-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, WhFFzkqETpE2+kjE+a69DKORqchRoY3fISrvDs/wOc0WkDeYHI7vOLcbIPJitx4w EcyW6g00f46vI6UkxOqMlQ== 0000008154-96-000025.txt : 19960517 0000008154-96-000025.hdr.sgml : 19960517 ACCESSION NUMBER: 0000008154-96-000025 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: ATLANTA GAS LIGHT CO CENTRAL INDEX KEY: 0000008154 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 580145925 STATE OF INCORPORATION: GA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-09905 FILM NUMBER: 96565522 BUSINESS ADDRESS: STREET 1: 303 PEACHTREE ST NE STREET 2: ONE PEACHTREE CENTER CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045844000 MAIL ADDRESS: STREET 1: 303 PEACHTREE ST NE STREET 2: ONE PEACHTREE CENTER SUITE 5300 CITY: ATLANTA STATE: GA ZIP: 30308 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AGL RESOURCES INC CENTRAL INDEX KEY: 0001004155 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 582210952 STATE OF INCORPORATION: GA FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-14174 FILM NUMBER: 96565523 BUSINESS ADDRESS: STREET 1: 303 PEACHTREE ST NE CITY: ATLANTA STATE: GA ZIP: 30308 BUSINESS PHONE: 4045844000 MAIL ADDRESS: STREET 1: 303 PEACHTREE ST STREET 2: STE 400 CITY: ATLANTA STATE: GA ZIP: 30308 10-Q 1 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D. C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended March 31, 1996 Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification Number 1-14174 AGL RESOURCES INC. 58-2210952 (A Georgia Corporation) 303 PEACHTREE STREET, NE ATLANTA, GEORGIA 30308 404-584-4000 1-9905 ATLANTA GAS LIGHT COMPANY 58-014925 (A Georgia Corporation) 303 PEACHTREE STREET, NE ATLANTA, GEORGIA 30308 404-584-4000 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 and (2) has been subject to such filing requirements for the past 90 days. AGL RESOURCES INC. Yes No (This quarterly report on Form 10-Q is the first report required to be filed by AGL Resources Inc. since it became subject to the filing requirements of the Securities Exchange Act of 1934.) ATLANTA GAS LIGHT COMPANY Yes X No Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of March 31, 1996. AGL RESOURCES INC. Common Stock, $5.00 Par Value Shares Outstanding at March 31, 1996 . . . . . . . . . . 55,362,112 ATLANTA GAS LIGHT COMPANY Common Stock, $5.00 Par Value Shares Outstanding and Held by AGL Resources Inc. at March 31, 1996 . . . . . . . . . . . . . . . . . . . 55,352,415 AGL RESOURCES INC. and ATLANTA GAS LIGHT COMPANY Quarterly Report on Form 10-Q For the Quarter Ended March 31, 1996 Table of Contents Item Page Number PART I - FINANCIAL INFORMATION Number 1 Financial Statements (Unaudited) AGL Resources Inc. Condensed Consolidated Income Statements 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 6 Atlanta Gas Light Company Condensed Consolidated Income Statements 7 Condensed Consolidated Balance Sheets 8 Condensed Consolidated Statements of Cash Flows 10 Notes to Condensed Consolidated Financial Statements 11 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 14 AGL Resources Inc. Atlanta Gas Light Company PART II - OTHER INFORMATION 1 Legal Proceedings 19 2 Changes in Securities 19 4 Submission of Matters to a Vote of Security Holders 20 5 Other Information 21 6 Exhibits and Reports on Form 8-K 24 SIGNATURES 25 PART I -- FINANCIAL INFORMATION Item 1. Financial Statements In the opinion of AGL Resources Inc. (Resources), the unaudited condensed consolidated financial statements, included herein, reflect all normal recurring accruals necessary for a fair statement of the results of the interim periods reflected. Resources is the parent holding company of Atlanta Gas Light Company (AGLC), AGL Energy Services, Inc. and AGL Investments, Inc. AGLC comprises substantially all of Resources' assets, revenues and earnings. All nonutility operating transactions are included in "Other Income -- Other Income and Deductions" in Resources' Consolidated Income Statements. AGL RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) FOR THE THREE MONTHS, SIX MONTHS AND TWELVE MONTHS ENDED MARCH 31, 1996 AND 1995 (MILLIONS, EXCEPT PER SHARE DATA) Three Months Six Months Twelve Months 1996 1995 1996 1995 1996 1995 Operating Revenues $478.8 $448.2 $807.6 $777.0 $1,093.6 $1,114.8 Cost of Gas 308.0 269.9 496.8 458.0 610.6 636.6 ------ ------ ------ ------ -------- -------- Operating Margin 170.8 178.3 310.8 319.0 483.0 478.2 ------ ------ ------ ------ -------- -------- Other Operating Expenses: Operating Expenses 91.8 88.0 172.6 169.5 331.1 325.3 Restructuring Costs 23.0 67.5 2.8 67.5 ------ ------ ------ ------ -------- -------- Total Other Operating Expenses 91.8 111.0 172.6 237.0 333.9 392.8 Income Taxes 24.8 18.4 42.0 19.0 39.0 13.2 ------ ------ ------ ------ -------- -------- Operating Income 54.2 48.9 96.2 63.0 110.1 72.2 ------ ------ ------ ------ -------- -------- Other Income: Other Income and Deductions 6.7 1.0 8.3 2.4 8.0 3.4 Income Taxes (2.4) (0.4) (3.0) (0.9) (2.8) (1.2) ------ ------ ------ ------ -------- -------- Other Income - Net 4.3 0.6 5.3 1.5 5.2 2.2 ------ ------ ------ ------ -------- -------- Income Before Income Deductions 58.5 49.5 101.5 64.5 115.3 74.4 Income Deductions: Interest Charges 12.4 12.2 25.2 25.4 47.3 48.8 Dividends on Preferred Stock of Subsidiary 1.1 1.1 2.2 2.2 4.4 4.5 ------ ------ ------ ------ -------- -------- Net Income $45.0 $36.2 $74.1 $36.9 $63.6 $21.1 ====== ====== ====== ====== ======== ======== Earnings Per Share of Common Stock $0.81 $0.71 $1.34 $0.72 $1.17 $0.42 Cash Dividends Paid Per Share of Common Stock $0.265 $0.26 $0.53 $0.52 $1.05 $1.04 Average Number of Common Shares Outstanding (Millions) 55.3 51.3 55.2 51.2 54.4 50.9 See notes to condensed consolidated financial statements. AGL RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (MILLIONS) March 31, September 30, 1996 1995 1995 ASSETS Utility Plant $1,969.3 $1,872.7 $1,919.9 Less Accumulated Depreciation 607.1 571.5 583.3 -------- -------- -------- Utility Plant - Net 1,362.2 1,301.2 1,336.6 -------- -------- -------- Other Property and Investments (less accumulated depreciation) 51.5 18.6 46.3 -------- -------- -------- Current Assets: Cash and Cash Equivalents 4.5 36.2 3.7 Receivables (less allowance for uncollectible accounts of $6.4 at March 31, 1996, $7.2 at March 31, 1995 and $4.4 at September 30, 1995) 225.7 178.9 69.3 Inventories: Natural Gas Stored Underground 14.5 22.5 111.2 Liquefied Natural Gas 4.0 11.5 14.3 Materials and Supplies 8.0 9.0 8.0 Other 0.4 3.7 2.6 Deferred Purchased Gas Adjustment 19.3 Other 8.4 7.8 10.9 -------- -------- -------- Total Current Assets 284.8 269.6 220.0 -------- -------- -------- Deferred Debits and Other Assets: Unrecovered Environmental Response Costs 34.7 34.2 34.9 Unrecovered Integrated Resource Plan Costs 8.0 12.5 9.9 Other 24.2 27.1 26.9 -------- -------- -------- Total Deferred Debits and Other Assets 66.9 73.8 71.7 -------- -------- -------- Total $1,765.4 $1,663.2 $1,674.6 ======== ======== ======== See notes to condensed consolidated financial statements. AGL RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (MILLIONS) March 31, September 30, 1996 1995 1995 CAPITALIZATION AND LIABILITIES Capitalization: Common Stock, $5 Par Value, Shares Issued and Outstanding of 55.4 at March 31, 1996, 51.4 at March 31, 1995 and 54.9 at September 30, 1995 $276.8 $128.7 $137.3 Premium on Capital Stock 166.3 249.9 297.7 Earnings Reinvested 167.2 160.4 122.3 -------- -------- -------- Total Common Stock Equity 610.3 539.0 557.3 Preferred Stock of Subsidiary, Cumulative $100 Par or Stated Value, Shares Issued and Outstanding of 0.6 at March 31, 1996, March 31, 1995 and September 30, 1995 58.5 58.5 58.5 Long-Term Debt 554.5 554.5 554.5 -------- -------- -------- Total Capitalization 1,223.3 1,152.0 1,170.3 -------- -------- -------- Current Liabilities: Redemption Requirements on Preferred Stock 0.3 0.3 0.3 Short-Term Debt 66.5 51.0 Accounts Payable 81.5 50.8 72.3 Deferred Purchased Gas Adjustment 67.6 6.3 Customer Deposits 29.1 30.1 29.5 Interest 25.3 25.0 25.4 Taxes 27.8 22.6 3.7 Other 43.5 41.0 42.4 -------- -------- -------- Total Current Liabilities 274.0 237.4 230.9 -------- -------- -------- Accrued Environmental Response Costs 28.6 28.6 28.6 Accrued Pension Costs 1.5 25.0 10.3 Accrued Postretirement Benefits Costs 33.6 30.8 30.1 Deferred Credits 63.2 65.8 65.6 Accumulated Deferred Income Taxes 141.2 123.6 138.8 -------- -------- -------- Total $1,765.4 $1,663.2 $1,674.6 ======== ======== ======== See notes to condensed consolidated financial statements. AGL RESOURCES INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS AND TWELVE MONTHS ENDED MARCH 31, 1996 AND 1995 (MILLIONS) Six Months Twelve Months 1996 1995 1996 1995 Cash Flows from Operating Activities: Net Income $74.1 $36.9 $63.6 $21.1 Adjustments to Reconcile Net Income to Net Cash Flow from Operating Activities: Non-Cash Restructuring Costs 66.6 2.8 66.6 Depreciation and Amortization 33.4 31.5 64.4 60.8 Deferred Income Taxes 2.4 (11.0) 17.6 (2.8) Non-Cash Compensation Expense 2.3 4.2 4.3 8.3 Other (1.2) (1.3) (2.3) (2.3) Changes in Certain Assets and Liabilities (45.3) 90.7 (96.7) 44.8 ------- ------- ------- ------- Net Cash Flow from Operating Activities 65.7 217.6 53.7 196.5 ------- ------- ------- ------- Cash Flows from Financing Activities: Short-Term Borrowings, Net 15.5 (95.4) 66.5 Redemption of Long-Term Debt (15.0) (15.0) Sale of Common Stock, Net of Expenses 1.0 1.0 50.4 2.1 Dividends on Common Stock (24.4) (21.6) (47.1) (43.1) ------- ------- ------- ------- Net Cash Flow from Financing Activities (7.9) (131.0) 69.8 (56.0) ------- ------- ------- ------- Cash Flows from Investing Activities: Utility Plant Expenditures (57.9) (53.5) (125.2) (111.7) Non-Utility Capital Expenditures 1.1 (0.9) 1.6 (0.9) Investment in Joint Venture (32.6) Cost of Removal, Net of Salvage (0.2) 0.7 1.0 0.3 ------- ------- ------- ------- Net Cash Flow from Investing Activities (57.0) (53.7) (155.2) (112.3) ------- ------- ------- ------- Net Increase (Decrease) in Cash and Cash Equivalents 0.8 32.9 (31.7) 28.2 Cash and Cash Equivalents at Beginning of Period 3.7 3.3 36.2 8.0 ------- ------- ------- ------- Cash and Cash Equivalents at End of Period $4.5 $36.2 $4.5 $36.2 ======= ======= ======== ======= Cash Paid During the Period for: Interest $25.5 $25.5 $48.4 $47.3 Income Taxes $12.7 $20.7 $20.6 $26.3 See notes to condensed consolidated financial statements. In the opinion of Atlanta Gas Light Company (AGLC), the unaudited condensed consolidated financial statements, included herein, reflect all normal recurring accruals necessary for a fair statement of the results of the interim periods reflected. All nonutility operating transactions are included in "Other Income -- Other Income and Deductions" in AGLC's Consolidated Income Statements. ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) FOR THE THREE MONTHS, SIX MONTHS AND TWELVE MONTHS ENDED MARCH 31, 1996 AND 1995 (MILLIONS) Three Months Six Months Twelve Months 1996 1995 1996 1995 1996 1995 Operating Revenues $478.8 $448.2 $807.6 $777.0 $1,093.6 $1,114.8 Cost of Gas 308.0 269.9 496.8 458.0 610.6 636.6 ------ ------ ------ ------ -------- -------- Operating Margin 170.8 178.3 310.8 319.0 483.0 478.2 ------ ------ ------ ------ -------- -------- Other Operating Expenses: Operating Expenses 91.2 88.0 172.0 169.5 330.5 325.3 Restructuring Costs 23.0 67.5 2.8 67.5 ------ ------ ------ ------ -------- -------- Total Other Operating Expenses 91.2 111.0 172.0 237.0 333.3 392.8 Income Taxes 25.1 18.4 42.3 19.0 39.3 13.2 ------ ------ ------ ------ -------- -------- Operating Income 54.5 48.9 96.5 63.0 110.4 72.2 ------ ------ ------ ------ -------- -------- Other Income: Other Income and Deductions 6.7 1.0 8.3 2.4 8.0 3.4 Income Taxes (2.4) (0.4) (3.0) (0.9) (2.8) (1.2) ------ ------ ------ ------ -------- -------- Other Income - Net 4.3 0.6 5.3 1.5 5.2 2.2 ------ ------ ------ ------ -------- -------- Income Before Interest Charges 58.8 49.5 101.8 64.5 115.6 74.4 Interest Charges 12.4 12.2 25.2 25.4 47.3 48.8 ------ ------ ------ ------ -------- -------- Net Income 46.4 37.3 76.6 39.1 68.3 25.6 Dividends on Preferred Stock 1.1 1.1 2.2 2.2 4.4 4.5 ------ ------ ------ ------ -------- -------- Earnings Available for Common Stock $45.3 $36.2 $74.4 $36.9 $63.9 $21.1 ====== ====== ====== ====== ======== ======== See notes to condensed consolidated financial statements. ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (MILLIONS) March 31, September 30, 1996 1995 1995 ASSETS Utility Plant $1,969.3 $1,872.7 $1,919.9 Less Accumulated Depreciation 607.1 571.5 583.3 -------- -------- -------- Utility Plant - Net 1,362.2 1,301.2 1,336.6 -------- -------- -------- Other Property and Investments (less accumulated depreciation) 51.5 18.6 46.3 -------- -------- -------- Current Assets: Cash and Cash Equivalents 4.5 36.2 3.7 Receivables (less allowance for uncollectible accounts of $6.4 at March 31, 1996, $7.2 at March 31, 1995 and $4.4 at September 30, 1995) 225.7 178.9 69.3 Inventories: Natural Gas Stored Underground 14.5 22.5 111.2 Liquefied Natural Gas 4.0 11.5 14.3 Materials and Supplies 8.0 9.0 8.0 Other 0.4 3.7 2.6 Deferred Purchased Gas Adjustment 19.3 Other 9.2 7.8 10.9 -------- -------- -------- Total Current Assets 285.6 269.6 220.0 -------- -------- -------- Deferred Debits and Other Assets: Unrecovered Environmental Response Costs 34.7 34.2 34.9 Unrecovered Integrated Resource Plan Costs 8.0 12.5 9.9 Other 24.2 27.1 26.9 -------- -------- -------- Total Deferred Debits and Other Assets 66.9 73.8 71.7 -------- -------- -------- Total $1,766.2 $1,663.2 $1,674.6 ======== ======== ======== See notes to condensed consolidated financial statements. ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED) (MILLIONS) March 31, September 30, 1996 1995 1995 CAPITALIZATION AND LIABILITIES Capitalization: Common Stock, $5 Par Value, Shares Issued and Outstanding of 55.4 at March 31, 1996, 51.4 at March 31, 1995 and 54.9 at September 30, 1995 $276.8 $128.7 $137.3 Premium on Capital Stock 166.2 249.9 297.7 Earnings Reinvested 167.6 160.4 122.3 -------- -------- -------- Total Common Stock Equity 610.6 539.0 557.3 Preferred Stock, Cumulative $100 Par or Stated Value, Shares Issued and Outstanding of 0.6 at March 31, 1996, March 31, 1995 and September 30, 1995 58.5 58.5 58.5 Long-Term Debt 554.5 554.5 554.5 -------- -------- -------- Total Capitalization 1,223.6 1,152.0 1,170.3 -------- -------- -------- Current Liabilities: Redemption Requirements on Preferred Stock 0.3 0.3 0.3 Short-Term Debt 66.5 51.0 Accounts Payable 81.5 50.8 72.3 Deferred Purchased Gas Adjustment 67.6 6.3 Customer Deposits 29.1 30.1 29.5 Interest 25.3 25.0 25.4 Taxes 28.0 22.6 3.7 Other 43.9 41.0 42.4 -------- -------- -------- Total Current Liabilities 274.6 237.4 230.9 -------- -------- -------- Accrued Environmental Response Costs 28.6 28.6 28.6 Accrued Pension Costs 1.5 25.0 10.3 Accrued Postretirement Benefits Costs 33.6 30.8 30.1 Deferred Credits 63.2 65.8 65.6 Accumulated Deferred Income Taxes 141.1 123.6 138.8 -------- -------- -------- Total $1,766.2 $1,663.2 $1,674.6 ======== ======== ======== See notes to condensed consolidated financial statements. ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE SIX MONTHS AND TWELVE MONTHS ENDED MARCH 31, 1996 AND 1995 (MILLIONS) Six Months Twelve Months 1996 1995 1996 1995 Cash Flows from Operating Activities: Net Income $76.6 $39.1 $68.3 $25.6 Adjustments to Reconcile Net Income to Net Cash Flow from Operating Activities: Non-Cash Restructuring Costs 66.6 2.8 66.6 Depreciation and Amortization 33.4 31.5 64.4 60.8 Deferred Income Taxes 2.4 (11.0) 17.6 (2.8) Non-Cash Compensation Expense 2.1 4.2 4.1 8.3 Other (1.2) (1.3) (2.3) (2.3) Changes in Certain Assets and Liabilities (45.4) 90.7 (96.8) 44.8 ------- ------- ------- ------- Net Cash Flow from Operating Activities 67.9 219.8 58.1 201.0 ------- ------- ------- ------- Cash Flows from Financing Activities: Short-Term Borrowings, Net 15.5 (95.4) 66.5 Redemption of Long-Term Debt (15.0) (15.0) Sale of Common Stock, Net of Expenses 1.0 1.0 50.4 2.1 Common Stock Dividends (24.4) (21.6) (47.1) (43.1) Dividends on Preferred Stock (2.2) (2.2) (4.4) (4.5) ------- ------- ------- ------- Net Cash Flow from Financing Activities (10.1) (133.2) 65.4 (60.5) ------- ------- ------- ------- Cash Flows from Investing Activities: Utility Plant Expenditures (57.9) (53.5) (125.2) (111.7) Non-Utility Capital Expenditures 1.1 (0.9) 1.6 (0.9) Investment in Joint Venture (32.6) Cost of Removal, Net of Salvage (0.2) 0.7 1.0 0.3 ------- ------- ------- ------- Net Cash Flow from Investing Activities (57.0) (53.7) (155.2) (112.3) ------- ------- ------- ------- Net Increase (Decrease) in Cash and Cash Equivalents 0.8 32.9 (31.7) 28.2 Cash and Cash Equivalents at Beginning of Period 3.7 3.3 36.2 8.0 ------- ------- ------- ------- Cash and Cash Equivalents at End of Period $4.5 $36.2 $4.5 $36.2 ======= ======= ======= ======= Cash Paid During the Period for: Interest $25.5 $25.5 $48.4 $47.3 Income Taxes $12.7 $20.7 $20.6 $26.3 See notes to condensed consolidated financial statements. AGL RESOURCES INC. AND ATLANTA GAS LIGHT COMPANY NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Formation of Holding Company AGL Resources Inc. (Resources) is a Georgia corporation incorporated on November 27, 1995, in a corporate restructuring, for the primary purpose of becoming the parent company of Atlanta Gas Light Company (AGLC) and its subsidiaries. The restructuring was completed upon shareholder approval on March 6, 1996, at which time each outstanding share of AGLC common stock was converted into one share of Resources common stock. Under the restructuring plan, Resources will engage in utility activities through AGLC and its wholly owned subsidiary, Chattanooga Gas Company (Chattanooga), and in unregulated business activities through AGL Energy Services, Inc. (AGL Energy Services), AGL Investments, Inc. (AGL Investments) and their subsidiaries. The consolidated financial statements of Resources include the accounts of AGLC as though Resources had existed in all periods shown and had owned all of AGLC's outstanding common stock prior to March 6, 1996. On March 6, 1996, AGLC became the primary subsidiary of Resources. AGLC will transfer ownership of its nonutility businesses, Georgia Gas Company, Georgia Gas Service Company, Georgia Energy Company and Trustees Investments, Inc., to AGL Investments. In addition, AGLC will transfer its interest in Sonat Marketing Company L.P. (Sonat Marketing) to AGL Energy Services. Those transfers are expected to be accomplished through a dividend-in-kind during the third quarter of fiscal 1996. The consolidated financial statements of AGLC include the accounts of all subsidiaries owned by AGLC prior to March 6, 1996. 2. Interim Financial Statements Certain information and footnote disclosure normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted from these condensed consolidated financial statements pursuant to applicable rules and regulations of the Securities and Exchange Commission. These financial statements should be read in conjunction with the financial statements and the notes thereto included in the annual reports on Form 10-K of AGLC for the fiscal years ended September 30, 1995 and 1994. Certain 1995 amounts have been restated or reclassified for comparability with 1996 amounts. In addition, on November 3, 1995, AGLC's Board of Directors declared a two-for-one stock split of the common stock effected in the form of a 100% stock dividend to shareholders of record on November 17, 1995, and paid on December 1, 1995. AGLC recorded a debit to premium on capital stock and a credit to common stock of $137.5 million to transfer the amount of the par value of the stock dividend to common stock. All references to number of shares and to per share amounts in the Condensed Consolidated Financial Statements and Management's Discussion and Analysis of Results of Operations and Financial Condition have been retroactively adjusted to reflect the stock dividend. 