PG ENERGY INC.
STATEMENTS OF INCOME
Year Ended December 31,
--------------------------------------------
1996 1995 1994
--------- --------- ---------
(Thousands of Dollars)
OPERATING REVENUES $ 160,594 $ 152,756 $ 167,992
Cost of gas 88,291 84,372 98,653
--------- --------- ---------
OPERATING MARGIN 72,303 68,384 69,339
--------- --------- ---------
OTHER OPERATING EXPENSES:
Operation 25,070 22,438 22,652
Maintenance 5,513 4,967 4,436
Depreciation 7,612 6,971 6,667
Income taxes 6,364 5,168 5,649
Taxes other than income taxes 11,028 9,918 10,807
--------- --------- ---------
Total other operating expenses 55,587 49,462 50,211
--------- --------- ---------
OPERATING INCOME 16,716 18,922 19,128
OTHER INCOME, NET (Note 4) 143 301 72
--------- --------- ---------
INCOME BEFORE INTEREST CHARGES 16,859 19,223 19,200
--------- --------- ---------
INTEREST CHARGES:
Interest on long-term debt 6,862 9,304 8,914
Other interest 658 1,543 1,005
Allowance for borrowed funds used
during construction (177) (94) (21)
--------- --------- ---------
Total interest charges 7,343 10,753 9,898
--------- --------- ---------
INCOME FROM CONTINUING OPERATIONS 9,516 8,470 9,302
INCOME (LOSS) WITH RESPECT TO DISCONTINUED
OPERATIONS (Note 2) (363) (3,834) 10,504
--------- --------- ---------
NET INCOME 9,153 4,636 19,806
DIVIDENDS ON PREFERRED STOCK 1,730 2,763 4,639
--------- --------- ---------
EARNINGS APPLICABLE TO COMMON STOCK $ 7,423 $ 1,873 $ 15,167
========= ========= =========
COMMON STOCK:
Earnings (loss) per share of common stock:
Continuing operations $ 2.16 $ 1.02 $ .90
Discontinued operations (.10) (.69) 2.02
--------- --------- ---------
Income before premium on repurchase/
redemption of preferred stock 2.06 .33 2.92
Premium on repurchase/redemption of
preferred stock (.37) - (.19)
--------- --------- ---------
Total $ 1.69 $ .33 $ 2.73
========= ========= =========
Weighted average number of shares outstanding 3,601,072 5,569,765 5,189,108
========= ========= =========
The accompanying notes are an integral part of the financial statements.
-25-
PG ENERGY INC.
BALANCE SHEETS
December 31,
-----------------------------
1996 1995
-------- --------
(Thousands of Dollars)
ASSETS
UTILITY PLANT:
At original cost $319,205 $295,895
Accumulated depreciation (79,783) (76,882)
-------- --------
239,422 219,013
-------- --------
OTHER PROPERTY AND INVESTMENTS 4,894 5,089
-------- --------
CURRENT ASSETS:
Cash and cash equivalents 690 328
Accounts receivable -
Customers 17,183 18,189
Affiliates, net 58 -
Others 565 815
Reserve for uncollectible accounts (1,140) (781)
Accrued utility revenues 11,830 10,319
Materials and supplies, at average cost 2,460 2,609
Gas held by suppliers, at average cost 20,265 15,140
Natural gas transition costs collectible 2,525 4,612
Deferred cost of gas and supplier refunds, net 19,316 -
Prepaid expenses and other 1,313 3,281
-------- --------
75,065 54,512
-------- --------
DEFERRED CHARGES:
Regulatory assets -
Deferred taxes collectible 29,771 30,015
Other 4,274 3,013
Unamortized debt expense 1,153 1,340
-------- --------
35,198 34,368
-------- --------
NET ASSETS OF DISCONTINUED OPERATIONS (Note 2) - 204,250
-------- --------
TOTAL ASSETS $354,579 $517,232
======== ========
The accompanying notes are an integral part of the financial statements.
-26-
PG ENERGY INC.
BALANCE SHEETS
December 31,
-----------------------------
1996 1995
-------- --------
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
CAPITALIZATION (see accompanying statements):
Common shareholder's investment (Notes 5 and 8) $ 96,005 $208,356
Preferred stock of PGE (Note 6) -
Not subject to mandatory redemption, net 18,851 33,615
Subject to mandatory redemption 739 1,680
Long-term debt (Note 7) 55,000 55,000
-------- --------
170,595 298,651
-------- --------
CURRENT LIABILITIES:
Current portion of long-term debt (Notes 7 and 9)
Parent 31,400 -
Other 38,721 115,801
Preferred stock subject to repurchase or mandatory
redemption (Note 6) 115 80
Note payable (Note 9) 10,000 10,000
Accounts payable -
Suppliers 17,831 17,781
Parent 348 760
Affiliates, net - 66
Deferred cost of gas and supplier refunds, net - 434
Accrued general business and realty taxes 2,239 1,542
Accrued income taxes 14,559 516
Accrued interest 1,936 2,062
Accrued natural gas transition costs (Note 3) 2,095 2,278
Other 3,375 3,162
-------- --------
122,619 154,482
-------- --------
DEFERRED CREDITS:
Deferred income taxes 49,119 48,848
Accrued natural gas transition costs (Note 3) - 1,144
Unamortized investment tax credits 4,767 4,938
Operating reserves 3,086 3,709
Other 4,393 5,460
-------- --------
61,365 64,099
-------- --------
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
TOTAL CAPITALIZATION AND LIABILITIES $354,579 $517,232
======== ========
The accompanying notes are an integral part of the financial statements.
