FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
[X]Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the fiscal year ended September 30, 1994
OR
[ ]Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
Commission file number 0-1160
THE PROVIDENCE GAS COMPANY
(Exact name of registrant as specified in its charter)
Rhode Island 05-0203650
(State or other jurisdiction of (I. R. S. Employer
incorporation or organization) Identification No.)
100 Weybosset Street, Providence, Rhode Island 02903
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code 401-272-5040
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which registered
NONE NONE
Securities registered pursuant to Section 12(g) of the Act:
NONE
(Title of class)
Indicate by checkmark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. YES X NO
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulations S-K is not contained herein, and will not be
contained, to the best of Registrant's knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this
Form 10-K or any amendment to this Form 10-K. [X]
State the aggregate market value of the voting stock held by non-
affiliates of the Registrant, as of December 27, 1994: $0
Indicate the number of shares outstanding of each of the registrant's
classes of common stock, as of the latest practicable date:
Common Stock, $1.00 Par Value: 1,243,598 shares outstanding at
December 27, 1994.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
TABLE OF CONTENTS
PART I PAGE
Item 1 - Business
General I-1
Gas Supply I-1
Rates and Regulations I-2
Competition and Marketing I-3
Employees I-4
Storage Facilities I-5
Item 2 - Properties I-6
Item 3 - Legal Proceedings I-6
Item 4 - Submission of Matters to a Vote of Security Holders I-7
PART II
Item 5 - Market for Registrant's Common Equity and Related Stockholder
Matters II-1
Item 6 - Selected Financial Data II-2
Item 7 - Management's Discussion and Analysis of Financial
Condition and Results of Operations II-3
Item 8 - Financial Statements and Supplementary Data II-7
Report of Independent Public Accountants II-22
Item 9 - Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure II-23
PART III
Item 10 - Directors and Executive Officers of the Registrant III-1
Item 11 - Executive Compensation III-3
Item 12 - Security Ownership of Certain Beneficial Owners
and Management III-4
Item 13 - Certain Relationships and Related Transactions III-4
PART IV
Item 14 - Exhibits, Financial Statement Schedules and Reports on
Form 8-K IV-1
Supplemental Schedules IV-3
Signatures IV-10
PART I
ITEM 1. BUSINESS
General
The Providence Gas Company (Registrant or ProvGas), a Rhode Island
corporation, was organized in 1847 and became a wholly-owned subsidiary
of Providence Energy Corporation (Providence Energy) through a
reorganization on February 1, 1981. The outstanding shares of common
stock of Providence Energy are presently listed on the American Stock
Exchange.
The executive offices of the Registrant are located at 100 Weybosset
Street, Providence, Rhode Island 02903, telephone (401) 272-5040.
The Registrant is engaged in natural gas distribution, serving
approximately 159,000 customers in Providence and Newport, Rhode Island,
and in 23 other cities and towns in Rhode Island. The service territory
encompasses approximately 350 square miles and has a population of
approximately 715,000. For the year ended September 30, 1994,
residential sales accounted for approximately 50% of total company
sales, with commercial and industrial sales representing, in the
aggregate, approximately 50%. For the years ended September 30, 1993
and 1992, residential sales represented approximately 59% and 71%,
respectively, of the total sales, with commercial and industrial sales
representing, in the aggregate, approximately 41% and 29%, respectively,
of sales. During fiscal year 1994, no single customer accounted for
more than 2.5% of the Registrant's gas operating revenues.
The Registrants gas distribution system consists of approximately 2,300
miles of gas mains ranging in size from 2 to 36 inches in diameter,
approximately 135,000 services (a service is a pipe connecting a gas
main with piping on a customer's premises), approximately 168,000 gas
meters, and the necessary pressure regulators. The Registrant has
regulating and metering facilities at seven points of delivery from
Algonquin Gas Transmission Company (Algonquin) and one from Tennessee
Gas Transmission Company, which the Registrant believes to be adequate
for receiving gas into its distribution system.
The natural gas industry is subject to numerous challenges, many of
which affect the Registrant in varying degrees. Significant industry
challenges affecting the Registrant include: the ability to adapt to
the regulatory changes occurring at the national level under the
framework of the Federal Energy Regulatory Commission (FERC) Order 636
and the ability to gain local approval through the Rhode Island Public
Utilities Commission (RIPUC) for new rates tailored to customers'
specific needs and market availability.
Gas Supply
During fiscal 1994, the Registrant purchased its gas supplies from
multiple sources. Of these sources, 79 percent was provided by
contracts with direct suppliers (well-head producers) on a firm
transportation basis. The Registrant, during off-peak periods, has also
taken advantage of inexpensive gas supplies offered on the spot market
which constitutes 13 percent of the Registrant's gas supply. Lastly,
the Registrant uses liquefied natural gas (LNG) and underground storage
(eight percent) to complete its supply portfolio.
In a deregulated market, effective management of natural gas supply
offers the Registrant a competitive advantage. The Registrant has
responded to deregulation by aggressively boradening supply sources and
transportation options. We have created a flexible, responsive, and
competitive portfolio of suppliers, transporters, and storage services.
A key component to operating in this new competitive environment is the
flexibiltiy gained by successful storage management for both supply
balancing and meeting cold weather requirements. In 1994, our
underground storage capacity increased by 123 percent fom 1.3 billion
cubic feet (Bcf) to 2.9 Bcf, while our firm daily withdrawal capability
increased by over 200 percent from 9 million cubic feet (MMcf) to 28
MMcf. Managing supply requires price and cost vigilance and a thorough
PAGE I-1
knowledge of our own market requirements. Where the Registrant once
purchased a bundled package, including the gas and transportation of the
gas to our city gate, we now buy and sell both gas supply and pipeline
capacity using the new system of bulletin boards to schedule supply, to
locate purchasers for available gas and capacity, and to track the
availablity and price of both gas supply and pipeline capacity. To meet
the challenge of managing supply and improve our ability to respond
competitively, we have expanded our planning capability, upgraded our
ability to electronically monitor our distribution system, added the
capability to telemeter our larger customers, and created a supply
operations center designed to centralize all daily supply management
functions. Our goal is to buy natural gas directly from producers at
the lowest possible price and arrange space on pipelines for specific
delivery dates to ensure that we have adequate supply to meet our
constantly changing demand. In addition, our enhanced ability to manage
supply improves our ability to respond quickly to new marketing
opportunities.
This capability of managing supply is critical to providing our
customers with a reliable and competitively priced product. Our
diversified portfolio of supply options virtually guarantees that no
single event will unduly affect price and supply. Our supply of
liquefied natural gas (LNG) and expanding storage capability provides
the flexibility needed to maintain reliability in severe cold, met rapid
shifts in temperature and, in conjunction with supply management,
provide a competitive edge as markets and prices change.
In the new environment, we are able to sell capacity that is not needed
through a program called "capacity release". Part of maintaining a
healthy supply of natural gas means that the Registrant has capacity
reserved for future growth and peak season needs - particularly for
severely colder-than-normal weather. The revenues generated from these
sales reduce the cost of gas for firm customers and improve our
competitive position. Our upgraded planning, system modeling, and
supply flexibility increase our ability to release capacity and
efficiently use our supply resources to reduce costs to customers. In
1994, the Company generated $2.1 million in reduced gas costs from our
capacity release program.
Rates and Regulation. The Registrant is subject to the regulatory
jurisdiction of the RIPUC with respect to rates and charges, standards
of service, accounting and other matters. The standards set by this
regulatory body affect all aspects of the Registrant's business,
including the ability to market to new customers and to meet competition
from other fuel suppliers - see Competition and Marketing.
On October 14, 1993, the Rhode Island Public Utilities Commission
(RIPUC) approved ProvGas' request to adopt a new rate design, including
a declining block rate structure, seasonal gas cost accounting and
higher customer charges effective November 14, 1993. The declining
block rate structure allows ProvGas to recover more fixed costs through
rates immediately when a customer begins buying natural gas. Also, the
new block rate structure will help balance customer bills during the
year and will help protect ProvGas and its customers during periods of
extreme weather conditions. This new block rate structure should result
in a stabilization of earnings from year to year. In addition to the
improved stability in earnings, the new rates are designed to increase
annual operating margin by approximately $700,000. Other components of
the rate award include an allowed return on equity of 11.2 percent. In
1994, for accounting and gas cost recovery purposes, ProvGas recorded
the embedded cost of gas using seasonal gas cost factors of $4.26 per
thousand cubic feet (Mcf) during November '93 through April '94 and
$2.77 per Mcf during May '94 through September '94. The ultimate effect
of the seasonal gas cost accounting will be that quarterly operating
margins will decrease in the winter months and increase in the summer
months when compared to the previous method. Assuming normal weather,
annual earnings should not be affected by this change.
Another significant attribute of the new rate design structure as
compared to the previous method is a higher customer charge. The
average monthly customer charge has been increased to recognize that a
substantial portion of ProvGas' costs are relatively fixed and should be
PAGE I-2
recovered from customers even when gas consumption is less than
expected. ProvGas' volumetric charge has decreased in order to off set
the increased customer charge.
The following table sets forth the results of the Registrants'
applications before the RIPUC for rate increases since 1981.
Annualized Annualized Authorized
Date of Rate Increase Date Rates Rate Increase Return on
Application Requested Effective Granted (*) Common Equity
9/28/81 $12,400,000 07/20/82 $9,600,000 15.5%
2/27/84 10,800,000 12/28/84 5,600,000 15.5
8/04/88 8,300,000 06/01/89 4,860,000 13.0
5/17/90 15,800,000 03/15/91 9,176,000 12.8
1/15/93 9,100,000** 11/14/93 694,000 11.2
(*) Although the RIPUC reviews and approves all changes in gas costs
billed to customers under the Cost of Gas Adjustment (CGA) clause, such
changes are not part of the general rate filings described above.
(**) Rate increase requested on January 15, 1993 of $9,100,000 was
recalculated to $6,970,000 on September 14, 1993 due to cost of service
adjustments reflecting cost savings.
Previously in an August 1987 rate order, a provision was included
whereby the Registrant would be allowed to retain all of the margin on
all nonfirm sales (including dual-fuel, interruptible, cogeneration,
transportation, etc.) up to $2.8 million with a 50/50 sharing of the
margin beyond that amount between the Registrant and its firm customers.
However, the RIPUC has approved a new Non-Firm Margin Sharing Agreement,
signed between the Division of Public Utilities and Carriers and the
Registrant in April 1992. The Agreement also stipulates that all
non-firm margins earned from the sales of system transportation to a
local electric utility will be 100% credited to the Registrant's firm
customers. Sales made to certain interruptible customers will be
considered for non-firm margin sharing on a case by case basis.