3. Earnings Since sales of natural gas are dependent to a large extent on weather, the majority of AGLC's income is realized during the winter months. Earnings for three-month and six-month periods are not indicative of the earnings for a twelve-month period. On October 3, 1995, AGLC implemented revised firm service rates pursuant to an order on rehearing of the rate design issues of AGLC's 1993 rate case that was issued by the Georgia Public Service Commission (Georgia Commission) on September 25, 1995. Although neutral with respect to total annual margins, the new rates shift margins from heating months (November - March) into non-heating months, thereby affecting the comparisons between interim earnings for fiscal 1996 and 1995. Annual operating margins for fiscal 1996 will not be affected by the new rates. 4. Environmental Matters - AGLC AGLC has identified nine sites in Georgia where it currently owns all or part of a manufactured gas plant (MGP) site. In addition, AGLC has identified three other sites in Georgia which AGLC does not now own, but which may have been associated with the operation of MGPs by AGLC or its predecessors. There are three sites in Florida which have been investigated by environmental authorities in connection with which AGLC may be contacted as a potentially responsible party. Under a thorough analysis of potentially applicable requirements, AGLC has estimated that, under the most favorable circumstances reasonably possible, the future cost of investigating and remediating the former MGP sites, excluding those sites for which no remediation is expected or the cost of which cannot be estimated, could be as low as $28.6 million. Alternatively, AGLC has estimated that, under the least favorable circumstances reasonably possible, the future cost of investigating and remediating those same former MGP sites could be as high as $109 million, excluding those sites for which no remediation is expected or the cost of which cannot be estimated. AGLC cannot estimate at this time the amount of any other future expenses or liabilities, or the impact on these estimates of future environmental regulatory changes, that may be associated with or related to the MGP sites, including expenses or liabilities relating to any litigation. At the present time, no amount within the range can be identified as a better estimate than any other estimate. Therefore, a liability for the low end of this range and a corresponding regulatory asset have been recorded in the financial statements. The Georgia Commission has approved the recovery by AGLC of Environmental Response Costs, as defined below, pursuant to AGLC's Environmental Response Cost Recovery Rider (ERCRR). For purposes of the ERCRR, Environmental Response Costs include investigation, testing, remediation and litigation costs and expenses or other liabilities relating to or arising from MGP sites. In connection with the ERCRR, the staff of the Georgia Commission has undertaken a financial and management process audit related to the MGP sites, clean-up activities at the sites and Environmental Response Costs which have been incurred for purposes of the ERCRR. Although the result of such audit is not known, management does not expect the audit to have a significant effect on AGLC's consolidated financial statements. With regard to legal proceedings related to the former MGP sites, AGLC is or expects to be a party to claims or counterclaims on an ongoing basis. Among such matters, AGLC intends to continue to pursue insurance coverage and contribution from potentially responsible parties. Management currently believes that the outcome of MGP-related litigation in which AGLC is involved will not have a material adverse effect on the financial condition and results of operations of AGLC. See Part I, Item 2 and Part II, Item 5, "Other Information - Environmental Matters," of this Form 10-Q for additional information regarding environmental response activities associated with MGP sites. 5. Competition - AGLC AGLC competes to supply natural gas to interruptible customers who are capable of switching to alternative fuels, including fuel oil, coal, propane, electricity and, in some cases, combustible wood by-products. AGLC also competes to supply gas to interruptible customers who might otherwise seek to bypass AGLC's distribution system. On February 17, 1995, the Georgia Commission approved a settlement that permits AGLC to negotiate contracts with customers who have the option to bypass AGLC's facilities and receive natural gas from other suppliers. A bypass avoidance contract (Negotiated Contract) can be renewable, provided that the initial term does not exceed five years, unless a longer term is specifically authorized by the Georgia Commission. The rate provided by the Negotiated Contract may be lower than AGLC's filed rate, but not less than AGLC's marginal cost of service to the potential Bypass Customer. Service pursuant to a Negotiated Contract may commence without Georgia Commission action, once a copy of the contract is filed with the Georgia Commission. Negotiated Contracts may be rejected by the Georgia Commission within 90 days of filing; absent such action, however, the Negotiated Contracts remain effective. None of the 44 Negotiated Contracts filed with the Georgia Commission have been rejected. The settlement also provides for a bypass loss recovery mechanism to operate until the earlier of September 30, 1998, or the effective date of new rates for AGLC resulting from a general rate case. In addition to Negotiated Contracts, which are designed to serve existing and potential Bypass Customers, AGLC's Interruptible Transportation and Sales Maintenance (ITSM) Rider continues to permit discounts for short-term transactions to compete with alternative fuels. Revenue shortfalls, if any, from interruptible customers as measured by the test-year interruptible revenues determined by the Georgia Commission in AGLC's 1993 rate case will continue to be recovered under the ITSM Rider. The settlement approved by the Georgia Commission also provides that AGLC may file contracts (Special Contracts) for Georgia Commission approval if the service cannot be provided through the ITSM Rider, existing rate schedules or the Negotiated Contract procedures. An example of an application for a Special Contract would be to provide for a long-term service contract to compete with alternative fuels where physical bypass was not the relevant competition. Currently, AGLC has filed, and the Georgia Commission has approved, Special Contracts with five industrial customers. 6. Corporate Restructuring - AGLC In November 1994, AGLC announced a corporate restructuring plan in response to increased competition and the changes in the federal and state regulatory environments in which AGLC operates. The restructuring plan provided for reengineering AGLC's business processes and streamlining AGLC's statewide field organizations. As a result of restructuring, AGLC has combined offices and established centralized customer service centers. During the twelve months ended March 31, 1996, AGLC reduced the number of employees by approximately 650 through voluntary retirement and severance programs and attrition. AGLC recorded corporate restructuring costs of $1.7 million (after income taxes) during the twelve months ended March 31, 1996, and a cumulative total of $43.1 (after income taxes) related to the early retirement and severance programs, office closings and costs to exit AGLC's appliance merchandising and real estate investment operations. As a result of the corporate restructuring, AGLC has experienced considerable reductions in annual operating expenses from the levels incurred in fiscal 1994. (The remainder of this page was intentionally left blank.) Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION As of March 6, 1996, AGL Resources Inc. (Resources) became the parent company of Atlanta Gas Light Company (AGLC) and its subsidiaries. The restructuring was completed upon shareholder approval on March 6, 1996, at which time each outstanding share of AGLC common stock was converted into one share of Resources common stock. The following discussion and analysis reflects the combined results of operations and financial condition since Resources reflects principally the operations of AGLC. Results of Operations - Resources and AGLC Three-Month Periods Ended March 31, 1996 and 1995 Explained below are the major factors that had a significant effect on results of operations for the three-month period ended March 31, 1996, compared with the same period in 1995. Operating revenues increased 6.8% for the three-month period ended March 31, 1996, compared with the same period in 1995 primarily due to (1) an increase in the cost of AGLC's gas supply recovered from customers under the purchased gas provisions of AGLC's rate schedules, as explained in the following paragraph, (2) increased volumes of gas sold as a result of weather that was 30% colder than the same period in 1995 and (3) an increase of approximately 41,000 in the number of customers served. Cost of gas increased 14.1% for the three-month period ended March 31, 1996, compared with the same period in 1995 primarily due to an increase in the amount recovered from customers under the purchased gas provisions of AGLC's rate schedules. The increase in the cost of AGLC's gas supply was primarily due to (1) increased volumes of gas sold