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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 10-Q
(MARK ONE)
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 1994
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE TRANSITION PERIOD FROM TO
COMMISSION FILE NUMBER 1-2700
EL PASO NATURAL GAS COMPANY
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction 74-0608280
of Incorporation or Organization) (I.R.S. Employer Identification No.)
ONE PAUL KAYSER CENTER,
100 NORTH STANTON STREET, EL PASO, TEXAS 79901
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, Including Area Code (915) 541-2600
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 the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
CLASS OUTSTANDING
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Common Stock, par value $3.00 per share,
as of October 31, 1994 36,502,528 shares
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PART I -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
EL PASO NATURAL GAS COMPANY
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER COMMON SHARE AMOUNTS)
(UNAUDITED)
THIRD QUARTER NINE MONTHS
--------------------- ---------------------
1994 1993 1994 1993
-------- -------- -------- --------
Operating revenues............................... $209,424 $245,056 $642,174 $676,579
-------- -------- -------- --------
Operating charges
Operation and maintenance...................... 75,988 88,703 221,071 240,572
Natural gas and liquids........................ 51,941 76,540 165,312 188,034
Depreciation and amortization.................. 16,277 15,625 48,662 45,036
Litigation special charge...................... -- -- 15,062 --
Taxes, other than income taxes................. 9,199 8,701 28,653 26,869
-------- -------- -------- --------
153,405 189,569 478,760 500,511
-------- -------- -------- --------
Operating income................................. 56,019 55,487 163,414 176,068
-------- -------- -------- --------
Other (income) and income deductions
Interest and debt expense...................... 19,280 20,256 58,402 55,546
Other -- net................................... 1,816 3,074 (4,839) 5,118
-------- -------- -------- --------
21,096 23,330 53,563 60,664
-------- -------- -------- --------
Income before income taxes....................... 34,923 32,157 109,851 115,404
Income taxes..................................... 13,827 13,792 43,629 45,516
-------- -------- -------- --------
Net income....................................... $ 21,096 $ 18,365 $ 66,222 $ 69,888
======== ======== ======== ========
Earnings per common share........................ $ 0.58 $ 0.49 $ 1.80 $ 1.87
======== ======== ======== ========
Average common shares outstanding................ 36,659 37,340 36,795 37,281
======== ======== ======== ========
Dividends declared per common share.............. $ 0.3025 $ 0.2750 $ 0.9075 $ 0.8250
======== ======== ======== ========
See accompanying Notes to Consolidated Financial Statements.
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EL PASO NATURAL GAS COMPANY
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNT)
(UNAUDITED)
ASSETS
SEPTEMBER 30, DECEMBER 31,
1994 1993
---------- ------------
Current assets
Cash and temporary cash investments.............................. $ 14,519 $ --
Accounts and notes receivable, net............................... 105,490 133,437
Materials and supplies inventory................................. 36,477 34,665
Take-or-pay buy-outs, buy-downs and prepayments, net............. 33,858 34,019
Other regulatory assets.......................................... 12,000 12,000
Deferred income tax benefit...................................... 38,350 44,141
Costs recoverable through insurance.............................. 8,007 23,260
Other............................................................ 10,836 22,490
---------- -----------
Total current assets..................................... 259,537 304,012
---------- -----------
Property, plant and equipment, net................................. 1,789,986 1,765,486
Take-or-pay buy-outs, buy-downs and prepayments, net............... 22,210 48,106
Other regulatory assets............................................ 63,137 62,249
Other.............................................................. 87,281 89,810
---------- -----------
1,962,614 1,965,651
---------- -----------
Total assets............................................. $2,222,151 $2,269,663
========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Accounts payable................................................. $ 187,650 $ 199,883
Commercial paper................................................. 29,986 1,300
Take-or-pay financing liability.................................. 39,878 40,125
Accrual for regulatory issues.................................... 1,376 47,263
Current maturities of long-term debt............................. 6,824 6,184
Other............................................................ 72,032 61,709
---------- -----------
Total current liabilities................................ 337,746 356,464
---------- -----------
Long-term debt, less current maturities............................ 779,066 795,783
Deferred income taxes, less current portion........................ 300,063 298,080
Take-or-pay financing liability, less current portion.............. 6,722 40,383
Deferred credits................................................... 34,716 25,540
Other liabilities.................................................. 35,488 45,865
---------- -----------
1,156,055 1,205,651
---------- -----------
Commitments and contingent liabilities (See Notes 3, 4, and 5)
Stockholders' equity
Common stock, par value $3 per share; authorized 100,000 shares;
issued 37,351 shares and 37,350 shares........................ 112,052 112,051
Additional paid-in capital....................................... 454,694 455,496
Retained earnings................................................ 189,959 157,506
Less: Treasury stock (at cost) 828 shares and 486 shares......... 28,355 17,505
---------- -----------
Total stockholders' equity............................... 728,350 707,548
---------- -----------
Total liabilities and stockholders' equity............... $2,222,151 $2,269,663
========== ===========
See accompanying Notes to Consolidated Financial Statements.
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EL PASO NATURAL GAS COMPANY
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
(UNAUDITED)
NINE MONTHS
-------------------------
1994 1993
-------- --------
Cash flows from operating activities
Net income....................................................... $ 66,222 $ 69,888
Adjustments to reconcile net income to net cash provided by
operating activities
Depreciation and amortization................................. 48,662 45,036
Deferred income taxes......................................... 26,860 27,569
Net take-or-pay recoveries.................................... 23,722 38,913
Net costs recovered (recoverable) through insurance........... 15,253 (19,753)
Other working capital changes
Accounts and notes receivable............................... 27,022 24,438
Materials and supplies inventory............................ (1,812) 10,860
Other current assets........................................ 10,482 11,889
Accounts payable............................................ (4,485) (23,123)
Accrual for regulatory issues............................... (33,527) 42,103
Other current liabilities................................... (5,506) (2,797)
Other......................................................... (6,741) 7,888
-------- --------
Net cash provided by operating activities................ 166,152 232,911
-------- --------
Cash flows from investing activities
Capital expenditures............................................. (79,068) (107,465)
Mojave acquisition............................................... -- (35,695)
Proceeds from property dispositions.............................. 4,060 1,396
Other............................................................ (14,214) (3,852)
-------- --------
Net cash used in investing activities.................... (89,222) (145,616)
-------- --------
Cash flows from financing activities
Proceeds from reissuance of treasury stock....................... 1,182 3,586
Long-term debt retirements....................................... (16,174) (2,871)
Net commercial paper borrowings.................................. 28,686 --
Repayment of volumetric take-or-pay receivable................... (33,908) (29,014)
Acquisition of treasury stock.................................... (12,634) (3,146)
Dividends paid................................................... (32,420) (29,665)
Other............................................................ 2,857 8,678
-------- --------
Net cash used in financing activities.................... (62,411) (52,432)
-------- --------
Increase in cash and temporary cash investments.................... 14,519 34,863
Cash and temporary cash investments
Beginning of period...................................... -- 48,638
-------- --------
End of period............................................ $ 14,519 $ 83,501
======== ========
See accompanying Notes to Consolidated Financial Statements.