-27-
PG ENERGY INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
------------------------------------------
1996 1995 1994
--------- -------- --------
(Thousands of Dollars)
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations $ 9,516 $ 8,470 $ 9,302
Effects of noncash charges to income -
Depreciation 7,675 7,018 6,693
Deferred income taxes, net 1,940 (265) 725
Provisions for self insurance 1,042 2,652 1,030
Other, net 1,390 5,190 2,755
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues 46 (3,309) 1,546
Gas held by suppliers (5,125) 4,885 6,625
Accounts payable 215 839 (5,609)
Deferred cost of gas and supplier refunds, net (18,493) 5,715 5,784
Other current assets and liabilities, net 2,958 (6,622) (658)
Other operating items, net (5,644) 2,675 (4,020)
--------- -------- --------
Net cash provided by (used for) continuing
operations (4,480) 27,248 24,173
Net cash provided by (used for) discontinued
operations (45,173) 3,764 552
--------- -------- --------
Net cash provided by (used for) operating
activities (49,653) 31,012 24,725
--------- -------- --------
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (29,312) (20,615) (16,960)
Proceeds from the sale of discontinued
operations 261,752 - -
Other, net 1,078 (4,934) 1,098
--------- -------- --------
Net cash provided by (used for) investing
activities 233,518 (25,549) (15,862)
--------- -------- --------
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 339 5,720 23,439
Repurchase of common stock (85,008) - -
Redemption of preferred stock (15,670) (80) (30,080)
Dividends on common and preferred stock (35,498) (18,032) (14,244)
Issuance of long-term debt - 50,000 30,000
Issuance of long-term debt to parent 49,900 - -
Repayment of long-term debt (50,000) (53,535) (31,055)
Repayment of long-term debt to parent (18,500) - -
Repayment of note payable to parent - - (3,680)
Net increase (decrease) in bank borrowings (27,723) 10,519 15,370
Other, net (1,343) (31) (1,023)
--------- -------- --------
Net cash used for financing activities (183,503) (5,439) (11,273)
--------- -------- --------
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 362 24 (2,410)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 328 304 2,714
--------- -------- --------
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 690 $ 328 $ 304
========= ======== ========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 7,139 $ 23,802 $ 21,001
========= ======== ========
Income taxes $ 46,483 $ 8,694 $ 7,353
========= ======== ========
The accompanying notes are an integral part of the financial statements.
-28-
PG ENERGY INC.
STATEMENTS OF CAPITALIZATION
December 31,
------------------------------------
1996 1995
--------- -------
(Thousands of Dollars)
COMMON SHAREHOLDER'S INVESTMENT (Notes 5 and 8):
Common stock, no par value
(stated value $10 per share)
Authorized - 15,000,000 shares
Outstanding - 3,314,155 and
5,602,480 shares, respectively $ 33,142 $ 56,025
Additional paid-in capital 32,677 94,463
Retained earnings 30,186 57,868
--------- ---------
Total common shareholder's investment 96,005 56.3% 208,356 69.8%
--------- ---------
PREFERRED STOCK, par value $100 per share
Authorized - 997,500 shares (Note 6):
Not subject to mandatory redemption, net -
4.10% cumulative preferred,
79,670 and 100,000 shares outstanding,
respectively 7,967 10,000
Less current repurchases (35) -
9% cumulative preferred, 115,641 and
250,000 shares outstanding, respectively,
net of issuance costs 10,919 23,615
--------- ---------
Total preferred stock not subject to
mandatory redemption, net 18,851 11.1% 33,615 11.2%
--------- ---------
Subject to mandatory redemption -
5.75% cumulative preferred, 8,192 and
17,600 shares outstanding, respectively 819 1,760
Less current redemption requirements (80) (80)
--------- ---------
Total preferred stock subject to
mandatory redemption 739 0.4% 1,680 0.6%
--------- ---------
LONG-TERM DEBT (Note 7):
First mortgage bonds 55,000 55,000
Notes 70,121 115,801
Less current maturities and sinking
fund requirements (70,121) (115,801)
--------- ---------
Total long-term debt 55,000 32.2% 55,000 18.4%
--------- ------ --------- ------
TOTAL CAPITALIZATION $ 170,595 100.0% $ 298,651 100.0%
========= ====== ========= ======
The accompanying notes are an integral part of the financial statements.
-29-
PG ENERGY INC.
STATEMENTS OF COMMON SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1994, 1995 AND 1996
Additional
Common Paid-In Retained
Stock Capital Earnings Total
------- ---------- -------- --------
(Thousands of Dollars)
Balance at December 31, 1993 $48,687 $ 72,642 $ 66,682 $188,011
Net income for 1994 - - 19,806 19,806
Issuance of common stock 5,880 17,559 - 23,439
Premium on redemption of preferred
stock - - (980) (980)
Dividends on:
Preferred stock (Note 6) - - (4,639) (4,639)
Common stock ($1.81 per share) - - (9,605) (9,605)
------- ---------- -------- --------
Balance at December 31, 1994 54,567 90,201 71,264 216,032
Net income for 1995 - - 4,636 4,636
Issuance of common stock 1,458 4,262 - 5,720
Dividends on:
Preferred stock (Note 6) - - (2,763) (2,763)
Common stock ($2.7425 per share) - - (15,269) (15,269)
------- ---------- -------- --------
Balance at December 31, 1995 56,025 94,463 57,868 208,356
Net income for 1996 - - 9,153 9,153
Issuance of common stock 90 249 - 339
Repurchase of common stock (22,973) (62,035) - (85,008)
Premium on repurchase of
preferred stock - - (1,337) (1,337)
Dividends on:
Preferred stock (Note 6) - - (1,730) (1,730)
Common stock ($10.217 per share) - - (33,768) (33,768)
------- ---------- -------- --------
Balance at December 31, 1996 $33,142 $ 32,677 $ 30,186 $ 96,005
======= ========== ======== ========
The accompanying notes are an integral part of the financial statements.
-30-
PG ENERGY INC.
NOTES TO FINANCIAL STATEMENTS
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Nature of the Business. PG Energy Inc. ("PGE"), formerly known as
Pennsylvania Gas and Water Company, a wholly-owned subsidiary of Pennsylvania
Enterprises, Inc. ("PEI"), is a regulated public utility subject to the
jurisdiction of the Pennsylvania Public Utility Commission ("PPUC") for rate and
accounting purposes. PGE distributes natural gas to a ten-county area in
northeastern Pennsylvania, a territory that includes 116 municipalities, in
addition to the cities of Scranton, Wilkes-Barre and Williamsport. On February
14, 1997, PGE acquired all of the outstanding capital stock of Honesdale Gas
Company ("Honesdale"), a regulated public utility serving approximately 3,200
customers in portions of Pike and Wayne Counties in northeastern Pennsylvania.
The financial statements of PGE have been prepared in accordance with
generally accepted accounting principles, including the provisions of Financial
Accounting Standards Board ("FASB") Statement 71, "Accounting for the Effects of
Certain Types of Regulation," which give recognition to the rate and accounting
practices of regulatory agencies such as the PPUC.
Use of Accounting Estimates. The preparation of financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. These estimates involve judgments with respect to,
among other things, various future economic factors and regulatory matters (see
"Management's Discussion and Analysis of Financial Conditions and Results of
Operations - Restructuring of Natural Gas Industry" in Item 7 of this Form 10-K)
which are difficult to predict and are beyond the control of PEI. Therefore,
actual amounts could differ from these estimates.
Utility Plant and Depreciation. Utility plant is stated at cost, which
represents the original cost of construction, including payroll, administrative
and general costs, and an allowance for funds used during construction.