Under the agreement, the non-firm margin threshold for system
interruptible sales and system transportation will be calculated
annually using the average of total non-firm margins earned from system
interruptible sales and system transportation sales for the preceding
three years. A new non-firm margin threshold will be calculated for
each fiscal year beginning in October. Non-firm margins earned above
the threshold will be shared at a ratio of 66 2/3% to firm ratepayers
and 33 1/3% to the Registrant. For the fiscal 1993 year that threshold
was $2.1 million as compared to $1.6 million in fiscal 1992. The
threshold for fiscal 1994 has been determined to be $2.5 million. The
Registrant retained the provision to collect the full $2.8 million it
received earlier plus $.2 million as a result of a consolidation with
the purchase of South County Gas Company. If actual non-firm margin
were below the $3 million threshold, the Registrant would add an amount
to its CGA to bring collections up to the $3 million non-firm threshold.
Competition and Marketing. Under the current laws of Rhode Island, no
gas utility may deliver gas in a city or town where another utility is
already selling gas, unless the new utility shall have obtained a
certificate from RIPUC certifying that the public convenience and
necessity requires the same. Such an action requires a public hearing
with notice to specific parties including the gas utility already
serving the area. To date, the Registrant has not experienced any
competition from the other natural gas utilities in its service areas.
The Registrant faces its most intense competition from fuel oil in
certain market segments. During 1994, for commercial and industrial
customers, oil has enjoyed a price advantage over natural gas. Despite
this price advantage, the Registrant continues to add both commercial
and industrial customers. This is mainly the result of price stability
afforded historically by natural gas over oil and is also the result of
value added benefits from reliable customer service provided to the
Registrant's customer sectors.
PAGE I-3
Advanced gas technologies play a significant role in load growth for
both the commercial and industrial sectors. Such technologies include
on site cogeneration capabilities, cost-effective alternatives to
electric space conditioning, process cooling, motor drives and the
utilization of compressed natural gas vehicles (NGV).
The Registrant opened its first public natural gas filling station in
June 1992. This market development provides on-site fueling
capabilities for large fleet operators. The Registrant expects natural
gas vehicles (NGV) to produce modest margin growth over the next five
years. The Registrant has 15 companies and State agencies using the
station. Including the Registrants' own natural gas cehicles, there are
about 125 NGV's operating in Rhode Island.
The Registrant helped the East Providence School Department and Ryder
Transportation Company win a Federal grant to study the effectiveness of
natural gas school buses compared to standard diesel fuel buses.
Beginning in January 1995, four natural gas buses will be tested for
fuel cost and overall vehicle economy. The Registrant assisted in the
construction of a compressed natural gas filling station in East
Prividence to service the buses. This is the first use of natural gas
school buses in Rhode Island.
The Registrant plans to work with other companies to build CNG filling
stations. A significant boost to these efforts occurred this year with
legislative approval of a bill allowing nonutility companies to sell
natural gas for vehicular use without being subject to public utility
regulation. This legislation allows private investors to build the
natural gas refueling infrastructure, a critical step in the development
of the natural gas vehicle market.
To further promote the Registrant's objective of maximizing growth,
market research activities have been intensified. This market research
will identify growth opportunities, such as non-users on existing mains,
increase existing user load and main extension to developments not
evaluated previously. This research will also provide the data
essential to design marketing strategies. At present, only
approximately 45% of the residences within the Registrant's service
areas are heated by natural gas. Furthermore, 24% of the Registrant's
customers currently do not use natural gas to heat their homes. As a
result, the Registrant believes that marketing to this segment
represents a potential for significant growth.
The Registrant has completed the contract with the U.S. Navy to provide
gas service to a boiler plant facility in Newport, R.I.. This
arrangement allows for conversion of the Navy facility from oil firing
to a combination of oil and natural gas firing. In addition, based upon
a technology that was developed for various NASA space programs, the
fuel cell will be fully operational by February 1995. Fuel cells use
natural gas as a raw material in a chemical reaction that results in the
creation of voth electricity and hot water. The Navy's fuel cell will
provide electricity and hot water at a significant discount versus the
current conventional sources. ProvGas estimates the annual natural gas
usage to be about 15 MMcf annually - this is equivalent to the gas usage
of about 120 residential heating customers.
Employees
At September 30, 1994, the Registrant had 553 full-time employees
Approximately 276 of those employees were covered by a collective
bargaining agreement with the United Steelworkers of America. These
same union employees and the Registrant ratified a three year extension
to the contract which ended in January 1993. The agreement calls for
general wage increases of 3.5 percent in 1993, 3.75 percent in 1994 and
4 percent in 1995. Also incorporated into the contract were work
practice changes and other action steps designed to allow the Registrant
to achieve greater operating efficiencies.
Storage Facilities
Under an agreement with Texas Eastern, the Registrant is entitled to
the underground storage of up to 1,200 MMcf of natural gas at a facility
PAGE I-4
located in Leidy, Pennsylvania. Withdrawals from storage are on a firm
basis at the time of proposed withdrawal. The Registrant has additional
storage capacity of 3,081 MMcf in various underground storage fields for
the 1994/95 winter, which may be withdrawn on a best efforts basis at
time of the proposed withdrawal. The only limitation to the timely
withdrawal is a potential temporary bottleneck in the pipeline caused by
heavy seasonal demand.
The Registrant has an agreement with Algonquin for the storage of up to
the equivalent of 1,170 MMcf of vaporized LNG in a tank owned by
Algonquin and located on land leased to Algonquin by the Registrant.
The agreement expires in 2003, but the Registrant has an option to
extend the agreement for an additional thirty years. The Registrant
owns and operates an LNG storage and vaporization facility which has the
capacity to store the equivalent 185 MMcf of vaporized LNG.
Special Factors Affecting the Natural Gas Industry
General. The natural gas industry is subject to numerous legislative
and regulatory requirements, standards and restrictions that are subject
to change and that affect the Registrant to varying degrees.
Significant industry factors that have affected or may affect the
Registrant from time to time include: lack of assurance that rate
increases can be obtained from regulatory authorities in adequate
amounts on a timely basis; changes in the regulations governing the
Registrant's operations; reductions in the prices of oil and propane,
which can make those fuels less costly than natural gas in some markets;
increases in the price of natural gas; and competition with other gas
sources for industrial customers, including potential attempts to bypass
the Registrant's facilities.
FERC Regulations. In recent years FERC has been attempting to increase
competition with regard to the transportation and sale of natural gas in
interstate commerce. Beginning in late 1985, FERC began promulgating
orders allowing all industry participants access to pipeline
transportation on an open, nondiscriminatory basis to the extent of
available capacity.
Recent FERC orders are in furtherance of its policy to make gas
transportation and alternate supply sources more accessible to all
parties, including local distribution companies and their customers.
Such "open access" allows the Registrant to obtain its supply through a
more competitive national gas pipeline system, where and when capacity
is available.
FERC Order 636 and other related order (the Orders) have significantly
changed the structure and types of services offered by pipeline
transportation companies. The most significant components of the
restructuring occurred in November 1993. In response to these changes,
the Registrant has successfully negotiated new pipeline transportation
and gas storage contracts.
At the same time, a number of contracts with gas suppliers have been
negotiated to complement the transportation and storage contracts. The
portfolio of supply contracts is designed to be market responsive and is
diversified with respect to contract lengths, source location, and other
contract terms. On a periodic basis, the Registrant reviews all of its
contracts to ensure a diverse, secure, flexible and economical supply
portfolio is maintained.
To meet the requirements of the Orders, the pipelines have incurred
significant costs, collectively known as transition costs. The majority
of these costs will be reimbursed by the pipelines' customers including
the Registrant. Based upon current information, the Registrant
anticipates its share of transition costs to total between $16 million
and $19 million of which $8.3 million has been included in the CGA and
is currently being collected from customers. The remaining minimum
obligation of $7.7 million has been recorded in the accompanying
consolidated balance sheet along with a regulatory asset anticipating
future recovery through the CGA.
The Registrant's ultimate liability may differ from the above
PAGE I-5
estimates based on FERC settlements with the Registrant's pipeline
transportation suppliers. FERC has approved settlements with two of its
pipelines, which account for the bulk of its transition costs.
Negotiations are continuing on the two additional pipelines, but recent
favorable developments have considerably reduced the uncertainty
previously disclosed. As a result, the Registrant has decreased the
range for potential transition costs accordingly.
Environmental Regulations
Federal, state and local laws and regulations establishing standards
and requirements for protection of the environment have increased in
number and in scope within recent years. The Registrant cannot predict
the future impact of such standards and requirements which are subject
to change and can take effect retroactively. The Registrant continues
to monitor the status of these laws and regulations. Such monitoring
involves the review of past and current operations and properties. To
the best of its knowledge, subject to the following paragraph, the
Registrant believes it is in substantial compliance with such laws and
regulations. However, should future costs be incurred, relating to the
items mentioned below, the Registrant anticipates recovery from third
parties or through rates.
The Registrant is aware of four sites at which it may incur future
costs for environmental investigation and clean-up. Based on current
available information, however, the amount of costs, if any, related to
these sites will not be material to the operations of the Registrant or
its financial position.
Management anticipates requesting rate relief for all costs related to
the environmental matters and believes that the ultimate resolution of
these matters will not have a materially adverse effect on the
Registrant's results of operations and financial condition.
With regard to the clean air quality standards, the Registrant believes
that the use of natural gas in industrial and electric generation
boilers and turbines is one way to reduce pollutants discharged into the
atmosphere. To the extent that the use of clean burning fuels is
mandated by federal or state policy, management believes that demand for
the Registrant's natural gas would increase.
Other Standards. The Registrant is also subject to standards
prescribed by the Secretary of Transportation under the Natural Gas
Pipeline Safety Act of 1968 with respect to the design, installation,
testing, construction and maintenance of pipeline facilities. The
enforcement of these standards has been delegated to the RIPUC and
management believes that the Registrant is in substantial compliance
with all present requirements imposed by such agency.
ITEM 2. PROPERTIES
In addition to the Registrant's gas distribution system and storage
facilities, which constitute the principal properties of the Registrant,
the Registrant owns several buildings and other facilities in Newport,
Providence and Westerly which house its offices and provide floor space
for its distribution and maintenance facilities.
Substantially all the foregoing properties are mortgaged as collateral
for outstanding bonds of the Registrant.
ITEM 3. LEGAL PROCEEDINGS
The Registrant is involved in legal and administrative proceedings in
the normal course of business, including certain proceedings involving
material amounts in which claims have been or may be made. However,
management believes, after review of insurance coverage and consultation
with legal counsel, that the ultimate resolution of the legal
proceedings to which it is or can at the present time be reasonably
expected to be a party, will not have a materially adverse effect on the
Registrant's results of operations or financial condition.
PAGE I-6
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PAGE I-7
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS'
MATTERS
Not applicable. The Registrant is a wholly-owned subsidiary of
Providence Energy Corporation.
