REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To PG Energy Inc.:
We have audited the accompanying balance sheets and statements of capitalization
of PG Energy Inc. ("PGE"), formerly known as Pennsylvania Gas and Water Company
(a Pennsylvania corporation and a wholly-owned subsidiary of Pennsylvania
Enterprises, Inc.) as of December 31, 1995 and 1994, and the related statements
of income, common shareholder's investment, and cash flows for each of the three
years in the period ended December 31, 1995. These financial statements are the
responsibility of PGE's management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of PG Energy Inc. as of December
31, 1995 and 1994, and the results of its operations and its cash flows for each
of the three years in the period ended December 31, 1995, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New York, N.Y.
February 23, 1996
PG ENERGY INC.
BALANCE SHEETS
December 31,
1995* 1994*
[CAPTION]
(Thousands of Dollars)
ASSETS
[S] [C] [C]
UTILITY PLANT:
At original cost, less acquisition
adjustments of $386,000 $295,895 $284,080
Accumulated depreciation (76,882) (74,408)
219,013 209,672
OTHER PROPERTY AND INVESTMENTS 5,089 2,872
CURRENT ASSETS:
Cash 328 304
Accounts receivable -
Customers 18,189 15,676
Others 815 1,474
Reserve for uncollectible accounts (781) (921)
Accrued utility revenues 10,319 9,004
Materials and supplies, at average cost 2,609 2,743
Gas held by suppliers, at average cost 15,140 20,025
Natural gas transition costs collectible 4,612 4,708
Deferred cost of gas and supplier refunds, net - 3,767
Prepaid expenses and other 3,281 1,470
54,512 58,250
DEFERRED CHARGES:
Regulatory assets
Deferred taxes collectible 30,015 31,696
Natural gas transition costs collectible 497 4,099
Other 2,516 3,131
Unamortized debt expense 1,340 1,867
Other - 3,552
34,368 44,345
NET ASSETS OF DISCONTINUED OPERATIONS 204,250 203,196
TOTAL ASSETS $517,232 $518,335
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
PG ENERGY INC.
BALANCE SHEETS
[CAPTION]
December 31,
1995* 1994*
(Thousands of Dollars)
CAPITALIZATION AND LIABILITIES
[S] [C] [C]
CAPITALIZATION (see accompanying statements):
Common shareholder's investment (Notes 5 and 8) $208,356 $216,032
Preferred stock of PGE (Note 6) -
Not subject to mandatory redemption, net 33,615 33,615
Subject to mandatory redemption 1,680 1,760
Long-term debt (Note 7) 55,000 170,825
298,651 422,232
CURRENT LIABILITIES:
Current portion of long-term debt and
preferred stock subject to mandatory
redemption (Notes 6, 7 and 9) 115,881 3,290
Note payable (Note 9) 10,000 -
Accounts payable -
Suppliers 17,781 16,762
Affiliates, net 826 788
Deferred cost of gas and supplier refunds, net 434 -
Accrued general business and realty taxes 1,542 3,381
Accrued income taxes 516 3,185
Accrued interest 2,062 2,713
Accrued natural gas transition costs (Note 3) 2,278 2,356
Other 3,162 2,395
154,482 34,870
DEFERRED CREDITS:
Deferred income taxes 48,848 46,627
Accrued natural gas transition costs (Note 3) 1,144 3,250
Unamortized investment tax credits 4,938 5,110
Operating reserves 3,709 2,383
Other 5,460 3,863
64,099 61,233
COMMITMENTS AND CONTINGENCIES (Notes 11 and 12)
TOTAL CAPITALIZATION AND LIABILITIES $517,232 $518,335
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
PG ENERGY INC.