The allowance for funds used during construction ("AFUDC") is defined as
the net cost during the period of construction of borrowed funds used and a
reasonable rate upon other funds when so used. Such allowance is charged to
utility plant and reported as a reduction of interest expense (with respect to
the cost of borrowed funds) in the accompanying statements of income. AFUDC
varies according to changes in the level of construction work in progress and in
the sources and costs of capital. The weighted average rate for such allowance
was approximately 9% in 1996, 8% in 1995 and 7% in 1994.
PGE provides for depreciation on a straight-line basis. Exclusive of
transportation and work equipment, the annual provision for depreciation, as
related to the average depreciable original cost of utility plant, was 2.60% in
1996, 2.75% in 1995 and 2.77% in 1994, respectively.
-31-
When depreciable property is retired, the original cost of such property
is removed from the utility plant accounts and is charged, together with the
cost of removal less salvage, to accumulated depreciation. No gain or loss is
recognized in connection with retirements of depreciable property, other than in
the case of significant involuntary conversions or extraordinary retirements.
Revenues and Cost of Gas. PGE bills its customers monthly based on
estimated or actual meter readings on cycles that extend throughout the month.
The estimated unbilled amounts from the most recent meter reading dates through
the end of the period being reported on are recorded as accrued revenues.
PGE generally passes on to its customers increases or decreases in gas
costs from those reflected in its tariff charges. In accordance with this
procedure, PGE defers any current under or over-recoveries of gas costs and
collects or refunds such amounts in subsequent periods. PGE had underrecoveries
of gas costs totaling $29.6 million, $10.4 million and $15.8 million as of
December 31, 1996, 1995 and 1994, respectively.
Deferred Charges (Regulatory Assets). PGE generally accounts for and
reports its costs in accordance with the economic effect of rate actions by the
PPUC. To this extent, certain costs are recorded as deferred charges pending
their recovery in rates. These amounts relate to previously-issued orders of the
PPUC and are of a nature which, in PGE's opinion, will be recoverable in future
rates, based on such rate orders. In addition to deferred taxes collectible,
which represent the probable future rate recovery of the previously unrecorded
deferred taxes primarily relating to certain temporary differences in the basis
of utility plant not previously recorded because of the regulatory rate
practices of the PPUC, the following deferred charges are included as "Other"
regulatory assets as of December 31, 1996 and 1995:
1996 1995
------- ------
(Thousands of Dollars)
Computer software costs $ 1,293 $ 415
Early retirement plan charges 664 710
Rate case expense 588 11
Low income usage reduction program 492 429
Extraordinary charges due to flooding 426 -
Customer assistance program 219 109
Corrosion control costs 194 341
Natural gas transition costs collectible - 497
Other 398 501
------- -------
Total $ 4,274 $ 3,013
======= =======
PGE also records, as deferred charges, the direct financing costs incurred
in connection with the issuance of long-term debt and redeemable preferred stock
and equitably amortizes such amounts over the life of such securities.
Cash and Cash Equivalents. For the purposes of the statements of cash
flows, PGE considers all highly liquid debt instruments purchased, which
generally have a maturity of three months or less, to be cash equivalents. Such
instruments are carried at cost, which approximates market value.
-32-
Income Taxes. PGE provides for deferred taxes in accordance with the
provisions of FASB Statement 109. The components of PGE's net deferred income
tax liability relative to continuing operations as of December 31, 1996 and
1995, are shown below:
1996 1995
------- -------
(Thousands of Dollars)
Utility plant basis differences $53,132 $51,822
FERC Order 636 transition costs 181 700
Postretirement benefits (726) (536)
Take-or-pay costs, net (467) (467)
Alternative minimum tax - (1,947)
Operating reserves (1,406) (1,300)
Other (1,595) 576
------- -------
Net deferred income tax liability $49,119 $48,848
======= =======
The provision for income taxes relative to continuing operations consists
of the following components:
1996 1995 1994
------- ------- -----
(Thousands of Dollars)
Included in operating expenses:
Currently payable -
Federal $ 3,235 $ 4,457 $ 3,013
State 1,361 1,169 1,128
------- ------- -------
Total currently payable 4,596 5,626 4,141
------- ------- -------
Deferred, net -
Federal 2,059 198 1,785
State (119) (463) (105)
------- ------- -------
Total deferred, net 1,940 (265) 1,680
------- ------- -------
Amortization of investment tax credits (172) (193) (172)
------- ------- -------
Total included in operating expenses 6,364 5,168 5,649
------- ------- -------
Included in other income, net:
Currently payable -
Federal (59) 135 213
State (19) 43 85
------- ------- -------
Total currently payable (78) 178 298
------- ------- -------
Deferred, net -
Federal - - (5)
State - - -
------- ------- -------
Total deferred, net - - (5)
------- ------- -------
Total included in other income, net (78) 178 293
------- ------- -------
Total provision for income taxes $ 6,286 $ 5,346 $ 5,942
======= ======= =======
-33-
The total provision for income taxes relative to continuing operations
shown in the accompanying statements of income differs from the amount which
would be computed by applying the statutory federal income tax rate to income
before income taxes. The following table summarizes the major reasons for this
difference:
1996 1995 1994
------- ------- ------
(Thousands of Dollars)
Income before income taxes $15,802 $13,816 $15,293
======= ======= =======
Tax expense at statutory federal
income tax rate $ 5,531 $ 4,836 $ 5,353
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 795 487 879
Amortization of investment tax
credits (172) (193) (172)
Other, net 132 216 (118)
------- ------- -------
Total provision for income taxes $ 6,286 $ 5,346 $ 5,942
======= ======= =======
Long Lived Assets. FASB Statement 121, "Accounting for the Impairment of
Long-Lived Assets", requires that long-lived assets, identifiable intangibles,
capital leases and goodwill be reviewed for impairment whenever events occur or
changes in circumstances indicate that the carrying amount of the assets may not
be recoverable. In addition, FASB Statement 121 requires that regulatory assets
meet the recovery criteria of FASB Statement 71, "Accounting for Effects of
Certain Types of Regulation", on an ongoing basis in order to avoid a writedown.
The implementation of FASB Statement 121 in 1996 did not have a significant
impact on PGE. The carrying amount of all assets, including regulatory assets,
is considered recoverable.
(2) DISCONTINUED OPERATIONS
Pursuant to an Asset Purchase Agreement dated April 26, 1995, as amended
(the "Agreement"), among PEI, PGE, American Water Works Company, Inc.
