SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-K
FOR ANNUAL AND TRANSITION REPORTS
PURSUANT TO SECTIONS 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended September 30, 1997
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 1-8369
CONNECTICUT ENERGY CORPORATION
(Exact name of registrant as specified in its charter)
Connecticut 06-0869582
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
855 Main Street
Bridgeport, Connecticut 06604
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code
(800) 760-7776
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class Name of Each Exchange on Which Registered
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Common Stock ($1 par value) New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
(Title of Class)
Indicate by check mark whether the registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K 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]
Aggregate market value of the voting stock held by non-affiliates of the
registrant based on the closing price of such stock as of November 21, 1997:
$259,070,351
APPLICABLE ONLY TO REGISTRANTS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a
plan confirmed by a court. Yes [ ] No [ ]
Class Outstanding at November 21, 1997
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Common Stock, $1 par value 10,209,669
DOCUMENTS INCORPORATED BY REFERENCE
Portions of Connecticut Energy Corporation's 1997 Annual Report to Shareholders
are incorporated into Part II and Part IV. Portions of Connecticut Energy
Corporation's Definitive Proxy Statement dated December 12, 1997 are
incorporated into Part III.
PART I
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CONNECTICUT ENERGY CORPORATION
Connecticut Energy Corporation ("Connecticut Energy" or "Company") and its
subsidiaries and their representatives may, from time to time, make written
or oral statements, including statements contained in the Company's filings
with the Securities and Exchange Commission and in its annual report to
shareholders, including its Form 10-K, which constitute or contain
"forward-looking" information as that term is defined in the Private
Securities Litigation Reform Act of 1995.
All statements other than the financial statements and other statements of
historical facts included in this Form 10-K regarding the Company's financial
position and strategic initiatives and addressing industry developments are
forward-looking statements. Where, in any forward-looking statement, the
Company, or its management, expresses an expectation or belief as to future
results, such expectation or belief is expressed in good faith and believed
to have a reasonable basis, but there can be no assurance that the statement
of expectation or belief will result or be achieved or accomplished. Factors
which could cause actual results to differ materially from those stated in the
forward-looking statements may include, but are not limited to, general and
specific economic, financial and business conditions; federal and state
regulatory, legislative and judicial developments which affect the Company
or significant groups of its customers; the impact of competition on the
Company's revenue; fluctuations in weather from normal levels; changes in
development and operating costs; the availability and cost of natural gas;
the availability and terms of capital; exposure to environmental liabilities;
the costs and effect of unanticipated legal proceedings; the successful
implementation and achievement of internal performance goals; the impact of
unusual items resulting from ongoing evaluations of business strategies
and asset valuations; and changes in business strategy.
Item 1. Business
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General
Connecticut Energy is a public utility holding company primarily engaged in
the retail distribution of natural gas for residential, commercial and
industrial uses through its principal subsidiary, The Southern Connecticut
Gas Company ("Southern"), a Connecticut public service company. Southern's
predecessor companies, New Haven Gas Company and The Bridgeport Gas Company,
were originally incorporated in Connecticut in 1847 and 1849, respectively.
The Company is exempt from registration under the Public Utility Holding
Company Act of 1935.
Southern serves approximately 157,000 customers in Connecticut, primarily in
twenty-two towns along the southern Connecticut coast from Westport to Old
Saybrook, which include the urban communities of Bridgeport and New Haven.
Southern is also authorized to lay mains and sell gas in an additional ten
towns in its service area, but does not currently provide any service to
these towns.
The percentage of Southern's revenues contributed by each class of customers
for the last three fiscal years was as follows:
Years ended September 30, 1997 1996 1995
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Residential 57.9% 58.0% 58.2%
Commercial firm 19.5 21.4 20.5
Industrial firm 4.3 6.5 7.8
Firm transportation 2.4 0.3 ---
Interruptible and other 15.9 13.8 13.5
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
Southern is the sole distributor of natural gas, other than bottled gas, in
its service area. Oil and electricity compete with gas in most industrial
and commercial markets and for residential space and water heating. In
general, Southern's firm rates are currently lower than electric rates for
heating and, on average, are generally competitive with fuel oil. Southern's
gas sales are affected by seasonal factors, and it experiences higher
revenues during the winter months.
In fiscal 1995, the Company formed two nonutility subsidiaries, CNE
Development Corporation ("CNE Development") and CNE Energy Services Group,
Inc. ("CNE Energy"). CNE Development is an equity holder in an entity formed
to purchase and market natural gas and may potentially participate in other
nonregulated activities; CNE Energy engages in activities relating to the
selling, planning, purchasing and management of various energy services to
commercial and industrial end users. In September 1997, CNE Energy formed
a joint venture with Delmarva Power & Light Company's bulk energy group.
The alliance was formed to sell natural gas, electricity, fuel oil and
other services in New York and New England. The new energy marketing and
sales company will operate under the name Conectiv/CNE Energy Services, LLC
("Conectiv/CNE"). In addition to selling energy products, Conectiv/CNE
will market a full range of energy-related planning, financial, operational
and maintenance services to commercial, industrial and municipal customers
located in New York and New England. This alliance replaces the joint
venture between CNE Energy and Louis Dreyfus Energy Corp. which was
terminated in August 1997.
In October 1996, the Company formed another nonutility subsidiary,
CNE Venture-Tech, Inc. ("CNE Venture-Tech"). CNE Venture-Tech focuses on
investing in technology companies and participating in ventures with
technology partners serving the utility industry. In August 1997, CNE
Venture-Tech made an initial investment in the Nth Power Technologies Fund I
("Nth Power") as a limited partner. Nth Power's venture capital fund invests
in companies that produce or market technologically advanced, innovative energy-
related products. Participation in the fund may provide business opportunities
to its limited partners.
As of September 30, 1997, the Company, through its subsidiaries, had 501
full-time employees, the majority of whom were employees of Southern.
Customers
General
From 1992 through 1997, the average number of on-system customers served by
Southern grew from approximately 152,100 to 156,600. Southern provides three
types of gas service to its on-system customers: firm sales, firm
transportation and interruptible. Firm service is provided to residential,
commercial and industrial customers who require a continuous gas supply
throughout the year. Southern serves approximately 181,000 firm residential
units. Interruptible service is available to those customers that have
dual fuel capabilities which allow them to alternate between natural gas
and another fuel source. Firm service for residential use includes service
to multi-family units. Firm transportation is available to commercial,
industrial and multi-family customers who have secured their own gas
supply and require that Southern transport this supply on its distribution
system. Southern also provides transportation service to certain
commercial and industrial customers on an interruptible basis, where the
gas transported is owned by those customers.
Additionally, Southern has the approval of the Connecticut Department of
Public Utility Control ("DPUC") to participate in the off-system sales
market. If gas supplies are available after meeting on-system loads,
Southern can sell to customers within Connecticut or in out-of-state markets.
The customers to whom these sales are made are not permanent customers of
Southern.