STATEMENTS OF INCOME
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
OPERATING REVENUES $ 152,756 $ 167,992 $ 153,325
Cost of gas 84,372 98,653 86,557
OPERATING MARGIN 68,384 69,339 66,768
OTHER OPERATING EXPENSES:
Operation 22,438 22,652 21,797
Maintenance 4,967 4,436 3,695
Depreciation 6,971 6,667 6,388
Income taxes 5,168 5,649 6,041
Taxes other than income taxes 9,918 10,807 10,055
Total other operating expenses 49,462 50,211 47,976
OPERATING INCOME 18,922 19,128 18,792
OTHER INCOME (DEDUCTIONS), NET (Note 4) 301 72 (585)
INCOME BEFORE INTEREST CHARGES 19,223 19,200 18,207
INTEREST CHARGES:
Interest on long-term debt 9,304 8,914 8,615
Other interest 1,543 1,005 1,247
Allowance for borrowed funds used
during construction (94) (21) (47)
Total interest charges 10,753 9,898 9,815
INCOME FROM CONTINUING OPERATIONS 8,470 9,302 8,392
DISCONTINUED OPERATIONS (Note 2):
Income from discontinued operations 2,127 10,504 7,909
Estimated loss on disposal of discontinued
operations, net of anticipated income
during the phase-out period of $7,409,000
(net of related income taxes of $4,800,000) (5,961) - -
Income (loss) with respect to discontinued
operations (3,834) 10,504 7,909
NET INCOME 4,636 19,806 16,301
DIVIDENDS ON PREFERRED STOCK 2,763 4,639 6,462
EARNINGS APPLICABLE TO COMMON STOCK $ 1,873 $ 15,167 $ 9,839
COMMON STOCK:
Earnings (loss) per share of common stock:
Continuing operations $ 1.02 $ .90 $ .46
Discontinued operations (.69) 2.02 1.90
Income before premium on redemption of
preferred stock .33 2.92 2.36
Premium on redemption of preferred stock - (.19) -
Earnings per share of common stock $ .33 $ 2.73 $ 2.36
WEIGHTED AVERAGE NUMBER OF SHARES OUTSTANDING 5,569,765 5,189,108 4,176,087
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
PG ENERGY INC.
STATEMENTS OF CASH FLOWS
Year Ended December 31,
1995* 1994* 1993*
(Thousands of Dollars)
CASH FLOW FROM OPERATING ACTIVITIES:
Income from continuing operations $ 8,470 $ 9,302 $ 8,392
Effects of noncash charges to income -
Depreciation 7,018 6,693 6,413
Deferred income taxes, net (265) 725 (2,492)
Provisions for self insurance 2,652 1,030 1,510
Other, net 5,190 2,755 2,185
Changes in working capital, exclusive of cash
and current portion of long-term debt -
Receivables and accrued utility revenues (3,309) 1,546 (1,495)
Gas held by suppliers 4,885 6,625 (5,038)
Accounts payable 839 (5,609) (515)
Deferred cost of gas and supplier refunds, net 5,715 5,784 (13,307)
Other current assets and liabilities, net (6,622) (658) 1,293
Other operating items, net 2,675 (4,020) (3,988)
Net cash provided (used) by continuing
operations 27,248 24,173 (7,042)
Net cash provided (used) by discontinued
operations 3,764 552 (837)
Net cash provided (used) by operating
activities 31,012 24,725 (7,879)
CASH FLOW FROM INVESTING ACTIVITIES:
Additions to utility plant (20,615) (16,960) (14,011)
Other, net (4,934) 1,098 201
Net cash used for investing activities (25,549) (15,862) (13,810)
CASH FLOW FROM FINANCING ACTIVITIES:
Issuance of common stock 5,720 23,439 32,366
Redemption of preferred stock (80) (30,080) (10,080)
Dividends on common and preferred stock (18,032) (14,244) (18,398)
Issuance of long-term debt 50,000 30,000 19,000
Repayment of long-term debt (53,535) (31,055) (30,678)
Repayment of note payable to parent - (3,680) -
Net increase in bank borrowings 10,519 15,370 32,247
Other, net (31) (1,023) (624)
Net cash provided (used) for financing
activities (5,439) (11,273) 23,833
NET INCREASE (DECREASE) IN CASH AND CASH
EQUIVALENTS 24 (2,410) 2,144
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 304 2,714 570
CASH AND CASH EQUIVALENTS AT END OF YEAR $ 328 $ 304 $ 2,714
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest (net of amount capitalized) $ 23,802 $ 21,001 $ 21,092
Income taxes $ 8,694 $ 7,353 $ 6,790
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
PG ENERGY INC.
