 $137.3
Premium on Capital Stock . . . 168.4 295.0 297.7
Earnings Reinvested . . . . . 156.1 147.3 122.3
-------- -------- --------
Total Common Stock Equity . 602.1 579.2 557.3
Preferred Stock of Subsidiary,
Cumulative $100 Par or Stated
Value, Shares Issued and
Outstanding of 0.6 at June 30,
1996, June 30, 1995 and
September 30, 1995. . . . . 58.5 58.5 58.5
Long-Term Debt . . . . . . . . 554.5 554.5 554.5
-------- -------- --------
Total Capitalization. . . . 1,215.1 1,192.2 1,170.3
-------- -------- --------
Current Liabilities:
Redemption Requirements on
Preferred Stock . . . . . . 0.3 0.3 0.3
Short-Term Debt . . . . . . . . 71.9 51.0
Accounts Payable. . . . . . . . 70.0 55.5 72.3
Deferred Purchased Gas Adjustment 3.4 62.4 6.3
Customer Deposits . . . . . . . 27.8 29.3 29.5
Interest . . . . . . . . . . . 17.6 17.3 25.4
Taxes . . . . . . . . . . . . . 28.2 18.9 3.7
Other . . . . . . . . . . . . . 27.7 33.8 42.4
-------- -------- --------
Total Current Liabilities . 246.9 217.5 230.9
-------- -------- --------
Accrued Environmental Response Costs 28.6 28.6 28.6
Accrued Pension Costs. . . . . . 4.9 12.9 10.3
Accrued Postretirement Benefits Costs 34.7 32.3 30.1
Deferred Credits . . . . . . . . 62.6 67.3 65.6
Accumulated Deferred Income Taxes 150.0 130.3 138.8
-------- -------- --------
Total. . . . . . . . . . $1,742.8 $1,681.1 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
AGL RESOURCES INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
FOR THE NINE MONTHS AND TWELVE MONTHS ENDED JUNE 30, 1996 AND 1995
(MILLIONS)
Nine Months Twelve Months
1996 1995 1996 1995
Cash Flows from Operating Activities:
Net Income. . . . . . . . . . . . . . . $77.7 $37.2 $66.9 $26.3
Adjustments to Reconcile Net Income to Net
Cash Flow from Operating Activities:
Depreciation and Amortization. . . . 49.8 47.3 65.0 61.4
Non-Cash Restructuring Costs . . . . 54.4 1.0 54.4
Deferred Income Taxes. . . . . . . . 11.2 (4.3) 19.7 (3.6)
Non-Cash Compensation Expense. . . . 2.4 5.9 2.7 8.1
Other. . . . . . . . . . . . . . . . (1.7) (1.9) (2.2) (2.5)
Changes in Certain Assets and
Liabilities . . . . . . . . . . . . . (33.9) 112.2 (92.8) 68.6
------- ------- ------- -------
Net Cash Flow from Operating
Activities . . . . . . . . . . . . 105.5 250.8 60.3 212.7
------- ------- ------- -------
Cash Flows from Financing Activities:
Short-Term Borrowings, Net. . . . . . 20.9 (95.4) 71.9 (18.0)
Redemption of Long-Term Debt. . . . . (15.0) (15.0)
Sale of Common Stock, Net of Expenses 1.4 50.1 1.7 50.7
Dividends on Common Stock . . . . . . (36.7) (32.5) (48.5) (43.3)
------- ------- ------- -------
Net Cash Flow from Financing
Financing Activities. . . . . . . . (14.4) (92.8) 25.1 (25.6)
------- ------- ------- -------
Cash Flows from Investing Activities:
Utility Plant Expenditures. . . . . . . (91.3) (82.7) (129.4) (111.8)
Non-Utility Capital Expenditures. . . . 0.3 (0.9) 0.8 (0.9)
Investment in Joint Ventures. . . . . . (0.9) (33.5)
Cost of Removal, Net of Salvage . . . . (0.7) 0.7 0.5 0.6
------- ------- ------- -------
Net Cash Flow from Investing
Activities . . . . . (92.6) (82.9) (161.6) (112.1)
------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents . . . . . . . (1.5) 75.1 (76.2) 75.0
Cash and Cash Equivalents at
Beginning of Period. . . . . . . . 3.7 3.3 78.4 3.4
------- ------- ------- -------
Cash and Cash Equivalents at
End of Period. . . . . . . . . . . $2.2 $78.4 $2.2 $78.4
======= ======= ======= =======
Cash Paid During the Period for:
Interest. . . . . . . . . . . . . . . . $44.9 $44.3 $49.0 $48.6
Income Taxes. . . . . . . . . . . . . . $13.3 $23.7 $18.2 $24.0
See notes to condensed consolidated financial statements.