Firm Sales and Transportation
In 1997, firm services represented approximately 84% of operating revenues
and approximately 47% of total gas throughput. Firm sales to industrial
customers are likely to constitute a smaller percentage of Southern's future
total sales due to the changing character of the local economy and continuing
regulatory developments affecting the natural gas industry. See section
entitled "Rates and Regulation" for further detail.
Southern concentrates on customer additions that are the most cost-effective
to achieve. Over the past several years, Southern has focused on adding load
along its existing mains, which generally requires a lower capital outlay.
Approximately 59% of the residences along Southern's mains heat with natural
gas. The conversion of these homes from an alternate fuel to natural gas
heat has been a major factor in increased load growth.
Interruptible Sales, Transportation and Special Contract Services
Interruptible sales, which include off-system sales, and transportation
services are priced flexibly and competitively compared to the price paid
for alternate fuels by larger commercial and industrial customers.
Southern's interruptible sales fluctuate primarily due to the relative price
differentials between alternate fuels and natural gas as well as the
availability of gas not needed to serve firm customers.
In addition to interruptible sales, Southern transports gas, on an
interruptible basis, for delivery to certain large commercial and industrial
consumers. Because of recent regulatory developments, end users can contract
more easily than in the past for transportation service on interstate
pipelines to transport natural gas supplies purchased from producers/
suppliers, rather than purchase gas solely from the local gas distribution
company ("LDCs"). In Southern's service area, gas is transported to customers
using interstate pipeline transportation and Southern's distribution
system.
Interruptible transportation revenues are considerably less than revenues
from gas sales because customers pay only a fee for the transportation
service. Gas sales revenues include the cost of gas sold.
Southern provides service to The Connecticut Light and Power Company's Devon
electric generating station in accordance with rates specified in a Special
Contract for the Transportation of Gas.
In 1997, interruptible sales, transportation and Special Contract services
represented approximately 15% of operating revenues and approximately 51% of
total gas throughput.
Southern's average margins on interruptible transportation service are less
than its average margins on firm sales and are usually less than its average
margins on interruptible sales. To the extent Southern negotiates its
monthly prices for interruptible services below its monthly standard offering
price, lower margins may result.
The Company does not believe that the loss of any single customer or a few
customers would have a long-term, material, adverse effect upon Southern's
business.
Marketing
General
Southern focuses its marketing efforts on three objectives: (1) to increase
the number of households using natural gas for heating and hot water, (2) to
improve system load factor by promoting additional interruptible sales and
(3) to add new sales and retain existing sales to commercial and industrial
customers through the use of both traditional and interruptible applications
for natural gas.
Marketing programs emphasize growth from within the existing distribution
system and the addition of high load factor usage of natural gas such as
water heating, air conditioning and electric power generation.
Residential Market
In the residential heating market, 2,641 customers were added in 1997
compared to 1,866 customers in 1996 and 2,366 in 1995. Residential
conversions accounted for 60% of these additions in 1997 compared to 52% in
1996 and 68% in 1995. Southern's residential marketing programs include
(1) a conversion burner program, (2) a high-efficiency heating program,
(3) a trade ally program and (4) service contracts for natural gas heating
equipment. Southern also uses employee incentives to promote heating
conversions.
Commercial and Industrial Markets
In the commercial and industrial markets, emphasis is on adding new firm and
interruptible sales while retaining existing load. Marketing programs for
commercial and industrial customers include (1) a program to promote the use
of high efficiency equipment, (2) a program offering customers the option of
financing new equipment through Southern, (3) a conversion burner leasing
program which provides customers with a low cost opportunity to switch to
natural gas and (4) a major customer retention program.
Effective April 1, 1996, firm transportation service became available to
commercial and industrial customers. As of September 30, 1997, there were
682 firm transportation customers purchasing natural gas directly from
marketers. In these cases, Southern offers customers the opportunity to
purchase additional services such as balancing or stand-by services.
Sales to cooling and cogeneration markets represent the potential for
increasing natural gas usage. Advances in natural gas cooling technology,
along with environmental and operational advantages, continue to increase the
competitiveness of natural gas cooling in commercial buildings and for
industrial process applications. Southern has added 9,912 tons of natural gas
cooling since 1991. With the continuing deregulation of energy markets and
advancements in natural gas turbine technologies, cogeneration is a viable
economic solution for many industrial customers. For example, Yale University
is installing a 13.5 megawatt cogeneration system that will provide both
electricity and steam for many of its facilities.
Natural Gas Vehicles
Natural gas vehicles ("NGV") represent a significant opportunity to increase
the base load usage of natural gas. Southern has been active in this market
and has more than 130 natural gas vehicles operating in its service area.
Customers include the U.S. Postal Service, The Southern New England Telephone
Company, R. R. Donnelley and Sons, South Central Regional Water Authority,
Bridgeport Hydraulic Company, the city of New Haven and the town of Westport.
More fleets are expected to add natural gas vehicles during the next five
years as federal legislation requires fleets to "phase-in" the use of cleaner
alternate fuel vehicles. Natural gas is the leading alternate fuel for
vehicle use.
Southern's NGV marketing approach is designed to complement the federal
phase-in of alternate fuels. This approach emphasizes developing NGV projects
that serve multiple customers from central multi-fleet off-site stations.
This approach allows fleets to buy fuel at off-site facilities and avoid
investment and maintenance required for on-site NGV facilities. Station
developers can pool volumes from multiple customers and take advantage of
economies of scale for better profitability.
As a method to increase demand for natural gas fuel, Southern is also
assisting fleets to obtain state and federal grants whenever possible. In
New Haven for instance, Southern helped the city and Yale to obtain
more than $200,000 in federal and state grants to offset incremental natural
gas vehicle costs.
Gas Supply
General
Southern's long-term supply sources include (1) Canadian supplies purchased
from Alberta Northeast Gas Limited ("Alberta Northeast") with transportation
on Iroquois Gas Transmission System, L.P. ("Iroquois"), (2) transportation
and storage services from Tennessee Gas Pipeline Company ("Tennessee") with
direct purchase of supply from producers and marketers, (3) transportation
and storage services from Texas Eastern Transmission Corporation ("Texas
Eastern") with direct purchase of supply from producers and marketers,
(4) transportation services from Algonquin Gas Transmission Company
("Algonquin"), (5) transportation and storage services from CNG Transmission
Corporation ("CNG Transmission"), (6) transportation service from
Transcontinental Gas Pipeline Corporation ("Transco"), (7) transportation
service from National Fuel Gas Supply Corporation ("National Fuel") and (8)
liquid and vapor supplies from Distrigas of Massachusetts Corporation
("Distrigas"). These arrangements result in gas deliveries into Southern's
service territory through interconnections with three interstate pipelines:
Algonquin, Iroquois and Tennessee.
In addition to Southern's long-term firm supply arrangements, Southern
purchases spot supplies and utilizes interruptible transportation services
from interstate pipeline companies.
Southern's supply, transportation and storage agreements require Southern to
pay a fixed demand charge regardless of the amount of gas transported or
stored. The Federal Energy Regulatory Commission ("FERC") regulates
interstate pipeline companies in connection with the rates charged to
Southern for transportation and storage of natural gas.