STATEMENTS OF CAPITALIZATION
December 31,
1995* 1994*
(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 - 5,602,480 shares and
5,456,665 shares, respectively $ 56,025 $ 54,567
Additional paid-in capital 94,463 90,201
Retained earnings 57,868 71,264
Total common shareholders' investment 208,356 69.8% 216,032 51.2%
PREFERRED STOCK of PGE, par value $100 per share
Authorized - 997,500 shares (Note 6):
Not subject to mandatory redemption, net -
4.10% cumulative preferred,
100,000 shares issued 10,000 10,000
9% cumulative preferred,
250,000 shares outstanding, net of
issuance costs 23,615 23,615
Total preferred stock not subject to
mandatory redemption, net 33,615 11.2% 33,615 8.0%
Subject to mandatory redemption -
5.75% cumulative preferred, 17,600 and
18,400 shares outstanding, respectively 1,760 1,840
Less current redemption requirements (80) (80)
Total preferred stock subject to
mandatory redemption 1,680 0.6% 1,760 0.4%
LONG-TERM DEBT (Note 7):
First mortgage bonds 55,000 108,535
Notes 115,801 65,500
Less current maturities and sinking
fund requirements (115,801) (3,210)
Total long-term debt 55,000 18.4% 170,825 40.4%
TOTAL CAPITALIZATION $ 298,651 100.0% $ 422,232 100.0%
* See Note 2 regarding discontinued operations and restatement of financial
statements.
The accompanying notes are an integral part of the financial statements.
PG ENERGY INC.
STATEMENTS OF COMMON SHAREHOLDER'S INVESTMENT
FOR THE YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
[CAPTION]
Additional
Common Paid-In Retained
Stock Capital Earnings Total
(Thousands of Dollars)
[S] [C] [C] [C] [C]
Balance at December 31, 1992 $40,187 $ 48,776 $ 69,135 $158,098
Net income for 1993 - - 16,301 16,301
Issuance of common stock 8,500 23,866 - 32,366
Premium on redemption of
preferred stock - - (356) (356)
Dividends on:
Preferred stock (Note 6) - - (6,462) (6,462)
Common stock ($2.8225 per share) - - (11,936) (11,936)
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
The accompanying notes are an integral part of the financial statements.
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. 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 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 8% in 1995, 7% in 1994 and 8% in 1993.
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 2.75% in
1995, 2.77% in 1994 and 2.81% in 1993, respectively.
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.
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 the opinion of PEI, 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, and natural gas transition costs collectible, the
following deferred charges are included as "Other" regulatory assets:
[CAPTION]
1995 1994
[S] [C] [C]
Early retirement plan charges $ 710 $ 756
Low income usage reduction program 429 441
Computer software costs 415 1,006
Corrosion control costs 341 489
Customer assistance program 109 5
Other 512 434
Total $ 2,516 $ 3,131
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.
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, 1995 and
1994, are shown below:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Utility plant basis differences $51,822 $49,638
FERC Order 636 transition costs 700 1,371
Alternative minimum tax (1,947) (2,213)
Operating reserves (1,300) (1,020)
Other (427) (1,149)
Net deferred income tax liability $48,848 $46,627
The provision for income taxes relative to continuing operations consists of
the following components:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Included in operating expenses:
Currently payable -
Federal $ 4,457 $ 3,013 $ 5,641
State 1,169 1,128 2,021
Total currently payable 5,626 4,141 7,662
Deferred, net -
Federal 198 1,785 (515)
State (463) (105) (934)
Total deferred, net (265) 1,680 (1,449)
Amortization of investment tax credits (193) (172) (172)
Total included in operating expenses 5,168 5,649 6,041
Included in other income, net:
Currently payable -
Federal 135 213 (44)
State 43 85 (28)
Total currently payable 178 298 (72)
Deferred, net -
Federal - (5) (6)
State - - -
Total deferred, net - (5) (6)
Total included in other income, net 178 293 (78)
Total provision for income taxes $ 5,346 $ 5,942 $ 5,963
The components of deferred income taxes relative to continuing operations,
which are recorded consistent with the treatment allowed by the PPUC for
ratemaking purposes, are as follows:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Excess of tax depreciation over
depreciation for accounting purposes $ 1,587 $ 1,197 $ 1,023
FERC Order 636 transition costs (670) 1,371 -
Take-or-pay costs, net (281) (652) (1,126)
Other, net (901) (241) (1,352)
Total deferred taxes, net $ (265) $ 1,675 $(1,455)
Included in:
Operating expenses $ (265) $ 1,680 $(1,449)
Other income, net - (5) (6)
Total deferred taxes, net $ (265) $ 1,675 $(1,455)
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:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Income before income taxes $13,816 $15,293 $14,428
Tax expense at statutory federal
income tax rate $ 4,836 $ 5,353 $ 5,050
Increases (reductions) in taxes
resulting from -
State income taxes, net of
federal income tax benefit 487 879 878
Amortization of investment tax
credits (193) (172) (172)
Other, net 216 (118) 207
Total provision for income taxes $ 5,346 $ 5,942 $ 5,963
Long Lived Assets. In March 1995, FASB Statement 121, "Accounting for the
Impairment of Long-Lived Assets", was issued. The provisions of this statement,
which are effective for fiscal years beginning after September 15, 1995, require
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 is not expected to have any
significant impact on PGE since the carrying amount of all assets, including
regulatory assets, is considered recoverable.