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED)
FOR THE THREE MONTHS, NINE MONTHS AND TWELVE MONTHS ENDED
JUNE 30, 1996 AND 1995
(MILLIONS)
Three Months Nine Months Twelve Months
1996 1995 1996 1995 1996 1995
Operating Revenues . . $240.5 $177.5 $1,048.1 $954.5 $1,156.6 $1,101.1
Cost of Gas. . . . . . 140.6 84.8 637.4 542.8 666.4 615.4
------ ------ -------- ------ -------- --------
Operating Margin. . . 99.9 92.7 410.7 411.7 490.2 485.7
------ ------ -------- ------ -------- --------
Other Operating Expenses:
Operating Expenses . 81.2 77.7 253.2 247.2 334.0 325.0
Restructuring Costs . 1.7 69.2 1.1 69.2
------ ------ -------- ------ -------- --------
Total Other Operating
Expenses . . . . . . 81.2 79.4 253.2 316.4 335.1 394.2
Income Taxes . . . . . 2.2 1.1 44.5 20.1 40.4 14.7
------ ------ -------- ------ -------- --------
Operating Income. . . 16.5 12.2 113.0 75.2 114.7 76.8
------ ------ -------- ------ -------- --------
Other Income:
Other Income and
Deductions . . . . . 0.6 0.3 8.9 2.7 8.3 3.3
Income Taxes. . . . . (0.4) (3.4) (0.9) (3.2) (1.1)
------ ------ -------- ------ -------- --------
Other Income - Net. . 0.2 0.3 5.5 1.8 5.1 2.2
------ ------ -------- ------ -------- --------
Income Before Interest
Charges . . . . . . 16.7 12.5 118.5 77.0 119.8 79.0
Interest Charges . . . 11.7 11.1 36.9 36.5 47.9 48.2
------ ------ -------- ------ -------- --------
Net Income . . . . . . 5.0 1.4 81.6 40.5 71.9 30.8
Dividends on Preferred
Stock . . . . . . . . 1.1 1.1 3.3 3.3 4.4 4.5
------ ------ -------- ------ -------- --------
Earnings Available for
Common Stock. . . . . $3.9 $0.3 $78.3 $37.2 $67.5 $26.3
====== ====== ======== ====== ======== ========
See notes to condensed consolidated financial statements.
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
June 30, September 30,
1996 1995 1995
ASSETS
Utility Plant. . . . . . . . . . $1,999.2 $1,890.2 $1,919.9
Less Accumulated Depreciation. . 619.3 575.4 583.3
-------- -------- --------
Utility Plant - Net . . . . . 1,379.9 1,314.8 1,336.6
-------- -------- --------
Other Property and Investments (less
accumulated depreciation of $3.0 at
June 30, 1995 and $4.3 at September
30, 1995) . . . . . . . . . . . 18.6 46.3
-------- -------- --------
Current Assets:
Cash and Cash Equivalents . . . 1.3 78.4 3.7
Receivables (less allowance for
uncollectible accounts of $3.1 at
June 30, 1996, $5.9 at June 30,
1995 and $4.4 at September 30,
1995) . . . . . . . . . . . . 142.0 102.0 69.3
Inventories:
Natural Gas Stored Underground 72.7 64.1 111.2
Liquefied Natural Gas . . . . 9.7 12.4 14.3
Materials and Supplies. . . . 8.1 9.5 8.0
Other . . . . . . . . . . . . 0.3 2.6 2.6
Other . . . . . . . . . . . . . 10.1 9.5 10.9
-------- -------- --------
Total Current Assets. . . . 244.2 278.5 220.0
-------- -------- --------
Deferred Debits and Other Assets:
Unrecovered Environmental Response
Costs . . . . . . . . . . . 36.0 34.7 34.9
Unrecovered Integrated Resource Plan
Costs . . . . . . . . . . . . 9.5 11.2 9.9
Other . . . . . . . . . . . . . 22.5 23.3 26.9
-------- -------- --------
Total Deferred Debits and
Other Assets. . . . . . . 68.0 69.2 71.7
-------- -------- --------
Total. . . . . . . . . . $1,692.1 $1,681.1 $1,674.6
======== ======== ========
See notes to condensed consolidated financial statements.
ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
(MILLIONS)
June 30, September 30,
1996 1995 1995
CAPITALIZATION AND LIABILITIES
Capitalization:
Common Stock, $5 Par Value, Shares
Issued and Outstanding of 55.4 at
June 30, 1996, 54.8 at June 30,
1995 and 54.9 at September 30,
1995. . . . . . . . . . . . . . $276.8 $136.9 $137.3
Premium on Capital Stock. . . . . 166.2 295.0 297.7
Earnings Reinvested . . . . . . . 110.9 147.3 122.3
-------- -------- --------
Total Common Stock Equity . . . 553.9 579.2 557.3
Preferred Stock, Cumulative $100 Par
or Stated Value, Shares Issued
and Outstanding of 0.6 at
June 30, 1996, June 30, 1995 and
September 30, 1995. . . . . . . 58.5 58.5 58.5
Long-Term Debt . . . . . . . . . . 554.5 554.5 554.5
-------- -------- --------
Total Capitalization . . . . . 1,166.9 1,192.2 1,170.3
-------- -------- --------
Current Liabilities:
Redemption Requirements on
Preferred Stock . . . . . . . . 0.3 0.3 0.3
Short-Term Debt. . . . . . . . . . 71.9 51.0
Accounts Payable . . . . . . . . . 68.5 55.5 72.3
Deferred Purchased Gas Adjustment. 3.4 62.4 6.3
Customer Deposits. . . . . . . . . 27.8 29.3 29.5
Interest . . . . . . . . . . . . . 17.6 17.3 25.4
Taxes. . . . . . . . . . . . . . . 25.8 18.9 3.7
Other. . . . . . . . . . . . . . . 29.5 33.8 42.4
-------- -------- --------
Total Current Liabilities. . . 244.8 217.5 230.9
-------- -------- --------
Accrued Environmental Response Costs 28.6 28.6 28.6
Accrued Pension Costs. . . . . . . . 4.9 12.9 10.3
Accrued Postretirement Benefits Costs 34.7 32.3 30.1
Deferred Credits . . . . . . . . . . 62.6 67.3 65.6
Accumulated Deferred Income Taxes. . 149.6 130.3 138.8
-------- -------- --------
Total . . . . . . . . . . . . $1,692.1 $1,681.1 $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 NINE MONTHS AND TWELVE MONTHS ENDED JUNE 30, 1996 AND 1995
(MILLIONS)
Nine Months Twelve Months
1996 1995 1996 1995
Cash Flows from Operating Activities:
Net Income . . . . . . . . . . . . $81.6 $40.5 $71.9 $30.8
Adjustments to Reconcile Net Income to Net
Cash Flow from Operating Activities:
Depreciation and Amortization 49.3 47.3 64.5 61.4
Non-Cash Restructuring Costs 54.4 1.0 54.4
Deferred Income Taxes. . . . . 10.8 (4.3) 19.3 (3.6)
Non-Cash Compensation Expense. 2.1 5.9 2.4 8.1
Other. . . . . . . . . . . . . (1.7) (1.9) (2.2) (2.5)
Changes in Certain Assets and
Liabilities. . . . . . . . . . . (33.1) 112.2 (92.0) 68.6
------- ------- ------- -------
Net Cash Flow from Operating
Activities . . . . . . . . . 109.0 254.1 64.9 217.2
------- ------- ------- -------
Cash Flows from Financing Activities:
Short-Term Borrowings, Net. . . . 20.9 (95.4) 71.9 (18.0)
Redemption of Long-Term Debt. . . (15.0) (15.0)
Sale of Common Stock, Net
of Expenses . . . . . . . . . . 1.0 50.1 1.3 50.7
Common Stock Dividends Paid
to Parent . . . . . . . . . . . (39.1) (32.5) (50.9) (43.3)
Dividends on Preferred Stock. . . (3.3) (3.3) (4.4) (4.5)
------- ------- ------- -------
Net Cash Flow from Financing
Activities . . . . . . . . . . (20.5) (96.1) 17.9 (30.1)
------- ------- ------- -------
Cash Flows from Investing Activities:
Utility Plant Expenditures. . . . (91.3) (82.7) (129.4) (111.8)
Non-Utility Capital Expenditures. 1.1 (0.9) 1.6 (0.9)
Investment in Joint Venture . . . (32.6)
Cost of Removal, Net of Salvage . (0.7) 0.7 0.5 0.6
------- ------- ------- -------
Net Cash Flow from Investing
Activities . . . . . . . . . . (90.9) (82.9) (159.9) (112.1)
------- ------- ------- -------
Net Increase (Decrease) in Cash
and Cash Equivalents. . . . . (2.4) 75.1 (77.1) 75.0
Cash and Cash Equivalents at
Beginning of Period . . . . . 3.7 3.3 78.4 3.4
------- ------- ------- -------
Cash and Cash Equivalents at
End of Period . . . . . . . . $1.3 $78.4 $1.3 $78.4
======= ======= ======= =======
Cash Paid During the Period for:
Interest. . . . . . . . . . . . . $44.9 $44.3 $49.0 $48.6
Income Taxes. . . . . . . . . . . $13.3 $23.7 $18.2 $24.0
The non-cash financing activity related to the transfer of AGLC's
nonutility businesses to AGL Resources Inc. has been excluded from the
condensed consolidated statements of cash flows. See notes to condensed
consolidated financial statements.
AGL RESOURCES INC. AND ATLANTA GAS LIGHT COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
1. Implementation of Holding Company Reorganization
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 reorganization was completed upon receipt of
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 and AGLC became the primary subsidiary of Resources. AGLC
comprises substantially all of Resources' assets, revenues and earnings
and, accordingly, the consolidated financial statements of Resources
reflect principally the operations of AGLC and 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.
As a result of the restructuring, Resources will engage in utility
activities through AGLC and its wholly owned subsidiary, Chattanooga Gas
Company (Chattanooga). Resources will engage in unregulated business
activities through AGL Energy Services, Inc. (AGL Energy Services), a gas
supply services company, AGL Investments, Inc. (AGL Investments), a
subsidiary established to develop and manage certain unregulated business
opportunities, The Energy Spring, Inc. (Energy Spring), a retail energy
marketing company, and their subsidiaries. AGL Resources Service Company
will provide corporate support services to all of the subsidiaries of
Resources.
Ownership of AGLC's nonutility business, Georgia Gas Company, has been
transferred to AGL Energy Services. Ownership of AGLC's nonutility
businesses, Georgia Energy Company, Georgia Gas Service Company and
Trustees Investments, Inc., has been transferred to AGL Investments.