Domestic Supply
Southern's domestic supply arrangements consist mainly of purchasing storage
and transportation services from interstate pipelines. Producers and
marketers provide the gas supply to support these services.
Southern has firm transportation and firm storage contracts with Tennessee.
Under the transportation contract, Southern has 13,336,000 Mcf of pipeline
capacity available on an annual basis. Southern's storage contract with
Tennessee provides 1,195,000 Mcf of storage capacity. These contracts
expire in the year 2000. Two other transportation contracts with Tennessee
provide 516,000 Mcf of firm transportation service annually and expire in the
year 2000.
A transportation contract with Texas Eastern provides 5,972,000 Mcf of
capacity on an annual basis. Additional contracts with Texas Eastern
provide 1,383,000 Mcf of storage service and 12,108,000 Mcf of transportation
service on an annual basis. Contracts with Texas Eastern expire in the year
2012.
Southern has storage service contracts with CNG Transmission. One contract
provides one hundred days of storage service with 648,000 Mcf of annual
delivery. The remaining term of this contract is fifteen years. Under other
contracts which have remaining terms of six to ten years, CNG Transmission
provides 773,000 Mcf of annual firm storage service and 1,028,000 Mcf of
annual transportation service. The gas is stored by CNG Transmission and
delivered to Southern under transportation contracts with Texas Eastern and
Algonquin.
Algonquin furnishes only transportation services to Southern. The deliveries
that Algonquin makes to Southern are gas supplies transported by other
interstate pipelines interconnected to Algonquin.
Southern has multiple, diverse purchase agreements with producers and
marketers for firm supply behind its storage and transportation agreements.
These agreements vary in terms of delivery obligations and the contract terms
range from one month to five years. Southern pays a monthly reservation
charge, but has no monthly purchase obligation under these agreements.
Commodity prices are based on price indexes by supply area or are negotiated.
Canadian Supply
Southern receives Canadian supply under its long-term contracts with Alberta
Northeast with firm transportation provided by Iroquois. These supply
contracts with Alberta Northeast provide Southern with 12,775,000 Mcf of firm
Canadian supply annually. Supply agreements with Alberta Northeast have
remaining terms of five to nine years, and the transportation agreement with
Iroquois has a remaining term of fourteen years.
Supplemental Supply
Southern has an agreement with Distrigas to purchase 328,000 Mcf annually on
a firm basis. This contract continues for five years and includes a
provision for either vapor or liquid delivery, with an option to increase
maximum daily delivery over the term of the contract. Additionally, Southern
has interruptible purchase contracts with Distrigas.
Supplemental gas supplies from on-site liquefied natural gas ("LNG") and
liquefied propane air storage facilities are available to meet peak and
winter demand requirements. See section entitled "Connecticut Regulation" for
the Decision in Docket No. 96-04-30.
FERC Order No. 636
FERC Order No. 636 resulted in costs being incurred by Southern's interstate
pipeline suppliers as they unbundled their services. FERC has allowed
transition costs to be recovered by pipelines from their customers. Southern
has recovered transition costs through the various recovery mechanisms
authorized by the DPUC in Docket No. 94-01-12. Included in the recovery are
Tennessee transition costs, the final amount of which was approved as part of
a settlement by the FERC in Tennessee Gas Pipeline Co., 79 FERC Par. 61, 031
(1997).
Straight-fixed-variable rates are in effect on the pipelines serving Southern
as a result of FERC Order No. 636. Pipeline demand charges increased under
the straight-fixed-variable rate design, while pipeline usage charges
decreased. The change in gas costs due to straight-fixed-variable rates
were incorporated in Southern's base cost of gas approved by the DPUC.
On July 16, 1996, the U.S. Court of Appeals for the District of Columbia
Circuit in United Distribution Companies v. FERC, 88 F.3d 1105 (D.C. Cir.
1996), upheld FERC Order No. 636 "in its broad contours and in most of its
specifics." The Court remanded a number of issues to FERC for further
explanation.
On February 27, 1997 the FERC issued its order on remand, Order No. 636-C,
78 FERC Par. 61, 186 (1997). Of the major issues, the FERC reaffirmed its
decision to allow natural gas pipelines to recover 100% of gas supply
realignment costs caused by industry restructuring and modified its right of
first refusal mechanism. The order directed pipelines to shorten from twenty
to five years the period existing customers must agree to extend their
contract in order to retain the right to continue service, a key ruling.
FERC Order No. 636 continues to have an effect on how Southern conducts its
business, moving Southern to the next phase of unbundling behind its city
gates. See section entitled "Rates and Regulation" for further detail.
Off-System Sales
Southern's off-system sales program maximizes the use of its gas supply
contracts, improves the usage of Southern's capacity on pipeline systems and
lowers gas costs to firm customers through established margin sharing
mechanisms. Pursuant to the DPUC Decision regarding FERC Order No. 636,
Southern is allowed to enter into off-system sales under flexible terms and
pricing for periods of less than one year without prior approval of the DPUC.
In fiscal 1997, Southern dispatched approximately 5,123,000 Mcf of volume as
part of its off-system sales program.
Off-system sales are performed by Southern through an effective trading
operation established over the last three years. Southern has established a
recognized trading function in various natural gas markets in the United
States. Southern's customers include other LDCs, marketers, electric
generation and wholesale customers. Southern has pooling agreements and a
unique asset base enabling it to deliver reliably and competitively along a
significant portion of the Eastern pipeline grid under the full range of
operating and marketing conditions.
Capacity release programs are available on all interstate pipelines serving
Southern, and Southern actively participates in these programs. Demand
charges recovered from a replacement shipper flow back as a reduction on the
pipeline's monthly invoice. These demand reductions are used to lower gas
costs to firm customers through established margin sharing mechanisms
approved by the DPUC.
CNE Development has joined six other major eastern U.S. natural gas
distribution companies or their affiliates to form the East Coast Natural Gas
Cooperative, L.L.C. to access competitively priced gas supplies. Southern has
experienced reduced gas costs and increased operational flexibility as a
result of the activities of this cooperative.
Rates and Regulation
Connecticut Regulation
Southern is subject to the jurisdiction of the DPUC as to accounting, rates,
charges, operating matters and the issuance of securities, both equity and
debt, other than borrowings maturing in twelve months or less. Southern's
firm sales rates change monthly pursuant to a DPUC-approved Purchased Gas
Adjustment clause, under which purchased gas costs above or below a specified
base cost are charged or credited to customers.
In setting authorized rates for Southern, the DPUC allows prospective
adjustments to a historical test year. Forward-looking adjustments to the
mid-point of the rate year (the first year that rates will be in effect) for
rate base, revenues, expenses and capital structure are allowed. The DPUC
has found that these refinements provide for better synchronization of the
ratemaking components. Costs used by the DPUC in determining Southern's
rates may not be the same as actual costs incurred by Southern during the
period rates are in effect. The sales used in establishing rates are based
on "normal" weather patterns. Actual rates of return realized may not
necessarily equal the authorized rates of return.