("American") and Pennsylvania-American Water Company ("Pennsylvania-American"),
a wholly-owned subsidiary of American, PEI and PGE sold substantially all of the
assets, properties and rights of PGE's water utility operations to
Pennsylvania-American on February 16, 1996. Under the terms of the Agreement,
Pennsylvania-American paid PGE $414.3 million consisting of $262.1 million in
cash and the assumption of $152.2 million of PGE's liabilities, including $141.0
million of its long-term debt. PGE continued to operate the water utility
business until February 16, 1996. The cash proceeds from the sale of
approximately $203.3 million, net of the estimated $58.8 million of income
taxes, have been used by PEI and PGE to retire debt, to repurchase stock (see
Note 5 of the Notes to Financial Statements), for construction expenditures and
for working capital for their continuing operations.
The sale price reflected a $6.5 million premium over the book value of the
assets sold. However, after transaction costs and the net effect of other items,
the sale resulted in an estimated after tax loss of approximately $6.2 million,
net of the income from the water operations during the phase-out period (which
for financial reporting purposes was April 1, 1995, through February 15, 1996).
The sale involved a gain for income tax purposes, primarily because of
-34-
the accelerated depreciation that had been claimed by PGE with respect to the
water utility plant that was sold. It is estimated that the income taxes payable
on the sale, for which deferred income taxes had previously been provided, will
be approximately $58.8 million, of which $44.6 million had been paid as of
December 31, 1996.
The accompanying financial statements reflect PGE's water utility
operations as "discontinued operations" effective March 31, 1995. Interest
charges relating to indebtedness of PGE were allocated through the date of
disposition to the discontinued operations based on the relationship of the
gross water utility plant that was sold to the total of PGE's gross gas and
water utility plant. This is the same method as was utilized by PGE and the PPUC
in establishing the revenue requirements of both PGE's gas and water utility
operations. None of the dividends on PGE's preferred stock nor any of PEI's
interest expense were allocated to the discontinued operations.
Selected financial information for the discontinued operations as of
December 31, 1995, and for the years ended December 31, 1995 and 1994 is set
forth below:
Net Assets of Discontinued Operations
As of
December 31, 1995
-----------------
(Thousands of Dollars)
Net utility plant $ 368,742
Current assets (primarily accounts receivable
and accrued revenues) 38,508
-----------------
Total assets being acquired by
Pennsylvania-American 407,250
Liabilities being assumed by
Pennsylvania-American 147,080
-----------------
Net assets being acquired by
Pennsylvania-American 260,170
Estimated liability for income taxes on
sale of discontinued operations (56,710)
Estimated net income of discontinued operations
during the remainder of the phase-out period 790
-----------------
Total net assets of discontinued operations $ 204,250
=================
Income From Discontinued Operations
Years ended December 31,
----------------------------
1995* 1994
-------- ------
(Thousands of Dollars)
Operating revenues $ 15,640 $ 66,731
Operating expenses, excluding income taxes 8,875 36,677
-------- --------
Operating income before income taxes 6,765 30,054
Income taxes 1,403 6,850
-------- --------
Operating income 5,362 23,204
Other income 9 49
Allocated interest charges (3,244) (12,749)
-------- --------
Income from discontinued operations $ 2,127 $ 10,504
======== ========
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
-35-
Net Cash Provided by Discontinued Operations
Years ended December 31,
1995* 1994
-------- --------
(Thousands of Dollars)
Income from discontinued operations $ 2,127 $ 10,504
Noncash charges (credits) to income:
Depreciation 1,946 7,672
Deferred treatment plant costs, net 145 581
Deferred income taxes 447 5,146
Deferred water utility billings - (5,574)
Changes in working capital, exclusive
of long-term debt 1,648 353
Additions to utility plant (2,276) (20,980)
Utilization of restricted funds - 9,753
Net increase (decrease) in long-term
debt 1,010 (6,834)
Other, net (1,283) (69)
-------- --------
Net cash provided by discontinued
operations $ 3,764 $ 552
======== ========
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
(3) RATE MATTERS
Rate Increase. On May 24, 1996, PGE filed an application with the PPUC
seeking an increase in its base gas rates, designed to produce $14.1 million in
additional annual revenue, to be effective July 23, 1996. On June 20, 1996, the
PPUC suspended this rate increase for seven months (until February 23, 1997) in
order to investigate the reasonableness of the proposed rates. On November 7,
1996, PGE and certain parties filing objections to the rate increase request
filed a Settlement Agreement and Joint Petition for Settlement of Rate
Investigation (the "Settlement Petition") with the Administrative Law Judge
assigned to conduct the investigation of the rate increase request. This
Settlement Petition provided for an overall 5.3% rate increase that was designed
to produce $7.5 million of additional annual revenue. By Order adopted December
19, 1996, the PPUC approved the Settlement Petition effective January 15, 1997.
Under the terms of the Settlement Petition, the billing for the impact of the
rate increase relative to PGE's residential heating customers (which it is
estimated will total $6.6 million on an annual basis) is being deferred, without
carrying charges, until July, 1997.
Gas Cost Adjustments. The provisions of the Pennsylvania Public Utility
Code require that the tariffs of local gas distribution companies ("LDCs") such
as PGE, be adjusted on an annual basis, and on an interim basis when
circumstances dictate, to reflect changes in their purchased gas costs. The
procedure includes a process for the reconciliation of actual gas costs incurred
and actual revenues received and also provides for the refund of any
overcollections, plus interest thereon, or the recoupment of any
undercollections of gas costs.
-36-
In accordance with these procedures, PGE has been permitted to make the
following changes since January 1, 1994, to the gas costs contained in its gas
tariff rates:
Change in
Rate per MCF Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
---------------- ---- ---- -------------------
December 1, 1996 3.01 4.18 32,400,000
September 1, 1996 2.88 3.01 3,600,000
June 1, 1996 2.75 2.88 3,400,000
December 1, 1995 2.42 2.75 9,600,000
May 15, 1995 3.68 2.42 (8,200,000)*
December 1, 1994 3.74 3.68 (1,800,000)
* Represents estimated reduction in revenue for the period May 15, 1995,
through November 30, 1995.
The changes in gas rates on account of purchased gas costs have no effect
on PGE's earnings since the change in revenue is offset by a corresponding
change in the cost of gas.