AGLC's interest in Sonat Marketing Company L.P. has been transferred to
AGL Gas Marketing, Inc. (AGL Gas Marketing), a wholly owned subsidiary
of AGL Investments. In addition, AGL Investments has established a wholly
owned power marketing subsidiary, AGL Power Services, Inc., which owns a
35% interest in Sonat Power Marketing, L.P.
The transfer of AGLC's nonutility businesses was effected through a
non-cash dividend during the quarter ended June 30, 1996. Accordingly,
as of June 30, 1996, AGLC's assets and earnings reinvested were reduced
by $45.8 million. The consolidated financial statements of AGLC for
periods ended on or prior to March 31, 1996, include subsidiaries owned
by AGLC during those periods.
2. Interim Financial Statements
In the opinion of management, the unaudited condensed consolidated
financial statements included herein reflect all normal recurring
accruals necessary for a fair statement of the results of the interim
periods reflected. Certain information and footnote disclosure normally
included in financial statements prepared in accordance with generally
accepted accounting principles have been omitted from these condensed
consolidated financial statements pursuant to applicable rules and
regulations of the Securities and Exchange Commission. These financial
statements should be read in conjunction with the financial statements
and the notes thereto included in the annual reports on Form 10-K of AGLC
for the fiscal years ended September 30, 1995 and 1994. Certain 1995
amounts have been restated or reclassified for comparability with 1996
amounts.
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 decrease to premium on capital stock
and an increase 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 nine-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 of 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 at 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 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 48 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
is not the relevant competition. Currently, AGLC has filed, and the
Georgia Commission has approved, Special Contracts with five
interruptible customers.
On July 22, 1996, Chattanooga made a filing with the
Tennessee Regulatory Authority (TRA), the successor to the Tennessee
Public Service Commission which, if approved, would permit Chattanooga to
negotiate contracts with customers who have long-term competitive
options, including bypass. Under the provisions of the filing,
Chattanooga could discount transportation rates and dedicate (or stream)
gas supplies to specific customers to meet competition. The
filing contains a revenue recovery mechanism based on actual earned
return on common equity. At this time, it is not known what action the
TRA will take in response to the filing.
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 June 30, 1996,
AGLC reduced the average number of employees by approximately 500 from
prior year levels through voluntary retirement and severance programs and
attrition. AGLC recorded corporate restructuring costs of $0.6 million
(after income taxes) during the twelve months ended June 30, 1996, and a
cumulative total of $43.1 million (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.
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 holding
company formation was completed upon receipt of 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 and AGLC became the
primary subsidiary of Resources. The following discussion and analysis
reflects the results of operations and financial condition of Resources since
Resources reflects principally the operations of AGLC. See Note 1 to Notes
to Condensed Consolidated Financial Statements in this Form 10-Q.
Results of Operations
Three-Month Periods Ended June 30, 1996 and 1995
Explained below are the major factors that had a significant effect on
results of operations for the three-month period ended June 30, 1996,
compared with the same period in 1995.
Operating revenues increased 35.8% for the three-month period ended June 30,
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 colder weather
and (3) growth in the number of customers served.
AGLC balances the cost of gas with revenues collected from customers 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. Cost of gas increased 66.3% for the
three-month period ended June 30, 1996, compared with the same period in
1995, and there was a corresponding 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) an
increase in the cost of gas purchased for system supply, (2) an increase in
the cost of gas withdrawn from underground storage and (3) increased volumes
of gas sold as a result of colder weather.
Operating margin increased 8.0% for the three-month period ended June 30,
1996, compared with the same period in 1995 primarily due to (1) revised firm
service rates, effective October 3, 1995, which shift margins from heating
months into non-heating months (see Note 3 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q), and (2) growth 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 June 30, 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 6.7% for the three-month period ended June 30,
1996, compared with the same period in 1995 primarily due to (1) increased
costs for labor and labor related expenses, (2) increased depreciation
expense recorded as a result of increased property subject to depreciation,
(3) increased franchise expenses, (4) increased outside services employed and
(5) expenses associated with the formation of Resources. AGLC recovers
franchise expenses through a Franchise Recovery Rider approved by the Georgia
Commission. AGLC balances franchise expenses which are included in operating
expenses with revenues collected under the rider, thereby eliminating the
effect that recovery of franchise expenses would otherwise have on net
income. The increase in total other operating expenses was offset partly by
corporate restructuring costs of $1.7 million recorded in the three-month
period ended June 30, 1995. See Note 6 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q.
Income taxes increased $2.0 million for the three-month period ended June 30,
1996, compared with the same period in 1995 primarily due to increased
taxable income.
Other income increased $1.1 million for the three-month period ended June 30,
1996, compared with the same period in 1995 primarily due to (1) income from
gas marketing activities, (2) the recovery of carrying costs attributable to
an increase in underrecovered deferred purchased gas costs, and (3) an
increase in the recovery of carrying costs associated with AGLC's Integrated
Resource Plan (IRP).
Interest charges increased $0.6 million for the three-month period ended
June 30, 1996, compared with the same period in 1995 primarily due to
increased amounts of short-term debt outstanding.