In April 1993, Southern filed an application with the DPUC for an increase in
rates designed to produce additional revenues of approximately $27,900,000, or
13.67%, over test year revenues. Southern's base rates had not been increased
since April 1990.
On December 1, 1993, the DPUC issued a final Decision on Southern's latest
rate request. The Decision incorporated the Partial Settlement of Certain
Issues ("Partial Settlement"), which was previously approved by the DPUC in
September 1993, and resolved most of the significant financial aspects of
Southern's original rate request, including an increase in base rates of
$13,400,000 based upon Southern's sales forecast as originally filed, an
allowed return on equity of 11.45% and the implementation of a Weather
Normalization Adjustment. In addition, Southern was permitted to recover
previously deferred costs over amortization periods from three to five
years associated with shortfalls in energy assistance, its certified
hardship arrearage forgiveness program, environmental remediation expenditures,
economic development programs and undepreciated gas holder costs.
The Partial Settlement also provided for current recovery of postretirement
health care expenses accrued under Statement of Financial Accounting
Standards No. 106 and the establishment of a target margin, net of gross
earnings tax, for on-system sales and transportation to Southern's
interruptible customers with excess margins shared between firm customers and
shareholders on an 80%/20% split.
As part of the Partial Settlement, Southern agreed that, except for certain
adverse events, it would not file a general application to increase rates
which would become effective on or before November 30, 1995.
In January 1996, Southern requested a reopening of the 1993 rate proceeding
to propose a plan to redirect excess on-system interruptible margins to be
returned to ratepayers for calendar years 1996, 1997 and 1998 to two programs
to fund certain economic development initiatives in Bridgeport and to provide
grants to customers to reduce Southern's current hardship assistance
balances. Southern estimated that margins to be collected over the proposed
three-year period would be approximately $14,000,000, which would be divided
equally between the programs. Southern's proposal related to the economic
development initiatives in Bridgeport included job training and services,
certain loan subsidies and health promotion outreach services. Redirection
of ratepayer margins for hardship assistance balances would benefit Southern's
hardship customers by reducing their accounts receivable arrearages and
would benefit Southern by reducing its provision for uncollectibles for such
accounts.
On April 26, 1996, the DPUC issued a final Decision regarding Southern's
proposal. The DPUC effectively approved Southern's proposal with certain
modifications in the direction of the Bridgeport economic development funding
initiatives, the imposition of a cap of $6,000,000 per year of ratepayer
margins to be split equally between the programs and certain implementation
and status reporting requirements.
In August 1995, the DPUC issued a final Decision in Docket No. 94-11-12, DPUC
Review of Connecticut Local Distribution Companies' Cost of Service Study
Methodologies. In this docket, the DPUC investigated the issues surrounding
the development of firm transportation rates at the state level in response
to FERC Order No. 636. Effective April 1, 1996, commercial and industrial
gas customers in Connecticut can contract for their gas supplies from sources
other than the LDCs and pay the LDCs only for the transportation of that gas
through their distribution systems at DPUC approved rates. The new firm
transportation rates are designed to provide Southern with the same margins
provided by bundled services.
In August 1997, the DPUC instituted Docket 97-07-11, DPUC Generic Investigation
into Issues Associated with Unbundling of Natural Gas Services by Connecticut
Local Distribution Companies. The purpose of this docket will be to review
issues relative to firm transportation service in its present form and to
consider prospective changes to the existing LDC tariffs. On September 22,
1997, Southern submitted testimony which addressed the issues identified by
the DPUC as Phase I items. The Company also submitted a "Vision Statement"
which generally described the Company's near-term plan to offer firm
transportation service to all customers while simultaneously structuring the
Company in order to phase out of providing the merchant service function. The
Company is currently awaiting a schedule in this docket.
In August 1996, the DPUC issued a final Decision in Docket No. 96-04-30,
Application of The Southern Connecticut Gas Company to Dispose of a Portion
of Its Plant and Equipment. The DPUC approved certain proposals made by
Southern regarding the operation of its LNG tank and related facilities, which
include the sublease of the LNG tank and related facilities from Southern to
its nonregulated affiliate, CNE Energy, which would, in turn, sublease the
LNG facility to Total Peaking Services, L.L.C. The DPUC granted approval to
move the LNG facility out of Southern and into an unregulated venture.
However, federal approval necessary to finalize this venture and commence
interstate operations is still pending.
In February 1997, the Company and Southern requested a reopening of a DPUC
Decision dated December 13, 1978, Docket No. 77-08-28, Application of The
Southern Connecticut Gas Company for Approval of Corporate Reorganization and
Merger and Formation of a Holding Company, for the purpose of addressing
changed conditions in the Company's operations since 1978, which include the
dissolution of certain subsidiaries and deregulation of the natural gas
marketplace. On May 21, 1997, the DPUC issued a Decision in the reopened
docket. The Decision modified or eliminated several conditions relating to
the Company's nonregulated subsidiaries. The Company believes those
subsidiaries will now have more flexibility to compete in the rapidly
changing energy market on both a financial and operational basis.
Southern, in accordance with Connecticut statutes, will undergo a periodic
review of rates and services by the DPUC commencing in or after December 1997
if it does not file for a rate increase. A periodic review entails a
complete review by the DPUC of Southern's financial and operating records.
Public hearings will be held to determine whether the current rates are
unreasonably discriminatory or more or less than just, reasonable and
adequate. If Southern determines that a rate increase is required, a general
rate case will be filed in lieu of a rate review.
Federal Regulation
Southern is affected by various federal regulations, including regulations
which (1) provide for emergency authority and curtailment allocations under
the Natural Gas Policy Act of 1978 when pipeline supplies are limited and
(2) establish certain retail policies for natural gas utilities under the
Public Utility Regulatory Policies Act of 1978. Southern is also subject to
the Natural Gas Pipeline Safety Act of 1968 with respect to the construction,
operation and maintenance of its mains, services and LNG facilities as well
as other federal regulations pertaining to safety standards concerning such
facilities. Currently, these federal regulations have a minimal impact on
Southern's day-to-day operations. Southern must comply with various federal,
state and local regulations with respect to environmental matters (including
hazardous waste regulation), local zoning and other regulations. To date,
such regulations have not materially impacted Southern's capital expenditures,
earnings or operations.
Regulations promulgated under the Clean Air Act Amendments of 1990 and the
Energy Policy Act of 1992, which require reduced pollution levels and certain
energy efficiency standards, have begun to affect Southern. Among other
things, the Clean Air Act Amendments (1) impose stringent vehicle emissions
standards beginning in 1994, (2) mandate the gradual phase-in of alternate
fuel vehicles for fleets of more than ten vehicles beginning in 1998 and
(3) require power plants to phase-in significant emission reductions of
sulfur dioxide and nitrogen oxide by the year 2000. Similarly, the Energy
Policy Act of 1992 (1) requires that federal agencies begin phasing-in the
use of alternate fuels in vehicles in 1993, (2) offers tax incentives to
private parties who use or facilitate the use of alternate fuel vehicles and
(3) requires a lessening reliance on foreign fuels. In 1996, the FERC also
issued Order No. 888, mandating that electric utilities provide open access
transmission at wholesale. This Order has expanded opportunities for the
sale of power from gas fired generating units. Over time, these regulations
will likely lead to an increasing demand for natural gas. Southern already
has begun to participate in the expanded markets for natural gas emerging
due to these regulatory mandates.