as a result of weather that was 30% colder than the same period in 1995 and (2) an increase in the cost of gas purchased for system supply. AGLC balances the cost of gas with revenues collected under the purchased gas provisions of AGLC's rate schedules. Underrecoveries or overrecoveries of gas costs are deferred and recorded as current assets or liabilities, thereby eliminating the effect that recovery of gas costs would otherwise have on net income. Operating margin decreased 4.2% for the three-month period ended March 31, 1996, compared with the same period in 1995 primarily due to revised firm service rates, effective October 3, 1995, which shift margins from heating months into non-heating months (see Note 3 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q). The decrease in operating margin was offset partly by an increase of approximately 41,000 in the number of customers served. AGLC's Weather Normalization Adjustment Riders stabilized operating margin at the level which would occur with normal weather for the three-month periods ended March 31, 1996 and 1995. As a result of the Weather Normalization Adjustment Riders, weather conditions experienced do not have a significant impact on the comparability of operating margin. Operating expenses increased 4.3% for the three-month period ended March 31, 1996, compared with the same period in 1995 primarily due to increased (1) depreciation expense recorded as a result of increased property subject to depreciation and (2) expenses related to employee benefits. The increase in operating expenses was offset partly by decreased labor costs as a result of AGLC's recent corporate restructuring. Total other operating expenses decreased primarily due to corporate restructuring costs of $23 million recorded in the three-month period ended March 31, 1995. See Note 6 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. Other income increased $3.7 million for the three-month period ended March 31, 1996, compared with the same period in 1995 primarily due to (1) income from investment in Sonat Marketing effective August 31, 1995 and (2) an increase in the recovery of carrying costs attributable to an increase in underrecovered deferred purchased gas costs. Interest charges increased 1.6% for the three-month period ended March 31, 1996, compared with the same period in 1995 primarily due to increased amounts of short-term debt outstanding. Income taxes increased $8.4 million for the three-month period ended March 31, 1996, compared with the same period in 1995 primarily due to increased taxable income. Net income for the three-month period ended March 31, 1996, was $45 million, compared with net income of $36.2 million in 1995. Earnings per share of common stock were $0.81 for the three-month period ended March 31, 1996, compared with earnings per share of $0.71 in 1995. The increases in net income and earnings per share were primarily due to (1) corporate restructuring costs of $13 million (after income taxes) included in the three-month period ended March 31, 1995 and (2) an increase of approximately 41,000 in the number of customers served. The increases in net income and earnings per share were offset partly by revised firm service rates approved by the Georgia Commission which shift margins from heating months into non-heating months. See Note 3 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. The increase in earnings per share was also offset partly by an increase in the average number of common shares outstanding. Six-Month Periods Ended March 31, 1996 and 1995 Explained below are the major factors that had a significant effect on results of operations for the six-month period ended March 31, 1996, compared with the same period in 1995. Operating revenues increased 3.9% for the six-month period ended March 31, 1996, compared with the same period in 1995 primarily due to (1) an increase in the cost of AGLC's gas supply recovered from customers under the purchased gas provisions of AGLC's rate schedules, as explained in the following paragraph, (2) increased volumes of gas sold as a result of weather that was 49% colder than the same period in 1995 and (3) an increase of approximately 39,000 in the number of customers served. Cost of gas increased 8.5% for the six-month period ended March 31, 1996, compared with the same period in 1995 primarily due to an increase in the amount recovered from customers under the purchased gas provisions of AGLC's rate schedules. The increase in the cost of AGLC's gas supply was primarily due to (1) increased volumes of gas sold as a result of weather that was 49% colder than the same period in 1995 and (2) an increase in the cost of gas purchased for system supply. The increase in cost of gas was offset partly by a decrease in the cost of gas withdrawn from underground storage. AGLC balances the cost of gas with revenues collected under the purchased gas provisions of AGLC's rate schedules. Underrecoveries or overrecoveries of gas costs are deferred and recorded as current assets or liabilities, thereby eliminating the effect that recovery of gas costs would otherwise have on net income. Operating margin decreased 2.6% for the six-month period ended March 31, 1996, compared with the same period in 1995 primarily due to revised firm service rates, effective October 3, 1995, which shift margins from heating months into non-heating months (see Note 3 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q). The decrease in operating margin was offset partly by an increase of approximately 39,000 in the number of customers served. AGLC's Weather Normalization Adjustment Riders stabilized operating margin at the level which would occur with normal weather for the six-month periods ended March 31, 1996 and 1995. As a result of the Weather Normalization Adjustment Riders, weather conditions experienced do not have a significant impact on the comparability of operating margin. Operating expenses increased 1.8% for the six-month period ended March 31, 1996, compared with the same period in 1995 primarily due to an increase of $3.4 million in expenses related to AGLC's Integrated Resource Plan (IRP) which are recovered through an IRP Cost Recovery Rider approved by the Georgia Commission. AGLC balances IRP expenses which are included in operating expenses with revenues collected under the rider, thereby eliminating the effect that recovery of IRP expenses would otherwise have on net income. Operating expenses excluding IRP expenses decreased 0.2% primarily due to decreased labor costs as a result of AGLC's recent corporate restructuring. Total other operating expenses decreased primarily due to corporate restructuring costs of $67.5 million recorded in the six-month period ended March 31, 1995. See Note 6 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. Other income increased $3.8 million for the six-month period ended March 31, 1996, compared with the same period in 1995 primarily due to (1) income from investment in Sonat Marketing effective August 31, 1995 and (2) an increase in the recovery of carrying costs attributable to an increase in underrecovered deferred purchased gas costs. Interest charges decreased $0.2 million for the six-month period ended March 31, 1996, compared with the same period in 1995 primarily due to decreased long-term debt outstanding. Income taxes increased $25.1 million for the six-month period ended March 31, 1996, compared with the same period in 1995 primarily due to increased taxable income. Net income for the six-month period ended March 31, 1996, was $74.1 million, compared with net income of $36.9 million in 1995. Earnings per share of common stock were $1.34 for the six-month period ended March 31, 1996, compared with earnings per share of $0.72 in 1995. The increases in net income and earnings per share were primarily due to (1) corporate restructuring costs of $41.4 million (after income taxes) included in the six-month period ended March 31, 1995 and (2) an increase of approximately 39,000 in the number of customers served. The increases in net income and earnings per share were offset partly by revised firm service rates approved by the Georgia Commission which shift margins from heating months into non-heating months. See Note 3 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. The increase in earnings per share was also offset partly by an increase in the average number of common shares outstanding. Twelve-Month Periods Ended March 31, 1996 and 1995 Explained below are the major factors that had a significant effect on results of operations for the twelve-month period ended March 31, 1996, compared with the same period in 1995. Operating revenues decreased 1.9% for the twelve-month period ended March 31, 1996, compared with the same period in 1995 primarily due to a decrease in the cost of AGLC's gas supply recovered from customers under the purchased gas provisions of AGLC's rate schedules, as explained in the following paragraph. The decrease in operating revenues was offset partly by (1) increased volumes of gas sold as a result of weather that was 48% colder than the same period in 1995 and (2) an increase of approximately 38,000 in the number of customers served. Cost of gas decreased 4.1% for the twelve-month period ended March 31, 1996, compared with the same period in 1995 primarily due to a decrease in the amount recovered from customers under the purchased gas provisions of AGLC's rate schedules. The decrease in cost of gas was offset partly by increased volumes of gas sold as a result of weather that was 48% colder than the same period in 1995. AGLC balances the cost of gas with revenues collected under the purchased gas provisions of AGLC's rate schedules. Underrecoveries or overrecoveries of gas costs are deferred and recorded as current assets or liabilities, thereby