PAGE II-1
ITEM 6. SELECTED FINANCIAL DATA
THE PROVIDENCE GAS COMPANY
SELECTED FINANCIAL DATA
SUMMARY OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30
1994 1993 1992 1991 1990
(Thousands, except per share amounts)
Operating revenues $219,143 $206,050 $187,705 $166,738 $154,330
Cost of gas sold 133,315 124,677 110,161 100,316 89,740
Operating margin 85,828 81,373 77,544 66,422 64,590
Operating expenses,
excluding taxes 54,588 51,754 51,103 45,873 40,560
Taxes, other than income 12,413 12,468 11,439 10,918 10,183
Federal income taxes 4,369 3,507 2,787 772 1,919
Total operating expenses 71,370 67,729 65,329 57,563 52,662
Operating income 14,458 13,644 12,215 8,859 11,928
Other income, (loss) net 409 (3) 514 964 550
Income before interest
expense 14,867 13,641 12,729 9,823 12,478
Interest expense 6,121 6,546 6,615 6,854 6,323
Net income 8,746 7,095 6,114 2,969 6,155
Dividends on preferred stock (696) (696) (696) (280) -
Net income applicable to
common stock 8,050 6,399 5,418 2,689 6,155
Common dividends 4,501 4,427 4,726 5,622 5,621
Income (loss) charged to
retained earnings $ 3,549 $ 1,972 $ 692 $ (2,933) $ 534
======== ======== ======== ======== ========
Weighted average common
shares outstanding 1,243.6 1,243.6 1,243.6 1,243.6 1,243.6
======== ======== ======== ======== ========
Earnings per common share $ 6.47 $ 5.15 $ 4.36 $ 2.16 $ 4.95
======== ======== ======== ======== ========
Common dividends $ 3.62 $ 3.56 $ 3.80 $ 4.52 $ 4.52
======== ======== ======== ======== ========
OTHER FINANCIAL DATA
SEPTEMBER 30
1994 1993 1992 1991 1990
(Thousands, except per share amounts)
Gas plant-at original cost $230,926 $213,218 $202,019 $191,693 $182,010
Gas plant-net of depreciation 151,394 141,929 137,791 133,188 128,258
Total assets 221,177 141,868 184,651 174,686 162,349
Capitalization:
Long-term debt 60,078 62,163 60,958 42,818 48,766
Redeemable cumulative preferred
stock 8,000 8,000 8,000 8,000 --
Common Stockholder's
investment 69,841 64,861 46,403 45,722 48,752
Shares of common stock at year-
end 1,243.6 1,243.6 1,243.6 1,243.6 1,243.6
Book value per share $ 56.16 $ 52.16 $ 37.31 $ 36.77 $ 39.20
PAGE II-2
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
Summary
The Registrant's 1994 operating revenues, operating margin and net
income applicable to common stock have all increased over the comparable
periods presented, as shown in the table below
(000's)
1994 1993 Change %Change
Operating revenues $219,143 $206,050 $13,093 6.4
Operating margin 85,828 81,373 4,455 5.5
Net income applicable
to common stock 8,050 6,399 1,651 25.8
RESULTS OF OPERATIONS - 1994 VS 1993
On October 14, 1993, the Rhode Island Public Utilities Commission
(RIPUC) approved ProvGas' request to adopt a new rate design, including
a declining block rate structure, seasonal gas costs accounting and
higher customer charges effective November 14, 1993. The declining
block rate structure allows ProvGas to recover more fixed costs through
rates immediately when a customer begins buying natural gas. Also, the
new block rate structure will help balance customer bills during the
year and will help protect ProvGas and its customers during periods of
extreme weather conditions. This new block structure should result in a
stabilization of earnings from year to year. In addition to the
improved stability in earnings, the new rates are designed to increase
annual operating margin by approximately $700,000. Other components
include a rate award , an allowed return on equity of 11.2 percent. In
1994, for accounting and gas cost recovery purposes, ProvGas recorded
the embedded cost of gas using seasonal gas cost factors of $4.26 per
Mcf during November '93 through April '94 and $2.77 per Mcf during May
'94 through September '94. The ultimate effect of the seasonal gas cost
accounting will be that quarterly operating margin will decrease in the
winter months and increase in the summer months when compared to the
previous method. Assuming normal weather, annual earnings should not
be affected by this change.
Another significant attribute of the new rate design structure as
compared to the previous method is a higher customer charge. The
average monthly customer charge has been increased to recognize that a
substantial portion of ProvGas' costs are relatively fixed and should be
recovered from customers even when gas consumption is less than
expected. ProvGas' volumetric charge has decreased in order to off-set
the increased customer charge.
For the first time in twelve years, the Registrant experienced a
colder-than-normal heating season as it relates to normal temperatures
utilized in the last rate case. During 1994, temperatures averaged 4.7
percent colder-than-normal. In addition, 1994 weather was also 4.5
colder than 1993, thereby increasing operating margin by approximately
$700,000.
The net increase in the average annual number of customers during
1994 over 1993 was approximately 2,000 or 1.3 percent. The modest
increase was the result of new housing construction and conversions from
other energy sources offset by shut-offs for non-payments and housing
vacancies due to the stagnant economy.
As a result of the colder temperatures experienced during 1994,
residential sales, which provide the Registrant with its greatest source
of margin, increased 331 million cubic feet (MMcf) or 2.4 percent over
1993. Also affecting the increase was the modest increase in number of
customers.
PAGE II-3
Non-firm sales volumes increased approximately 1,000 MMcf or 28
percent reflecting an increase in sales to other natural gas utilities.
Offsetting the above was a small decrease in off-system cogeneration
sales (approx. 300 MMcf) due to the expiration of a short-term contract
in 1993 with a cogeneration customer located outside the Registrant's
service territory. Both of these items, however, did not have a
material impact on the Registrant's operations because the RIPUC limits
the amount of margin ProvGas can retain. Any margin earned which is
greater than or less than the RIPUC limits is returned to or collected
from customers through the Cost of Gas Adjustment Clause (CGA).
Overall, other operation and maintenance expenses have increased
approximately $2.4 million or 5.6 percent during 1994 as compared to
1993. The increase was the result of a higher provision for
uncollectible revenue, normal wage increases granted due to negotiated
union contract terms and expected one-time legal and related expenses
associated with compliance with Federal Energy Regulatory Commission's
Order 636. In addition, the Registrant implemented a new accounting
standard for accounting for post-retirement healthcare benefits which
increased the annual expense by $167,000. This increase was fully
recovered in rates. See Footnote 5 of the accompanying consolidated
financial statements for more information. Furthermore, maintenance
expenses increased, reflecting a higher level of service and system
repair work, caused primarily by the colder-than-normal weather
experienced during the peak heating season.
Offsetting the above increases was a restructuring initiative that
occurred at ProvGas in June 1994. The intent of the restructuring was
to significantly improve the Registrant's customer services, lower
operating expenses and increase operating efficiencies. The Registrant,
during 1994, realized approximately $200,000 in after-tax savings as a
result of the restructuring. For more information on the restructuring,
see Footnote 8 to the accompanying consolidated financial statements.
Taxes have increased approximately $800,000 or 5.1 percent during
the latest year. The increase in taxes, mainly Federal income and state
gross receipts, were the result of higher pretax income and higher
operating revenues, respectively. Offsetting the above increase was a
decrease in property taxes resulting from an aggressive program over the
past several years of working with the local cities and towns to reduce
the assessments on which ProvGas pays taxes.
During 1994, the Registrant adopted Statement of Financial
Accounting Standard No. 109 (SFAS No. 109), which requires an asset and
liability approach to account for income taxes. There were significant
adjustments incorporated into the accompanying consolidated balance
sheet. However, there was no profit/loss statement impact as a result
of the adoption of SFAS No. 109. For a more detailed explanation, see
Footnote 2 to the accompanying consolidated financial statements.
Interest expense for 1994 decreased approximately $400,000 or 6.5
percent as compared to 1993. A small increase in short-term interest
rates offset by a decline in weighted average borrowings caused a
decrease in short-term interest expense. Long-term interest expense
decreased as a result of the refinancing of higher cost debt and sinking
fund payments.
RESULTS OF OPERATIONS - 1993 VS 1992
During 1993, the Registrant experienced a 1.6 percent warmer-than-
normal heating season. However, 1993 weather averaged four percent
colder than 1992, thereby increasing operating margin by $1.1 million or
23 cents per common share, net of tax.
The net increase in the average annual number of customers during
1993 over 1992 was approximately 900 or .6 percent. Although the actual
increase for new customers exceeded one percent, this was offset by a
greater than normal number of shut-offs for non-payment and housing
vacancies.
PAGE II-4
As a result of colder temperatures during 1993, residential sales
volumes increased approximately 720 MMcf or 4.8 percent over 1992. Non-
firm sales volumes decreased approximately 2,700 MMcf or 40.7 percent as
a result of the expiration of a short-term contract in November 1992
with a cogeneration customer located outside the Registrant's service
territory. This decrease in non-firm sales had no material impact of
the Registrant's financial position or results of operations due to
ProvGas' 1992 non-firm margin sharing agreement.
Other operation and maintenance expenses have increased
approximately $290,000 or less than one percent during 1993. The modest
increase was due to normal wage increases and maintenance expenses
associated with a higher level of service and system repair work.
Offsetting the increase in the above expenses was the implementation of
a work force reduction initiative in 1992. This initiative decreased
the Registrant's total payroll and related costs by approximately $1
million during 1993 as compared to 1992.
Taxes increased by approximately $1.7 million or 12.3 percent
during 1993 as compared to 1992. The increase in taxes was mainly the
result of higher pretax income and higher operating revenues.
Interest expense for 1993 decreased by approximately $100,000 or
one percent over 1992. The decline in short-term interest rates,
coupled with a decrease in weighted average short-term borrowings, led
to the decrease in short-term interest expense. Offsetting the decrease
in short-term interest was an increase in long-term interest expense due
to the issuance of First Mortgage Bonds, Series O & P totalling $25
million. This issuance was used to call higher cost debt and led to
interest savings in 1994.
LIQUIDITY AND CAPITAL RESOURCES
During 1994, the Registrant experienced a sharp increase in its net
cash provided by operations. In addition to increases in income after
interest expense and increases in non-cash expenses, including deferred
taxes and depreciation, collection of gas costs from the undercollection
that existed in 1993 provided the major reason for the increase in net
cash provided by operations.
In November 1993, ProvGas received proceeds of $16 million related
to an issuance of First Mortgage Bonds, Series Q (5.62%). The net
proceeds received from the issuance were used to pay down short-term
debt. Short-term debt was used earlier to call long-term debt bearing a
higher interest rate. The previous issuances called were First Mortgage
Bonds, Series L (8.85%) and the Series II Senior Debentures (8.50%).
This issuance will generate annual savings to the Registrant of
approximately $300,000, net of tax.
In late June 1993, the Registrant's parent, Providence Energy
Corporation, priced its public offering of 850,000 shares of common
stock at $19 per common share. The net proceeds of $15.3 million, along
with an additional $1.1 million, totalling $16.4 million, were
contributed as capital to ProvGas. ProvGas used the equity for
repayment of short-term debt incurred to finance ProvGas' capital
expenditures.