(2) DISCONTINUED OPERATIONS
On April 26, 1995, PEI and PGE signed a definitive agreement (the
"Agreement") with American Water Works Company, Inc. ("American") and
Pennsylvania-American Water Company ("Pennsylvania-American"), a wholly-owned
subsidiary of American, providing for the sale to Pennsylvania-American of
substantially all of the assets, properties and rights of PGE's water utility
operations.
Under the terms of the Agreement, Pennsylvania-American paid approximately
$413.5 million consisting of $266.4 million in cash and the assumption of $147.1
million of PGE's liabilities, including $141.1 million of its long-term debt, to
PGE on the February 16, 1996, closing date for the transaction. This price is
subject to certain post-closing adjustments. PGE continued to operate the water
utility business until the closing date.
The sale price reflects a $6.5 million premium over the book value of the
assets sold. However, after transaction costs and the net effect of other
items, principally the write-off of certain deferred regulatory assets and
deferred credits and the impact of pension and other postretirement benefit
expenses relative to the early retirement plan (see Note 10 of the Notes to
Financial Statements), the sale resulted in an estimated after tax loss of $6.0
million, net of the expected 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 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 $56.7 million.
The net cash proceeds from the sale of approximately $209.1 million, net of
the estimated $56.7 million payable for income taxes, are being used by PEI and
PGE to retire debt, to repurchase stock and for working capital for their
continuing operations. With the sale of PGE's water utility operations, the
principal assets of PGE consist of its gas utility operations and approximately
46,000 acres of land.
The accompanying financial statements reflect PGE's water utility operations
as "discontinued operations" effective March 31, 1995. Interest charges
relating to indebtedness of PGE have been allocated 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 has been
allocated to the discontinued operations.
Selected financial information for the discontinued operations as of
December 31, 1995 and 1994, and for the years ended December 31, 1995, 1994 and
1993 is set forth below:
Net Assets of Discontinued Operations
[CAPTION]
As of December 31,
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Net utility plant $ 368,742 $ 359,399
Current assets (primarily accounts
receivable and accrued revenues) 12,756 12,141
Deferred charges and other assets 25,752 31,103
Total assets being acquired by
Pennsylvania-American 407,250 402,643
Liabilities being assumed by
Pennsylvania-American
Long-term debt 141,097 141,420
Other 5,983 13,168
147,080 154,588
Net assets being acquired by
Pennsylvania-American 260,170 248,055
Estimated liability for income taxes on
sale of discontinued operations (56,710) (55,542)
Estimated net income of discontinued operations
during the remainder of the phase-out period 790 -
Other net assets of discontinued operations
(written off as of March 31, 1995) - 10,683
Total net assets of discontinued operations $ 204,250 $ 203,196
Income From Discontinued Operations
[CAPTION]
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Operating revenues $ 15,640 $ 66,731 $ 53,363
Operating expenses, excluding income taxes
Depreciation 1,946 7,672 5,911
Other operating expenses 6,929 29,005 27,140
8,875 36,677 33,051
Operating income before income taxes 6,765 30,054 20,312
Income taxes 1,403 6,850 2,948
Operating income 5,362 23,204 17,364
Other income 9 49 71
Allocated interest charges (3,244) (12,749) (9,526)
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
* Reflects amounts only through March 31, 1995, the effective date of the
discontinuance of PGE's water utility operations for financial statement
purposes.