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EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. BASIS OF PRESENTATION
The 1993 Annual Report on Form 10-K for El Paso Natural Gas Company and
subsidiaries includes a summary of significant accounting policies and should be
read in conjunction with this Form 10-Q. As used herein, "Company" refers to El
Paso Natural Gas Company and its subsidiaries and "EPG" refers to El Paso
Natural Gas Company, unless the context otherwise requires. The financial
statements for the periods presented are unaudited, condensed, and do not
contain all of the information required by generally accepted accounting
principles to be included in a full set of financial statements. In the opinion
of management, all material adjustments necessary to present fairly the results
of operations for such periods have been included. All such adjustments are of a
normal recurring nature. Results of operations for any interim period are not
necessarily indicative of the results of operations for the entire year.
Financial statements for previous periods include certain reclassifications
which were made to conform to current presentation. Such reclassifications have
no effect on reported net income or stockholders' equity.
2. ACQUISITION
On June 1, 1993, the Company acquired from a wholly owned subsidiary of
Enron Corp. ("Enron"), that subsidiary's 50 percent interest in Mojave Pipeline
Company ("MPC"), a general partnership, for approximately $40 million in cash,
representing the approximate book value of the investment. The acquisition,
which was funded by internally generated cash flow, gives the Company 100
percent ownership of MPC. The acquisition was accounted for using the purchase
method.
The operating results of MPC for the nine months ended September 30, 1994
and the five months ended September 30, 1993, are included in the Consolidated
Statement of Income. The income effect of the Company's previously owned 50
percent equity interest in MPC for the first four months of 1993 is included in
other-net in the Consolidated Statement of Income.
The following pro forma summary presents the consolidated results of
operations of the Company as if the acquisition had occurred as of January 1,
1993. This pro forma summary has been prepared for comparative purposes only and
does not purport to be indicative of what may have resulted had the acquisition
occurred as of that date or of results which may occur in the future.
NINE MONTHS 1993
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNT)
Operating revenues................................................. $ 690,244
Net income......................................................... $ 71,126
Earnings per common share.......................................... $ 1.91
3. RATES AND REGULATORY MATTERS
On January 14, 1994, EPG filed an application with the Federal Energy
Regulatory Commission ("FERC") seeking an order which would terminate, effective
January 1, 1996, certificates applicable to certain gathering and production
area facilities owned by EPG on the basis that such facilities are not subject
to FERC jurisdiction.
EPG intends, effective January 1, 1996, to transfer the facilities which
are subject to the January 14, 1994 application together with its
nonjurisdictional gathering and production area facilities to El Paso Field
Services Company ("EPFS"), a wholly owned subsidiary of EPG. Such facilities are
used for gathering and other nonjurisdictional functions and are an inherent
part of EPG's current gathering operations. The facilities to be transferred
consist of approximately 6,700 miles of various sized pipelines, compressors
with an aggregate installed horsepower of 40,600, and various treating and
processing plants.
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EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Several producers and other shippers filed protests and requests for a
formal hearing of the January 14, 1994 application. The primary issues raised in
the protests focus on the extent of competition in EPG's producing basins and
the proper functionalization of its facilities. In response to the producer and
shipper protests, EPG made a filing on March 15, 1994 asserting that the
protests raise issues already settled under EPG's 1993 settlement agreement.
On May 27, 1994, FERC issued a series of orders which clarified the policy
regarding the regulation of gathering facilities. Under the policy announced in
these orders, FERC will not have any authority to regulate the rates, terms, and
conditions that apply to service through gathering facilities owned by an
affiliate of a pipeline, except where the gatherer acts in concert with its
pipeline affiliate to frustrate FERC's effective regulation over interstate
transportation services. Although FERC has stated it will evaluate all
applications on a case by case basis, management believes EPG's January 14, 1994
application will be approved.
EPG's 1993 settlement agreement provided, in part, for the accelerated
recovery of a substantial portion of EPG's investment in its underground storage
facility. The amount to be recovered was approximately $56.7 million plus
interest accruing beginning February 1, 1993 at the FERC allowed rate, which
approximates the prime rate. On March 25, 1994, EPG received a final FERC letter
order approving the recovery of $56.7 million of underground storage facility
costs. This is being recovered by a demand charge mechanism over the period from
October 1, 1993 through December 31, 1996. The amount recovered through
September 30, 1994 was $29 million. The outstanding balance at September 30,
1994 and December 31, 1993 was $27 million and $37 million, respectively, of
which $12 million is reflected in the current portion of other regulatory assets
for both periods and $15 million and $25 million, respectively, is included in
other regulatory assets in the Consolidated Balance Sheet.
MPC filed a service and rate design restructuring plan on November 3, 1992,
in compliance with FERC's industry-wide restructuring directives. On March 2,
1993, FERC issued an order essentially approving MPC's compliance filing,
subject to changes, which were made in an amended restructuring plan on March
29, 1993.
Several of MPC's customers filed protests and requests for rehearing of the
March 2, 1993 FERC order. The rehearing requests were denied, and FERC approved
the amended restructuring plan on July 9, 1993, with an effective date of August
1, 1993. On October 15, 1993, FERC issued an order which denied requests for
rehearing of the July 9, 1993 order. Several of MPC's customers have filed
petitions with the United States Court of Appeals for the District of Columbia
Circuit ("Court of Appeals") for review of the March 2, 1993, July 9, 1993 and
October 15, 1993 orders. These petitions are currently pending. The primary
issues on appeal pertain to FERC's requirement that MPC's rates for firm
transportation service be based upon Straight Fixed Variable ("SFV") rate design
rather than Modified Fixed Variable ("MFV") rate design. The application of SFV
rates requires MPC's existing firm shippers to pay a higher proportion of their
total transportation rate in the reservation component of the rate. Such
shippers have contended that FERC's application of SFV rate design to MPC
unlawfully abrogates the rate provisions of MPC's service agreements and
constitutes an unlawful rate increase. Management believes the Court of Appeals
will uphold SFV rates as applied to MPC.
