October 18, 1996
Securities and Exchange Commission
Operations Center
6432 General Green Way
Alexandria, VA 22312-2413
Gentlemen:
We are transmitting herewith Indiana Gas Company, Inc.'s
Current Report on Form 8-K.
Very truly yours,
/s/Kathleen S. Morris
Kathleen S. Morris
KSM:rs
Enclosure
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 2, 1996
INDIANA GAS COMPANY, INC.
(Exact name of registrant as specified in its charter)
INDIANA 1-6494 35-0793669
(State or other jurisdiction (Commission File No.) (IRS Employer
of incorporation) Identification Number)
1630 North Meridian Street, Indianapolis, Indiana 46202
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (317) 926-3351
Item 5. Other Events
The purpose of this 8-K is to update disclosure
with respect to environmental costs incurred
and expected to be incurred by Indiana Gas
Company, Inc. ("Indiana Gas") with respect to
certain manufactured gas plant and storage
facility sites for, among other matters, the
granting of certain summary judgment motions
filed by defendant insurance carriers in the
insurance coverage litigation pending in
federal district court.
In the past, Indiana Gas and others, including
former affiliates, and/or previous landowners,
operated facilities for the manufacturing of
gas and storage of manufactured gas. These
facilities are no longer in operation and have
not been operated for many years. In the
manufacture and storage of such gas, various
byproducts were produced, some of which may
still be present at the sites where these
manufactured gas plants and storage facilities
were located. Management believes, and the IURC
has found that, those operations were conducted
in accordance with the then-applicable industry
standards. However, under currently applicable
environmental laws and regulations, Indiana
Gas, and the others, may now be required to
take remedial action if certain byproducts are
found above a regulatory threshold at these
sites.
Indiana Gas has identified the existence,
location and certain general characteristics of
26 gas manufacturing and storage sites. Removal
activities have been conducted at two sites and
a remedial investigation/feasibility study
(RI/FS) is nearing completion at one of the
sites under an agreed order between Indiana Gas
and the Indiana Department of Environmental
Management. Indiana Gas and others are
assessing, on a site-by-site basis, whether any
of the remaining 24 sites require remediation,
to what extent it is required and the estimated
cost. Preliminary assessments (PAs) have been
completed on all but one of the sites. Site
investigations (SIs) have been completed at 20
sites and supplemental site investigations
(SSIs) have been conducted at 15 sites. Based
upon the site work completed to date, Indiana
Gas believes that a level of contamination that
may require some level of remedial activity may
be present at a number of the 24 sites.
Although, Indiana Gas has not begun an RI/FS at
additional sites, Indiana Gas is currently
conducting groundwater monitoring at certain
sites where deemed appropriate and will
continue its evaluation of many of the sites.
Based upon the work performed to date, Indiana
Gas has accrued remediation and related costs
for the two sites where remedial activities are
taking place. PA/SI, SSI and groundwater
monitoring costs have been accrued for the
remaining sites where appropriate. Estimated
RI/FS costs and the costs of certain remedial
actions that may likely be required have also
been accrued. Costs associated with
environmental remedial activities are accrued
when such costs are probable and reasonably
estimable. Indiana Gas does not believe it can
provide an estimate of the reasonably possible
total remediation costs for any site prior to
completion of an RI/FS and the development of
some sense of the timing for implementation of
the potential remedial alternatives, to the
extent such remediation is required.
Accordingly, the total costs which may be
incurred in connection with the remediation of
all sites, to the extent remediation is
necessary, cannot be determined at this time.
Indiana Gas has been pursuing recovery from
three separate sources for the costs it has
incurred and expects to incur relating to the
26 sites. Those sources are insurance
carriers, potentially responsible parties
(PRPs) and recovery through rates from retail
gas customers.