eliminating the effect that recovery of gas costs would otherwise have on net income. Operating margin increased 1% for the twelve-month period ended March 31, 1996, compared with the same period in 1995 primarily due to the recovery of increased expenses related to AGLC's IRP which are recovered through an IRP Cost Recovery Rider approved by the Georgia Commission. AGLC balances IRP expenses which are included in operating expenses with revenues collected under the rider, thereby eliminating the effect that recovery of IRP expenses would otherwise have on net income. Operating margin was also positively affected by an increase of approximately 38,000 in the number of customers served. The increase in operating margin was offset substantially by revised firm service rates, effective October 3, 1995, which shift margins from heating months into non-heating months (see Note 3 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q). AGLC's Weather Normalization Adjustment Riders stabilized operating margin at the level which would occur with normal weather for the twelve-month periods ended March 31, 1996 and 1995. As a result of the Weather Normalization Adjustment Riders, weather conditions experienced do not have a significant impact on the comparability of operating margin. Operating expenses increased 1.8% for the twelve-month period ended March 31, 1996, compared with the same period in 1995 primarily due to an increase of $12.6 million in expenses related to AGLC's IRP which are recovered through an IRP Cost Recovery Rider approved by the Georgia Commission. Operating expenses excluding IRP expenses decreased 2.2% primarily due to decreased labor costs as a result of AGLC's recent corporate restructuring. Total other operating expenses decreased primarily due to a decrease in restructuring costs of $64.7 million. See Note 6 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. Other income increased $3 million for the twelve-month period ended March 31, 1996, compared with the same period in 1995 primarily due to (1) income from investment in Sonat Marketing effective August 31, 1995 and (2) interest income from increased short-term investments. Interest charges decreased 3.1% for the twelve-month period ended March 31, 1996, compared with the same period in 1995 primarily due to decreased amounts of long-term and short-term debt outstanding. Income taxes increased $27.4 million for the twelve-month period ended March 31, 1996, compared with the same period in 1995 primarily due to increased taxable income. Net income for the twelve-month period ended March 31, 1996, was $63.6 million, compared with net income of $21.1 million in 1995. Earnings per share of common stock were $1.17 for the twelve-month period ended March 31, 1996, compared with earnings per share of $0.42 in 1995. The increases in net income and earnings per share were primarily due to (1) a decrease in corporate restructuring costs of $39.7 million (after income tax), (2) decreased operating expenses as a result of AGLC's recent corporate restructuring, (3) increased other income and (4) an increase of approximately 38,000 in the number of customers served. The increases in net income and earnings per share were offset partly by revised firm service rates approved by the Georgia Commission which shift margins from heating months into non-heating months. See Note 3 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. The increase in earnings per share was also offset partly by an increase in the average number of common shares outstanding. (The remainder of this page was intentionally left blank) Financial Condition - Resources and AGLC AGLC's business is highly seasonal in nature and typically shows a substantial increase in accounts receivable from customers and accounts payable to gas suppliers from September 30 to March 31 as a result of colder weather. AGLC also uses gas stored underground and liquefied natural gas to serve its customers during periods of colder weather. As a result, accounts receivable increased $156.4 million and inventory of gas stored underground and liquefied natural gas decreased $107 million during the six months ended March 31, 1996. Also, during the six months ended March 31, 1996, accounts payable to pipeline suppliers increased $23.6 million. Accounts receivable increased $46.8 million from March 31, 1995, to March 31, 1996, primarily due to increased (1) operating revenues and (2) loans to customers resulting from financing programs associated with AGLC's IRP. Accounts payable increased $30.7 million from March 31, 1995, to March 31, 1996, primarily due to a $25.9 million increase in accounts payable to pipeline suppliers. Prior to the implementation of Order 636, the cost of bundled pipeline sales service was reviewed and approved by the Federal Energy Regulatory Commission (FERC). Because of diminished review by FERC following the implementation of Order 636, local distribution companies such as AGLC may face greater accountability and risks from their purchasing practices for gas supply, transportation and storage services. The purchasing practices of AGLC are subject to review by the Georgia Commission under legislation enacted by the Georgia General Assembly. The legislation establishes procedures for review and approval of gas supply plans for gas utilities and gas cost adjustment factors applicable to firm service customers of gas utilities. Pursuant to AGLC's approved gas supply plan for fiscal year 1996, gas supply purchases are being recovered under the purchased gas provisions of AGLC's rate schedules. The plan also allows recovery from the customers of AGLC of Order 636 transition costs that are currently being charged by AGLC's pipeline suppliers. For further discussion of the effects of FERC Order 636 on AGLC, see Part II, Item 5, "Other Information - Federal Regulatory Matters" of this Form 10-Q. AGLC currently estimates that its portion of transition costs resulting from FERC Order 636 restructuring proceedings from all of its pipeline suppliers, that have been filed to be recovered to date, could be as high as approximately $101.4 million. Such filings currently are pending before FERC for final approval, and the transition costs are being collected subject to refund. Approximately $76.5 million of such costs have been incurred by AGLC as of March 31, 1996, and are being recovered from its customers under the purchased gas provisions of AGLC's rate schedules. As noted above, AGLC recovers the cost of gas under the purchased gas provisions of AGLC's rate schedules. AGLC was in an underrecovery position of $19.3 million as of March 31, 1996, and an overrecovery position of $6.3 million as of September 30, 1995, and $67.6 million as of March 31, 1995. Cash and cash equivalents decreased $31.7 million for the twelve-month period ended March 31, 1996, primarily due to investing activities. The expenditures for plant and other property totaled $56.8 million and $123.6 million for the six-month and twelve-month periods ended March 31, 1996, respectively. On August 31, 1995, AGLC signed an agreement with Sonat Inc. to form a joint venture to acquire the business of Sonat Marketing Company, a wholly owned subsidiary of Sonat Inc. AGLC invested $32.6 million in Sonat Marketing Company, L.P., for a 35% ownership interest. AGLC has accrued liabilities of $28.6 million as of March 31, 1996, September 30, 1995 and March 30, 1995, for estimated future expenditures which are expected to be made over a period of several years in connection with or related to MGP sites. The Georgia Commission has approved the recovery by AGLC of Environmental Response Costs, as defined in Note 4 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q, commencing October 1, 1992, pursuant to the ERCRR. The staff of the Georgia Commission has undertaken a financial and management process audit related to the MGP sites, clean-up activities at the sites and Environmental Response Costs which have been incurred for purposes of the ERCRR. Although the result of such audit is not known, management does not expect the audit to have a significant effect on AGLC's consolidated financial statements. See Part II, Item 5, "Other Information - Environmental Matters" in this Form 10-Q. On November 3, 1995, AGLC's Board of Directors declared a two-for-one stock split of the common stock effected in the form of a 100% stock dividend to shareholders of record on November 17, 1995, and paid on December 1, 1995. All references to number of shares and to per share amounts in the condensed consolidated financial statements and related notes have been restated retroactively to reflect the stock split. On June 16, 1995, AGLC issued and sold approximately 3.0 million shares of its common stock, par value $5.00 per share, at a price of $16.81 per share, in an underwritten public offering. Net proceeds of $48.6 million from that sale of common stock were used to finance AGLC's capital expenditure program and for other corporate purposes. Short-term debt increased $15.5 million and $66.5 million for the six-month and twelve-month periods ended March 31, 1996, respectively, primarily to meet increased working capital requirements. Accrued pension costs decreased $8.8 million and $23.5 million for the six-month and twelve-month periods ended March 31, 1996, respectively, primarily due to plan contributions. On February 17, 1995, the Georgia Commission approved a settlement that permits AGLC to negotiate contracts with customers who have the option to bypass AGLC's facilities and receive natural gas from other suppliers. A bypass avoidance contract (Negotiated Contract) can be renewable, provided that the initial term does not exceed five years, unless a longer term specifically is authorized by the Georgia Commission. The rate provided by the Negotiated Contract may be