Since 1986, FERC has effected major changes in the regulations governing the
natural gas industry, especially FERC Order No. 636 which mandated the
unbundling of interstate pipeline services. Although the Company is not
subject to FERC jurisdiction, FERC's actions increase competition in the
natural gas industry by requiring interstate pipeline companies to provide
gas transportation to others on a nondiscriminatory basis.
Environmental Matters
Southern has identified coal tar residue at three sites in Connecticut
resulting from coal gasification operations conducted at those sites by
Southern's predecessors from the late 1800s through the first part of this
century. Many gas distribution companies throughout the country carried on
such gas manufacturing operations during the same period. The coal tar
residue is not designated a hazardous material by any federal or Connecticut
agency, but some of its constituents are classified as hazardous.
On April 27, 1992, Southern notified the Connecticut Department of
Environmental Protection ("DEP") and the United States Environmental
Protection Agency of the presence of coal tar residue at the sites. On
November 9, 1994, the DEP informed Southern that it had performed a
preliminary review of the information provided to it by Southern and had
determined that, based on current priorities and limited staff resources, a
comprehensive review of site conditions and subsequent participation by the
DEP "are not possible at this time."
On September 8, 1997, Southern received a letter from the DEP informing it
that the three sites had been entered on the Connecticut Inventory of
Hazardous Waste Sites. The letter states that the site located on Pine
Street in Bridgeport, Connecticut may be of particular interest to the state
of Connecticut because of its proximity to the Connecticut Department of
Transportation expansion project of the U.S. Highway Route Number 95
Corridor. Placement of the sites on the Inventory of Hazardous Waste Sites
means that the DEP may pursue remedial action pursuant to the Connecticut
General Statutes.
Each site is located in an area that permits Southern to voluntarily perform
any remedial action. Connecticut law also allows Southern to retain a
Licensed Environmental Professional to conduct further environmental
assessments and, if necessary, to develop remedial action plans in
accordance with Connecticut Remediation Standard Regulations. Southern
intends to confer with officials of the DEP and the Department of
Transportation to establish priorities in connection with the environmental
assessments.
Management cannot at this time predict the costs of any future site analysis
and remediation, if any, nor can it estimate when any such costs, if any,
would be incurred. While such future analytical and cleanup costs could
possibly be significant, management believes, based upon the provisions of
the Partial Settlement in Southern's most recent rate order and regulatory
precedent with other LDCs in Connecticut, that Southern will be able to
recover these costs through its customer rates. Although the method, timing
and extent of any recovery remain uncertain, management currently does not
expect that the incurrence of such costs will materially adversely impact
the Company's financial condition or results of operations.
Item 2. Properties
- -------------------
The Company's physical plant and properties consist primarily of Southern's
gas distribution facilities. Southern had 2,133 miles of main and 123,183
service units as of September 30, 1997. It leases office space in Bridgeport,
New Haven, Orange and Madison, owns properties in Bridgeport and New Haven
that were formerly manufacturing sites and owns a propane air facility in
Trumbull.
In 1995, the LNG plant lease agreement was renewed for two consecutive terms
of twelve years. The lease contains an option to purchase the plant for a
purchase price based on the then fair market sales value of the unit as
defined therein.
Substantially all of Southern's utility properties and plant are subject to
the lien of the indenture and supplemental indentures securing its first
mortgage bonds. It is management's opinion that the physical plant and
properties as described herein are suitable and adequate for the purpose of
delivering gas for customer use.
Item 3. Legal Proceedings
- --------------------------
In a class action styled Connecticut Heating & Cooling Contractors
Association, Inc. v. Connecticut Natural Gas Corp., Connecticut Superior
Court - Middlesex, two trade associations and two plumbing and heating
contractors in November 1995 sued Southern as well as the other Connecticut
LDCs for violations of the Connecticut Unfair Trade Practices Act and
tortious interference with business expectancies in connection with the LDCs'
provision of service and maintenance to heating, cooling and ventilating
systems and appliances. An Amended Complaint was filed in response to
motions filed by the defendants in which one of the two contractor plaintiffs
was removed from the case. In response to the court's granting a motion to
strike the Complaint on the grounds of misjoinder filed by Southern and
another defendant, the plaintiffs again amended their Complaint to add causes
of action in conspiracy to violate the Connecticut Unfair Trade Practices Act
and conspiracy to violate the antitrust laws. All three defendants have
filed new motions to strike the latest complaint. The motions have not been
argued, but should be heard by the end of the year. The plaintiffs seek
declaratory and injunctive relief. The plaintiffs seek treble damages in
excess of $15,000, punitive damages and attorneys' fees. Southern intends to
defend itself vigorously in this suit, which management believes is without
merit. In the opinion of management, resolution of this lawsuit is not
expected to have a material adverse impact on the Company's financial condition
or results of operations.
Item 4. Submission of Matters to a Vote of Security Holders
- ------------------------------------------------------------
None.
PART II
-------
Item 5. Market for Common Stock Equity and Related Stockholder Matters
- -----------------------------------------------------------------------
Common Stock Data
The Company's common stock is listed for trading on the New York Stock
Exchange. The Company's common stock symbol is CNE.
The following table shows the quarterly high and low price ranges of the
Company's common stock and quarterly dividends paid during the years ended
September 30, 1997 and 1996.
Market Price and Dividend Data
1997 Quarters ended High Low Dividend
- ------------------- ---- --- --------
December 31, 1996 $22 1/4 $19 7/8 $0.33
March 31, 1997 $24 3/8 $21 $0.33
June 30, 1997 $24 1/4 $22 1/4 $0.33
September 30, 1997 $24 15/16 $22 3/8 $0.33
1996 Quarters ended High Low Dividend
- ------------------- ---- --- --------
December 31, 1995 $22 1/2 $19 $0.325
March 31, 1996 $22 1/4 $18 5/8 $0.325
June 30, 1996 $20 7/8 $18 7/8 $0.33
September 30, 1996 $20 3/8 $19 $0.33
As of September 1997, the Company and its predecessors have paid 351
consecutive quarterly cash dividends. Cash dividends have been paid since
1850, and the Company currently expects that dividends will continue to be
paid in the future.
The major source of funds for payment of the Company's dividends are the
dividends received on the shares of Southern's common stock owned by the
Company. Southern's indentures relating to long-term debt contain
restrictions as to the declaration or payment of cash dividends on, or the
reacquisition of, capital stock. Under the most restrictive of such
provisions, $29,633,000 of retained earnings at September 30, 1997 was
available for such purposes.
The approximate number of shareholders of record of the Company's common
stock as of November 21, 1997 was 10,398.
Item 6. Selected Financial Data
- --------------------------------
The presentation under the "Eleven Year Financial Summary" for the five-year
period ended September 30, 1997 on pages 38 and 39 of the Company's 1997
Annual Report to Shareholders is incorporated by reference herein.