In November 1992, ProvGas issued $25 million of First Mortgage
Bonds. These bonds, which consisted of $12.5 million (8.46%) designated
as Series O and $12.5 million (8.09%) designated as Series P, will
mature in September 2022. The Series P issuance is subject to an annual
mandatory redemption provision in the amount of $625,000 beginning in
fiscal year 2003. The net proceeds provided by this issuance were used
to paydown short-term debt.
PAGE II-5
The Registrant's parent company's ability to pay dividends to its
shareholders is largely dependent upon receipt of dividends from the
Registrant. Approximately $12.7 million of the Registrant's retained
earnings were available for dividends at the end of 1994 under the terms
of the most restrictive ProvGas First Mortgage Bond indenture.
The Registrant meets seasonal cash requirements and finances its
capital expenditures program on an interim basis through short-term
borrowings. As of September 30, 1994, the Registrant had lines of
credit totalling $55,000,000 ($40,500,000 committed) with borrowings
outstanding of $24,700,000.
Capital expenditures for the latest year were $18.8 million as
compared to $12.8 million in 1993. The increase in capital expenditures
was for large projects for the electric company, the Navy and the
technology projects such as the automated meter reading. Anticipated
capital expenditures for the next three years are expected to total
between approximately $45 million to $55 million. These expenditures
will be for construction and upgrading of gas systems and continuing
investment in technology projects.
PAGE II-6
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE PROVIDENCE GAS COMPANY
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30
1994 1993
(Thousands of Dollars)
ASSETS
Gas plant, at original cost (notes 1, 3 and 6) $230,926 $213,218
Less - Accumulated depreciation and
utility plant acquisition adjustments 79,447 71,289
151,479 141,929
Current assets:
Cash and temporary cash investments (notes 1 and 7) 844 597
Accounts receivable, less allowance of
$2,923 in 1994 and $2,354 in 1993 17,511 16,860
Receivables from affiliated companies 153 80
Unbilled revenues (note 1) 2,877 2,787
Deferred gas costs (notes 1 and 6) 15,349 16,369
Inventories, at average cost -
Liquefied natural gas, propane and underground
storage 11,123 11,363
Materials and supplies 1,590 1,763
Prepaid and refundable taxes (note 2) 3,507 6,169
Prepayments 1,458 837
54,412 56,825
Deferred charges and other assets (notes 1 and 5) 15,286 12,657
Total assets $221,177 $211,411
======== ========
CAPITALIZATION AND LIABILITIES
Capitalization (see accompanying statement) $137,919 $135,024
Current liabilities:
Notes payable (notes 4 and 7) 24,700 20,800
Current portion of long-term debt (note 3) 2,085 466
Accounts payable (note 6) 18,039 18,463
Accrued taxes (note 2) 6,057 7,356
Accrued vacation 1,543 1,664
Customer deposits 3,520 2,895
Other (note 8) 2,779 2,955
58,723 54,599
Deferred credits and reserves:
Accumulated deferred Federal income taxes (note 2) 14,786 13,423
Unamortized investment tax credits (note 2) 2,826 2,984
Other (note 5) 6,923 5,381
24,535 21,788
Commitments and contingencies (notes 6 and 8) - -
Total capitalization and liabilities $221,177 $211,411
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE II-7
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE FISCAL YEARS ENDED
SEPTEMBER 30
1994 1993 1992
(Thousands, except per share amounts)
Operating revenues $219,143 $206,050 $187,705
Cost of gas sold 133,315 124,677 110,161
Operating margin 85,828 81,373 77,544
Operating expenses:
Other operation 41,508 39,355 39,516
Maintenance 3,735 3,487 3,030
Depreciation and amortization 9,345 8,912 8,557
Taxes -
State gross receipts 6,326 5,752 4,888
Local property and other 6,087 6,716 6,551
Federal income (note 2) 4,369 3,507 2,787
71,370 67,729 65,329
Operating income 14,458 13,644 12,215
Other income, net 409 (3) 514
Income before interest expense 14,867 13,641 12,729
Interest expense:
Long-term debt (note 3) 4,987 5,170 4,371
Other 1,241 1,455 2,355
Interest capitalized (107) (79) (111)
6,121 6,546 6,615
Net income 8,746 7,095 6,114
Preferred dividends (note 3) (696) (696) (696)
Net income applicable to
common stock $ 8,050 $ 6,399 $ 5,418
======== ======== ========
Earnings per common share (note 10) $ 6.47 $ 5.15 $ 4.36
======== ======== ========
Weighted average common
shares outstanding (note 10) 1,243.6 1,243.6 1,243.6
======== ======== ========
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE II-8
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED SEPTEMBER 30
1994 1993 1992
(Thousands of Dollars)
Cash provided by (used for)
Operations:
Net income $ 8,746 $ 7,095 $ 6,114
Items not requiring cash:
Depreciation and amortization 9,321 9,055 8,607
Deferred Federal income taxes 1,109 315 335
Amortization of investment tax credits (158) (156) (176)
Changes in assets and liabilities
which provided (used) cash:
Accounts receivable (724) (2,585) (2,404)
Unbilled revenues (90) 564 144
Deferred gas costs 2,120 (9,769) 2,032
Inventories 413 (4,084) 1,219
Deferred capacity charges - 1,343 (846)
Prepaid and refundable taxes 1,929 296 (720)
Prepayments (621) 342 (218)
Accounts payable (1,524) 1,658 2,916
Accrued taxes (156) 174 189
Refundable gas costs - (1,767) 1,767
Accrued vacation, customer
deposits and other 328 551 (504)
Net cash provided by operations 20,693 3,032 18,455
Investment activities:
Expenditures for property, plant and
equipment (18,770) (12,842) (12,780)
Deferred charges and other (1,413) (1,388) (2,454)
Total (20,183) (14,230) (15,234)
Financing activities:
Equity infusion from parent 1,500 16,500 -
Issuance of mortgage bonds 16,000 25,000 -
Payments on long-term debt (466) (16,193) (11,809)
Increase (decrease) in notes payable, net (12,100) 8,610 13,696
Cash dividends on preferred shares (note 3) (696) (696) (696)
Cash dividends on common shares (4,501) (4,427) (4,726)
Total (263) 11,574 (3,535)
Increase (decrease) in cash and
cash equivalents 247 376 (314)
Cash and cash equivalents at beginning
of year 597 221 535
Cash and cash equivalents at end of year $ 844 $ 597 $ 221
======== ======== ========
Supplemental disclosure of cash flow information:
Cash paid during the year for -
Interest (net of amount capitalized) $ 5,965 $ 6,883 $ 6,551
Income taxes (net of refunds) $ 1,205 $ 2,300 $ 2
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE II-9
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF CAPITALIZATION
SEPTEMBER 30
1994 1993
(Thousands of Dollars)
Stockholder's investment: (notes 3 and 10)
Common stock, $1 Par, Authorized - 2,500,000 shares
Outstanding - 1,243,598 shares in 1994
and 1993 $ 1,244$ 1,244
Amount paid in excess of par 37,883 36,452
Retained earnings 30,714 27,165
69,841 64,861
Cumulative preferred stock (notes 3 and 7):
Redeemable 8.7% series, $100 par
Authorized - 80,000 shares
Outstanding - 80,000 shares as of 1994
and 1993 8,000 8,000
Long-term debt (notes 3, 6 and 7):
First Mortgage Bonds, secured by utility property -
Series M, 10 1/4%, due July 31, 2008 10,000 10,000
Series N, 9.63%, due May 30, 2020 10,000 10,000
Series O, 8.46%, due September 30, 2022 12,500 12,500
Series P, 8.09%, due September 30, 2022 12,500 12,500
Series Q, 5.62%, due November 30, 2003 16,000 16,000
Capital Leases 1,163 1,629
62,163 62,629
Less-current portion 2,085 466
60,078 62,163
Total capitalization $137,919$135,024
================
The accompanying notes are an integral part of these consolidated
financial statements.
PAGE II-10
THE PROVIDENCE GAS COMPANY
CONSOLIDATED STATEMENTS OF CHANGES
IN COMMON STOCKHOLDER'S INVESTMENT
FOR THE THREE YEARS ENDED SEPTEMBER 30, 1994
Amount
Shares Paid in
Issued and Outstanding Excess Retained
Number Amount of Par Earnings
(Thousands)
Balance, September 30, 1991 1,244 $1,244 $19,977 $24,501
Add (deduct):
Net income - - - 6,114
Cash dividends on common shares
($3.80 per share) - - - (4,726)
Cash dividends on preferred
shares ($8.70 per share) - - - (696)
Stock options - - (11) -
Balance, September 30, 1992 1,244 1,244 19,966 25,193
Add (deduct):
Net income - - - 7,095
Cash dividends on common shares
($3.56 per share) - - - (4,427)
Cash dividends on preferred
shares ($8.70 per share) - - - (696)
Equity infusion - - 16,486 -
Balance, September 30, 1993 1,244 1,244 36,452 27,165
Add (deduct):
Net income - - - 8,746
Cash dividends on common shares
($3.62 per share) - - - (4,501)
Cash dividends on preferred
shares ($8.70 per share) - - - (696)
Equity infusion - - 1,500 -
Accrual for key employee
stock compensation plan - - (69) -
Balance, September 30, 1994 1,244 $1,244 $37,883 $30,714
======= ====== ======= =======
The accompanying notes are an integral part of these consolidated financial
statements.
PAGE II-11
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.SIGNIFICANT ACCOUNTING POLICIES
Consolidation. The consolidated financial statements include the
accounts of The Providence Gas Company and its wholly-owned
subsidiary (the Registrant or ProvGas). Revenues from the natural
gas distribution business are reflected in the accompanying
consolidated statements of income to arrive at operating income.
Results of nonutility operations are presented after operating
income in the accompanying consolidated statements of income. All
significant intercompany transactions have been eliminated in
consolidation.
Regulation. The Registrant is subject to regulation by the Rhode
Island Public Utilities Commission (RIPUC). The accounting
policies of ProvGas conform to generally accepted accounting
principles as applied in the case of regulated public utilities and
are in accordance with the regulators' accounting requirements and
rate-making practices.
Operating Revenues. Operating revenues consist principally of
gas sales. The gas companies record accrued utility revenues based
on estimates of gas volumes consumed and not billed at the end of
an accounting period in order to match revenues with related costs.
Lease Accounting. The Registrant leases water heaters and other
appliances to customers under finance leases. The Registrant
recognizes the profits associated with these leases when the sale
is made, after providing reserves for unearned income, doubtful
accounts and warranty repairs.
Gas Plant. Gas plant is stated at the original cost of
construction. In accordance with the uniform system of accounts
prescribed by the RIPUC, the difference between the original cost
of gas plant acquired and the cost to ProvGas is recorded as a
Utility Plant Acquisition Adjustment and is being amortized over
periods ranging from 1-22 years.