lower than AGLC's filed rate, but not less than AGLC's marginal cost of service to the potential Bypass Customer. Service pursuant to a Negotiated Contract may commence without Georgia Commission action, once a copy of the contract is filed with the Georgia Commission. Negotiated Contracts may be rejected by the Georgia Commission within 90 days of filing; absent such action, however, the Negotiated Contracts remain effective. None of the 44 Negotiated Contracts filed with the Georgia Commission have been rejected. The Georgia Commission also approved a bypass loss recovery mechanism to operate until the earlier of September 30, 1998, or until the effective date of new rates for AGL resulting from a general rate case. See Note 5 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. PART II -- OTHER INFORMATION "Part II -- Other Information" is intended to supplement information contained in the Annual Report on Form 10-K for the fiscal year ended September 30, 1995 and should be read in conjunction therewith. Item 1. Legal Proceedings See Item 5. Item 2. Changes in Securities Effective March 6, 1996, each outstanding share of common stock of Atlanta Gas Light Company was exchanged for and converted into one share of common stock of AGL Resources Inc., in connection with the formation of a holding company (See Note 1 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q). Effective March 6, 1996, AGLC's Board of Directors adopted a Shareholder Rights Plan designed to protect Resources' shareholders from unfavorable takeover attempts that are not negotiated by the Board of Directors. The plan was not adopted in response to any effort to acquire control of Resources, and the Board is not aware of any effort to do so. On March 6, 1996, Resources' Board of Directors declared a dividend of one preferred share purchase right (Right) for each outstanding share of common stock, par value $5 per share of Resources. The dividend was paid on March 22, 1996, to the shareholders of record on that date. The description and terms of the Rights are set forth in a Rights Agreement dated as of March 6, 1996, between Resources and Wachovia Bank of North Carolina, N.A. Item 4. Submission of Matters to a Vote of Security Holders The Annual Meeting of Shareholders of AGLC was held on March 6, 1996. "Broker non-votes" were not considered in determining whether a quorum existed for purposes of the Annual Meeting and were not considered as votes in determining the outcome of any proposal. At the Annual Meeting the shareholders: a) Approved a holding company restructuring pursuant to the Agreement and Plan of Merger between Atlanta Gas Light Company and AGL Resources Inc. Affirmative Negative Abstentions 35,845,639 3,340,529 774,134 65.0% 6.1% 1.4% b) Elected for a one-year term all nominees for director listed in AGLC's Proxy Statement. The number of votes "for" each nominee and the number of votes "withheld" with respect to each nominee is as follows: For Withheld 1. Frank Barron, Jr. 47,876,477 945,289 2. W. Waldo Bradley 45,681,163 3,140,603 3. Otis A. Brumby, Jr. 47,837,148 984,618 4. David R. Jones 47,752,722 1,069,044 5. Kenneth D. Lewis 47,862,596 959,170 6. Albert G. Norman, Jr. 47,632,000 1,190,766 7. D. Raymond Riddle 47,832,463 989,303 8. Dr. Betty L. Siegel 47,752,928 1,068,838 9. Ben J. Tarbutton, Jr. 47,856,961 964,805 10. Charles McKenzie Taylor 47,846,904 974,862 11. Felker W. Ward, Jr. 47,837,218 984,548 c) Approved an amendment to the Atlanta Gas Light Company Long-Term Stock Incentive Plan of 1990. Affirmative Negative Abstentions 43,339,387 4,062,289 1,420,090 88.8% 8.3% 2.9% d) Approved the Atlanta Gas Light Company Non-Employee Directors Equity Compensation Plan. Affirmative Negative Abstentions 42,634,704 4,416,194 1,770,868 87.3% 9.1% 3.6% Item 5. Other Information Federal Regulatory Matters Order No. 636 AGLC currently estimates that its portion of transition costs (which include unrecovered gas costs, gas supply realignment (GSR) costs and various stranded costs resulting from unbundling of interstate pipeline sales service) from all of its pipeline suppliers filed with the Federal Energy Regulatory Commission (FERC) to be recovered could be as high as approximately $101.4 million. AGLC's estimate is based on the most recent estimates of transition costs filed by its pipeline suppliers with the FERC and assumes that FERC approval of Southern Natural Gas Company's (Southern) restructuring settlement agreement is not overturned on judicial review. Such filings by AGLC's pipeline suppliers are pending final FERC approval. Approximately $76.5 million of transition costs have been incurred by AGLC as of March 31, 1996, and are being recovered from customers under the purchased gas provisions of AGLC's rate schedules. Details concerning the status of the Order No. 636 restructuring proceedings involving the pipelines that serve AGLC directly are set forth below. SOUTHERN GSR Cost Recovery Proceeding. On April 11, 1996, the FERC issued an order constituting final approval of the settlement agreement between AGLC, Southern, and other customers which resolves virtually all pending Southern proceedings before the FERC and the courts. The settlement resolves Southern's pending general rate proceedings, which relate to Southern's rates charged from January 1, 1991, through the present. The settlement provides for rate reductions and refund offsets against GSR costs. It also resolves Southern's Order No. 636 transition cost proceedings and provides for revisions to Southern's tariff. The FERC's approval of the settlement is subject to petitions for judicial review by parties opposing the settlement. The April 11, 1996, order is also subject to potential requests for rehearing addressing aspects of the order relating to issues in addition to matters resolved by the settlement. Southern filed on March 29, 1996 to reduce its volumetric GSR surcharge for consenting parties to the restructuring settlement to reflect actual GSR costs incurred by Southern through December 31, 1995. Southern continues to make quarterly and monthly transition cost filings to recover costs from contesting parties to the settlement, and the FERC has ordered that such costs may be recovered by Southern, subject to the outcome of a hearing for contesting parties. However, GSR and other transition cost charges to AGLC are in accordance with the settlement. Assuming the FERC's approval of the settlement is upheld on judicial review, AGLC's share of Southern's transition costs is estimated to be $84.4 million. As of March 31, 1996, $67.8 million of such costs have already been incurred by AGLC. TENNESSEE GSR Cost Recovery Proceeding. Tennessee Gas Pipeline Company (Tennessee) has continued to make quarterly GSR cost recovery filings with the FERC. On March 29, 1996, Tennessee filed with the FERC to recover an additional $35.4 million in GSR costs. AGLC protested this filing, but the FERC has not yet acted upon Tennessee's filing. AGLC's estimated liability for GSR costs as a result of Tennessee's filings is approximately $9.4 million, subject to possible reduction based upon the hearing FERC established to investigate Tennessee's costs. AGLC is actively participating in Tennessee's GSR cost recovery proceeding. As of March 31, 1996, $4.9 million of such costs have already been incurred by AGLC. FERC Rate Proceedings TENNESSEE On April 5, 1996, Tennessee filed with the FERC a comprehensive settlement to resolve all issues in its current rate case. The settlement, which is subject to approval by the FERC, provides for a reduction of approximately $83 million in the cost of service underlying Tennessee's rates in effect since July 1, 1995, and also provides for Tennessee to share a portion of costs associated with firm capacity relinquished by its customers. AGLC filed comments supporting the settlement on April 25, 1996. AGLC's estimated annual reduction in cost is $2.2 million. The FERC has not yet acted on the proposed settlement. TRANSCO On February 21, 1996, Transcontinental Gas Pipe Line Corporation (Transco) filed an application with the FERC seeking authority to transfer onshore and offshore production area facilities to an affiliated company. If granted, Transco's proposal would result in the facilities becoming unregulated. AGLC filed comments which raised questions concerning, but did not oppose, Transco's application. The FERC has not yet acted on Transco's application. Arcadian On April 22, 1996, AGLC filed to withdraw portions of its request for rehearing of the FERC's order approving the November 12, 1993 settlement between Arcadian and Southern. The arguments that AGLC proposes to withdraw, pursuant to the restructuring settlement with Southern, are those that allege that Southern's discounted rates to Arcadian constitute an anticompetitive "price squeeze" against AGLC. AGLC cannot predict the outcome of these federal proceedings nor can it determine the ultimate effect, if any, such proceedings may have on AGLC. Although the outcome of such proceedings is not known, management does not expect the outcome to have a significant effect on AGLC's consolidated financial statements. State Regulatory Matters Bypass and Other Competitive Issues On February 17, 1995, the Georgia Commission approved a settlement that permits AGLC to negotiate contracts with customers who have the option to bypass AGLC's facilities and receive natural gas from other suppliers. A bypass avoidance contract (Negotiated Contract) can be renewable, provided the initial term does not exceed five years, unless a longer term specifically is authorized by the Georgia Commission. The rate provided by the Negotiated Contract may be lower than AGLC's filed rate, but not less than AGLC's marginal cost of service to the potential Bypass Customer. Service pursuant to a Negotiated Contract