Item 7. Management's Discussion and Analysis of Financial Condition
- --------------------------------------------------------------------
and Results of Operations
- -------------------------
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" on pages 15 to 21 of the Company's 1997 Annual Report to
Shareholders is incorporated by reference herein.
Item 8. Financial Statements and Supplementary Data
- ----------------------------------------------------
The Consolidated Statements of Income, Consolidated Balance Sheets,
Consolidated Statements of Changes in Common Shareholders' Equity,
Consolidated Statements of Cash Flows and Notes to Consolidated Financial
Statements on pages 22 to 35 and the Report of Independent Accountants on
page 37 of the Company's 1997 Annual Report to Shareholders are incorporated
by reference herein.
Item 9. Changes in and Disagreements with Accountants on Accounting and
- ------------------------------------------------------------------------
Financial Disclosure
- --------------------
None.
PART III
--------
Item 10. Directors and Executive Officers of the Registrant
- ------------------------------------------------------------
Information required in this item regarding directors is contained in the
Company's definitive Proxy Statement at pages 2 to 4, which will be mailed
to shareholders on or about December 12, 1997, and is incorporated by
reference herein. A list of executive officers of the registrant and
Southern follows:
Executive Officers of Connecticut Energy Corporation
and
The Southern Connecticut Gas Company
Name and Age Position and Business Experience for the Past Five Years
- ------------ --------------------------------------------------------
J. R. Crespo, 55 Chairman, President and Chief Executive Officer of the Company and
Southern (1990).
Thomas A. Trotta, 60 Senior Vice President of the Company and Executive Vice President and
Chief Operating Officer of Southern (1996), Executive Vice President and
Chief Operating Officer of Southern (1995), Senior Vice President and
Chief Operating Officer of Southern (1992).
Vincent L. Ammann, Jr., 38 Vice President and Chief Accounting Officer of the Company and Vice
President, Information Technology of Southern (1996), Vice President and
Chief Accounting Officer of the Company and Group Vice President of
Southern (1994), Vice President and Chief Accounting Officer of the
Company and Southern (1991).
Samuel W. Bowlby, 59 Vice President, General Counsel and Secretary of the Company and
Southern (1997), Partner, Tyler, Cooper & Alcorn, New Haven, CT (1970-
1997).
Carol A. Forest, 49 Vice President, Finance, Chief Financial Officer, Treasurer and Assistant
Secretary of the Company and Southern (1996), Vice President, Finance,
Chief Financial Officer and Treasurer of the Company and Southern
(1991).
Janet L. Janczewski, 53 Senior Corporate Counsel and Assistant Secretary of the Company
and Southern (1997), Corporate Counsel of Southern (1989).
Michael H. Pinto, 70 Vice President, Government Affairs of the Company (1991).
Salvatore A. Ardigliano, 48 Vice President, Marketing and Gas Supply Services of Southern (1995),
Vice President, Gas Supply Services of Southern (1995), Group Director,
Gas Supply Services of Southern (1993), Director, Gas Control of Southern
(1992).
James P. Healy, 55 Vice President, Energy Services Planning of Southern (1995), Vice
President, Information Technology of Southern (1992).
Ernest W. Karkut, 55 Vice President, Purchasing and Plant Services of Southern (1994), Vice
President, Customer Relations (1993), Vice President, Customer Support
Services of Southern (1992).
Peter D. Loomis, 49 Group Vice President, Customer and Operating Services of Southern
(1995), Vice President, Distribution and Customer Service of Southern
(1992).
Phyllis A. O'Brien, 52 Group Vice President of Southern (1996), Vice President, Accounting and
Regulatory Services of Southern (1994), Vice President, Corporate and
Regulatory Planning of Southern (1993), Group Director, Corporate
Regulatory and Supply Planning of Southern (1991).
Patricia A. Younger, 55 Vice President, Customer Relations of Southern (1995), Group Director,
Customer Relations of Southern (1994), Director, Customer Information
and Collections of Southern (1994), Director, Credit and Collections of
Southern (1993), Manager, Credit and Collections of Southern (1986).
Item 11. Executive Compensation
- --------------------------------
Information required in this Item is contained in the Company's definitive
Proxy Statement on pages 9 to 10, which will be mailed to shareholders on or
about December 12, 1997, and is incorporated by reference herein.
Item 12. Security Ownership of Certain Beneficial Owners and Management
- ------------------------------------------------------------------------
Information required in this Item is contained in the Company's definitive
Proxy Statement on pages 4 to 5, which will be mailed to shareholders on or
about December 12, 1997, and is incorporated by reference herein.
Item 13. Certain Relationships and Related Transactions
- --------------------------------------------------------
Information required in this Item is contained in the Company's definitive
Proxy Statement on pages 10 to 12, which will be mailed to shareholders on
or about December 12, 1997, and is incorporated by reference herein.
PART IV
-------
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
- -------------------------------------------------------------------------
(a) List of documents filed as part of this Report:
1. Financial Statements
--------------------
Among the responses to this Item 14(a) are the following financial statements
which are incorporated by reference herein in Item 8 above:
(i) Consolidated Statements of Income for the years ended September 30,
1997, 1996 and 1995.
(ii) Consolidated Balance Sheets for the years ended September 30, 1997 and
1996.
(iii) Consolidated Statements of Changes in Common Shareholders' Equity for
the years ended September 30, 1997, 1996 and 1995.
(iv) Consolidated Statements of Cash Flows for the years ended September 30,
1997, 1996 and 1995.
(v) Notes to Consolidated Financial Statements.
(vi) Report of Independent Accountants.
2. Financial Statements and Supplementary Data Required by Item 8
--------------------------------------------------------------
(A) Schedule Description Page
-------- ----------- ----
Report of Independent Accountants on
Financial Statement Schedules 18
II Valuation and Qualifying Accounts 19
All other schedules are omitted because they are not required, are
inapplicable, or the information is otherwise shown in the financial
statements or notes thereto.
3. Exhibits Required by Item 601 of Securities and Exchange Commission
-------------------------------------------------------------------
Regulation S-K
--------------
(A) The following such exhibits are filed as a separate section of this
report.
Exhibits
--------
(3) Certificate of Incorporation and By-Laws
----------------------------------------
The Amended and Restated Certificate of Incorporation of Connecticut Energy
Corporation is incorporated herein by reference to Item 6 of the Company's
Form 10-Q filed for the quarter ended March 31, 1991 at pages 14 through 22.
The Amended and Restated By-Laws of Connecticut Energy Corporation are
incorporated herein by reference to Item 6 of the Company's Form 10-Q filed
for the quarter ended March 31, 1995 at pages 20 through 31.
The Amended and Restated Certificate of Incorporation of The Southern
Connecticut Gas Company is incorporated herein by reference to Item 6 of
Form 10-Q filed for the quarter ended June 30, 1990 at pages 40 through 51.
The Amended and Restated By-Laws of The Southern Connecticut Gas Company are
incorporated herein by reference to Item 6 of the Company's Form 10-Q filed
for the quarter ended March 31, 1995 at pages 32 through 41.