EPG has made buy-out and buy-down payments and recoupable prepayments to
resolve past and future take-or-pay exposure, to terminate and reform gas
purchase contracts, to amend pricing and take provisions of gas purchase
contracts and to settle related litigation. EPG is collecting its buy-out and
buy-down costs under FERC cost recovery procedures. Under FERC procedures,
take-or-pay cost recovery filings may be challenged by pipeline customers on
prudence and certain other grounds.
Several customers claimed that EPG sought to recover an excessive amount
for the value of certain production properties which were transferred to a
producer as part of a 1989 take-or-pay settlement. On June 16, 1994, FERC
affirmed a decision of an Administrative Law Judge ("ALJ") which found that the
valuation proposed by EPG was excessive and required EPG to refund to its
customers the costs found to be ineligible for take-or-pay recovery. In
accordance with the FERC decision, EPG refunded $34 million,
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EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
inclusive of interest, to its customers on September 30, 1994. On July 18, 1994,
EPG filed for rehearing of the June 16, 1994 order. On November 3, 1994, FERC
issued an order which denied EPG's request for rehearing. EPG intends to appeal
the FERC order.
4. LEGAL PROCEEDINGS
In El Paso Natural Gas Company and Meridian Oil Gathering Inc. v. Amoco
Production Company, filed in Delaware Chancery Court on May 8, 1991, Amoco
Production Company ("Amoco") alleged breaches by EPG and a then affiliated
company, Meridian Oil Gathering Inc. ("MOGI"), of certain gas purchase,
gathering, and transportation agreements pertaining to natural gas produced by
Amoco in the San Juan Basin. Amoco alleged breach of "favored nations"
contractual provisions regarding services to be performed by EPG, including
those relating to transportation capacity and rates, and sought a court order
requiring specific performance by EPG and MOGI with respect to future
transportation services and an award of monetary damages of an undetermined
amount for alleged past breaches of contract. On March 4, 1992, the Court issued
a Memorandum Opinion which, among other things, denied Amoco's motion for
partial summary judgment and concluded that the Amoco contracts at issue do not
contain the general "favored nations" rights claimed by Amoco. The Court further
concluded that EPG's and MOGI's motions for summary judgment, seeking dismissal
of Amoco's counterclaim against MOGI, should be granted. Conoco Inc. ("Conoco")
asserted claims similar to Amoco's original claims, involving lesser quantities
of gas, in a separate Delaware Chancery Court proceeding filed on December 30,
1991, Conoco Inc. v. El Paso Natural Gas Company. In August 1992, the Amoco and
Conoco cases were consolidated, MOGI was dismissed as a party, and Amoco and
Conoco filed amended pleadings to restate their claims in light of the court's
March 4, 1992 ruling. EPG and Conoco concluded a settlement agreement which
resulted in dismissal of the Conoco claims. Trial of the Amoco claims concluded
on July 15, 1993, and post-trial briefing and oral arguments concluded in early
November, 1993. On March 29, 1994, the Court rendered a decision in favor of
Amoco. As a result of the Court's decision, EPG will be required to refund to
Amoco amounts which at September 30, 1994 were approximately $15 million, plus
interest of $4 million. In connection with the Amoco decision, EPG recorded a
litigation special charge of approximately $19 million in the first quarter of
1994. Additional briefs have been submitted to the court on the issue of
damages, and EPG is awaiting a final order from the trial court. EPG intends to
appeal the Court's decision.
TransAmerican Natural Gas Corporation ("TransAmerican") has filed a
complaint in a Texas state court against various parties, including EPG,
alleging fraud, tortious interference with contractual relationships, economic
duress, civil conspiracy and violation of state antitrust laws. The complaint,
as amended, seeks unspecified actual and exemplary damages. EPG is actively
defending the matter and has initiated collateral proceedings challenging both
the validity of TransAmerican's claims and the jurisdiction of the forum in
which they were filed. No discovery has been commenced pending resolution of
these threshold issues. Based on information available at this time, management
believes that the claims made by TransAmerican have no factual or legal basis
and that the ultimate resolution of this matter will not have a materially
adverse effect on the Company's financial condition.
The United States Department of Justice ("Justice Department") is
conducting an investigation of natural gas meter sales and installation
practices in the San Juan Basin. The Company is cooperating fully in this
investigation and believes that any concerns or recommendations of the Justice
Department can be addressed with no adverse impact on the Company's financial
condition or results of operations.
The Company is a named defendant in numerous lawsuits and a named party in
numerous governmental proceedings arising in the ordinary course of business.
While the outcome of such lawsuits or other proceedings against the Company
cannot be predicted with certainty, management does not expect these matters to
have a materially adverse effect on the Company's financial condition.
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EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. ENVIRONMENTAL
Accruals for environmental compliance costs are established when
environmental assessments and/or remediation are probable and when costs can be
reasonably estimated. As of September 30, 1994, EPG had a reserve of $38 million
for the following environmental contingencies with income statement impact:
1 -- EPG has been conducting remediation of polychlorinated biphenyl
("PCB") contamination at certain of its facilities. The majority of the
required PCB remediation has been completed. Future PCB remediation costs
are estimated to range between $8 million and $15 million over the next
four years.
2 -- EPG executed an Administrative Order on Consent with the United States
Environmental Protection Agency ("EPA") on June 25, 1993 to conduct a
Remedial Investigation/Feasibility Study ("RI/FS") for a Burlington
Industries, Inc. ("BI") site located in Statesville, North Carolina, that
has been identified for cleanup. BI and EPG have entered into an agreement
to jointly fund the RI/FS for the site. EPG's share of the potential
remediation costs is estimated to be between $17 million and $20 million
over a 30 year period.
3 -- On November 2, 1993, in accordance with an EPA order, EPG and Atlantic
Richfield Company ("ARCO") submitted work plans for remediation of the
subsurface at the Prewitt Refinery in McKinley County, New Mexico. EPG and
ARCO have a cost sharing agreement to each pay one-half of any remediation
costs at this site. EPG's share of the remediation costs is estimated to be
between $10 million and $20 million over a 30 year period.