may commence without Georgia Commission action, once a copy of the contract is filed with the Georgia Commission. Negotiated Contracts may be rejected by the Georgia Commission within 90 days of filing; absent such action, however, the Negotiated Contracts remain effective. None of the 44 Negotiated Contracts filed to date with the Georgia Commission have been rejected. On November 20, 1995, the Georgia Commission issued a Notice of Inquiry (NOI) to assist it in developing state regulatory guidelines to respond to growing competition in natural gas markets and to actively move the local distribution of natural gas toward a more competitive future. The Commission received comments from a broad and representative cross-section of the industry concerning suggested ways to open the industry to more competition. The Commission is expected to issue a policy statement related to key issues identified in the NOI in the near future. On January 8, 1996, proposed legislation was introduced in the Georgia General Assembly which would allow local gas companies to negotiate contract prices and terms for gas services to large commercial and industrial customers absent Georgia Commission mandated rates. The General Assembly delayed approval of HB 1153, The Natural Gas Fair Pricing Act, during the 1996 session. Senate and House committees have been created to study and recommend a comprehensive course of action by December 31, 1996, for deregulating the natural gas industry. Environmental Matters AGLC has identified nine sites in Georgia where it currently owns all or part of an MGP site. In addition, AGLC has identified three other sites in Georgia which AGLC does not now own, but which may have been associated with the operation of MGPs by AGLC or its predecessors. There are three sites in Florida which have been investigated by environmental authorities in connection with which AGLC may be contacted as a potentially responsible party. Under a thorough analysis of potentially applicable requirements, AGLC has estimated that, under the most favorable circumstances reasonably possible, the future cost of investigating and remediating the former MGP sites, excluding those sites for which no remediation is expected or the cost of which cannot be estimated, could be as low as $28.6 million. Alternatively, AGLC has estimated that, under the least favorable circumstances reasonably possible, the future cost of investigating and remediating those same former MGP sites could be as high as $109 million, excluding those sites for which no remediation is expected or the cost of which cannot be estimated. AGLC cannot estimate at this time the amount of any other future expenses or liabilities, or the impact on these estimates of future environmental regulatory changes, that may be associated with or related to the MGP sites, including expenses or liabilities relating to any litigation. At the present time, no amount within the range can be identified as a better estimate than any other estimate. Therefore, a liability for the low end of this range and a corresponding regulatory asset have been recorded in the financial statements. The Georgia Commission has approved the recovery by AGLC of Environmental Response Costs, as defined below, effective October 1, 1992, pursuant to AGLC's ERCRR. For purposes of the ERCRR, Environmental Response Costs include investigation, testing, remediation and litigation costs and expenses or other liabilities relating to or arising from MGP sites. In connection with the ERCRR, the staff of the Georgia Commission has undertaken a financial and management process audit related to the MGP sites, clean-up activities at the sites and Environmental Response Costs which have been incurred for purposes of the ERCRR. Although the result of such audit is not known, management does not expect the audit to have a significant effect on AGLC's consolidated financial statements. With regard to legal proceedings related to the former MGP sites, AGLC is or expects to be a party to claims or counterclaims on an ongoing basis. Among such matters, AGLC intends to continue to pursue insurance coverage and contribution from potentially responsible parties. Management currently believes that the outcome of MGP-related litigation in which AGLC is involved will not have a material adverse effect on the financial condition and results of operations of AGLC. As a result of the ERCRR, AGLC expects that it will be able to recover all of its Environmental Response Costs. See Note 4 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10(a) - Gas Sales Agreement between Seller and Atlanta Gas Light Company, as Buyer. 27 - Financial Data Schedules (a) AGL Resources Inc. (b) Atlanta Gas Light Company (b) Reports on Form 8-K. On March 6, 1996, Resources filed a Current Report on Form 8-K dated March 6, 1996, containing: "Item 5 - Other Events"; Exhibit 1 - Rights Agreement, dated as of March 6, 1996, between Resources and Wachovia Bank of North Carolina, N.A.; Exhibit 2 - Press Release, dated March 6, 1996; and Exhibit 3 - Form of Letter to Shareholders, dated March 22, 1996. On March 6, 1996, Resources filed a Current Report on form 8-K dated March 6, 1996, containing "Item 5 - Other Events" and Exhibit 1 - Press Release, dated March 6, 1996. On March 6, 1996, AGLC filed a Current Report on Form 8-K dated March 6, 1996, containing "Item 5 - Other Events" and Exhibit 1 - Press Release, dated March 6, 1996. (The remainder of this page was intentionally left blank.) 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. AGL Resources Inc. (Registrant) Date May 15, 1996 /s/ Robert L. Goocher Robert L. Goocher Executive Vice President (Principal Financial and Accounting Officer) Atlanta Gas Light Company (Registrant) Date May 15, 1996 /s/ Robert L. Goocher Robert L. Goocher Executive Vice President (Principal Financial Officer) Date May 15, 1996 /s/ J. Michael Riley J. Michael Riley Vice President - Finance and Accounting (Principal Accounting Officer) EX-27 2 EXHIBIT 27A
UT 0001004155 AGL RESOURCES INC. 1,000,000 6-MOS SEP-30-1996 OCT-01-1995 MAR-31-1996 PER-BOOK 1,362 52 285 62 5 1,765 277 166 167 610 56 3 555 67 0 0 0 0 0 0 474 1,765 808 42 173 711 96 5 102 25 74 2 74 29 21 66 1.34 1.34
EX-27 3 EXHIBIT 27B
UT 0000008154 ATLANTA GAS LIGHT COMPANY 1,000,000 6-MOS SEP-30-1996 OCT-01-1995 MAR-31-1996 PER-BOOK 1,362 52 286 62 5 1,766 277 166 168 611 56 3 555 67 0 0 0 0 0 0 474 1,766 808 42 172 711 97 5 102 25 77 2 74 29 21 68 0.00 0.00
EX-10 4 EXHIBIT 10A GAS SALES AGREEMENT BETWEEN AS SELLER AND ATLANTA GAS LIGHT COMPANY AS BUYER CONFIDENTIAL INDEX PAGE I. DEFINITIONS 1 II. GOVERNMENTAL AUTHORIZATIONS 3 III. RESERVATIONS OF SELLER 3 IIV. QUANTITY OF GAS 4 IV. NON-PERFORMANCE 5 V. DELIVERY PRESSURE 7 VI. POINTS OF DELIVERY AND OWNERSHIP 7 VII. TERM OF AGREEMENT 8 VIII. PRICE 9 IX. QUALITY OF GAS 11 X. METERING AND MEASUREMENT 11 XI. BILLING AND PAYMENT 11 XII. TRANSPORTATION 13 XIII. GOVERNMENTAL REGULATIONS 14 XIV. FORCE MAJEURE 16 XV. WARRANTY OF TITLE 18 XVI. RESPONSIBILITY 18 XVII. GENERAL PROVISIONS 18 EXHIBIT A 23 GAS SALES AGREEMENT THIS AGREEMENT, effective as of the date set forth in Article VIII below, between as "Seller", and ATLANTA GAS LIGHT COMPANY, as "Buyer", W I T N E S S E T H : WHEREAS, Buyer is a local distribution company; and WHEREAS, Seller owns and\or purchases supplies of natural gas for resale; and WHEREAS, Buyer desires to purchase from Seller, and Seller desires to sell to Buyer natural gas in the quantities and upon the terms and conditions hereinafter set forth; NOW, THEREFORE, in consideration of the premises and mutual covenants herein contained, Buyer and Seller agree as follows: ARTICLE I DEFINITIONS 1.01 The following words and terms, wherever used in this contract, shall have the meanings set forth below: (a) Subject to the provisions of Section 7.02 herein, "A" Receipt Point(s) shall mean those receipt points on Southern Natural Gas Company's pipeline system at which Seller has a firm obligation to deliver the quantity requested by Buyer up to the applicable maximum nomination quantity. The "A" Receipt Point(s) and the corresponding maximum nomination quantity are set forth on Exhibit "A" attached hereto and incorporated herein for all purposes. (b) "A-1" Receipt Points shall mean all receipt points (other than those "A" Receipt Points identified on Exhibit A of this contract.) on Southern's system (including Seller's Supply Pool No. ). (c) "BTU" shall mean British Thermal Unit which is the amount of heat required to raise the temperature of one pound of water from 59 degrees Fahrenheit to 60 degrees Fahrenheit, measured with respect to gas at a pressure of 14.73 psia and saturated with PAGE 1 water vapor. BTU values for purposes of payment, however, shall be assumed to be measured on a dry basis. (d) "Business day" shall mean each day of the week, other than Saturday and Sunday, which is not a holiday recognized by Southern. (e) "Buyer's city gate" shall mean any of the interconnection(s) of the facilities of Buyer and Southern. (f) "Buyer's Transportation Agreement" shall mean Buyer's agreement(s) with Southern, as may be in effect from time to time, for transportation of gas from the "A" and/or "A-1" Receipt Points to Buyer's city gate. (g) "Daily Contract Maximum" or "DCM" shall, subject to the other terms and provisions of this Contract, be equal to of gas per day inclusive of any gas retained by Southern for compressor fuel and line loss makeup. The parties understand that the gas so retained may change from time to time during the term of this contract. (h) "Day" shall mean a period beginning at 7:00 a.m. (Central Time) on a calendar day and ending at 7:00 a.m. (Central Time) on the next calendar day. (i) "Dekatherm" or "dt" shall mean the quantity of heat energy which is one (1) MMBtu. (j) "FERC" shall mean Federal