Depreciation. Depreciation is provided on the straight-line
basis at rates designed to amortize the cost of depreciable plant
over its estimated useful life. The composite depreciation rate
expressed as a percentage of the average depreciable gas plant in
service was approximately 3.75 percent for all years presented.
The Company retires property units by charging original cost,
cost of removal and salvage value to accumulated depreciation.
Cost of Gas Adjustment. The Registrant has a Cost of Gas
Adjustment clause (CGA) which allows for the adjustment of rates
charged to customers in order to recover actual gas costs incurred,
including demand and commodity charges. The CGA provides for
reconciliation of total gas costs billed with the actual cost of
gas recorded. Any excess or deficiency in amounts billed as
compared to costs is deferred and either refunded to, or recovered
from, the customers over a subsequent period.
Allowance for funds used during construction. The Registrant
capitalizes interest and an allowance for equity funds in
accordance with established policies of the RIPUC. The rates used
are based on the actual cost of debt and the allowed equity return.
Interest capitalized is shown as a reduction of interest expense
and the equity allowance is included in other income.
Deferred charges and other assets. The Registrant defers and
amortizes certain costs in a manner consistent with authorized or
probable rate making treatment. Deferred financing costs are
amortized over the life of the security while the remaining
deferred charges and other assets are amortized over a recovery
period specified by the RIPUC.
PAGE II-12
Deferred Charges Include:
1994 1993
Cost of fuel assistance program $ 1,885 $ 1,812
Restructuring program 1,600 -
Pension costs 5,890 5,153
Unamortized debt expense 2,422 2,451
Post retirement benefits 708 -
Pipeline interconnection costs 921 1,140
Other deferred charges 1,860 2,101
TOTAL $ 15,286 $ 12,657
======== ========
Temporary Cash Investments. Temporary cash investments are
short-term, highly liquid investments with a maturity to the
Registrant of not more than 90 days.
Reclassifications. Certain amounts in the prior year
consolidated financial statements have been reclassified for
consistent presentation with the current year.
2.FEDERAL INCOME TAXES
In 1994, the Registrant adopted SFAS No. 109, Accounting for Income
Taxes, which requires an asset and a liability approach to
accounting for income taxes. Under the provisions of SFAS No. 109,
deferred taxes are provided for all temporary differences. The
prior year financial statements have not been restated.
When implementing SFAS No. 109, the Registrant reduced deferred
taxes that were previously provided at rates higher than the
current tax rate. Additional deferred taxes and prepaid taxes were
also provided for certain temporary differences previously not
provided. These adjustments to deferred taxes will be returned to
or collected from customers in the future. Accordingly, the
Registrant has recorded a net regulatory liability corresponding to
the tax adjustments. The implementation of SFAS No. 109 has had no
impact on the Registrant's results of operations or cash flows.
The following is a summary of the provision for Federal income
taxes for the three years ended September 30:
(thousands of dollars) 1994 1993 1992
Current $ 3,333 $ 2,772 $ 2,558
Deferred 1,109 866 335
Total Federal income tax
provision $ 4,442 $ 3,638 $ 2,893
======= ======= ======
Income tax is charged to the
following for each of the three years
ended September 30:
Charged to operating
expenses $ 4,369 $ 3,507 $ 2,787
Included in other income
(loss), net 73 131 106
Total Federal income tax
provision $ 4,442 $ 3,638 $ 2,893
======= ======= =======
The effective Federal income tax rates and the reasons for their
differences from the statutory Federal income tax rates are as
follows:
PAGE II-13
1994 1993 1992
Statutory Federal income tax
rates 34.0% 34.0% 34.0%
Effect of change of
Statutory Rate to
35% for 1994 .3 - -
Reversing timing differences (.4) (.4) (.9)
Impact of equity allowance-
AFUDC - .2 .1
Amortization of investment
tax credits (.4) (.5) (.7)
Other .1 .6 (.4)
33.6% 33.9% 32.1%
==== ==== ====
The Registrant's deferred tax assets and liabilities as of
September 30, 1994 are the result of the following temporary
differences:
(000)
Long-term deferred taxes
-
Tax Assets
Unamortized ITC $ 961
Regulatory liability 326
Other 1,250
Tax Liabilities
Property related (14,956)
Pension costs (648)
Deferred charges (1,688)
Other (31)
Net deferred tax liability included in
accompanying consolidated balance sheet $(14,786)
========
Prepaid Taxes
Tax assets
Accounts receivable reserves $ 913
Property tax reserves 985
Alternative minimum tax 138
Other 752
Tax liabilities
Employee severance (409)
Other (86)
Net prepaid taxes 2,293
Prepaid gross receipts
Tax and other 1,214
Net prepaid and refundable taxes in
accompanying consolidated
balance sheet $ 3,507
========
During 1994, ProvGas received permission from the Internal
Revenue Service to change its tax year to a fiscal year ended
September 30. Previously, the Registrant was a calendar year tax
payer.
Investment tax credits are amortized through credits to other
income over the estimated lives of related property.
PAGE II-14
3. CAPITALIZATION
A. Long-term Debt
The terms of the various indentures, as supplemented, under which
the First Mortgage Bonds were issued, contain restrictions which
provide that dividends may not be paid on common stock of the
Registrant under certain conditions. Approximately, $12.7 million
of the Registrant's retained earnings were available for dividends
under the terms of the most restrictive First Mortgage Bond
indenture.
In November 1993, the Registrant issued $16 million, of First
Mortgage Bonds. These First Mortgage Bonds, Series Q, will mature
in 2003. The net proceeds provided by this indebtedness were used
to pay down the Registrant's short-term debt. The accompanying
consolidated financial statements and related disclosures have been
prepared as if this debt was issued and the notes payable retired
as of September 30, 1993.
The Company's First Mortgage Bonds are secured by a lien on both
tangible and real property.
As of September 30, 1994, the annual sinking fund requirements and
current maturities of long-term debt and capital leases for the
next five fiscal years are $2,085,500 in 1995, $1,969,300 in 1996,
$1,875,200 in 1997, $2,542,600 in 1998, and $2,509,000 in 1999.
B. Preferred Stock
The Registrant's preferred stock, which consists of 80,000 shares
of $100 par value, has an 8.7% cumulative annual dividend rate
payable on a quarterly basis, and has no voting power or privileges
unless default in payment of dividends or sinking fund obligation.
The stock is subject to a cumulative annual sinking fund
requirement of 16,000 shares per year at par ($1,600,000) plus
accrued or unpaid dividends commencing at the end of 1997.
4.NOTES PAYABLE
The Registrant meets seasonal cash requirements and finances its
construction program on an interim basis through short-term bank
borrowings. As of September 30, 1994, the Registrant had lines of
credit totalling $55,000,000 ($40,500,000 committed) with
borrowings outstanding of $24,700,000.
The Registrant pays a fee for its committed lines of credit rather
than maintaining compensating balances.
5.EMPLOYEE BENEFITS
A. Retirement Plans
The Registrant has two pension plans providing retirement benefits
for substantially all of its employees. The benefits under the
plans are based on years of service and the employee's final
average compensation during a short period prior to retirement. It
is the Registrant's policy to fund the plan as required by the
Employee Retirement Income Security Act.
The following table sets forth the funded status of the pension
plans and amounts recognized in the Registrant's consolidated
balance sheets at September 30, 1994 and 1993 (in thousands):
PAGE II-15
1994 1993
Accumulated benefit obligation, including
vested benefits of $35,693 as of September
30, 1994 and $34,877 as of September 30,
1993 $(37,076) $(36,088)
======== ========
Projected benefit obligation for service
rendered to date $(49,684) $(47,796)
Plan assets at fair value (primarily listed
stocks, corporate bonds and U.S. bonds) 50,840 54,943
Projected benefit obligation less than
plan assets 1,156 7,147
Unrecognized net (gain) (5,426) (11,092)
Prior service cost not yet recognized in
net periodic pension cost 1,271 1,141
Unrecognized net assets at October 1, 1985
being recognized over 15 years (817) (953)
Net accrued pension cost included in other
deferred credits at September 30, 1994
and 1993 $ (3,816) $ (3,757)
======== ========
Net pension cost for fiscal years 1994, 1993 and 1992 included the
following components:
1994 1993 1992
Service cost-benefits earned during the
period $ 1,582 $ 1,494 $ 1,228
Interest cost on projected benefit
obligation 3,800 3,661 3,320
Return on plan assets 994 (8,885) (5,239)
Net amortization and deferral (6,227) 4,447 997
Retirement Incentive Plan, net - - 4,762
Net periodic pension cost 149 717 5,068
Adjustments due to regulatory
action (126) (637) (4,998)
Net periodic pension cost recognized $ 23 $ 80 $ 70
======= ======= =======
The discount rate and rate of increase in future compensation
levels used for all years presented in determining the projected
benefit obligation were 8 percent and 6 percent, respectively. The
expected long-term rate of return on assets was 9 percent.
ProvGas recovers pension costs in rates when such costs are funded.
Therefore, the amount by which funding differs from pension
expense, determined in accordance with generally accepted
accounting principles, is deferred and recorded as a regulatory
asset or liability.
B. Post-retirement Benefits Other Than Pensions
The Registrant currently offers retirees who have attained age 55
and worked 5 years for the Company healthcare and life insurance
benefits during retirement ("The Plan"). These benefits are
similar to the benefits offered to active employees. Although
retirees are not required to make contributions to the Plan
currently, future contributions may be required if the cost of the
Plan exceeds certain limits.
On October 1, 1993, the Registrant adopted the provisions of the
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Post-retirement Benefits Other Than Pensions (SFAS
No. 106). SFAS No. 106 requires that these benefits be accrued
over the service life of covered employees. Prior to the adoption
of SFAS No. 106, the Registrant accounted for these costs when
paid. These costs were $604,000 in 1993 and $519,000 in 1992.
Upon adoption of SFAS No. 106, the Registrant calculated an
unrecognized transition obligation of $10,526,000, which the
Registrant plans to recognize over a 20-year amortization period.
PAGE II-16
In 1994, the Registrant funded its total 1994 SFAS No. 106 expense
of approximately $1,566,000 to a Voluntary Employee Benefit
Association (VEBA) Trust. The assets in the VEBA Trust, available
to pay future plan benefits, were invested in cash equivalents at
September 30, 1994.
The Registrant recovers its SFAS No. 106 costs in rates to the
extent allowed by the RIPUC. The RIPUC generally allows such costs
to be recovered if amounts are funded into tax favored investment
funds, such as the VEBA Trust. Accordingly, the Registrant will
fully recover its 1994 SFAS No. 106 expense of $1,566,000 because
such amounts were funded into the VEBA Trust. Of the total SFAS
No. 106 costs, $855,000 was recovered in rates during 1994, while
the remaining $711,000 has been deferred and will be recovered in
future years.