Recovery of FERC Order 636 Transition Costs. On October 15, 1993, the PPUC
adopted an annual purchased gas cost ("PGC") order (the "PGC Order") regarding
recovery of Federal Energy Regulatory Commission ("FERC") Order 636 transition
costs. The PGC Order stated that Account 191 and New Facility Costs (the "Gas
Transition Costs") are subject to recovery through the annual PGC rate filings
made with the PPUC by PGE and other LDCs. The PGC Order also indicated that
while Gas Supply Realignment and Stranded Costs (the "Non-Gas Transition Costs")
are not natural gas costs eligible for recovery under the PGC rate filing
mechanism, such costs are subject to full recovery by LDCs through the filing of
a tariff pursuant to either the existing surcharge or base rate provisions of
the Code. The PGC Order further stated that all such filings would be evaluated
on a case-by-case basis.
PGE was billed a total of $1.3 million of Gas Transition Costs by its
interstate pipelines. Of this amount, $857,000 was recovered by PGE over a
twelve-month period ended January 31, 1995, through an increase in its PGC rate,
$252,000 was recovered by PGE in its annual PGC rate that the PPUC approved
effective December 1, 1995, and the remaining $213,000 is being recovered by PGE
in its PGC rate that was effective December 1, 1996.
By Order of the PPUC entered August 26, 1994, PGE began recovering the
Non-Gas Transition Costs that it estimates it will ultimately be billed pursuant
to FERC Order 636 through the billing of a surcharge to its customers effective
September 12, 1994. It is currently estimated that $10.1 million of Non-Gas
Transition Costs will be billed to PGE, generally over a six-year period
extending through January 1, 1999, of which $8.0 million had been billed to PGE
and $7.5 million had been recovered from its customers as of December 31, 1996.
PGE has recorded the estimated Non-Gas Transition Costs that remain to be billed
to it and the amounts remaining to be recovered from its customers.
-37-
(4) OTHER INCOME, NET
Other income, net was comprised of the following elements:
Year ended December 31,
---------------------------------------
1996 1995 1994
------- ------- -------
(Thousands of Dollars)
Net interest income on the temporary
investment of proceeds from the sale
of PGE's water utility operations $ 267 $ - $ -
Loss on sale and retirement of gas wells
and related abandonment of subsurface gas
rights, net of related income taxes (321) - -
Gain on sale of land and other property,
net of related income taxes 141 - 165
Write-off of expired advances relating
to income taxes, net of related
income taxes - 227 -
Amortization of preferred stock issuance
costs, net of related income tax
benefits (13) (1) (227)
Other 69 75 134
------- ------- -------
Total $ 143 $ 301 $ 72
======= ======= =======
(5) COMMON STOCK
On May 31, 1994, PGE issued 500,000 shares of its common stock to PEI for
aggregate net proceeds of $20.0 million. The proceeds from the shares issued on
May 31, 1994, were used by PGE to redeem $15.0 million of its 9.50% 1988 series
cumulative preferred stock, to fund the $534,375 premium in connection with such
redemption, to repay a portion of its bank borrowings and for working capital
purposes. Other than shares issued in connection with PEI's Dividend
Reinvestment and Stock Purchase Plan and Customer Stock Purchase Plan, PGE has
not issued any other shares of common stock since January 1, 1994.
On July 28, 1994, PEI implemented a Customer Stock Purchase Plan (the
"Customer Plan") which provided the residential customers of PGE with a method
of purchasing newly-issued shares of PEI common stock at a 5% discount from the
market price. PEI uses proceeds from the issuance of shares through the Customer
Plan to purchase common stock of PGE. PGE realized $2.4 million and $1.7 million
from the issuance of common stock to PEI in connection with the Customer Plan
during 1995 and 1994, respectively. Effective May 9, 1995, the Customer Plan was
suspended because of the significant reduction in PEI's and PGE's capital
requirements resulting from the sale of PGE's water utility operations to
Pennsylvania-American.
PGE also obtains external funds from the sale of its common stock to PEI
in connection with PEI's Dividend Reinvestment and Stock Purchase Plan (the
"DRP"). However, from June 14, 1996, through December 31, 1996, PEI temporarily
suspended the sale of stock to the DRP as a result of the proceeds received from
the sale of PGE's water utility operations, and during that period the DRP
obtained shares of PEI common stock for participants through open market
purchases. Although effective January 1, 1997, PEI resumed selling stock to the
DRP, PGE does not expect to make sales of its common stock to PEI in connection
with the DRP during 1997 because of the significant reduction in PGE's capital
requirements resulting from the sale of PGE's water utility operations to
Pennsylvania-American.
-38-
Through the DRP, holders of shares of PEI's common stock may reinvest cash
dividends and/or make cash investments in common stock of PEI. During 1996, 1995
and 1994, PGE realized $340,000, $3.3 million and $1.8 million, respectively,
from the issuance of common stock to PEI in connection with the DRP.
On February 16, 1996, PGE repurchased 2,297,297 shares of its common stock
from PEI for an aggregate consideration of $85.0 million, with a portion of the
proceeds from the sale of its water utility operations to Pennsylvania-American.
(6) PREFERRED STOCK
Preferred Stock Subject to Mandatory Redemption. On May 31, 1994, PGE
redeemed the remaining 150,000 outstanding shares of its 9.50% 1988 series
cumulative preferred stock, $100 par value, at a price of $103.5625 per share,
which included a voluntary redemption premium of $3.5625 per share ($534,375 in
the aggregate), plus accrued dividends.
On December 16, 1994, PGE redeemed all 150,000 shares of its 8.90%
cumulative preferred stock at a price of $102.97 per share, which included a
voluntary redemption premium of $2.97 per share ($445,500 in the aggregate).
The holders of the 5.75% cumulative preferred stock have a noncumulative
right each year to tender to PGE and to require it to purchase at a per share
price not exceeding $100, up to (a) that number of shares of the 5.75%
cumulative preferred stock which can be acquired for an aggregate purchase price
of $80,000 less (b) the number of such shares which PGE may already have
purchased during the year at a per share price of not more than $100. On June
17, 1996, PGE repurchased 9,408 shares of its 5.75% cumulative preferred stock
(including 800 shares redeemed in accordance with annual sinking fund
provisions) for an aggregate consideration of $838,000. Eight hundred such
shares were acquired and cancelled by PGE in each of the years ended December
31, 1995 and 1994, for an aggregate purchase price in each year of $80,000.
As of December 31, 1996, the sinking fund requirements relative to PGE's
5.75% cumulative preferred stock (the only series of preferred stock subject to
mandatory redemption that was outstanding as of such date) were $80,000 for each
of the years 1997 through 2001. At PGE's option, the 5.75% cumulative preferred
stock may currently be redeemed at a price of $102.00 per share ($836,000 in the
aggregate).