Net Cash Provided (Used) by Discontinued Operations
[CAPTION]
Years ended December 31,
1995* 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Income from discontinued operations $ 2,127 $ 10,504 $ 7,909
Noncash charges (credits) to income:
Depreciation 1,946 7,672 5,911
Deferred treatment plant costs, net 145 581 (3,560)
Deferred income taxes 447 5,146 4,170
Deferred water utility billings - (5,574) (582)
Changes in working capital, exclusive
of long-term debt 1,648 353 (2,041)
Additions to utility plant (2,276) (20,980) (32,515)
Utilization of restricted funds - 9,753 15,868
Net increase (decrease) in long-term
debt 1,010 (6,834) 1,640
Other, net (1,283) (69) 2,363
Net cash provided (used) for discontinued
operations $ 3,764 $ 552 $ (837)
* 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
Annual Gas Cost Adjustment. Pursuant to the provisions of the Pennsylvania
Public Utility Code, which require that the tariffs of gas distribution
companies, 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
PPUC ordered PGE to make the following changes during 1995, 1994 and 1993 to the
gas costs contained in its gas tariff rates:
[CAPTION]
Change in Calculated
Effective Rate per MCF Increase (Decrease)
Date From To in Annual Revenue
[S] [C] [C] [C]
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)
December 1, 1993 2.79 3.74 28,800,000
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.
Quarterly Gas Cost Adjustment. Effective September 14, 1995, the PPUC
adopted regulations that provide for the quarterly adjustment of the annual
purchased gas cost rate of larger gas distribution companies, including PGE.
Such adjustments are allowed when the actual purchased gas costs vary from the
estimated costs reflected in the respective company's tariffs by 2% or more.
Except for reducing the amount of any over or undercollections of gas costs,
these regulations will not have any material effect on PGE's financial position
or results of operations, and PGE will still be required to file an annual
purchased gas cost rate. As of March 1, 1996, no such quarterly gas cost
adjustments had been made to PGE's tariffs.
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 filing.
PGE was billed a total of $1.3 million of Gas Transition Costs by its interstate
pipelines. Of this amount, $858,000 was recovered by PGE over a twelve-month
period ended January 31, 1995, through an increase in its PGC rate, $252,000 are
being recovered by PGE in its annual PGC rate that the PPUC approved effective
December 1, 1995, and the recovery of the remaining $217,000 will be sought by
PGE in its PGC rate that is effective December 1, 1996.
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 local distribution companies through the filing of a tariff pursuant
to either the existing surcharge or base rate provisions of the Pennsylvania
Public Utility Code. 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 $9.6
million of Non-Gas Transition Costs will be billed to PGE, generally over a
four-year period extending through the fourth quarter of 1997, of which $6.1
million had been billed to PGE and $4.4 million had been recovered from its
customers as of December 31, 1995. 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.
(4) OTHER INCOME (DEDUCTIONS), NET
Other income (deductions), net was comprised of the following elements:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Write-off of expired advances relating
to income taxes, net of related
income taxes $ 227 $ - $ -
Net interest income (expense) with respect
to proceeds from the issuance of debt
held in a construction fund 30 (91) (330)
Gain on sale of investment in joint
venture, net of related income taxes - 268 -
Gain on sale of land and other property,
net of related income taxes - 165 20
Premium on retirement/defeasance of debt (7) (40) (81)
Amortization of preferred stock issuance
costs, net of related income tax
benefits (1) (227) (126)
Other 52 (3) (68)
Total $ 301 $ 72 $ (585)
(5) COMMON STOCK
Since January 1, 1993, PGE has issued the following amounts of common stock
to PEI, its parent company, in addition to shares issued in connection with
PEI's Dividend Reinvestment and Stock Purchase Plan and Customer Stock Purchase
Plan:
[CAPTION]
Issuance Price
Date Issued Number of Shares Per Share* Aggregate
[S] [C] [C] [C]
October 27, 1993 834,000 $ 38.25 $31.9 million
May 31, 1994 500,000 $ 40.00 $20.0
Total 1,334,000 $51.9 million
* Approximately equal to the book value of PGE's common stock at the date of
issuance.
The proceeds from the shares issued on October 27, 1993, were used to repay
bank borrowings which had been incurred primarily to finance construction
expenditures. 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.
On July 28, 1994, PEI implemented a Customer Stock Purchase Plan (the
"Customer Plan") which provides 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.
Through PEI's Dividend Reinvestment and Stock Purchase Plan ("DRP"), holders
of shares of PEI common stock may reinvest cash dividends and/or make cash
investments in the common stock of PEI. The DRP was amended on May 5, 1994, to
provide PEI's shareholders with a method of reinvesting cash dividends and
making cash investments to purchase newly-issued shares of PEI's common stock at
a 5% discount from the market price. Prior to such amendment, cash dividends
were reinvested at 100% of the market price in newly-issued shares and cash
investments were used to purchase shares of PEI common stock on the open market.