The Plan's costs and accumulated post-retirement benefit obligation
for 1994 are calculated by the Registrant's actuaries using
assumptions and estimates which include:
Percent
Healthcare cost annual growth rate 12.6
Healthcare cost annual growth rate - long-term 6.0
Expected long-term rate of return (union) 5.5
Expected long-term rate of return (non-union) 8.5
Discount rate 8.0
The healthcare cost annual growth rate significantly impacts the
estimated Plan obligation and annual expense. For example, a 1%
change in the above rates would change the obligation by $853,000
and would change the annual expense by $90,000.
The obligations and assets of the Plan at September 30, 1994 were:
Accumulated post-retirement
benefit obligation:
Current retirees $ (6,518,300)
Active employees-eligible for
benefits (795,100)
Active employees (3,618,700)
Total post-retirement benefit
obligation (10,932,100)
Plan assets at fair value 856,400
Unfunded post-retirement benefit
obligation (10,075,700)
Unrecognized transition obligation 9,999,900
Unrecognized net (gain) or loss 75,800
Accrued post-retirement
benefit obligations included
in the Registrant's consolidated
balance sheet $ --
============
The Company's actuarally determined Plan costs for 1994 include:
Service cost $ 238,400
Interest cost 834,500
Actual return on plan assets (36,600)
Amortization and deferral 529,700
Total annual plan costs $1,566,000
==========
PAGE II-17
C. Supplemental Retirement Plans
The Registrant provides certain supplemental retirement plans for
key employees. The projected benefit obligation is approximately
$2 million which is being accrued over the service period of these
key employees. The executive supplemental plans are unfunded. The
Registrant expensed $44,000 and $39,000 related to these benefits
in 1994 and 1993, respectively.
6.COMMITMENTS AND CONTINGENCIES
A. Legal Proceedings
The Registrant is involved in legal and administrative proceedings
in the normal course of business, including certain proceedings
involving material amounts in which claims have been or may be
made. However, management believes, after review of insurance
coverage and consultation with legal counsel, that the ultimate
resolution of the legal proceedings to which it is or can at the
present time be reasonably expected to be a party, will not have a
materially adverse effect on the Registrant's results of operations
or financial conditions.
B. Leases
ProvGas has a capital lease with Algonquin Gas Transmission Company
(Algonquin) for storage space in a liquefied natural gas (LNG)
tank. The capital lease arrangement also provides that Algonquin
lease from ProvGas, for a corresponding term at an annual amount of
$150,000, the land on which the tank is situated.
The gross amounts related to this capital lease are summarized
below:
(thousands of dollars) 1994 1993
Gas plant $6,116 $ 6,116
Accumulated depreciation 5,256 4,981
$ 860 $ 1,135
====== =======
The Registrant also has lease agreements for various facilities and
computer equipment. The total annual rental costs, including the
LNG storage costs described above, were approximately $2,319,000 in
1994, $2,168,000 in 1993, and $2,075,000 in 1992. The aggregate
commitments for existing leases are as follows:
LNG Computer
(thousands of dollars) Storage & Other Total
1995 $ 320 $1,134 $1,454
1996 155 770 925
1997 134 352 486
1998 136 122 258
1999 136 50 186
2000-2004 565 4 569
$1,446 $2,432 $3,878
====== ====== ======
C.GAS SUPPLY RESTRUCTURING
Federal Energy Regulatory Commission (FERC) Order 636 and other
related orders (the Orders) have significantly changed the
structure and types of services offered by pipeline transportation
companies. The most significant components of the restructuring
occurred in November 1993. In response to these changes, the
Registrant has successfully negotiated new pipeline transportation
and gas storage contracts.
At the same time, a number of contracts with gas suppliers have
been negotiated to complement the transportation and storage
contracts. The portfolio of supply contracts is designed to be
market responsive and is diversified with respect to contract
PAGE II-18
lengths, source location and other contract terms. On a periodic
basis, the Registrant reviews all of its contracts to ensure a
diverse, secure, flexible and economical supply portfolio is
maintained.
To meet the requirements of the Orders, the pipelines have incurred
significant costs, collectively known as transition costs. The
majority of these costs will be reimbursed by the pipeline's
customers including the Registrant. Based upon current
information, the Registrant anticipates its transition costs to
total between $16 million and $19 million of which $8.3 million has
been included in the CGA and is currently being collected from
customers. The remaining minimum obligation of $7.7 million has
been recorded in the accompanying consolidated balance sheet along
with a regulatory asset anticipating future recovery through the
CGA.
The Registrant's ultimate liability may differ from the above
estimates based on FERC settlements with the Registrant's pipeline
transportation suppliers. FERC has approved settlements with two
of its pipelines, which account for the bulk of its transition
costs. Negotiations are continuing on the two additional
pipelines, but recent developments have considerably reduced the
uncertainty previously disclosed. As a result, the Registrant has
decreased the range for potential transition costs accordingly.
D.ENVIRONMENTAL
Federal, state and local laws and regulations establishing
standards and requirements for protection of the environment have
increased in number and in scope within recent years. The
Registrant cannot predict the future impact of such standards and
requirements which are subject to change and can take effect
retroactively. The Registrant continues to monitor the status of
these laws and regulations. Such monitoring involves the review of
past and current operations and properties. To the best of its
knowledge, subject to the following paragraph, the Registrant
believes it is in substantial compliance with such laws and
regulations. However, should future costs be incurred, relating to
the items mentioned below, the Registrant anticipates recovery from
third parties or through rates.
The Registrant is aware of four sites at which it may incur future
costs for environmental investigation and clean-up. Based on
current available information, however, the amount of costs, if
any, related to these sites will not be material to the operations
of the Registrant or its financial condition.
Management anticipates requesting rate relief for all costs related
to the environmental matters and believes that the ultimate
resolution of these matters will not have a materially adverse
effect on the Registrant's results of operations and financial
condition.
E.FUEL ASSISTANCE PROGRAM
The Registrant participates in the State of Rhode Island's Fuel
Assistance Program, the Percentage of Income Payment Plan (PIPP).
As a result, ProvGas has agreed to accept partial payment on
certain customer accounts from various state agencies. As of
September 30, 1994, $2.3 million was due from the State of Rhode
Island related to gas consumed by customers over the last three
years.
F. LEASE RECEIVABLES
In prior years, the Registrant sold to a financial institution
lease receivables of hot water heaters and conversion burners
installed at customers homes or businesses. These receivables were
sold with recourse limited to default by the lessee. In the event
of default, the Registrant would recognize as a loss the excess of
the receivable balance, net of established reserves for such
PAGE II-19
default over the value of the equipment. The balance of these
receivables as of September 30, 1994 is approximately $1,418,000.
7.FAIR VALUES OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the
fair value disclosures for the following financial instruments:
Cash, Cash Equivalents and Short-term Debt
The carrying amount approximates fair value due to the short-term
maturity of these instruments.
Long-term Debt and Preferred Stock
The fair value of long-term debt and preferred stock is estimated
based on currently quoted market prices for similar types of
issues.
The carrying amounts and estimated fair values of the Registrant's
financial instruments at September 30, 1994 are as follows:
1994
Carrying Fair
Amount Value
Cash and cash equivalents $ 844 $ 844
Short-term debt 24,700 24,700
Long-term debt 62,163 63,401
Preferred stock 8,000 8,000
1993
Carrying Fair
Amount Value
Cash and cash equivalents $ 597 $ 597
Short-term debt* 20,800 20,800
Long-term debt* 62,629 53,179
Preferred stock 8,000 7,143
* Adjusted for the issuance of $16 million in First Mortgage Bonds,
Series Q.
Anticipated regulatory treatment for the difference between the
carrying amount and the fair value of the Registrant's preferred
stock and long-term debt, if they were settled at amounts reflected
above, would be recovered in the Registrant's rates over a
prescribed amortization period. Accordingly, any settlement would
not result in a material impact on the Registrant's financial
position or results of operations.
8.RESTRUCTURING
In June 1994, ProvGas, following a six month study of its major
processes, realigned its personnel to meet the existing and future
challenges associated with an increasingly competitive energy
market place. The intent of the restructuring was to significantly
improve ProvGas' customer services, lower operating costs and
increase operating efficiencies. Approximately 30 people were
separated from ProvGas, while approximately 20 new employees will
be hired throughout the upcoming year to fill newly defined
positions. The employees eventually hired for these new positions
will bring skill, expertise and experiences to ProvGas not
previously available within its workforce.
The direct cost of this realignment is estimated to be about $1
million, net of tax. A significant portion of this $1 million is
severance pay and related benefits for personnel who were separated
PAGE II-20
during 1994. The Registrant anticipates paying all amounts accrued
within the next six months. The Registrant has discussed the
reorganization with the RIPUC and based on prior RIPUC allowance of
similar costs, the Registrant has deferred these costs in
anticipation of recovery in its next rate case.
9.RATE CHANGES
In October 1993, ProvGas received approval from the RIPUC to
implement a new rate design, effective November 14, 1993, that will
help promote economic development and reduce the Company's earnings
sensitivity to weather. In addition to the improved stability in
earnings, the new rates are designed to increase annual operating
margin by approximately $700,000. The RIPUC also allowed ProvGas
an 11.2% return on equity.
10.UNAUDITED QUARTERLY FINANCIAL INFORMATION
The following is unaudited quarterly financial information for the
two years ended September 30, 1994 and 1993. Quarterly variations
between periods are caused primarily by the seasonal nature of gas
sales and the availability of gas. It is important to note that
the new rate structure and new method to account for gas costs
means that quarterly earnings in 1994 are not comparable to prior
years.
(thousands, except
per share amounts)
Quarter Ended
Dec. 31 Mar. 31 June 30 Sept. 30
Fiscal 1994
Operating revenues $62,055 $81,813 $41,917 $33,358
Operating income (loss) 4,972 7,729 552 1,205
Net income (loss)
applicable to
common stock 3,625 6,180 (1,089) (666)
Net income (loss)
applicable to
common stock
per share* 2.91 4.97 (.88) (.53)
Fiscal 1993
Operating revenues $60,574 $74,866 $37,642 $32,968
Operating income (loss) 5,829 10,542 (644) (2,083)
Net income (loss) applicable
to common stock 4,065 8,601 (2,372) (3,895)
Net income (loss) applicable
to common stock
per share* 3.27 6.92 (1.91) (3.13)
* Calculated on the basis of weighted average shares outstanding
during
the quarter.
PAGE II-21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Board of Directors of the Providence Gas Company:
We have audited the accompanying consolidated balance sheets and
the consolidated statements of capitalization of PROVIDENCE GAS
COMPANY (a Rhode Island corporation and wholly owned subsidiary of
Providence Energy Corporation) as of September 30, 1994 and 1993, and
the related consolidated statements of income, changes in common
stockholders' investment and cash flows for each of the three years in
the period ended September 30, 1994. These financial statements and
the schedules referred to below are the responsibility of the
Company's management. Our responsibility is to express an opinion on
these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted
auditing standards. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to
above present fairly, in all material respects, the financial position
of Providence Gas Company as of September 30, 1994 and 1993, and the
results of their operations and their cash flows for each of the three
years in the period ended September 30, 1994, in conformity with
generally accepted accounting principles.