4 -- On December 21, 1993, EPA issued EPG a Notice of Liability for the
Colorado School of Mines Research Institute ("CSMRI") site in Golden,
Colorado. EPA has determined that the volume of hazardous substances sent
to the site by EPG represent less than three percent of the total volumes
sent by all the potentially responsible parties ("PRPs"). Based on this
percentage, EPG's share of the potential remediation costs is estimated to
be less than $500,000.
5 -- EPG is involved in other environmental assessment and remediation
activities which include two Comprehensive Environmental Response,
Compensation and Liability Act of 1980 ("CERCLA") sites (Fountain Inn,
South Carolina and Odessa, Texas) and one state Superfund site (Etowah,
Tennessee). EPA's Record of Decision for the Fountain Inn, South Carolina
site will be issued early in 1995. EPG and the other PRPs are likely to be
requested to implement site remediation which is estimated to cost between
$200,000 and $1.3 million. The allocation of these costs between EPG and
the other PRPs is unresolved at this time. EPG has entered into a de
minimis administrative order on consent with EPA for EPG's share of the
environmental remediation costs associated with the CERCLA site in Odessa,
Texas. In accordance with the order, EPG will pay total costs of
approximately $32,000 in the fourth quarter of 1994. The current owner of
the Etowah, Tennessee facility has requested compensation for remediation
expenses from EPG and one other PRP. These costs are estimated to be
approximately $1.5 million. EPG and the other PRP are engaged in
negotiations over the appropriate allocation of the alleged costs.
Management believes the amount reserved as of September 30, 1994 is
sufficient to cover these and other small environmental assessments and
remediation activities.
EPG also has potential expenditures, of a capital nature, for the following
environmental projects:
1 -- EPG has analyzed the Clean Air Act Amendments of 1990 ("CAAA"), and
believes that these rules will impact the Company's operations primarily in
the following areas: (i) potential required reductions in the emissions of
nitrogen oxides ("NOx") in non-attainment areas; (ii) the requirement for
air emissions permitting of existing facilities; and (iii) enhanced
monitoring of air emissions. The Company anticipates capitalizing the
equipment costs associated with complying with CAAA and estimates that
approximately $5 million to $27 million will be spent from 1995 through
1997. However,
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EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
EPA's proposed enhanced monitoring rules, when finalized, could potentially
impose greater costs to the Company.
2 -- EPG has been conducting remediation of mercury contamination at
certain facilities and is replacing mercury containing meters with dry flow
devices. The remaining remediation costs are estimated to be between $8
million and $13 million. The mercury remediation project is expected to be
completed by January 1, 1996. EPG will close and retire about 1,500 earthen
siphon/dehydration pits in the San Juan Basin as required by certain
environmental regulations. EPG estimates costs of approximately $4 million
to $10 million to retire these pits. The project is expected to be
completed by January 1, 1996. The mercury remediation and pit closure
costs, which are associated with the retirement of equipment, will be
recorded as adjustments to accumulated depreciation, as permitted by
regulatory accounting.
The State of Tennessee has asserted a claim that EPG is a liable party
under state environmental laws for clean up costs associated with a site in
Elizabethton, Tennessee. The State and EPA are in the preliminary stages of
investigating the nature and extent of contamination, as well as identifying
other PRPs. Since testing is in the initial stages, EPG is unable to estimate
its potential share of any remediation costs.
It is possible that new information or future developments could require
the Company to reassess its potential exposure related to environmental matters.
As such information or developments occur, related accrual amounts will be
adjusted accordingly.
6. POSTEMPLOYMENT BENEFITS
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 112, which requires companies to account for
benefits to former or inactive employees after employment but before retirement
(referred to in SFAS No. 112 as "postemployment benefits"). The Company has
recorded a liability for postemployment benefit costs of approximately $8
million to reflect the initial adoption of SFAS No. 112. Management expects to
seek recovery of the $8 million through rates and has recorded a regulatory
asset equal to that amount.
7. FINANCING TRANSACTIONS
On August 10, 1994, EPG established with a group of banks a revolving
credit facility of $400 million which expires in five years. This credit
facility replaced an existing $300 million revolving credit facility.
EPG filed a shelf registration statement on August 19, 1994, pursuant to
which EPG may offer up to $400 million of unsecured debt securities, preferred
stock, and common stock from time to time as determined by market conditions. As
of September 30, 1994, there had been no securities issued under this
registration statement.
8. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment at September 30, 1994 and December 31, 1993
consisted of the following:
1994 1993
---------- ----------
(IN THOUSANDS)
Property, plant and equipment, at cost...................... $2,923,017 $2,873,301
Less accumulated depreciation............................... 1,233,390 1,212,233
---------- ----------
1,689,627 1,661,068
Additional acquisition cost assigned to utility plant,
net of accumulated amortization........................... 100,359 104,418
---------- ----------
Property, plant and equipment, net................ $1,789,986 $1,765,486
========== ==========
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EL PASO NATURAL GAS COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
9. SUPPLEMENTAL DISCLOSURE OF CASH FLOW ACTIVITIES
NINE MONTHS
----------------------
1994 1993
------- -------
(IN THOUSANDS)
Cash Payments
Interest.................................................... $65,671 $62,448
Income taxes, net of refunds................................ $25,528 $15,778
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FINANCIAL CONDITION AND LIQUIDITY
Net cash provided by operating activities was $166 million for the nine
months ended September 30, 1994 compared with $233 million for the same period
of 1993. The decrease from the previous period was primarily due to lower
accruals for regulatory issues, take-or-pay refunds to customers, and higher net
tax payments, partially offset by net insurance claims received, collections of
EPG's investment in its underground storage facility, and timing of working
capital receipts and disbursements.
Financing Transactions
On August 10, 1994, EPG established with a group of banks a revolving
credit facility of $400 million which expires in five years. This credit
facility replaced an existing $300 million revolving credit facility.
EPG filed a shelf registration statement on August 19, 1994, pursuant to
which EPG may offer up to $400 million of unsecured debt securities, preferred
stock, and common stock from time to time as determined by market conditions. As
of September 30, 1994, there had been no securities issued under this
registration statement.
Acquisition
On June 1, 1993, the Company acquired from a wholly owned subsidiary of
Enron, that subsidiary's 50 percent interest in MPC, a general partnership, for
approximately $40 million in cash, representing the approximate book value of
the investment. The acquisition, which was funded by internally generated cash
flow, gives the Company 100 percent ownership of MPC. The acquisition was
accounted for using the purchase method.
The operating results of MPC for the nine months ended September 30, 1994,
and the five months ended September 30, 1993, are included in the Consolidated
Statement of Income. The income effect of the Company's previously owned 50
percent equity interest in MPC for the first four months of 1993 is included in
other-net in the Consolidated Statement of Income.