On April 14, 1995, Indiana Gas filed suit in
the United States District Court for the
Northern District of Indiana, Fort Wayne
Division, against a number of insurance
carriers for payment of claims for
investigation and clean-up costs already
incurred, as well as for a determination that
the carriers are obligated to pay these costs
in the future. On October 2, 1996, the Court
granted several motions filed by defendant
insurance carriers for summary judgment on a
number of issues relating to the insurers'
obligations to Indiana Gas under insurance
policies issued by these carriers. For
example, the Court held that because the
placement of residuals on the ground at the
sites was done intentionally, there was no
"fortuitous accident" and therefore no
"occurrence" subject to coverage under the
relevant policies. The Court also ruled
adversely to Indiana Gas with respect to, among
other issues, applicability of the pollution
exclusion in policies containing this
exclusion, the application of an injury-in-fact
trigger under the policies at issue and the
existence of a justiciable controversy with
respect to sites for which no claim has been
asserted against Indiana Gas. Since the
management of Indiana Gas believes that a
number of these rulings are contrary to Indiana
law, it intends to appeal all adverse rulings
to the United States Court of Appeals for the
Seventh Circuit. However, if these rulings are
not reversed on appeal, they would effectively
eliminate coverage under most of the policies
at issue. There can be no assurance as to
whether Indiana Gas will prevail on this
appeal. As of September 30, 1996, Indiana Gas
has obtained cash settlements from some
insurance carriers in an aggregate amount in
excess of $13.5 million.
Indiana Gas has also completed the process of
identifying PRPs for each site. PRPs include
two financially viable utilities, PSI Energy,
Inc. (PSI) and Northern Indiana Public Service
Company (NIPSCO). PSI has been identified as a
PRP at 19 of the sites. Indiana Gas has been
negotiating with PSI to determine PSI's share
of responsibility, although no agreement has
been reached between the parties. With the help
of outside counsel, Indiana Gas has prepared
estimates of PSI's and other PRP's share of
environmental liabilities which may exist at
each of the sites based on equitable principles
derived from case law or applied by parties in
achieving settlements. NIPSCO has been
identified as an additional PRP at five of
these 19 sites. On September 27, 1995, Indiana
Gas reached an agreement with NIPSCO which
provides for coordination of efforts and
sharing of investigation and clean-up costs
incurred and to be incurred at the five sites
in which they both have an interest. The cost
sharing estimates of PSI and other PRPs, and
the NIPSCO agreement, have been utilized by
Indiana Gas to record a receivable from PRPs
for their share of the liability for work
performed by Indiana Gas to date, as well as to
accrue Indiana Gas' proportionate share of the
estimated cost related to work not yet
performed. The outstanding receivable from
PRPs of $1.5 million will be reflected in
Accounts Receivable on the Consolidated Balance
Sheet at September 30, 1996.
In January 1992, Indiana Gas filed a petition
with the IURC seeking regulatory authority for,
among other matters, recovery through rates of
all costs Indiana Gas incurs in complying with
federal, state and local environmental
regulations in connection with past gas
manufacturing activities. On May 3, 1995, the
IURC concluded that the costs incurred by
Indiana Gas to investigate and, if necessary,
clean-up former manufactured gas plant sites
are not utility operating expenses necessary
for the provision of utility service and,
therefore, are not recoverable as operating
expenses from utility customers. The decision
was contrary to rulings in other states where
utility regulatory commissions have issued
orders on the subject. The precedent cited by
the IURC was a ruling related to a cancelled
nuclear power plant which, unlike manufactured
gas plants, never provided service to the
public. Management believes applying the
nuclear power plant decision to Indiana Gas'
case was an incorrect application of the law
and has appealed the decision to the Indiana
Court of Appeals. The Commission did indicate
that during Indiana Gas' next rate case it
would be appropriate to quantify the effect
of the investigation and clean-up activities
as part of the business risk to be considered
by the Commission in establishing the allowed
overall rate of return.
Indiana Gas has recorded in aggregate $14.5
million for its share of environmental costs as
of September 30, 1996. Presently, these
environmental costs have had no material impact
on Indiana Gas' earnings.
The impact on Indiana Gas' financial position
and results of operations of complying with
federal, state and local environmental
regulations related to former manufactured gas
plant sites is contingent upon several
uncertainties. These include the costs of any
compliance activities which may occur and the
timing of the actions taken, the impact of
joint and several liability upon the magnitude
of the contingency, the outcome of proceedings
which challenge the IURC ruling on recovery of
costs from customers, as well as the outcome of
the appeal of the summary judgment rulings
issued in favor of the insurers in the
insurance litigation described above. Although
Indiana Gas will endeavor to manage the
manufactured gas plant remediation program so
that any amounts received will be sufficient to
fund environmental costs, there can be no
assurance that in the future, environmental
costs will not exceed related recoveries.
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.
INDIANA GAS COMPANY, INC.
Registrant
Dated October 18, 1996 /s/Niel C. Ellerbrook
Niel C. Ellerbrook
Senior Vice President and
Chief Financial Officer
Dated October 18, 1996 /s/Jerome A. Benkert
Jerome A. Benkert
Vice President and Controller