(4) Instruments Defining Rights of Security Holders, Including Indentures
---------------------------------------------------------------------
(i) Indenture between The Bridgeport Gas Light Company and The Bridgeport
City Trust Company, as Trustee, dated as of March 1, 1948. Incorporated
herein by reference to Exhibit 4(b) (1) to Connecticut Energy Corporation
Registration Statement 2-10566.
(ii) In addition to the Indenture referred to in 4 (i) hereof, there have
been twenty-seven indentures supplemental thereto, copies of all of which
the Company agrees to furnish to the Commission upon request.
(10) Material Contracts
------------------
(i) Gas Transportation Contract between Tennessee Gas Pipeline Company and
The Southern Connecticut Gas Company, Contract No. 10783, dated June 1, 1995,
incorporated by reference to Form 10-K for the fiscal year ended September
30, 1996 at pages 24 to 32.
(ii) Interruptible Gas Transportation Contract and Amendment No. 1,
thereto, among Tenngasco Corporation, The Southern Connecticut Gas Company
and The United Illuminating Company, dated May 14, 1987 and August 1, 1989,
respectively, incorporated by reference to Form 10-K for the fiscal year
ended December 31, 1989 at pages 238 to 258.
(iii) Amendment No. 2 to Interruptible Gas Transportation Contract and
Amendment No. 1, thereto, among Tenngasco Corporation, The Southern
Connecticut Gas Company and The United Illuminating Company, dated November
1, 1990, incorporated by reference to Form 10-K for the transition period
from January 1, 1990 to September 30, 1990 at pages 90 to 91.
(iv) Gas Transportation Contract between Iroquois Gas Transmission System,
L.P. and The Southern Connecticut Gas Company, dated February 7, 1991,
incorporated by reference to Exhibit 10.32 to Connecticut Energy
Corporation's Registration Statement No. 33-40232.
(v) Gas Sales Agreement No. 1 by and between Alberta Northeast Gas Limited
and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated
by reference to Exhibit 10.33 to Connecticut Energy Corporation's Registration
Statement No. 33-40232.
(vi) Gas Sales Agreement No. 2 by and between Alberta Northeast Gas Limited
and The Southern Connecticut Gas Company, dated February 7, 1991, incorporated
by reference to Exhibit 10.34 to Connecticut Energy Corporation's Registration
Statement No. 33-40232.
(vii) Gas Sales Agreement by and between Alberta Northeast Gas Limited and
The Southern Connecticut Gas Company, dated February 7, 1991, incorporated by
reference to Exhibit 10.35 to Connecticut Energy Corporation's Registration
Statement No. 33-40232.
(viii) Gas Sales Agreement by and between Alberta Northeast Gas Limited and
The Southern Connecticut Gas Company, dated February 7, 1991, incorporated by
reference to Exhibit 10.36 to Connecticut Energy Corporation's Registration
Statement No. 33-40232.
(ix) Gas Sales Agreement by and between Alberta Northeast Gas Limited and
The Southern Connecticut Gas Company, dated February 7, 1991, incorporated by
reference to Exhibit 10.37 to Connecticut Energy Corporation's Registration
Statement No. 33-40232.
(x) Storage Service Transportation Contract between Tennessee Gas Pipeline
Company and The Southern Connecticut Gas Company, Contract No. 542, dated
September 1, 1993, incorporated by reference to Form 10-K for the fiscal year
ended September 30, 1996 at pages 33 to 42.
(xi) Storage Service Agreement (GSS) between CNG Transmission Corporation
and The Southern Connecticut Gas Company, dated October 1, 1993, incorporated
by reference to Form 10-K for the fiscal year ended September 30, 1993 at
pages 130 to 137.
(xii) Storage Service Agreement (GSS-TE) between CNG Transmission
Corporation and The Southern Connecticut Gas Company, dated October 1, 1993,
incorporated by reference to Form 10-K for the fiscal year ended September 30,
1996 at pages 43 to 50.
(xiii) Storage Service Agreement (GSS-II) between CNG Transmission
Corporation and The Southern Connecticut Gas Company, dated September 1,
1993, incorporated by reference to Form 10-K for the fiscal year ended
September 30, 1996 at pages 51 to 56.
(xiv) Gas Storage Contract and Amendment No. 1, thereto, between Tennessee
Gas Pipeline Company and The Southern Connecticut Gas Company, dated December
1, 1994 and July 1, 1995, respectively, incorporated by reference to Form
10-K for the fiscal year ended September 30, 1996 at pages 57 to 63.
(xv) Gas Transportation Agreement between Tennessee Gas Pipeline Company
and The Southern Connecticut Gas Company, dated August 19, 1993, incorporated
by reference to Form 10-K for the fiscal year ended September 30, 1993 at
pages 143 to 151.
(xvi) Gas Transportation Agreement between Tennessee Gas Pipeline Company
and The Southern Connecticut Gas Company, dated August 19, 1993, incorporated
by reference to Form 10-K for the fiscal year ended September 30, 1993 at
pages 152 to 159.
(xvii) Service Agreement between Texas Eastern Transmission Corporation and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
160 to 170.
(xviii) Service Agreement between Texas Eastern Transmission Corporation and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
171 to 180.
(xix) Service Agreement between Texas Eastern Transmission Corporation and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
181 to 192.
(xx) Service Agreement between Texas Eastern Transmission Corporation and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
193 to 204.
(xxi) Service Agreement between Texas Eastern Transmission Corporation and
The Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
214 to 220.
(xxii) Service Agreement between Algonquin Gas Transmission Company and The
Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
221 to 227.
(xxiii) Service Agreement between Algonquin Gas Transmission Company and The
Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
228 to 235.
(xxiv) Service Agreement between Algonquin Gas Transmission Company and The
Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
236 to 243.
(xxv) Service Agreement between Algonquin Gas Transmission Company and The
Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
244 to 251.
(xxvi) Service Agreement between Algonquin Gas Transmission Company and The
Southern Connecticut Gas Company, dated June 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
252 to 257.
(xxvii) Service Agreement between Algonquin Gas Transmission Company and The
Southern Connecticut Gas Company, dated October 1, 1993, incorporated by
reference to Form 10-K for the fiscal year ended September 30, 1993 at pages
258 to 277.
Executive Compensation Plans and Arrangements
---------------------------------------------
(xxviii) Employment Agreement between The Southern Connecticut Gas Company
and J. R. Crespo, dated March 24, 1992, incorporated by reference to Form
10-K for the fiscal year ended September 30, 1992 at pages 213 to 229.
(xxix) Amended and Restated Deferred Compensation Agreement between The
Southern Connecticut Gas Company and Connecticut Energy Corporation and
J. R. Crespo, dated November 8, 1996, incorporated by reference to Form 10-K
for the fiscal year ended September 30, 1996 at pages 64 to 73.
(xxx) The Southern Connecticut Gas Company Board of Directors Retirement
Plan, dated October 1, 1992, is incorporated by reference to Form 10-K for
the fiscal year ended September 30, 1994 at pages 27 to 30.