The following pro forma summary presents the consolidated results of
operations of the Company as if the acquisition had occurred as of January 1,
1993. This pro forma summary has been prepared for comparative purposes only and
does not purport to be indicative of what may have resulted had the acquisition
occurred as of that date or of results which may occur in the future.
NINE MONTHS 1993
---------------------
(IN THOUSANDS, EXCEPT
PER SHARE AMOUNT)
Operating revenues................................................... $ 690,244
Net income........................................................... $ 71,126
Earnings per common share............................................ $ 1.91
Rates and Regulatory Matters
On January 14, 1994, EPG filed an application with FERC seeking an order
which would terminate, effective January 1, 1996, certificates applicable to
certain gathering and production area facilities owned by EPG on the basis that
such facilities are not subject to FERC jurisdiction.
EPG intends, effective January 1, 1996, to transfer the facilities which
are subject to the January 14, 1994 application together with its
nonjurisdictional gathering and production area facilities to EPFS, a wholly
owned subsidiary of EPG. Such facilities are used for gathering and other
nonjurisdictional functions and are an inherent part of EPG's current gathering
operations. The facilities to be transferred consist of approximately 6,700
miles of various sized pipelines, compressors with an aggregate installed
horsepower of 40,600, and various treating and processing plants.
Several producers and other shippers filed protests and requests for a
formal hearing of the January 14, 1994 application. The primary issues raised in
the protests focus on the extent of competition in EPG's
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producing basins and the proper functionalization of its facilities. In response
to the producer and shipper protests, EPG made a filing on March 15, 1994
asserting that the protests raise issues already settled under EPG's 1993
settlement agreement.
On May 27, 1994, FERC issued a series of orders which clarified the policy
regarding the regulation of gathering facilities. Under the policy announced in
these orders, FERC will not have any authority to regulate the rates, terms, and
conditions that apply to service through gathering facilities owned by an
affiliate of a pipeline, except where the gatherer acts in concert with its
pipeline affiliate to frustrate FERC's effective regulation over interstate
transportation services. Although FERC has stated it will evaluate all
applications on a case by case basis, management believes EPG's January 14, 1994
application will be approved.
EPG's 1993 settlement agreement provided, in part, for the accelerated
recovery of a substantial portion of EPG's investment in its underground storage
facility. The amount to be recovered was approximately $56.7 million plus
interest accruing beginning February 1, 1993 at the FERC allowed rate, which
approximates the prime rate. On March 25, 1994, EPG received a final FERC letter
order approving the recovery of $56.7 million of underground storage facility
costs. This is being recovered by a demand charge mechanism over the period from
October 1, 1993 through December 31, 1996. The amount recovered through
September 30, 1994 was $29 million. The outstanding balance at September 30,
1994 and December 31, 1993 was $27 million and $37 million, respectively, of
which $12 million is reflected in the current portion of other regulatory assets
for both periods and $15 million and $25 million, respectively, is included in
other regulatory assets in the Consolidated Balance Sheet.
MPC filed a service and rate design restructuring plan on November 3, 1992,
in compliance with FERC's industry-wide restructuring directives. On March 2,
1993, FERC issued an order essentially approving MPC's compliance filing,
subject to changes, which were made in an amended restructuring plan on March
29, 1993.
Several of MPC's customers filed protests and requests for rehearing of the
March 2, 1993 FERC order. The rehearing requests were denied, and FERC approved
the amended restructuring plan on July 9, 1993, with an effective date of August
1, 1993. On October 15, 1993, FERC issued an order which denied requests for
rehearing of the July 9, 1993 order. Several of MPC's customers have filed
petitions with the Court of Appeals for review of the March 2, 1993, July 9,
1993 and October 15, 1993 orders. These petitions are currently pending. The
primary issues on appeal pertain to FERC's requirement that MPC's rates for firm
transportation service be based upon SFV rate design rather than MFV rate
design. The application of SFV rates requires MPC's existing firm shippers to
pay a higher proportion of their total transportation rate in the reservation
component of the rate. Such shippers have contended that FERC's application of
SFV rate design to MPC unlawfully abrogates the rate provisions of MPC's service
agreements and constitutes an unlawful rate increase. Management believes the
Court of Appeals will uphold SFV rates as applied to MPC.
EPG has made buy-out and buy-down payments and recoupable prepayments to
resolve past and future take-or-pay exposure, to terminate and reform gas
purchase contracts, to amend pricing and take provisions of gas purchase
contracts and to settle related litigation. EPG is collecting its buy-out and
buy-down costs under FERC cost recovery procedures. Under FERC procedures,
take-or-pay cost recovery filings may be challenged by pipeline customers on
prudence and certain other grounds.
Several customers claimed that EPG sought to recover an excessive amount
for the value of certain production properties which were transferred to a
producer as part of a 1989 take-or-pay settlement. On June 16, 1994, FERC
affirmed a decision of an ALJ which found that the valuation proposed by EPG was
excessive and required EPG to refund to its customers the costs found to be
ineligible for take-or-pay recovery. In accordance with the FERC decision, EPG
refunded $34 million, inclusive of interest, to its customers on September 30,
1994. On July 18, 1994, EPG filed for rehearing of the June 16, 1994 order. On
November 3, 1994, FERC issued an order which denied EPG's request for rehearing.
EPG intends to appeal the FERC order.
Gathering and Processing Agreement
On June 27, 1994, EPG and Meridian Oil Production Inc. ("Meridian") entered
into an agreement concerning production from Meridian's conventional gas wells
located on approximately 1.5 million acres in the San Juan Basin. Under the
terms of the agreement, Meridian's gas is committed to flow exclusively
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through EPG's gathering and processing facilities from May 1, 1994 through
February 29, 2000. The agreement provides for new rates for gathering and
processing of natural gas liquids effective January 1, 1994 through February 29,
2000.
Environmental
Accruals for environmental compliance costs are established when
environmental assessments and/or remediation are probable, and when costs can be
reasonably estimated. As of September 30, 1994, EPG had a reserve of $38 million
for the following environmental contingencies with income statement impact:
1 -- EPG has been conducting remediation of PCB contamination at certain of
its facilities. The majority of the required PCB remediation has been
completed. Future PCB remediation costs are estimated to range between $8
million and $15 million over the next four years.