PEI uses the proceeds from the DRP to purchase common stock of PGE. During
1995, 1994 and 1993, PGE realized $3.3 million, $1.8 million and $465,000,
respectively, from the issuance of common stock to PEI in connection with the
DRP. Effective May 9, 1995, the cash investment feature of the DRP and the 5%
discount from the market price on the reinvestment of dividends under the DRP
were 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.
(6) PREFERRED STOCK
Preferred Stock Subject to Mandatory Redemption
On December 23, 1993, PGE redeemed 100,000 shares of its 9.50% 1988 series
cumulative preferred stock at a price of $103.5625 per share (plus accrued
dividends to the redemption date), which included a voluntary redemption premium
of $3.5625 per share ($356,250 in the aggregate). 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. Eight
hundred such shares were acquired and cancelled by PGE in each of the three
years in the period ended December 31, 1995, for an aggregate purchase price in
each year of $80,000.
As of December 31, 1995, 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 1996 through 2000.
At PGE's option, the 5.75% cumulative preferred stock may currently be
redeemed at a price of $102.00 per share ($1,795,200 in the aggregate).
Preferred Stock Not Subject to Mandatory Redemption
On August 18, 1992, PGE issued 250,000 shares of its 9% cumulative preferred
stock, par value $100 per share, for aggregate net proceeds of approximately
$23.6 million. The 9% cumulative preferred stock is not redeemable by 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.
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 $10,550,000.
Dividend Information
The dividends on the preferred stock of PGE in each of the three years in
the period ended December 31, 1995, were as follows:
[CAPTION]
Series 1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
4.10% $ 410 $ 410 $ 410
5.75% 103 108 113
8.90% - 1,280 1,335
9.00% 2,250 2,250 2,250
9.50% 1988 series - 591 2,354
Total $2,763 $4,639 $6,462
Dividends on all series of PGE's preferred stock are cumulative, and if
dividends in an amount equivalent to four full quarterly dividends on all shares
of preferred stock then outstanding are in default and until all such dividends
have been paid, the holders of the preferred stock, voting separately as one
class, shall be entitled to elect a majority of the Board of Directors of PGE.
Additionally, 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, 1995
and 1994:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
First mortgage bonds -
8 % Series, due 1997 $ - $ 3,535
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
9.57 % Series, due 1996 - 50,000
55,000 108,535
Notes -
Term loan, due 1996 50,000 -
Bank borrowings, at weighted average interest
rates of 6.62% and 5.28%, respectively (Note 9) 65,801 65,500
115,801 65,500
Less current maturities and sinking
fund requirements (115,801) (3,210)
Total long-term debt $ 55,000 $ 170,825
On October 12, 1995, PGE borrowed $50.0 million pursuant to a term loan
agreement, which matures on November 1, 1996. 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.
Maturities and Sinking Fund Requirements. As of December 31, 1995, the
aggregate annual maturities and sinking fund requirements of long-term debt for
each of the next five years ending December 31, were:
[CAPTION]
Year Amount
[S] [C]
1996 $115,801,000 (a)
1997 $ -
1998 $ -
1999 $ 10,000,000 (b)
2000 $ -
(a) Includes $65.8 million of bank borrowings outstanding as of December 31,
1995, and PGE's term loan in the principal amount of $50.0 million.
Such amounts were repaid by February 16, 1996, primarily with proceeds
from the sale of PGE's water operations to Pennsylvania-American.
(b) Includes 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, 1995, $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 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 also 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 four additional
bank lines of credit with an aggregate borrowing capacity of $17.5 million which
provide for borrowings at interest rates generally less than prime. Borrowings
outstanding under two of these bank lines of credit with borrowing capacities of
$2.5 million and $5.0 million mature on May 31, 1996, and June 30, 1996,
respectively. Borrowings outstanding under the other two bank lines of credit
with borrowing capacities of $3.0 million and $7.0 million mature on March 31,
1996, and May 31, 1996, respectively. As of March 1, 1996, PGE had no
borrowings outstanding under these additional bank lines of credit.
Additionally, PGE had one other bank line of credit outstanding as of December
31, 1995, with a borrowing capacity of $3.0 million, which was terminated
following the sale of PGE's water operations. The commitment fees paid by PGE
with respect to its revolving bank credit agreements totaled $26,000 in 1995,
$97,000 in 1994 and $113,000 in 1993.