(xxxi) The Southern Connecticut Gas Company, Management Compensation Plan,
dated October 1, 1992, incorporated by reference to Form 10-K for the fiscal
year ended September 30, 1992 at pages 251 to 253.
(xxxii) Agreement between The Southern Connecticut Gas Company and
Henry Chauncey, Jr. related to deferred compensation as a director, dated
December 31, 1988, incorporated by reference to Form 10-K for the fiscal year
ended December 31, 1988 at pages 63 to 67.
(xxxiii) Supplemental Retirement Benefits Plan dated October 1, 1993,
incorporated by reference to Form 10-Q for the quarter ended December 31,
1993 at pages 25 to 28.
(xxxiv) Agreement between The Southern Connecticut Gas Company and
Helen B. Wasserman related to deferred compensation as a director, dated
December 31, 1994, incorporated by reference to Form 10-K for the fiscal year
ended September 30, 1995 at pages 25 to 29.
(xxxv) Agreement between The Southern Connecticut Gas Company and
Connecticut Energy Corporation and Carol A. Forest related to change in
control, dated October 1, 1996, incorporated by reference to Form 10-K for
the fiscal year ended September 30, 1996 at pages 74 to 83.
(xxxvi) Agreement between The Southern Connecticut Gas Company and
Connecticut Energy Corporation and Thomas A. Trotta related to change in
control, dated October 1, 1996, incorporated by reference to Form 10-K for
the fiscal year ended September 30, 1996 at pages 94 to 104.
(xxxvii) Connecticut Energy Corporation 1997 Restricted Stock Award Plan,
dated January 28, 1997, incorporated by reference to Form 10-Q for the quarter
ended March 31, 1997 at pages 23 to 35.
(xxxviii) Connecticut Energy Corporation Non-Employee Director Stock Plan,
dated January 28, 1997, incorporated by reference to Form 10-Q for the quarter
ended March 31, 1997 at pages 36 to 40.
(13) Annual Report to Security Holders
---------------------------------
The Company's 1997 Annual Report to Shareholders is filed herewith at
pages 22 to 45. Such exhibit includes only those portions thereof which are
expressly incorporated by reference in this Form 10-K.
(21) Subsidiaries of the Registrant
------------------------------
A list of the Company's subsidiaries is filed herewith at page 46.
(27) Financial Data Schedule
-----------------------
Financial Data Schedule UT is submitted only in electronic format to the
Securities and Exchange Commission.
(B) Reports on Form 8-K filed during the last quarter of 1997:
Form 8-K, dated April 23, 1997, concerning the Company's Form S-3
registration of 1,750,000 additional shares of common stock was filed with
the Securities and Exchange Commission on July 10, 1997.
Form 8-K, dated September 8, 1997, concerning the Company's receipt of a
letter from the DEP regarding the revised status of its three sites formerly
used for coal gasification operations was filed with the Securities and
Exchange Commission on September 10, 1997.
REPORT OF INDEPENDENT ACCOUNTANTS ON FINANCIAL STATEMENT SCHEDULE
-----------------------------------------------------------------
To the Board of Directors and Shareholders
of Connecticut Energy Corporation:
Our report on the consolidated financial statements of Connecticut Energy
Corporation has been incorporated by reference in this Form 10-K from page
37 of the 1997 Annual Report to Shareholders of Connecticut Energy
Corporation. In connection with our audits of such financial statements, we
have also audited the related financial statement schedule listed in Item
14(a)2 of this Form 10-K.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly, in all material respects, the information required to be
included therein.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
New York, New York
October 31, 1997
CONSENT OF INDEPENDENT ACCOUNTANTS
----------------------------------
We consent to the incorporation by reference in the Prospectus constituting
part of the Registration Statements on Form S-3 (No. 333-25691) and Form S-8
(No. 33-39245 and 33-51763) of Connecticut Energy Corporation of our report
dated October 31, 1997, on our audits of the consolidated financial
statements and financial statement schedule of Connecticut Energy Corporation
as of September 30, 1997 and 1996, and for the years ended September 30,
1997, 1996 and 1995, appearing on page 37 of the 1997 Annual Report to
Shareholders of Connecticut Energy Corporation which is incorporated by
reference in this Annual Report on Form 10-K.
/s/ Coopers & Lybrand L.L.P.
- ----------------------------
New York, New York
December 4, 1997
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
CONNECTICUT ENERGY CORPORATION
Years Ended September 30, 1997, 1996 and 1995
(in thousands)
Col. A Col. B Col. C Col. D Col. E
------ ------ ------ ------ ------
Additions
Balance at Charged to Charged to Balance
Beginning Costs and Other at End of
Description of Period Expenses Accounts Deductions Period
- ----------- --------- -------- -------- ---------- ------
Allowance for
Doubtful Accounts
1997 (1) $2,742 $7,297 $2,851 (2) $9,942 (3) $2,948
1996 (1) $3,553 $6,549 $1,826 (2) $9,186 (3) $2,742
1995 (1) $3,747 $6,548 $2,235 (2) $8,977 (3) $3,553
Notes:
- ------
(1) Reserve deducted in the Consolidated Balance Sheet from the asset to which it applies
(2) Recoveries on accounts previously charged off
(3) Accounts charged off as uncollectible
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.
CONNECTICUT ENERGY CORPORATION
(Registrant)
By: /s/ J. R. Crespo
-------------------------------------
J. R. Crespo, Chairman,
President and Chief Executive Officer
Dated: November 25, 1997
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.
By: /s/ Henry Chauncey, Jr. By: /s/ Newman M. Marsilius, III
----------------------------------- ----------------------------------
Henry Chauncey, Jr., Director Newman M. Marsilius, III, Director
Dated: November 25, 1997 Dated: November 25, 1997
By: /s/ James P. Comer By: /s/ Samuel M. Sugden
----------------------------------- ---------------------------------
James P. Comer, M.D., Director Samuel M. Sugden, Director
Dated: November 25, 1997 Dated: November 25, 1997
By: /s/ J. R. Crespo By: /s/ Christopher D. Turner
------------------------------------ --------------------------------
J. R. Crespo, Chairman, Christopher D. Turner, Director
President and Chief Executive Officer Dated: November 22, 1997
Dated: November 25, 1997
By: /s/ Richard F. Freeman By: /s/ Helen B. Wasserman
----------------------------------- --------------------------------
Richard F. Freeman, Director Helen B. Wasserman, Director
Dated: November 25, 1997 Dated: November 25, 1997
By: /s/ Richard M. Hoyt By: /s/ Vincent L. Ammann, Jr.
---------------------------------- --------------------------------
Richard M. Hoyt, Director Vincent L. Ammann, Jr.
Dated: November 25, 1997 Vice President and Chief
Accounting Officer
(Principal Accounting Officer)
Dated: November 25, 1997
By: /s/ Paul H. Johnson By: /s/ Carol A. Forest
----------------------------------- --------------------------------
Paul H. Johnson, Director Carol A. Forest, Vice President,
Dated: November 25, 1997 Finance, Chief Financial Officer,
Treasurer and Assistant
Secretary (Principal Financial
Officer)
Dated: November 25, 1997