Net income for the three-month period ended June 30, 1996, was $3.6 million,
compared with net income of $0.3 million in 1995. Earnings per share of
Resources' common stock were $0.06 for the three-month period ended June 30,
1996, compared with earnings per share of $0.01 in 1995. The increases in
net income and earnings per share were primarily due to (1) 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), (2) increased other
income, (3) corporate restructuring costs of $1 million (after income taxes)
included in the three-month period ended June 30, 1995, and (4) growth in the
number of customers served. The increase in earnings per share was offset
partly by an increase in the average number of common shares outstanding.
Nine-Month Periods Ended June 30, 1996 and 1995
Explained below are the major factors that had a significant effect on
results of operations for the nine-month period ended June 30, 1996, compared
with the same period in 1995.
Operating revenues increased 9.9% for the nine-month period ended June 30,
1996, compared with the same period in 1995 primarily due to (1) increased
volumes of gas sold as a result of weather that was 52% colder than the same
period in 1995, (2) 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 and (3) growth in the number of
customers served.
AGLC balances the cost of gas with revenues collected from customers 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. Cost of gas increased 17.5% for the nine-month
period ended June 30, 1996, compared with the same period in 1995, and there
was a corresponding 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 52% colder than the same period in 1995 and
(2) an increase in the cost of gas purchased for system supply.
Operating margin decreased 0.2% for the nine-month period ended June 30,
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 substantially by the recovery of increased expenses related to
AGLC's IRP, which expenses 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 growth
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 nine-month periods ended June 30, 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 3.4% for the nine-month period ended June 30,
1996, compared with the same period in 1995 primarily due to increased (1)
expenses related to AGLC's IRP which are recovered through an IRP Cost
Recovery Rider approved by the Georgia Commission and (2) franchise expenses
which are recovered through a Franchise Recovery Rider approved by the
Georgia Commission. AGLC balances IRP and franchise expenses which are
included in operating expenses with revenues collected under the riders,
thereby eliminating the effect that recovery of IRP and franchise expenses
would otherwise have on net income. Operating expenses excluding IRP and
franchise expenses increased 1.8% primarily due to (1) increased depreciation
expense recorded as a result of increased property subject to depreciation,
(2) increased outside services employed and (3) expenses associated with the
formation of Resources. 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 $69.2 million recorded in the nine-month
period ended June 30, 1995. See Note 6 to Notes to Condensed Consolidated
Financial Statements in this Form 10-Q.
Income taxes increased $27.1 million for the nine-month period ended June 30,
1996, compared with the same period in 1995 primarily due to increased
taxable income.
Other income increased $4.9 million for the nine-month period ended June 30,
1996, compared with the same period in 1995 primarily due to (1) income from
gas marketing activities and (2) the recovery of carrying costs attributable
to an increase in underrecovered deferred purchased gas costs.
Interest charges increased $0.4 million for the nine-month period ended June
30, 1996, compared with the same period in 1995 primarily due to increased
amounts of short-term debt outstanding. The increase was offset partly by
decreased amounts of long-term debt outstanding.
Net income for the nine-month period ended June 30, 1996, was $77.7 million,
compared with net income of $37.2 million in 1995. Earnings per share of
Resources' common stock were $1.41 for the nine-month period ended June 30,
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 $42.4 million (after income taxes) included in the
nine-month period ended June 30, 1995, (2) increased other income and (3)
growth 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 June 30, 1996 and 1995
Explained below are the major factors that had a significant effect on
results of operations for the twelve-month period ended June 30, 1996,
compared with the same period in 1995.
Operating revenues increased 5.1% for the twelve-month period ended June 30,
1996, compared with the same period in 1995 primarily due to (1) increased
volumes of gas sold as a result of weather that was 53% colder than the same
period in 1995, (2) 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 and (3) growth in the number of
customers served.
AGLC balances the cost of gas with revenues collected from customers 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. Cost of gas increased 8.4% for the
twelve-month period ended June 30, 1996 compared with the same period in
1995, and there was a corresponding 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
increased volumes of gas sold as a result of weather that was 53% colder than
the same period in 1995.
Operating margin increased 1% for the twelve-month period ended June 30,
1996, compared with the same period in 1995 primarily due to the recovery of
increased expenses related to AGLC's IRP, which expenses 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 growth 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 June 30, 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 3.5% for the twelve-month period ended June 30,
1996, compared with the same period in 1995 primarily due to increased (1)
expenses related to AGLC's IRP which are recovered through an IRP Cost
Recovery Rider approved by the Georgia Commission and (2) franchise expenses
which are recovered through a Franchise Recovery Rider approved by the
Georgia Commission. AGLC balances IRP and franchise expenses which are
included in operating expenses with revenues collected under the riders,
thereby eliminating the effect that recovery of IRP and franchise expenses
would otherwise have on net income. Operating expenses excluding IRP and
franchise expenses increased 1% primarily due to (1) increased depreciation
expense recorded as a result of increased property subject to depreciation
and (2) increased outside services employed. 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 a decrease in restructuring costs of $68.1 million. See
Note 6 to Notes to Condensed Consolidated Financial Statements in this Form
10-Q.
Income taxes increased $28 million for the twelve-month period ended June 30,
1996, compared with the same period in 1995 primarily due to increased
taxable income.