Because of limitations imposed by the terms of its 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, 1995.
Information relating to PGE's bank lines of credit and borrowings under
those lines of credit is set forth below:
[CAPTION]
As of December 31,
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Borrowings under lines of credit
Short-term $ 10,000 $ - $ 2,000
Long-term 65,801 65,500 47,000
$ 75,801 $ 65,500 $ 49,000
Unused lines of credit
Short-term $ - $ - $ 5,000
Long-term 4,699 2,000 13,000
$ 4,699 $ 2,000 $ 18,000
Total lines of credit
Prime rate $ - $ - $ 2,000
Other than prime rate 80,500 67,500 65,000
$ 80,500 $ 67,500 $ 67,000
Short-term bank borrowings (a)
Maximum amount outstanding $ 10,000 $ 5,692 $ 5,666
Daily average amount outstanding $ 2,581 $ 441 $ 637
Weighted daily average interest
rate 6.513% 3.984% 4.046%
Weighted average interest rate at
year-end 6.334% - 4.208%
Range of interest rates 6.290- 3.700- 3.750-
6.660% 6.000% 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 will be
transferred to the American pension plan. In February, 1996, PGE began
terminating additional employees as a result of the sale of its water operations
and the transfer of fewer employees to Pennsylvania-American than originally
expected. As a result of these actions, PGE recognized 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.
In December, 1995, as a result of the agreement to transfer fewer employees
to Pennsylvania-American in connection with the sale of PGE's water utility
operations than originally expected, PGE offered an Early Retirement Plan
("ERP") to its employees who would be 59 years of age or older and have a
minimum of five years of service as of December 31, 1995. Of the 63 eligible
employees, 50 elected to accept this offer and retire 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 $353,000, $309,000 and $244,000 in 1995, 1994 and 1993,
respectively. The following items were the components of such net pension
costs:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned
during the year $ 430 $ 549 $ 470
Interest cost on projected benefit
obligations 1,459 1,400 1,321
Return on plan assets (1,502) 535 (1,720)
Net amortization and deferral (34) (55) (53)
Deferral of investment (loss) gain - (2,120) 226
Net pension cost $ 353 $ 309 $ 244
The funded status of the plan as of December 31, 1995 and 1994, was as
follows:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Actuarial present value of the projected
benefit obligations:
Accumulated benefit obligations
Vested $ 29,100 $ 21,592
Nonvested 47 77
Total 29,147 21,669
Provision for future salary increases 7,841 7,565
Projected benefit obligations 36,988 29,234
Market value of plan assets, primarily
invested in equities and bonds 34,000 30,457
Plan assets in excess of (less than) projected
benefit obligations (2,988) 1,223
Unrecognized net transition asset as of
January 1, 1986, being amortized over 20 years (2,155) (2,528)
Unrecognized prior service costs 1,507 2,150
Unrecognized net (gain) loss 2,155 (1,644)
Accrued pension cost at year-end $ (1,481) $ (799)
The assumptions used in determining pension obligations were:
[CAPTION]
1995 1994 1993
[S] [C] [C] [C]
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
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 the accumulated benefit obligation relating 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 equal 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. In February, 1996, PGE began terminating
additional employees as a result of the sale of its water operations and the
transfer of fewer employees to Pennsylvania-American than originally expected.
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.
As a result of 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 under FASB Statement 88 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
1995, 1994 and 1993:
[CAPTION]
1995 1994 1993
(Thousands of Dollars)
[S] [C] [C] [C]
Present value of benefits earned during
the year $ 127 $ 148 $ 124
Interest cost on accumulated benefit
obligation 577 532 532
Return on plan assets (69) (4) -
Net amortization and deferral 391 360 339
Net cost of postretirement benefits other
than pensions 1,026 1,036 995
Less disbursements for benefits (555) (543) (540)
Increase in liability for postretirement
benefits other than pensions $ 471 $ 493 $ 455
Reconciliations of the accumulated benefit obligation to the accrued
liability for postretirement benefits other than pensions as of December 31,
1995 and 1994, follow:
[CAPTION]
1995 1994
(Thousands of Dollars)
[S] [C] [C]
Accumulated benefit obligation:
Retirees $ 6,514 $ 9,021
Fully eligible active employees 850 1,628
Other active employees 1,074 1,305
8,438 11,954
Plan assets at fair value - 839
Accumulated benefit obligation
in excess of plan assets 8,438 11,115
Unrecognized transition obligation
being amortized over 20 years (5,438) (11,108)
Unrecognized net gain (loss) (703) 885
Accrued liability for postretirement
benefits other than pensions $ 2,297 $ 892
The assumptions used in determining other postretirement benefit obligations
were:
[CAPTION]
1995 1994 1993
[S] [C] [C] [C]
Discount rate 7.00 % 8.75 % 8.00 %
Expected long-term rate of return
on plan assets 9.00 % 9.00 % 9.00 %
Projected increase in future
compensation levels 5.00 % 5.50 % 5.50 %
It was also assumed that the per capita cost of covered health care benefits
would increase at an annual rate of 9% in 1996 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, 1995, by approximately $394,000 and the aggregate of the service and
interest cost components of the net cost of postretirement benefits other than
pensions for the year 1995 by approximately $50,000.