2 -- EPG executed an Administrative Order on Consent with EPA on June 25,
1993 to conduct a RI/FS for a BI site located in Statesville, North
Carolina, that has been identified for cleanup. BI and EPG have entered
into an agreement to jointly fund the RI/FS for the site. EPG's share of
the potential remediation costs is estimated to be between $17 million and
$20 million over a 30 year period.
3 -- On November 2, 1993, in accordance with an EPA order, EPG and ARCO
submitted work plans for remediation of the subsurface at the Prewitt
Refinery in McKinley County, New Mexico. EPG and ARCO have a cost sharing
agreement to each pay one-half of any remediation costs at this site. EPG's
share of the remediation costs is estimated to be between $10 million and
$20 million over a 30 year period.
4 -- On December 21, 1993, EPA issued EPG a Notice of Liability for the
CSMRI site in Golden, Colorado. EPA has determined that the volume of
hazardous substances sent to the site by EPG represent less than three
percent of the total volumes sent by all PRPs. Based on this percentage,
EPG's share of the potential remediation costs is estimated to be less than
$500,000.
5 -- EPG is involved in other environmental assessment and remediation
activities which include two CERCLA sites (Fountain Inn, South Carolina and
Odessa, Texas) and one state Superfund site (Etowah, Tennessee). EPA's
Record of Decision for the Fountain Inn, South Carolina site will be issued
early in 1995. EPG and the other PRPs are likely to be requested to
implement site remediation which is estimated to cost between $200,000 and
$1.3 million. The allocation of these costs between EPG and the other PRPs
is unresolved at this time. EPG has entered into a de minimis
administrative order on consent with EPA for EPG's share of the
environmental remediation costs associated with the CERCLA site in Odessa,
Texas. In accordance with the order, EPG will pay total costs of
approximately $32,000 in the fourth quarter of 1994. The current owner of
the Etowah, Tennessee facility has requested compensation for remediation
expenses from EPG and one other PRP. These costs are estimated to be
approximately $1.5 million. EPG and the other PRP are engaged in
negotiations over the appropriate allocation of the alleged costs.
Management believes the amount reserved as of September 30, 1994 is
sufficient to cover these and other small environmental assessments and
remediation activities.
EPG also has potential expenditures, of a capital nature, for the following
environmental projects:
1 -- EPG has analyzed CAAA, and believes that these rules will impact the
Company's operations primarily in the following areas: (i) potential
required reductions in the emissions of NOx in non-attainment areas; (ii)
the requirement for air emissions permitting of existing facilities; and
(iii) enhanced monitoring of air emissions. The Company anticipates
capitalizing the equipment costs associated with complying with CAAA and
estimates that approximately $5 million to $27 million will be spent from
1995 through 1997. However, EPA's proposed enhanced monitoring rules, when
finalized, could potentially impose greater costs to the Company.
2 -- EPG has been conducting remediation of mercury contamination at
certain facilities and is replacing mercury containing meters with dry flow
devices. The remaining remediation costs are estimated to be between $8
million and $13 million. The mercury remediation project is expected to be
completed by January 1, 1996. EPG will close and retire about 1,500 earthen
siphon/dehydration pits in the San Juan
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Basin as required by certain environmental regulations. EPG estimates costs
of approximately $4 million to $10 million to retire these pits. The
project is expected to be completed by January 1, 1996. The mercury
remediation and pit closure costs, which are associated with the retirement
of equipment, will be recorded as adjustments to accumulated depreciation,
as permitted by regulatory accounting.
The State of Tennessee has asserted a claim that EPG is a liable party
under state environmental laws for clean up costs associated with a site in
Elizabethton, Tennessee. The State and EPA are in the preliminary stages of
investigating the nature and extent of contamination, as well as identifying
other PRPs. Since testing is in the initial stages, EPG is unable to estimate
its potential share of any remediation costs.
It is possible that new information or future developments could require
the Company to reassess its potential exposure related to environmental matters.
As such information or developments occur, related accrual amounts will be
adjusted accordingly.
Other
In January 1993, EPG experienced flood damage to its pipeline system in the
Gila, Arizona area due to heavy rain. Since that time, EPG has been incurring
costs for repairs and as of September 30, 1994, has received approximately $15
million of insurance reimbursements. In October 1994, EPG reached a settlement
with its insurance carriers to recover substantially all of the costs remaining
at September 30, 1994. This insurance reimbursement will be received in the
fourth quarter of 1994.
EPG's largest single contract for interstate capacity to California is its
1,450 million cubic feet per day ("MMcf/d") contract with Southern California
Gas Company ("SoCal"), which has a primary term ending August 31, 2006. Pursuant
to this contract, SoCal has exercised its option to relinquish 300 MMcf/d of
capacity during the first quarter of 1996. EPG is working to offset this future
reduction in capacity commitments through new contracts with various natural gas
users.
The Company plans to enter into a long-term agreement to lease a cryogenic
natural gas liquids extraction plant to be constructed in the San Juan Basin.
The plant will process up to 600 MMcf/d and will increase the Company's
processing capability in the San Juan Basin up to 1,150 MMcf/d. The project is
expected to cost up to $85 million and is anticipated to be in service by the
second quarter of 1996.
DIVIDENDS
The following table reflects quarterly dividends declared and paid on EPG's
common stock:
DECLARATION DATE AMOUNT PER SHARE PAYMENT DATE TOTAL AMOUNT
- ----------------- ---------------- ---------------- ------------
(IN MILLIONS)
October 12, 1993 $ 0.2750 January 4, 1994 $ 10
January 14, 1994 $ 0.3025 April 4, 1994 $ 11
April 15, 1994 $ 0.3025 July 1, 1994 $ 11
July 15, 1994 $ 0.3025 October 3, 1994 $ 11
On October 13, 1994, the Board of Directors declared a quarterly dividend
of $0.3025 per share on EPG's common stock, payable on January 3, 1995, to
shareholders of record on December 9, 1994.
On November 2, 1994, EPG's Board of Directors authorized the repurchase of
up to 3.5 million shares of EPG's outstanding common stock from time to time in
the open market. Shares repurchased are held in EPG's treasury and are expected
to be used in connection with EPG employee stock option plans and for other
corporate purposes. This new authorization is in addition to a two million share
authorization received in October 1992. As of November 2, 1994, approximately
253,000 shares remain to be purchased under the October 1992 authorization.
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CAPITAL EXPENDITURES
The Company's estimated capital expenditures for 1994 of $170 million are
primarily for maintenance of business, system expansion and system enhancement.