Other income increased $4.1 million for the twelve-month period ended June
30, 1996, compared with the same period in 1995 primarily due to income from
gas marketing activities.
Interest charges decreased $0.3 million for the twelve-month period ended
June 30, 1996, compared with the same period in 1995 primarily due to
decreased amounts of long-term debt outstanding. The decrease was offset
partly by increased amounts of short-term debt outstanding.
Net income for the twelve-month period ended June 30, 1996, was $66.9
million, compared with net income of $26.3 million in 1995. Earnings per
share of Resources' common stock were $1.21 for the twelve-month period ended
June 30, 1996, compared with earnings per share of $0.51 in 1995. The
increases in net income and earnings per share were primarily due to (1) a
decrease in corporate restructuring costs of $41.7 million (after income
taxes), (2) increased other income and (3) growth 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.
Financial Condition
AGLC's business is highly seasonal in nature and typically shows a
substantial increase in accounts receivable from customers and accounts
payable to gas suppliers from September 30 to June 30 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 $73.8 million and inventory of gas stored underground
and liquefied natural gas decreased $43.1 million during the nine months
ended June 30, 1996. Accounts receivable increased $41.1 million from June
30, 1995, to June 30, 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 $14.5 million from June 30, 1995, to
June 30, 1996, primarily due to a $13.5 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 (Gas Supply Plan Legislation). The Gas Supply Plan
Legislation establishes procedures for review and approval, in advance, of
gas supply plans for gas utilities and gas cost adjustment factors applicable
to firm service customers of gas utilities. Pursuant to AGLC's approved Gas
Supply Plan for fiscal year 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. On August 1, 1996,
AGLC filed with the Georgia Commission its Gas Supply Plan for fiscal year
1997. Hearings on AGLC's 1997 Gas Supply Plan have been scheduled for
September 3, 4, and 5, 1996. Pursuant to the Gas Supply Plan Legislation, a
plan must be approved by the Georgia Commission on or before September 15,
1996 or the August 1,1996 filing is deemed approved by operation of law.
AGLC and Chattanooga currently estimate that their portion of transition
costs resulting from FERC Order 636 restructuring proceedings from all of
their pipeline suppliers, that have been filed to be recovered to date, could
be as high as approximately $105.9 million. This estimate assumes both that
FERC approval of Southern Natural Gas Company's restructuring settlement
agreement is not overturned on judicial review and that FERC does not alter
its GSR recovery policies on remand from the United States Court of Appeals
for the District of Columbia Circuit. Such filings currently are pending
final FERC approval, and the transition costs are being collected subject to
refund. Approximately $78.6 million of such costs have been incurred by AGLC
and Chattanooga as of June 30, 1996, recovery of which is provided under the
purchased gas provisions of AGLC's and Chattanooga's rate schedules. For
further discussion of the effects of FERC Order 636 on AGLC and Chattanooga,
see Part II, Item 5, "Other Information - Federal Regulatory Matters" of this
Form 10-Q.
As noted above, AGLC recovers the cost of gas under the purchased gas
provisions of AGLC's rate schedules. AGLC was in an overrecovery position
of $3.4 million as of June 30, 1996, $6.3 million as of September 30, 1995,
and $62.4 million as of June 30, 1995.
Cash and cash equivalents decreased $76.2 million for the twelve-month period
ended June 30, 1996, primarily due to expenditures for plant and other
property. The expenditures for plant and other property totaled $91 million
and $128.6 million for the nine-month and twelve-month periods ended June 30,
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. In addition,
during June 1996, AGLC invested $0.9 million for a 35% ownership interest in
Sonat Power Marketing, L.P. These ownership interests have been transferred
to wholly owned subsidiaries of AGL Investments, as set forth in the
following paragraph.
Ownership of AGLC's nonutility business, Georgia Gas Company, has been
transferred to AGL Energy Services. Ownership of AGLC's nonutility
businesses, Georgia Energy Company, Georgia Gas Service Company and Trustees
Investments, Inc., has been transferred to AGL Investments. AGLC's interest
in Sonat Marketing Company, L.P. has been transferred to AGL Gas Marketing, a
wholly owned subsidiary of AGL Investments. In addition, AGL Investments has
established a wholly owned power marketing subsidiary, AGL Power Services,
Inc., which owns a 35% interest in Sonat Power Marketing, L.P. The transfer
of AGLC's nonutility businesses was effected through a non-cash dividend
during the quarter ended June 30, 1996. Accordingly, as of June 30, 1996,
AGLC's assets and earnings reinvested were reduced by $45.8 million. See
Note 1 to Notes to Condensed Consolidated Financial Statements in this Form
10-Q.
AGLC has accrued liabilities of $28.6 million as of June 30, 1996, September
30, 1995 and June 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, 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 $20.9 million and $71.9 million for the nine-month
and twelve-month periods ended June 30, 1996, respectively, primarily to meet
increased working capital requirements.
Accrued pension costs decreased $5.4 million and $8 million for the
nine-month and twelve-month periods ended June 30, 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 48 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 AGLC resulting from a general rate case. See Note 5 to
Notes to Condensed Consolidated Financial Statements in this Form 10-Q.