As discussed in Notes 2 and 5 and to the accompanying financial
statements, effective October 1, 1993, the Company changed its method
of accounting for income taxes post-retirement benefits other than
pensions.
Our audits were made for the purpose of forming an opinion on the
basic financial statements taken as a whole. The schedules listed in
the accompanying index to the financial statements are presented for
purposes of complying with the Securities and Exchange Commission's
rules and are not part of the basic financial statements. These
schedules have been subjected to the auditing procedures applied in
the audits of the basic financial statements and, in our opinion,
fairly state, in all material respects, the financial data required to
be set forth therein, in relation to the basic financial statements
taken as a whole.
Arthur Andersen LLP
Boston, Massachusetts
November 3, 1994
II-22
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
Not applicable.
PAGE II-23
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The following
information is furnished with respect to the executive officers of the
Registrant:
Year
office in
Registrant
Name and Age Office First Held
James H. Dodge (54) Chairman, President and Chief
Executive Officer 1992
James DeMetro (46) Vice President, Energy Services 1992
Gary S. Gillheeney (39) Vice President, Financial
and Information Services,
Treasurer and Assistant
Secretary 1994
Alycia L. Goody (42) General Counsel and
Corporate Secretary 1991
William D. Mullin (46) Vice President, Corporate Relations1994
Robert W. Owens (46) Vice President, Operations 1994
Bruce G. Wilde (48) Vice President, Human Resources
and Assistant Secretary 1991
Mr. Dodge was elected President and Chief Executive Officer of
Providence Energy Corporation and ProvGas in August 1990 after the
retirement of Louis R. Hampton. Mr. Dodge subsequently became
Chairman of the Board in January 1992. Prior to his employment with
the Registrant, he was President and Chief Executive Officer of
Vermont as Systems, Inc. Vermont Gas Systems, Inc. is a regulated
public utility which sells natural gas to a portion of the population
of the State of Vermont.
Mr. DeMetro was elected Vice President, Energy Services of
Providence Energy Corporation and ProvGas in March 1992. For more
than five years, prior thereto, Mr. DeMetro served the Brooklyn Union
Gas Company, a regulated natural gas utility, in various management
positions, most recently as Manager, Rates and Regulations.
Mr. Gillheeney was elected Vice President, Financial and Information
Services, Treasurer and Assistant Secretary in May 1994. For more
than five years prior thereto, Mr. Gillheeney served ProvGas in
various management positions, most recently as Assistant Treasurer and
Controller.
Ms. Goody was elected General Counsel and Corporate Secretary of
Providence Energy Corporation and ProvGas in January 1991. For two
years, prior thereto, Ms. Goody served ProvGas as Corporate Counsel.
For three more years prior to that, Ms. Goody served as an Assistant
Attorney General for the Commonwealth of Massachusetts.
Mr. Mullin was elected Vice President, Corporate Relations of
Providence Energy Corporation and ProvGas in January 1994. For five
years prior to his current position with Providence Energy Corporation
and ProvGas, he served ProvGas in various management positions, most
recently as Vice President, Operations.
Mr. Owens was elected Vice President, Operations Providence Energy
Corporation and the ProvGas in January 1994. For more than five years
prior thereto, Mr. Owens served the Providence Energy Corporation and
ProvGas in various management positions, most recently as Vice
President, Treasurer and Chief Financial Officer.
Mr. Wilde was elected Vice President, Human Resources and Assistant
Secretary of Providence Energy Corporation in May 1994. For more than
five years prior thereto, Mr. Wilde served ProvGas in various
management positions, most recently as Assistant Vice President for
Personnel.
PAGE III-1
DIRECTORS OF THE REGISTRANT
The following information is furnished with respect to the Directors
of the Registrant.
Name Director Since Expiration of Term
William W. Bennett * 1992 1997
Gilbert R. Bodell, Jr. 1980 1995
James H. Dodge 1991 1997
Diane M. Disney * 1994 1997
Robert P. Freeman * 1983 1995
Louis R. Hampton 1971 1995
John H. Howland 1993 1996
Douglas H. Johnson 1993 1996
Dorothy G. Kramer 1976 1995
Romolo A. Marsella 1993 1996
Kenneth W. Washburn 1975 1997
* Will be leaving as a Director in January 1995.
William W. Bennett is Director of Operations, Rocky Hill School in
Warwick, RI.
Gilbert R. Bodell, Jr. is President, Frontier Manufacturing Company
(textile); former Vice President, Valley Lace Co. and Esten Dyeing and
Finishing Co.
James H. Dodge has been Chairman since January, 1992 and President and
Chief Executive Officer of the Registrant since August, 1990; from 1984
through August, 1990: President and Chief Executive Officer of Vermont
Gas Systems, Inc. (a regulated natural gas utility) and affiliated
companies.
Diane M. Disney is the Deputy Assistant to the Secretary of Defense
(Civilian Personnel Policy).
Robert P. Freeman since July, 1992: President of Lazard Freres Real
Estate Fund; since July, 1992, Chairman, and from February, 1991 to
July, 1992: President and Chief Executive Officer, Pacific Gateway
Properties, Inc. (formerly Perini Investment Properties, Inc.)
previously President, the Marathon Group of Companies, Inc. (holding
company of investment counselling and real estate development firms).
Louis R. Hampton is the retired Chairman of the Board of Directors.
Mr. Hampton served as President and Chief Executive Officer of the
Registrant for more than 16 years; retiring from those positions in
1990.
John H. Howland is President and Chief Operating Officer, Original
Bradford Soap Works, Inc. (textiles).
Douglas H. Johnson since October, 1991: Vice President and Managing
Partner, M. Van Leesten Associates, Inc. (business and urban planning
consultants); from 1980 to October, 1991: President and Chief
Executive Officer, Peerless Precision, Inc. (aerospace manufacturing
company).
Dorothy G. Kramer is retired Senior Vice President, Treasurer and
Corporate Secretary, Taco, Inc. (manufacturers of pumping, heat
transfer and hydronic control equipment).
PAGE III-2
Romolo A. Marsella is President, Marsella Development Corporation
(real estate development).
Kenneth W. Washburn is Chairman and President, Union Wadding company
(manufacturers of non-woven textiles).
ITEM 11. EXECUTIVE COMPENSATION
For the information called for by this item, reference is made to
pages 7 to 13 of the Providence Energy Corporation's proxy statement
filed December 16, 1994 with the Securities and Exchange Commission for
the annual meeting of shareholders to be held January 19, 1995.
PAGE III-3
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Not applicable. All of the Registrant's voting securities are held
by
Providence Energy Corporation.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Not applicable.
III-4
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
THE PROVIDENCE GAS COMPANY
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
(a)Financial Statements and Schedules
Balance Sheets--September 30, 1994 and 1993
Statements of Income for the years ended September 30, 1994, 1993 and
1992
Statements of Cash Flows for the years ended September 30, 1994, 1993
and 1992
Statements of Capitalization--September 30, 1994 and 1993
Statements of Changes in Common Stockholder's Investment for the years
ended September 30, 1994, 1993 and 1992
Notes to Financial Statements
Report of Independent Public Accountants
V. Property, Plant and Equipment for the years ended September 30,
1994, 1993 and 1992.
VI. Accumulated Depreciation and Amortization of Property, Plant and
Equipment for the years ended September 30, 1994, 1993 and 1992.
VIII. Reserves for the years ended September 30, 1994, 1993 and 1992.
IX. Short-term borrowings for the years ended September 30, 1994,
1993 and 1992.
The information required to be submitted in Schedule X has been
included in the financial statements and related notes.
Schedules I to XIII not listed above are omitted as not applicable
or not required under Regulation S-X.
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the last quarter of the
Registrant's fiscal year ended September 30, 1994.
(c) Exhibits
The following exhibits are filed as part of this report:
3.1 Charter (incorporated by reference to Exhibit 3.1 to the
registrant's registration statement on Form S-1 (Registration No.
2-72726)).
3.2 Bylaws. (Filed as Exhibit 3.2 to the Report on Form 10-K of the
Registrant in Form 10-K for the year ended September 30, 1993,
incorporated herein by this reference.)
4.1 Indenture dated as of August 1, 1981 from The Providence Gas Company
to St. Louis Union Trust Company, Trustee, filed as Exhibit 4.1 to
Registration Statement of The Providence Gas Company on Form S-1
(Registration No. 2-72726), incorporated herein by this reference.
4.2 First Supplemental Indenture dated as of May 1, 1986 from The
Providence Gas Company to Centerre Trust Company of St. Louis,
Trustee (filed as Exhibit 4 (b) to Registration Statement of The
Providence Gas Company on Form S-3 (Registration No. 33-5023),
incorporated herein by this reference).
4.3 First Mortgage Indenture dated as of January 1, 1922, as
supplemented by First through Twelfth Supplemental Indentures,
(incorporated by reference to Exhibit 10.10 to the Registrant's
registration statement on Form S-1 (Registration No. 2-72726)).
PAGE IV-1
4.4 Fourteenth, Fifteenth and Sixteenth Supplemental Indentures dated
as of August 1, 1988, June 1, 1990 and November 1, 1992,
respectively (incorporated by reference to Exhibit 4 to the report
of Providence Energy Corporation (Commission File No. 1-10032) to
the Securities and Exchange Commission on Form 10-Q for the quarter
ended March 31, 1993).
4.5 Seventeenth Supplemental Indenture dated as of November 1, 1993.
(Filed as Exhibit 4.5 to the report of the Registrant in Form 10-K
for the year ended SEptember 30, 1993, incorporated herein by this
reference.)
10.1 Material contracts listed in Exhibits 10 (a) through 10 (ff)
(excluding Exhibits 10 (x), 10 (y), 10 (cc) and 10 (dd)) to
Registration Statement of Providence Energy Corporation on Form S-2
(Registration No. 33-24125), incorporated herein by this reference.
10.2 Employment agreement dated August 20, 1990 between James H. Dodge,
President of the Registrant. (Filed as Exhibit 10.2 to the report
of the Registrant in Form 10-K for the year ended September 30,
1992, incorporated herein by this reference.)
10.3 Non-firm Margin Sharing Agreement. (Filed as Exhibit 10.3 to the
report of the Registrant in Form 10-K for the year ended September
30, 1992, incorporated herein by this reference.)
10.4 Employment agreement dated April 1, 1992 between James DeMetro,
Vice President, Energy Services of the Registrant. (Filed as
Exhibit 10.4 to the report of the Registrant in Form 10-K for the
year ended September 30, 1992, incorporated herein by this
reference.)