Capital expenditures for the nine months ended September 30, 1994 were $79
million compared to $108 million for the same period of 1993. Capital
expenditures are lower due primarily to the completion of various system
enhancements and maintenance projects in 1993.
On July 7, 1992, EPG filed an application with FERC, which was amended on
November 27, 1992, to expand the delivery capacity of its system in the vicinity
of Yuma, Arizona and, through an extension of its system south to San Luis Rio
Colorado, Sonora, Mexico. The proposed expansion would have provided shippers
the opportunity to deliver natural gas to Mexican markets in northern Baja
California via new pipeline capacity of 348 MMcf/d. The project cost was
approximately $71 million. On June 22, 1994, EPG withdrew the July 7, 1992
application, citing delays in the conversion to natural gas and expansion of the
existing Benito Juarez Power Plant in Rosarito, Baja California Norte, Mexico.
In withdrawing the pending application, EPG emphasized that it is not abandoning
the project. At such time as the Comision Federal de Electricidad ("CFE"), the
Mexican government-owned utility, proceeds with its plans for the Benito Juarez
Power Plant, EPG may refile its application.
EPG is a member of a consortium that plans to build the proposed Samalayuca
II Power Plant near Ciudad Juarez, Mexico. On December 17, 1992, an award for
construction was granted to the consortium by CFE. In August 1994, EPG increased
its prospective ownership interest in the Samalayuca II Power Plant from 10
percent to 20 percent. CFE and the consortium signed a trust agreement on August
23, 1994. Additional annexes to the trust agreement are currently being
negotiated with CFE. The trust agreement, together with the annexes, will form
the basis for seeking international financing for the Samalayuca II Power Plant
project.
On March 16, 1993, EPG filed an application with FERC to expand its system
in order to provide natural gas service to the proposed Samalayuca II Power
Plant and to an existing power plant in the same location. The proposed
expansion would provide an additional 300 MMcf/d of capacity at a cost of
approximately $57 million. On November 29, 1993, FERC issued an order which
approved the proposed border crossing facility south of Clint, Texas that would
connect EPG's facilities with facilities in Mexico. FERC deferred action on the
remainder of the March 16, 1993 filing until EPG demonstrates that it has
long-term executed contracts or binding precedent agreements for a substantial
amount of the firm capacity of the proposed facilities. EPG must provide the
contracts or agreements by January 1995. Otherwise, FERC may dismiss the March
16, 1993 application. On December 29, 1993, Pacific Gas & Electric Company
("PG&E"), the California Public Utilities Commission ("CPUC") and SoCal jointly
filed a motion with FERC seeking clarification or rehearing of the November 29,
1993 FERC order on the Samalayuca II Power Plant project discussed above.
On April 1, 1994, EPG filed an application with FERC for a certificate of
public convenience and necessity to build a 98 mile pipeline to parallel and
loop its existing Havasu Crossover Line. The proposed pipeline would allow for
the transfer of 468 MMcf/d of San Juan Basin gas to EPG's south system and would
enhance EPG's overall system flexibility to meet market demands. The project is
expected to cost approximately $62 million. At the request of several of EPG's
customers, FERC held a technical conference on August 11, 1994 with respect to
the April 1, 1994 application. The application is currently pending before FERC.
On June 1, 1994, EPG filed an application with FERC for a certificate of
public convenience and necessity to expand its existing system in the San Juan
Basin by approximately 300 MMcf/d at a cost of about $26 million. The proposed
expansion would accommodate increased volumes and provide markets with enhanced
access to San Juan Basin gas supplies. FERC held a technical conference to
address the June 1, 1994 application on August 11, 1994. The application is
currently pending before FERC.
On March 17, 1993, MPC filed an application, which was amended on November
8, 1993 and April 18, 1994, for a certificate of public convenience and
necessity to build and operate a 475 MMcf/d expansion of its
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existing system. The proposed expansion will extend from MPC's existing east
lateral, located near Bakersfield, California, approximately 352 miles northward
to the vicinity of Sacramento and the Bay Area near San Francisco. The expansion
will also include 56 miles of looping of the existing pipeline along with 207
miles of laterals. The estimated cost of the entire expansion is approximately
$500 million.
On December 16, 1993, FERC held a public conference to examine a
jurisdictional question raised by CPUC and PG&E regarding MPC's proposed
expansion. The primary issue was whether FERC or CPUC should have jurisdiction
over the expansion. Written comments were filed by interested parties on January
10, 1994. On February 15, 1994, FERC issued an order determining that it has
exclusive jurisdiction over MPC and its proposed expansion. On March 17, 1994,
CPUC, PG&E and other parties filed for rehearing or clarification of FERC's
February 15, 1994 order. The petitions for rehearing and/or clarification are
pending action by FERC.
On November 9, 1994, FERC unanimously approved an order granting MPC a
Preliminary Determination, subject to possible later modification, issuing the
requested certificate of public convenience and necessity for the proposed
expansion. FERC indicated that it is requesting certain further information from
the parties to determine whether PG&E, which is currently the sole gas supplier
in the region to be served by the expansion project, is entitled to any
compensation from MPC and/or EPG. MPC expects to receive a final FERC
certificate in the second quarter of 1995. Receipt of an acceptable FERC
certificate within this time frame would allow the expansion to be put into
service by mid-1996.
The capital projects discussed above are expected to be financed through
internally generated funds and short-term and long-term borrowings.
RESULTS OF OPERATIONS
Third Quarter 1994 Compared to Third Quarter 1993
Operating revenues for the third quarter ended September 30, 1994 were $36
million lower than for the same period of 1993. New system rates that became
effective January 1, 1994, resulted in lower reservation and lower
transportation revenues which decreased operating revenues by $16 million and $5
million, respectively. Lower gas sales volumes, lower gas sales rates, and the
1993 sale of gas in storage contributed $15 million, $9 million, and $11
million, respectively, to the decrease in operating revenues. The decrease due
to the 1993 sale of gas in storage is offset in operating charges. Lower
accruals for regulatory issues and higher production area rates offset the
decrease in operating revenues by $16 million and $4 million, respectively.
Operating charges were $36 million lower for the third quarter ended
September 30, 1994 than for the same period of 1993. Lower gas sales volumes and
the 1993 sale of gas in storage contributed $14 million and $11 million,
respectively, to the decrease in operating charges. The decrease due to the 1993
sale of gas in storage is offset in operating revenues. Operation and
maintenance expense was $13 million lower due primarily to a 1993 litigation
settlement, lower stock related costs, lower environmental clean-up expenses,
and adjustments to the take-or-pay undercollections accrual. Partially
offsetting the decrease was additional operation and maintenance costs due to
the consolidation of MPC.