On July 22, 1996, Chattanooga made a filing with the Tennessee Regulatory
Authority (TRA), the successor to the Tennessee Public Service Commission
which, if approved, would permit Chattanooga to negotiate contracts with
customers who have long-term competitive options, including bypass. Under
the provisions of the filing, Chattanooga could discount transportation rates
and dedicate (or stream) gas supplies to specific customers to meet
competition. The filing contains a revenue recovery mechanism based on
actual earned return on common equity. At this time, it is not known what
action the TRA will take in response to the filing.
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 5. Other Information
Federal Regulatory Matters
Order No. 636
On July 16, 1996, the United States Court of Appeals for the District of
Columbia Circuit issued its ruling in United Distribution Cos. v. FERC, which
concerned the appeals from Order No. 636, et al. The court generally upheld
the Federal Energy Regulatory Commission's (FERC) orders against a broad
array of challenges, but remanded the orders to the FERC for reconsideration
of certain issues, including the FERC's decision to permit pipelines to pass
all of their gas supply realignment (GSR) costs through to their customers
and its decision to require interruptible transportation customers to bear
10% of GSR costs. The FERC has not yet issued an order on remand, and thus
it is not known whether the FERC will change its GSR policies. The court's
order is subject to possible further proceedings before the District of
Columbia Circuit, as well as possible petitions for certiorari to the United
States Supreme Court.
AGLC and Chattanooga currently estimate that their portion of transition
costs (which include unrecovered gas costs, GSR costs and various stranded
costs resulting from unbundling of interstate pipeline sales service) from
all of their pipeline suppliers filed with the FERC to be recovered could be
as high as approximately $105.9 million. AGLC's and Chattanooga's estimate
is based on the most recent estimates of transition costs filed by their
pipeline suppliers with the FERC, and assumes both that FERC approval of
Southern Natural Gas Company's (Southern) restructuring settlement agreement
is not overturned on judicial review and that FERC does not alter its GSR
recovery policies on remand from the court as discussed above. Such filings
by AGLC's and Chattanooga's pipeline suppliers are pending final FERC
approval. Approximately $78.6 million of transition costs have been incurred
by AGLC and Chattanooga as of June 30, 1996, recovery of which is provided
under the purchased gas provisions of AGLC's and Chattanooga's rate
schedules. Details concerning the status of the Order No. 636 restructuring
proceedings involving the pipelines that serve AGLC and Chattanooga directly
are set forth below.
SOUTHERN GSR Cost Recovery Proceeding. On April 25, 1996, the FERC
issued an order accepting Southern's March 29, 1996 filing 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 and Chattanooga are in accordance with the
settlement. Assuming the FERC's approval of the settlement is upheld on
judicial review, AGLC's and Chattanooga's share of Southern's transition
costs is estimated to be $85.8 million. This estimate would not be affected
by the remand of Order No. 636, unless FERC's approval of the settlement is
not upheld on judicial review. As of June 30, 1996, $69.4 million of such
costs have been incurred by AGLC and Chattanooga.
TENNESSEE GSR Cost Recovery Proceeding. Tennessee Gas Pipeline
Company (Tennessee) has continued to make quarterly GSR cost recovery filings
with the FERC. On July 1, 1996, Tennessee filed with the FERC to recover an
additional $137 million in GSR costs. AGLC and Chattanooga protested this
filing, but the FERC accepted Tennessee's filing and permitted it to become
effective subject to refund. AGLC's and Chattanooga's estimated liability
for GSR costs as a result of Tennessee's filings is approximately $12.4
million, assuming that the FERC does not change its GSR policies pursuant to
the Order No. 636 remand and subject to possible reduction based upon the
hearing FERC established to investigate Tennessee's costs. AGLC and
Chattanooga are actively participating in Tennessee's GSR cost recovery
proceeding. As of June 30, 1996, $5.2 million of such costs have been
incurred by AGLC and Chattanooga.
FERC Rate Proceedings
TENNESSEE On July 3, 1996, the FERC issued an order on exceptions from
the rulings of an Administrative Law Judge (ALJ) in a prior Tennessee rate
case. Among other things, the FERC's order, which is to have prospective
effect, rejects a proposal to unbundle Tennessee's production area rates from
its market area rates. AGLC and Chattanooga supported the unbundling
proposal. The order also upholds the ALJ's ruling that Tennessee's
interruptible transportation rates should be set at the 100% load factor
derivative of the firm transportation rate. AGLC and Chattanooga supported
the 100% load factor proposal. The order also rejects proposals to revise
Tennessee's rate zone boundaries. AGLC and Chattanooga had opposed such
proposals. The FERC's rulings may impact the rates contained in the
settlement agreement in Tennessee's ongoing rate case, which is pending
before the FERC.
TRANSCO On June 19, 1996, Transcontinental Gas Pipe Line Corporation
(Transco) filed a proposed partial settlement to resolve cost of service and
throughput issues in its current rate case. The partial settlement reserves
certain cost allocation and rate design issues for hearing, including roll-in
of Transco's incrementally priced Leidy Line Facilities and Transco's use of
the straight-fixed variable rate design methodology. The proposal provides
for a reduction of approximately $58 million in the cost of service
underlying Transco's rates that have been in effect since September 1, 1995.