10.5 Employment agreement dated August 15, 1991 between Robert W. Owens,
Vice President, Treasurer and Chief Financial Officer of the
Registrant. (Filed as Exhibit 10.5 to the report of the Registrant
in Form 10-K for the year ended September 30, 1992, incorporated
herein by this reference.)
PAGE IV-2
PROVIDENCE GAS COMPANY Schedule V
PROPERTY, PLANT AND EQUIPMENT
FOR THE YEARS ENDED
SEPTEMBER 30, 1994, SEPTEMBER 30, 1993 AND SEPTEMBER 30, 1992
(Thousands of Dollars)
Balance Additions Sales and Balance
Classification Sept 30, 1993 at Cost Retirements Other Sept 30, 1994
Gas Plant
Land and
rights-of-way $ 809 $ -- $ -- $ -- $ 809
Structures 19,679 622 -- -- 20,301
Distribution equip. 163,340 17,417 615 -- 180,142
Transportation equip. 1,714 -- 92 -- 1,622
Other equip. 24,304 1,144 75 (275)(A) 25,098
Construction work 3,372 (413) -- (5) 2,954
Total gas plant $213,218 $18,770 $ 782 $ (280) $230,926
======== ======= ======= ======= ========
Balance Additions Sales and Balance
Classification Sept 30, 1992 at Cost Retirements Other Sept 30, 1993
Land and
rights-of-way $ 803 $ 6 $ -- $ -- $ 809
Structures 19,136 516 -- 27 19,679
Distribution equip. 153,159 11,044 858 (5) 163,340
Transportation equip. 1,898 - 182 (2) 1,714
Other equip. 23,943 951 295 (295)(A) 24,304
Construction work
in progress 3,080 325 -- (33) 3,372
Total gas plant $202,019 $12,842 $ 1,335 $ (308) $213,218
======== ======= ======= ======= ========
Additions Sales and Balance
Classification Sept 30, 1991 at Cost Retirements Other Sept 30, 1992
Land and
rights-of-way $ 795 $ 8 $ -- $ -- $ 803
Structures 20,492 176 1,544 12 19,136
Distribution equip. 142,355 11,338 534 -- 153,159
Transportation equip. 2,325 1 428 -- 1,898
Other equip. 24,218 305 331 (249)(A) 23,943
Construction work
in progress 1,508 952 -- 620 3,080
Total gas plant $191,693 $12,780 $ 2,837 $ 383 $202,019
======== ======= ======= ======= ========
Nonutility property $ 27 $ -- $ -- $ (27) $ --
======== ======= ======= ======= ========
PAGE IV-3
(A) Relates to payments made on capital leases.
PROVIDENCE GAS COMPANY Schedule VI
ACCUMULATED DEPRECIATION AND AMORTIZATION OF PROPERTY, PLANT ANDEQUIPMENT
FOR THE YEARS ENDED SEPTEMBER 30, 1994, SEPTEMBER 30, 1993 AND SEPTEMBER
30, 1992
(Thousands of Dollars)
Additions Deductions
Cost of
Balance Charged to Removal Balance
Classification 9/30/93 Operations Other Retirements Less Salvage 9/30/94
Gas Plant:
Gas equipment $69,655 $ 9,396 $ 4 $ 671 $506 $77,878
Transportation
equipment 1,695 42 - 83 -- 1,654
Total gas plant $71,350 $ 9,438 $ 4 $ 754 $506 $79,532
======= ========= ====== ====== ==== =======
Cost of
Balance Charged to Removal Balance
Classification 9/30/92 Operations Other Retirements Less Salvage 9/30/93
Gas Plant:
Gas equipment $62,431 $ 8,796 $ 1 $1,152 $421 $69,655
Transportation
equipment 1,797 65 (1) 166 -- 1,695
Total gas plant $64,228 $ 8,861 $ -- $1,318 $421 $71,350
======= ========= ====== ====== ==== =======
Cost of
Balance Charged to Removal Balance
Classification 9/30/91 Operations Other Retirements Less Salvage 9/30/92
Gas Plant:
Gas equipment $56,406 $ 8,441 $ 33 $2,382 $ 67 $62,431
Transportation
equipment 2,098 93 -- 394 -- 1,797
Total gas plant $58,504 $ 8,534 $ 33 $2,776 $ 67 $64,228
======= ========= ====== ====== ==== =======
Nonutility
property $ 22 $ -- $ (22) $ -- $ -- $ --
======= ========= ====== ====== ==== =======
PAGE IV-4
Schedule VIII
PROVIDENCE GAS COMPANY
RESERVES FOR THE YEARS ENDED
SEPTEMBER 30, 1994, SEPTEMBER 30, 1993 AND SEPTEMBER 30, 1992
(Thousands of Dollars)
Charges
for
Which
Additions Reserves
Balance Charged Other Were Balance
9/30/93 to Operations Add (Deduct) Created 9/30/94
RESERVES DEDUCTED FROM
ASSETS:
Accounts receivable
Allowance for
doubtful accounts $ 1,987 $4,930 $ -- $4,311 $ 2,606
Allowance for lease
receivables -
current 271 -- -- 34 237
other 96 -- -- 16 80
$ 2,354 $4,930 $ -- $ 4,361 $ 2,923
======= ====== ======= ======= =======
Allowance for lease
receivables -
long-term $ 778 $ 316 $ -- $ 143 $ 951
======= ====== ======= ======= =======
DEFERRED CREDITS AND
RESERVES:
Accumulated deferred
income taxes $13,423 $6,882 $ -- $5,519 $14,786
Unamortized investment
tax credit 2,984 -- -- 158 2,826
Other-
Liability and
damage reserve 296 145 -- 20 421
Other 5,085 1,292 2,659(B) 2,534 6,502
Total other 5,381 1,437 2,659 2,554 6,923
Total deferred
credits and
reserves $21,788 $9,919 $ 1,059 $8,231 $24,535
======= ====== ======= ====== =======
PAGE IV-5
Schedule VIII (cont'd)
Which
Additions Reserves
Balance Charged Other Were Balance
9/30/92 to Operations Add (Deduct) Created 9/30/93
RESERVES DEDUCTED FROM
ASSETS:
Accounts receivable
Allowance for
doubtful accounts $ 2,248 $3,927 $ -- $4,188 $ 1,987
Allowance for lease
receivables -
current 308 -- -- 37 271
other -- 96 -- -- 96
$ 2,556 $4,023 $ -- $ 4,225 $ 2,354
======= ====== ======= ======= =======
Allowance for lease
receivables -
long-term $ 760 $ 190 $ -- $ 172 $ 778
======= ====== ======= ======= =======
DEFERRED CREDITS AND
RESERVES:
Accumulated deferred
income taxes $13,108 $ 315 $ -- $ -- $13,423
Unamortized investment
tax credit 3,140 -- -- 156 2,984
Other-
Liability and
damage reserve 146 150 -- -- 296
Other 4,505 1,116 1,744(A) 2,280 5,085
Total other 4,651 1,266 1,744 2,280 5,381
Total deferred
credits and
reserves $20,899 $1,581 $ 1,744 $ 2,436 $21,788
======= ====== ======= ======= =======
PAGE IV-6
SCHEDULE VIII (cont')
Which
Additions Reserves
Balance Charged Other Were Balance
9/30/91 to Operations Add (Deduct) Created 9/30/92
RESERVES DEDUCTED FROM
ASSETS:
Accounts receivable
Allowance for
doubtful accounts $ 2,504 $4,132 $ -- $4,388 $ 2,248
Allowance for lease
receivables -
current 1,372 50 -- 1,114 308
$ 3,876 $4,182 $ -- $ 5,502 $ 2,556
======= ====== ======= ======= =======
Allowance for lease
receivables -
long-term $ 84 $1,317 $ -- $ 641 $ 760
======= ====== ======= ======= =======
DEFERRED CREDITS AND
RESERVES:
Accumulated deferred
income taxes $12,773 $ 335 $ -- $ -- $13,108
Unamortized investment
tax credit 3,316 -- -- 176 3,140
Other-
Liability and
damage reserve 21 125 -- -- 146
Other 1,760 1,914 4,263(C) 3,432 4,505
Total other 1,781 2,039 4,263 3,432 4,651
Total deferred
credits and
reserves $17,870 $2,374 $ 4,263 $ 3,608 $20,899
======= ====== ======= ======= =======
(A) Includes advance payments on customers' service agreements.
(B) Principally a reserve for restructuring charges which was offset
by a deferred regulatory asset in addition to advance payments on
customer service agreements.
(C) Principally on additional reserve for pension costs which was offset
by a deferred regulatory asset in addition to advance payments on
customer service agreements.
PAGE IV-7
THE PROVIDENCE GAS COMPANY
SHORT-TERM BORROWINGS
FOR THE YEARS ENDED SEPTEMBER 30, 1994, 1993 AND 1992
(Thousands of dollars)
September 30
1994 1993 1992
Balance at end of period $24,700 $20,800* $20,410
Weighted average interest rate on borrowings
outstanding at end of period 5.17% 3.40% 3.52%
Maximum borrowings outstanding during the
period based on month-end balances $46,400 $50,010 $45,410
Average daily borrowings outstanding for
the period $24,020 $25,843 $33,168
Weighted daily average annual interest rate 3.83% 3.51% 4.56%
The Registrant meets seasonal cash requirements and finances its construction
program on an interim basis through short-term bank borrowings. Such
borrowings may be under open lines of credit (total available, $55,000,000--
total committed, approximately $40,500,000) or by special arrangements.
* Assumes issuance of First Mortgage Bonds of $16 million on
September 30, 1993.
PAGE IV-8
Exhibit 22 - SUBSIDIARY OF REGISTRANT
ProvEnergy Investments, Ltd. - Incorporated under the laws of Rhode Island.
PAGE IV-9
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized.
THE PROVIDENCE GAS COMPANY
By JAMES H. DODGE
James H. Dodge, Chairman, President and CEO
Date December 15, 1994
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Signature Title Date
JAMES H. DODGE Chairman, President, and CEO
James H. Dodge (Principal Executive Officer) 12-15-94
GARY S. GILLHEENEY Vice President, Financial 12-15-94
Gary S. Gillheeney and Information Services,
Treasurer and Assistant
Secretary
WILLIAM W. BENNETT Director 12-15-94
William W. Bennett
GILBERT R. BODELL, JR. Director 12-15-94
Gilbert R. Bodell, Jr.
Director
Diane M. Disney
ROBERT P. FREEMAN Director 12-15-94
Robert P. Freeman
LOUIS R. HAMPTON Director 12-15-94
Louis R. Hampton
JOHN H. HOWLAND Director 12-15-94
John H. Howland
DOUGLAS H. JOHNSON Director 12-15-94
Douglas H. Johnson
DOROTHY G. KRAMER Director 12-15-94
Dorothy G. Kramer
ROMOLO A. MARSELLA Director 12-15-94
Romolo A. Marsella
KENNETH W. WASHBURN Director 12-15-94
Kenneth W. Washburn
PAGE IV-10