EPG's mainline throughput for the quarter ended September 30, 1994, was 338
billion cubic feet ("Bcf") compared to 312 Bcf for the same period of 1993.
East-of-California deliveries increased primarily due to warmer weather in 1994.
Deliveries to the California market increased due to an increase in utility
electric generation demand, which resulted from higher temperatures and a
decrease in the availability of hydroelectric power in 1994. Field
transportation volumes of 118 Bcf for the third quarter ended September 30, 1994
were relatively unchanged compared to the third quarter ended September 30, 1993
volumes of 119 Bcf.
Other-net was $1 million lower for the quarter ended September 30, 1994
than for the same period of 1993. Contributing to the decrease were lower
environmental clean-up expenses and lower interest expense on tax adjustments.
The decrease in other-net was partially offset by lower allowance for funds used
during construction ("AFUDC").
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Nine Months Ended 1994 Compared to Nine Months Ended 1993
Operating revenues for the nine months ended September 30, 1994 were $34
million lower than for the same period of 1993. New system rates that became
effective January 1, 1994, resulted in lower reservation and lower
transportation revenues of $30 million and $24 million, respectively.
Additionally, lower gas sales volumes, lower gas sales rates, and the 1993 sale
of gas in storage contributed $24 million, $9 million, and $13 million,
respectively, to the decrease in operating revenues. The decrease due to the
1993 sale of gas in storage is offset in operating charges. Lower accruals for
regulatory issues, the consolidation of MPC, and higher production area rates
offset the decrease in operating revenues by $40 million, $17 million, and $13
million, respectively.
Operating charges were $22 million lower for the nine months ended
September 30, 1994 than for the same period of 1993. Lower gas sales volumes and
the 1993 sale of gas in storage contributed $22 million and $13 million,
respectively, to the decrease in operating charges. The decrease due to the 1993
sale of gas in storage is offset in operating revenues. Additionally, operation
and maintenance expense was $20 million lower primarily due to a 1993 litigation
settlement, lower stock related costs, lower environmental clean-up expenses,
lower take-or-pay absorption expense, and adjustments to the take-or-pay
undercollections accrual. The consolidation of MPC partially offset the decrease
in operation and maintenance expense. Higher average cost of gas and a
litigation special charge related to the Amoco decision offset the decrease in
operating charges by $17 million and $15 million, respectively. An increase in
depreciation expense, primarily due to the consolidation of MPC, also offset the
decrease in operating charges.
EPG's mainline throughput for the nine months ended September 30, 1994 was
965 Bcf compared to 966 Bcf for the same period of 1993. Deliveries to the
California market decreased due to higher storage withdrawals and increased
competition. This decrease was partially offset by an increase in utility
electric generation demand, which resulted from a decrease in the availability
of hydroelectric power. The decrease in mainline throughput was also offset by
increased deliveries to off-system and East-of-California markets. Field
transportation volumes of 355 Bcf for the nine months ended September 30, 1994
were relatively unchanged compared to the year ago volumes for the same period.
Interest and debt expense for the nine months ended September 30, 1994, was
$3 million higher than for the same period of 1993 due primarily to the
consolidation of MPC.
Other-net was $10 million higher for the nine months ended September 30,
1994, than for the same period of 1993. Contributing to the higher other income
in 1994 were $14 million related to the recovery of EPG's investment in its
underground storage facility and lower environmental clean-up expenses. The
increase in other income was partially offset by interest expense related to the
special charge for litigation in connection with the Amoco decision of
approximately $4 million, a reduction in partnership earnings due to the
consolidation of MPC, and a decrease in AFUDC.
OTHER
Effective January 1, 1994, the Company adopted SFAS No. 112, which requires
companies to account for postemployment benefits. The Company has recorded a
liability for postemployment benefit costs of approximately $8 million to
reflect the initial adoption of SFAS No. 112. Management expects to seek
recovery of the $8 million through rates and has recorded a regulatory asset
equal to that amount.
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PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
See Notes 3, 4 and 5 of Notes to Consolidated Financial Statements.
ITEM 2. CHANGES IN SECURITIES
None
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
Continuous Odd-Lot Stock Sales Program
EPG has made available a Continuous Odd-Lot Stock Sales Program
("Program") in which shareholders of EPG owning beneficially fewer than
100 shares of EPG's common stock ("Odd-lot Holders") are offered a
convenient method of disposing of all their shares without incurring the
customary brokerage costs associated with the sale of an odd-lot. Only
Odd-lot Holders are eligible to participate in the Program. The Program
is strictly voluntary and no Odd-lot Holder is obligated to sell
pursuant to the Program. A brochure and related materials describing the
Program were sent to Odd-lot Holders in February 1994. The Program
currently does not have a termination date, but EPG may suspend the
Program at any time. Inquiries regarding the Program should be directed
to The First National Bank of Boston, the agent for the Program, at
1-800-736-3001.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
10.H -- Revolving Credit and Competitive Advance Facility Agreement dated as
of August 10, 1994 between EPG, Chemical Bank and certain other
banks.
10.N.1 -- Amendment No. 2 to the El Paso Natural Gas Company's Supplemental
Benefits Plan, effective July 11, 1994.
10.Q.1 -- First Amendment to the El Paso Natural Gas Company's Retirement
Income Plan for Directors, effective October 13, 1994.
11 -- Computation of Earnings Per Common Share
27 -- Financial Data Schedule
B. Reports on Form 8-K
None
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
EL PASO NATURAL GAS COMPANY
(Registrant)
Date: November 11, 1994 /s/ H. BRENT AUSTIN
H. Brent Austin
Senior Vice President and
Chief Financial Officer
Date: November 11, 1994 /s/ THOMAS E. RICKS
Thomas E. Ricks
Vice President, Controller and
Chief Accounting Officer
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EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT
------- -------
10.H -- Revolving Credit and Competitive Advance Facility Agreement dated as
of August 10, 1994 between EPG, Chemical Bank and certain other
banks.
10.N.1 -- Amendment No. 2 to the El Paso Natural Gas Company's Supplemental
Benefits Plan, effective July 11, 1994.
10.Q.1 -- First Amendment to the El Paso Natural Gas Company's Retirement
Income Plan for Directors, effective October 13, 1994.
11 -- Computation of Earnings Per Common Share
27 -- Financial Data Schedule