Since PGE has not sought to increase its base gas rates, the $441,000
($258,000 net of related income taxes), $447,000 ($256,000 net of related income
taxes) and $407,000 ($232,000 net of related income taxes) of additional cost
incurred in 1995, 1994 and 1993, 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.
Other Postemployment Benefits
In December, 1992, FASB Statement 112, "Employers' Accounting for
Postemployment Benefits," was issued. The provisions of this statement require
the recording of a liability for postemployment benefits (such as disability
benefits, including workers' compensation, salary continuation and the
continuation of benefits such as health care and life insurance) provided to
former or inactive employees, their beneficiaries and covered dependents. PGE
consistently recorded liabilities for benefits of this nature prior to the
effectiveness of FASB Statement 112, and included liabilities for employees
scheduled to be terminated in 1996 as a result of the sale of water operations
in its estimate of accrued costs relative to such sale as of December 31, 1995.
The provisions of FASB Statement 112, which PGE adopted effective January 1,
1994, did not have a material impact on its financial position or results of
operations.
(11) CONSTRUCTION EXPENDITURES
PGE estimates the cost of its 1996 construction program will be $28.9
million. It is anticipated that such expenditures will be financed with
internally generated funds and bank borrowings, pending the periodic issuance of
stock and long-term debt.
(12) COMMITMENTS AND CONTINGENCIES
Valve Maintenance
On November 16, 1993, the PPUC staff issued an Emergency Order, subsequently
ratified by the PPUC (the "Emergency Order"), requiring PGE to survey its gas
distribution system to verify the location and spacing of its gas shut off
valves, to add or repair valves where needed and to establish programs for the
periodic inspection and maintenance of all such valves and the verification of
all gas service line information. On March 31, 1995, the PPUC adopted an Order
approving a plan submitted by PGE for complying with the Emergency Order. PGE
does not believe that compliance with the terms of such Order will have a
material adverse effect on its financial position or results of operations.
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.
(13) QUARTERLY FINANCIAL DATA (UNAUDITED)
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
QUARTER ENDED
March 31, June 30, September 30, December 31,
1994 1994 1994 1994
(Thousands of Dollars, Except Per Share Amounts)
Operating revenues $ 80,233 $ 26,568 $ 14,356 $ 46,835
Operating income 10,606 1,881 134 6,395
Income (loss) from continuing
operations 6,958 (1,875) (3,435) 2,903
Income from discontinued
operations 2,079 2,757 2,915 2,865
Net income (loss) 9,037 882 (520) 5,768
Earnings (loss) per share
of common stock:
Continuing operations 1.43 (.37) (.64) .53
Discontinued operations .43 .54 .54 .53
Net income (loss) before
premium on redemption of
preferred stock 1.86 .17 (.10) 1.06
Premium on redemption of
preferred stock - (.11) - (.08)
Earnings (loss) per share of
common stock 1.86 .06 (.10) .98
(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 during the
year.
Because of the seasonal nature of PGE's gas heating business, there are
substantial variations in operations reported on a quarterly basis.
(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, 1995 and 1994, were as follows:
[CAPTION]
1995 1994
Carrying Estimated Carrying Estimated
Amount Fair Value Amount Fair Value
(Thousands of Dollars)
[S] [C] [C] [C] [C]
Long-term debt (including current
portion) $170,801 $ 175,431 $174,035 $ 177,027
Preferred stock subject to
mandatory redemption (including
current portion) 1,760 1,795 1,840 1,877
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.