Preferred Stock Not Subject to Mandatory Redemption. During the year ended
December 31, 1996, PGE repurchased 134,359 shares of its 9% cumulative preferred
stock, $100 par value, for an aggregate consideration of $14.5 million, largely
pursuant to a self tender offer conducted during March and April, 1996. The 9%
cumulative preferred stock is not redeemable at the option of PGE prior to
September 15, 1997. Thereafter, it is redeemable at the option of PGE, in whole
or in part, upon not less than 30 days' notice, at $100 per share plus accrued
dividends to the date of redemption and at a premium of $8 per share if redeemed
from September 15, 1997, to September 14, 1998, and a premium of $4 per share if
redeemed from September 15, 1998, to September 14, 1999.
During the year ended December 31, 1996, PGE repurchased 20,330 shares of
its 4.10% cumulative preferred stock, $100 par value, for an aggregate
consideration of $1.0 million, largely pursuant to a self tender offer conducted
during March and April,1996. An additional 350 shares of 4.10% cumulative
-39-
preferred stock were repurchased in January, 1997, for an aggregate
consideration of $19,000. At PGE's option, the 4.10% cumulative preferred stock
may currently be redeemed at a redemption price of $105.50 per share or for an
aggregate redemption price of $8,368,260.
Dividend Information. The dividends on the preferred stock of PGE in each
of the three years in the period ended December 31, 1996, were as follows:
Series 1996 1995 1994
------ ------ ------ -----
(Thousands of Dollars)
4.10% $ 348 $ 410 $ 410
5.75% 72 103 108
8.90% - - 1,280
9.00% 1,310 2,250 2,250
9.50% 1988 series - - 591
------ ------ ------
Total $1,730 $2,763 $4,639
====== ====== ======
Dividends on all series of PGE's preferred stock are cumulative and PGE
may not declare dividends on its common stock if any dividends on shares of
preferred stock then outstanding are in default.
(7) LONG-TERM DEBT
Long-term debt consisted of the following components at December 31, 1996
and 1995:
1996 1995
--------- ---------
(Thousands of Dollars)
First mortgage bonds -
8.375% Series, due 2002 $ 30,000 $ 30,000
9.23 % Series, due 1999 10,000 10,000
9.34 % Series, due 2019 15,000 15,000
--------- ---------
55,000 55,000
--------- ---------
Notes -
Term loan, due 1996 - 50,000
Bank borrowings, at weighted average interest
rates of 6.18% and 6.62%, respectively (Note 9) 38,721 65,801
Note payable to PEI 31,400 -
--------- ---------
70,121 115,801
--------- ---------
Less current maturities and sinking
fund requirements (70,121) (115,801)
--------- ---------
Total long-term debt $ 55,000 $ 55,000
========= =========
On October 12, 1995, PGE borrowed $50.0 million pursuant to a term loan
agreement. Proceeds from the loan, along with other funds provided by PGE, were
utilized on October 13, 1995, to redeem the $50.0 million principal amount of
PGE's 9.57% Series First Mortgage Bonds due September 1, 1996. PGE repaid its
$50.0 million term loan on February 16, 1996, with proceeds from the sale of its
water operations to Pennsylvania-American.
On August 22, 1996, the PPUC granted PGE permission to borrow up to $70.0
million from PEI during 1996, and also 1997 (at interest rates generally less
than prime), to repay bank borrowings and for construction expenditures and
other working capital requirements, to the extent that PEI has funds available
for lending to PGE. As of December 31, 1996, PGE had $31.4 million outstanding
under its borrowing arrangement with PEI. Such interim borrowings by PGE from
PEI will be repaid with proceeds from bank borrowings by PGE.
-40-
Maturities and Sinking Fund Requirements. As of December 31, 1996, the
aggregate annual maturities and sinking fund requirements of long-term debt for
each of the next five years ending December 31, were:
Year Amount
1997 $ 70,121,000 (a)
1998 $ -
1999 $ 10,000,000 (b)
2000 $ -
2001 $ -
(a) Includes $38.7 million of bank borrowings outstanding as of December
31, 1996, and $31.4 million of borrowings payable to PEI.
(b) Represents PGE's 9.23% Series First Mortgage Bonds in the principal
amount of $10.0 million due September 1, 1999.
(8) DIVIDEND RESTRICTIONS
The preferred stock provisions of PGE's Restated Articles of Incorporation
and certain of the agreements under which PGE has issued long-term debt provide
for certain dividend restrictions. As of December 31, 1996, $5,416,000 of the
retained earnings of PGE were restricted against the payment of cash dividends
on common stock under the most restrictive of these covenants.
(9) BANK NOTES PAYABLE
As of April 19, 1993, PGE entered into a revolving bank credit agreement,
as subsequently amended (the "Credit Agreement"), with a group of six banks
under the terms of which $60.0 million was available for borrowing by PGE
through May 31, 1996. The Credit Agreement was terminated on February 26, 1996,
following the sale of PGE's water operations to Pennsylvania-American on
February 16, 1996, and the repayment of all borrowings outstanding under the
Credit Agreement with proceeds from such sale. The interest rate on borrowings
under the Credit Agreement was generally less than prime. The Credit Agreement
required the payment of a commitment fee of .195% per annum on the average daily
amount of the unused portion of the available funds.
PGE currently has arrangements for six revolving bank lines of credit with
an aggregate borrowing capacity of $65.5 million which provide for borrowings at
interest rates generally less than prime and which mature during mid-1997. As of
March 1, 1997, PGE had $27.2 million outstanding under these bank lines of
credit.
Because of limitations imposed by the terms of PGE's preferred stock, PGE
is prohibited, without the consent of the holders of a majority of the
outstanding shares of its preferred stock, from issuing more than $12.0 million
of unsecured debt due on demand or within one year from issuance. PGE had $10.0
million due on demand or within one year from issuance outstanding as of
December 31, 1996.
-41-
Information relating to PGE's bank lines of credit and borrowings under
those lines of credit is set forth below:
As of December 31,
--------------------------------------------
1996 1995 1994
-------- -------- ------
(Thousands of Dollars)
Borrowings under lines of credit
Short-term $ 10,000 $ 10,000 $ -
Long-term 38,721 65,801 65,500
-------- -------- --------
$ 48,721 $ 75,801 $ 65,500
======== ======== ========
Unused lines of credit
Short-term $ - $ - $ -
Long-term 16,779 4,699 2,000
-------- -------- --------
$ 16,779 $ 4,699 $ 2,000
======== ======== ========
Total lines of credit
Prime rate $ - $ - $ -
Other than prime rate 65,500 80,500 67,500
-------- -------- --------
$ 65,500 $ 80,500 $ 67,500
======== ======== ========
Short-term bank borrowings (a)
Maximum amount outstanding $ 10,000 $ 10,000 $ 5,692
Daily average amount outstanding $ 1,392 $ 2,581 $ 441
Weighted daily average interest
rate 6.241% 6.513% 3.984%
Weighted average interest rate at
year-end 6.206% 6.334% -
Range of interest rates 5.875- 6.290- 3.700-
6.438% 6.660% 6.000%
(a) PGE had no short-term bank borrowings outstanding as of December 31,
1994.