The estimated annual reduction in costs to AGLC is $1.9 million. AGLC has
filed comments in support of the proposed settlement, which is now pending
before the FERC.
On July 3, 1996, the FERC issued an order on exceptions from the rulings
of an ALJ in a prior Transco rate case. Among other things, the FERC's order,
which is to have prospective effect, rejects Transco's proposal to establish
a firm-to-the-wellhead production area rate design, but permits Transco to
file a rate case to establish firm-to-the-wellhead rates if customers with
entitlements to production area capacity are permitted to determine whether
they want such capacity in an open season. AGLC opposed Transco's
firm-to-the-wellhead proposal. The order also reverses the ALJ's ruling that
Transco must establish a separate production area cost of service. AGLC had
filed exceptions seeking reversal of this aspect of the ALJ's ruling. AGLC
has joined other Transco customers in seeking rehearing on the July 3 order
with respect to the FERC's determination that Transco may file a new proposal
to establish firm-to-the-wellhead rates, and also has sought clarification
that the FERC's order does not eliminate projections against abandonment that
originated in the settlements by which AGLC and other customers agreed to
convert from sales to firm transportation service.
AGLC and Chattanooga cannot predict the outcome of these federal
proceedings nor determine the ultimate effect, if any, such proceedings may
have on AGLC and Chattanooga. Although the outcome of such proceedings is
not known, management does not expect the outcome to have a significant
effect on AGLC's and Chattanooga'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 48 Negotiated Contracts filed to
date with the Georgia Commission have been rejected.
On May 21, 1996, the Georgia Commission adopted a Policy Statement
following its November 20, 1995, Notice of Inquiry concerning changes in
state regulatory guidelines to respond to trends toward increased competition
in natural gas markets. Among other things, the Policy Statement sets up a
distinction between competitive and natural monopoly services; favors
performance-based regulation in lieu of traditional cost-of-service
regulation; calls for unbundling interruptible service; directs the Georgia
Commission's staff to develop standards of conduct for utilities and their
marketing affiliates; and invites pilot programs for unbundling services to
residential and small business customers.
Consistent with specific goals in the Georgia Commission's Policy
Statement, AGLC filed on June 10, 1996, the Service Provider Selection Plan
(Plan), a comprehensive plan for serving interruptible markets. The Plan
calls for unbundling services to provide large customers more service options
and the ability to purchase only those services they require. Proposed
tariff changes would allow AGLC to cease it sales service function and the
associated sales obligation; implement delivery-only service for large
customers on a firm and interruptible basis; and provide pooling services to
marketers. The Plan, which is currently pending before the Georgia
Commission, also includes proposed standards of conduct for utilities'
marketing affiliates. On August 9, 1996, the Georgia Commission voted to
set a procedural schedule for hearings on the proposed Plan that would allow
such a plan to become effective on or before October 1, 1997.
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 Georgia General
Assembly delayed consideration 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.
On August 1, 1996, AGLC filed with the Georgia Commission its Gas Supply
Plan for fiscal year 1997. Pursuant to the Gas Supply Plan Legislation
enacted by the Georgia General Assembly, each investor-owned local natural
gas distribution company is required to file on or before August 1 of each
year, a proposed gas supply plan for the following year, as well as a
proposed gas cost recovery factor to be used in the same time period.
Natural gas companies are allowed to recover from their customers the costs
associated with implementing gas supply plans which are approved by the
Georgia Commission. Hearings on AGLC's 1997 Gas Supply Plan have been
scheduled for September 3, 4, and 5, 1996. Pursuant to the Gas Supply Plan
Legislation, a plan must be approved by the Georgia Commission on or before
September 15, 1996, or the August 1, 1996 filing is deemed approved by
operation of law.
On July 22, 1996, Chattanooga made a filing with the
Tennessee Regulatory Authority (TRA), the successor to the Tennessee Public
Service Commission which, if approved, would permit Chattanooga to negotiate
contracts with customers who have long-term competitive options, including
bypass. Under the provisions of the filing, Chattanooga could discount
transportation rates and dedicate (or stream) gas supplies to specific
customers to meet competition. The filing contains a revenue
recovery mechanism based on actual earned return on common equity. At this
time, it is not known what action the TRA will take in response to the
filing.
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 at 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 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) - FPS-1 Service Agreement, dated July 9, 1996, between
Atlanta Gas Light Company and Cove Point LNG Limited
Partnership.
27 - Financial Data Schedules
(a) AGL Resources Inc.
(b) Atlanta Gas Light Company
(b) Reports on Form 8-K.
None.
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 August 14, 1996 /s/ David R. Jones
David R. Jones
President and CEO
Date August 14, 1996 /s/ J. Michael Riley
J. Michael Riley
V. P. and CFO
(Principal Financial Officer)
Atlanta Gas Light Company
(Registrant)
Date August 14, 1996 /s/ David R. Jones
David R. Jones
President and CEO
Date August 14, 1996 /s/ Gerald A. Hinesley
Gerald A. Hinesley
Controller - AGL Resources Service Company
(Principal Accounting Officer for AGLC)