(10) POSTEMPLOYMENT BENEFITS
Pension Benefits. Substantially all employees of PGE are covered by PEI's
trusteed, noncontributory, defined benefit pension plan. Pension benefits are
based on years of service and average final salary. PGE's funding policy is to
contribute an amount necessary to provide for benefits based on service to date,
as well as for benefits expected to be earned in the future by current
participants. To the extent that the present value of these obligations is fully
covered by assets in the trust, a contribution may not be made for a particular
year.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed the accumulated benefit obligations relating to employees of PGE who
accepted employment with Pennsylvania-American (the "Transferred Employees"). In
this regard, plan assets in an amount equal to the actuarial present value of
accumulated plan benefits relative to the Transferred Employees, with interest
from February 16, 1996, were transferred to the American pension plan in June,
1996. As a result of this and other actions, PGE recognized, as of December 31,
1995, an estimated settlement loss of $200,000 ($117,000 net of the related
income tax benefit) and curtailment gain of $2.7 million ($1.6 million net of
related income taxes) in its determination of the estimated loss on the disposal
of water utility operations.
-42-
In December, 1995, PGE offered an Early Retirement Plan ("ERP") to its
employees who would be 59 years of age or older and had a minimum of five years
of service as of December 31, 1995. Of the 63 eligible employees, 50 elected to
accept this offer and retired as of December 31, 1995, resulting in the
recording, as of December 31, 1995, of an additional pension liability of $1.6
million reflecting the increased costs associated with the ERP. Such amount was
charged to the estimated loss on the disposal of water utility operations.
Net pension costs relative to continuing operations, including amounts
capitalized, were $385,000, $353,000 and $309,000 in 1996, 1995 and 1994,
respectively. The following items were the components of such net pension costs:
1996 1995 1994
-------- -------- ------
(Thousands of Dollars)
Present value of benefits earned
during the year $ 799 $ 430 $ 549
Interest cost on projected benefit
obligations 2,731 1,459 1,400
Return on plan assets (5,875) (1,502) 535
Net amortization and deferral (79) (34) (55)
Deferral of investment (loss) gain 2,809 - (2,120)
-------- -------- --------
Net pension cost $ 385 $ 353 $ 309
======== ======== ========
The funded status of the plan as of December 31, 1996 and 1995, was as
follows:
1996 1995
-------- ------
(Thousands of Dollars)
Actuarial present value of the projected benefit obligations:
Accumulated benefit obligations
Vested $ 28,613 $ 29,100
Nonvested 21 47
-------- --------
Total 28,634 29,147
Provision for future salary increases 6,933 7,841
-------- --------
Projected benefit obligations 35,567 36,988
Approximate market value of plan assets, primarily
invested in equities and bonds 39,000 34,000
-------- --------
Plan assets in excess of (less than) projected
benefit obligations 3,433 (2,988)
Unrecognized net transition asset as of
January 1, 1986, being amortized over 20 years (1,939) (2,155)
Unrecognized prior service costs 2,258 1,507
Unrecognized net (gain) loss (4,259) 2,155
-------- --------
Accrued pension cost at year-end $ (507) $ (1,481)
======== ========
The assumptions used in determining pension obligations were:
1996 1995 1994
------ ------ -----
Discount rate 7.75% 7.00 % 8.75 %
Expected long-term rate of return
on plan assets 9.00% 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00% 5.00 % 5.50 %
-43-
Other Postretirement Benefits. In addition to pension benefits, PGE
provides certain health care and life insurance benefits for retired employees.
Substantially all of PGE's employees may become eligible for those benefits if
they reach retirement age while working for PGE. PGE records the cost of retiree
health care and life insurance benefits as a liability over the employees'
active service periods instead of on a benefits-paid basis.
Under the terms of the agreement regarding the sale of PGE's water utility
operations to Pennsylvania-American, on February 16, 1996, Pennsylvania-American
assumed PGE's obligation to provide retiree health care and life insurance
benefits to the Transferred Employees, as well as 45% of PGE's retired employees
as of that date. In this regard, plan assets in an amount proportional to the
actuarial present value of accumulated plan benefits relative to the Transferred
Employees and 45% of the retired employees as of February 16, 1996, will be
transferred to trusts established by Pennsylvania-American, which is expected to
occur in the second quarter of 1997. Pennsylvania-American is reimbursing PGE
for benefit plan payments made on behalf of the retired employees for whom
Pennsylvania-American has assumed responsibility. As a result of the transfer,
early retirement and displacement of employees, PGE recognized an estimated
settlement and curtailment loss of $385,000 ($225,000 net of the related income
tax benefit) as part of the loss on the disposal of its water utility
operations.
In conjunction with the ERP offered by PGE to certain of its employees,
PGE recorded, as of December 31, 1995, an additional liability of $805,000,
($471,000 net of the related income tax benefit) reflecting the cost of future
health care benefits required to be recognized in conjunction with the ERP. Such
amount was charged to the estimated loss on disposal of water utility
operations.
The following items were the components of the net cost of postretirement
benefits other than pensions relative to continuing operations for the years
1996, 1995 and 1994:
1996 1995 1994
-------- -------- ------
(Thousands of Dollars)
Present value of benefits earned during
the year $ 253 $ 127 $ 148
Interest cost on accumulated benefit
obligation 506 577 532
Return on plan assets - (69) (4)
Net amortization and deferral 314 391 360
-------- -------- --------
Net cost of postretirement benefits other
than pensions 1,073 1,026 1,036
Less disbursements for benefits (501) (555) (543)
-------- -------- --------
Increase in liability for postretirement
benefits other than pensions $ 572 $ 471 $ 493
======== ======== ========
-44-
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of December 31,
1996 and 1995 follow:
1996 1995
-------- ------
(Thousands of Dollars)
Accumulated benefit obligation:
Retirees $ 4,359 $ 6,514
Fully eligible active employees 1,033 850
Other active employees 1,552 1,074
-------- --------
6,944 8,438
Plan assets at fair value 169 -
-------- --------
Accumulated benefit obligation
in excess of plan assets 6,775 8,438
Unrecognized transition obligation
being amortized over 20 years (5,022) (5,438)
Unrecognized net gain (loss) 1,116 (703)
-------- --------
Accrued liability for postretirement
benefits other than pensions $ 2,869 $ 2,297
======== ========
The assumptions used in determining other postretirement benefit
obligations were:
1996 1995 1994
------ ------ -----
Discount rate 7.75 % 7.00 % 8.75 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.00 % 5.50 %
It was also assumed that the per capita cost of covered health care
benefits would increase at an annual rate of 8-1/2% in 1997 and that this rate
would decrease gradually to 5-1/2% for the year 2003 and remain at that level
thereafter. The health care cost trend rate assumption had a significant effect
on the amounts accrued. To illustrate, increasing the assumed health care cost
trend rate by 1 percentage point in each year would increase the transition
obligation as of January 1, 1997, by approximately $294,000 and the aggregate of
the service and interest cost components of the net cost of postretirement
benefits other than pensions for the year 1996 by approximately $31,000.
Since PGE did not seek to increase its base gas rates prior to 1996, the
$442,000 ($259,000 net of related income taxes), $441,000 ($258,000 net of
related income taxes), and $447,000 ($256,000 net of related income taxes) of
additional cost incurred in 1996, 1995 and 1994, respectively, as a result of
the adoption of the provisions of FASB Statement 106 were expensed without any
adjustment being made to its gas rates. Effective with its January 15, 1997,
base rate increase (see Note 3 of the Notes to Financial Statements), PGE will
begin funding its accumulated benefit obligations with respect to other
postretirement benefits.
(11) CONSTRUCTION EXPENDITURES
PGE estimates the cost of its 1997 construction program will be $27.9
million. It is anticipated that such expenditures will be financed with
internally generated funds and bank borrowings, and, to the extent necessary, by
the periodic issuance of stock and long-term debt.
-45-
(12) COMMITMENTS AND CONTINGENCIES
Environmental Matters. PGE, like many gas distribution companies, once
utilized manufactured gas plants in connection with providing gas service to its
customers. None of these plants has been in operation since 1960, and several of
the plant sites are no longer owned by PGE. Pursuant to the Comprehensive
Environmental Response, Compensation and Liability Act of 1980 ("CERCLA"), PGE
filed notices with the United States Environmental Protection Agency (the "EPA")
with respect to the former plant sites. None of the sites is or was formerly on
the proposed or final National Priorities List. The EPA has conducted site
inspections and made preliminary assessments of each site and has concluded that
no further remedial action is planned. While this conclusion does not constitute
a legal prohibition against further regulatory action under CERCLA or other
applicable federal or state law, PGE does not believe that additional costs, if
any, related to these manufactured gas plant sites would be material to its
financial position or results of operations since environmental remediation
costs generally are recoverable through rates over a period of time.
-46-
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
QUARTER ENDED
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
1996 1996 1996 1996
--------- -------- ------------- ------------
(Thousands of Dollars, Except Per Share Amounts)
Operating revenues $ 69,415 $ 25,457 $ 13,998 $ 51,724
Operating income (loss) 10,033 803 (659) 6,539
Income (loss) from continuing
operations 7,485 (757) (2,690) 3,748
Loss with respect to
discontinued operations (365) (21) - 23
Net income (loss) $ 7,120 $ (778) $ (2,690) $ 3,771
Earnings (loss) per share
of common stock: (a)
Continuing operations $ 1.67 $ (.23) $ (.81) $ 1.13
Discontinued operations (.08) (.01) - .01
--------- -------- ------------- ------------
Net income (loss) before
premium on repurchase/
redemption of preferred
stock 1.59 (.24) (.81) 1.14
Premium on repurchase/
redemption of preferred
stock - (.39) (.03) .01
--------- -------- ------------- ------------
Earnings (loss) per share of
common stock (a) $ 1.59 $ (.63) $ (.84) $ 1.15
========= ======== ============= ============
QUARTER ENDED
-----------------------------------------------------------------
March 31, June 30, September 30, December 31,
1995 1995 1995 1995
--------- -------- ------------- ------------
(Thousands of Dollars, Except Per Share Amounts)
Operating revenues $ 68,237 $ 25,184 $ 12,119 $ 47,216
Operating income 9,500 1,867 (3) 7,558
Income (loss) from continuing
operations 6,413 (1,581) (3,520) 4,395
Loss with respect to
discontinued operations (3,704) - - (130)
Net income (loss) $ 2,709 $ (1,581) $ (3,520) $ 4,265
Earnings (loss) per share
of common stock: (a)
Continuing operations $ 1.16 $ (.28) $ (.63) $ .78
Discontinued operations (.67) - - (.02)
--------- -------- ------------- ------------
Earnings (loss) per share of
common stock (a) $ .49 $ (.28) $ (.63) $ .76
========= ======== ============= ============
(a) The total of the earnings per share for the quarters does not equal the
earnings per share for the year, as shown elsewhere in the financial
statements and supplementary data of this report, as a result of PGE's
issuance of additional shares of common stock at various dates in 1994
and 1995 and its repurchase of shares of common stock during 1996.
Because of the seasonal nature of PGE's gas heating business, there are
substantial variations in operations reported on a quarterly basis.
-47-
(14) DISCLOSURES ABOUT FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:
o Long-term debt. The fair value of PGE's long-term debt has been estimated
based on the quoted market price as of the respective dates for the
portion of such debt which is publicly traded and, with respect to the
portion of such debt which is not publicly traded, on the estimated
borrowing rate as of the respective dates for long-term debt of comparable
credit quality with similar terms and maturities.
o Preferred stock subject to mandatory redemption. The fair value of PGE's
preferred stock subject to mandatory redemption has been estimated based
on the market value as of the respective dates for preferred stock of
comparable credit quality with similar terms and maturities.
The carrying amounts and estimated fair values of PGE's financial
instruments at December 31, 1996 and 1995, were as follows:
1996 1995
----------------------- -----------------------
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
-------- ---------- -------- ----------
(Thousands of Dollars)
Long-term debt (including current
portion) $125,121 $ 130,622 $170,801 $ 175,431
Preferred stock subject to
mandatory redemption (including
current portion) 819 836 1,760 1,795
PGE believes that the regulatory treatment of any excess or deficiency of
fair value relative to the carrying amounts of these items, if such items were
settled at amounts approximating those above, would dictate that these amounts
be used to increase or reduce its rates over a prescribed amortization period.
Accordingly, any settlement would not result in a material impact on PGE's
financial position or the results of operations of either PEI or PGE.
ITEM 9. CHANGE IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
-48-