Energy Regulatory Commission. (k) "FERC approved tariffs" shall mean a compilation of all of the effective rate schedules of a natural gas company and a copy of each form of service agreement as required by Section 154.1 et seq of FERC's Rules and Regulations promulgated under the Natural Gas Act. (l) "Gas" or "natural gas" shall include casinghead gas produced with crude oil, natural gas from gas wells, coalbed methane gas, synthetic gas, coal gasification gas and residue gas resulting from processing any of the foregoing. (m) "Mcf" shall mean one thousand (1,000) cubic feet of natural gas and "MMcf" shall mean one million (1,000,000) cubic feet of natural gas. (n) "MMBTU" shall mean one million (1,000,000) British Thermal Units. PAGE 2 (o) "Month" shall mean a period beginning at 7:00 a.m. (Central Time) on the first day of a calendar month and ending at 7:00 a.m. (Central Time) on the first day of the next calendar month. (p) "Normalized Firm Load" shall mean the total average daily throughput for Buyer's firm service customers weather normalized in accordance with the normal heating degree days on the basis of ten (10) year normal weather. (q) "Southern" shall mean Southern Natural Gas Company as transporter under Buyer's Transportation Agreements. (r) "Third party seller(s)" shall mean the party or parties from whom Seller purchases gas. (s) "Wellhead Contracts" shall mean all of the firm gas sales agreements between Buyer and its suppliers entered . (t) "Year" shall mean a period of three hundred sixty-five (365) consecutive days with a one day adjustment for leap years. ARTICLE II GOVERNMENTAL AUTHORIZATIONS 2.01 Each of the parties hereto agrees to proceed with diligence in a good faith effort to obtain, cause to be obtained or to assist the other party in obtaining all such governmental authorizations as may be necessary to enable each party to perform or cause to be performed its obligations under this contract. Each party shall promptly notify the other party in writing when it has obtained or caused to be obtained all the governmental authorizations necessary to its ability to perform under this contract. ARTICLE III RESERVATIONS OF SELLER 3.01 Subject to the other terms and provisions of this contract, Seller expressly reserves unto itself the right, at its sole cost and expense, to separate and extract liquid and liquefiable hydrocarbons, other than methane, from the gas delivered hereunder upstream of Buyer's city gate, together with such methane as cannot be separated from the ethane and heavier PAGE 3 hydrocarbons separated or extracted from the gas, provided that Seller, by such extraction, shall not reduce the total heating value per cubic foot below a level acceptable to Southern and provided that by such extraction the gas will not be rendered incapable of meeting the quality specifications described in Article X. All liquid and liquefiable hydrocarbons so recovered shall be owned and disposed of by Seller. Notwithstanding Article XVII hereof, Seller agrees to indemnify and hold Buyer harmless from any and all claims, liability, damages, and expenses which may occur or be asserted by reason of Seller's processing of gas hereunder. 3.02 In the event Seller exercises its right to process the gas delivered hereunder, Seller agrees to make up, at mutually agreeable point(s), gas quantities in kind at no cost, risk, or expense to Buyer, attributable to plant volume reduction (PVR) resulting from such processing. ARTICLE IV QUANTITY OF GAS 4.01 Subject to the other terms and provisions of this contract, beginning on the effective date of this Agreement, and daily throughout the term hereof, Seller agrees to make available to Buyer and Buyer agrees to nominate and purchase at the "A" Receipt Points a quantity of gas equal to the Daily Contract Maximum ("DCM"). For purposes of this contract, Buyer shall be deemed to have received and purchased a quantity of gas equal to the quantity nominated by Buyer hereunder and confirmed and scheduled by Southern ("Confirmed Nominated Quantity") unless Buyer is limited by Southern to deliveries at Buyer's city gate equal to the actual quantity delivered at the applicable "A" and/or "A-1" Receipt Point(s). In the event actual receipts at the "A" and/or "A-1" Receipt Point(s) vary from the Confirmed Nominated Quantity, Seller shall be responsible pursuant to Article XIII, for any penalties or charges (including cash-out costs) incurred under Buyer's Transportation Agreement as a result of such variance. 4.02 Seller expressly warrants and agrees that it will on the effective date hereof and thereafter for so long as this contract remains in effect have available for sale and delivery hereunder, sufficient gas to meet on each day Seller's obligation to deliver the DCM. PAGE 4 4.03 If Seller is unable to deliver the nominated contract quantities up to the DCM at the "A" Receipt Points on any day, Seller will notify Buyer of such deficiency by telephone and by facsimile machine as soon as possible and Seller will deliver deficiency quantities from Seller's supplies that are not committed to other buyer(s) under long term firm sales agreements located behind "A-1" Receipt Points. In such event Seller will supply Buyer such deficiency quantities, up to the volume for which Buyer can obtain transportation capacity on Southern, as are available at "A-1" Receipt Points on a pro rata basis with all of Seller's other firm sales customers prior to making any interruptible sales. Any such deficiency quantities scheduled and delivered at "A-1" Receipt Points shall be credited against Seller's delivery obligation under Section 4.01 above. 4.04 Notwithstanding anything herein to the contrary, Seller shall not, on any day, deliver to Buyer at any "A" Receipt Point a quantity of gas less than Buyer's pro rata share of Buyer's supply at such "A" Receipt Point. For purposes of this provision Buyer's pro rata share shall equal [(X/Y) x Z] where X equals the quantity of gas nominated by Buyer hereunder at the applicable "A" Receipt Point, Y equals the total quantity nominated by all of Seller's firm sales customers with contracts utilizing the applicable "A" Receipt Point as a firm point of delivery thereunder and Z equals the total quantity of gas that Seller is able to deliver at the applicable "A" Receipt Point on such day. ARTICLE V NON-PERFORMANCE 5.01 (a) If on any day Seller fails to deliver any portion of the gas requested by Buyer for delivery in accordance with Article IV (including any such failure attributable to capacity constraints at "A-1" Receipt Points unless such deliveries were being made at "A-1" Receipt Points due to lack of transportation capacity at "A" Receipt Point(s)), Buyer, upon notification of such deficiency from Seller, shall use due diligence to replace such gas with gas from other sources. If Buyer is able to replace all or a portion of such gas with gas from other sources (Replacement Gas Quantities), then Seller shall pay to Buyer, without prejudice to other PAGE 5 remedies available to Buyer for such failure to deliver replacement costs in an amount equal to (i) the difference between (a) the effective price per dekatherm (including the applicable Commodity Price) that would have been applicable to such gas hereunder and (b) the weighted average price per dekatherm of the Replacement Gas reasonably utilized by Buyer on the day Seller failed to deliver hereunder, multiplied by (ii) the total volume of Replacement Gas Quantities. (b) If on any day Seller fails to deliver any portion of the gas requested by Buyer for delivery in accordance with Article IV (including any such failure attributable to capacity constraints at "A-1" Receipt Points unless such deliveries were being made at "A-1" Receipt Points due to lack of transportation capacity at "A" Receipt Point(s)), and if Buyer, after receiving notification of such deficiency, is unable, having used due diligence, to replace all or any portion of such gas from other sources (Unreplaced Gas Quantities) on the day on which the deficiency occurred, then Seller shall pay to Buyer, without prejudice to other remedies available to Buyer for such failure to deliver, costs in an amount equal to the product of (i) the weighted average price per dekatherm of the fuel reasonably utilized by Buyer on the day Seller failed to deliver hereunder, and (ii) the volume of Unreplaced Gas Quantities. In exercising due diligence to obtain replacement fuel, Buyer shall not be required to utilize available underground storage or LNG supplies if, in Buyer's judgment, such utilization would be imprudent. (c) Anything to the contrary notwithstanding, the provisions of Section 5.01(a) and (b) shall not apply if Seller's failure to deliver is due to a force majeure condition or an adverse governmental action, as such terms are defined below, or the failure of Buyer to provide sufficient transportation capacity pursuant to Section 13.02. PAGE 6 ARTICLE VI DELIVERY PRESSURE 6.01 Seller shall deliver natural gas to Buyer at Southern's line pressure at the point(s) of receipt designated in Article VII hereof. ARTICLE VII POINTS OF DELIVERY AND OWNERSHIP 7.01 Gas purchased and sold hereunder shall be delivered by Seller to Buyer at the applicable "A" or "A-1" Receipt Point(s). Title shall pass to Buyer at the time of delivery. 7.02 PAGE 7 ARTICLE VIII TERM OF AGREEMENT 8.01 Subject to the other provisions hereof, this contract shall be effective on and shall remain in full force and effect for a primary term through . 8.02 If, at the end of the primary term, Seller is willing to extend the term of this contract for a successive term, Seller shall give Buyer written notice thereof at least 90 days prior to the termination date of this Contract, such notice to include the volume of gas Seller will make available to Buyer and the term of such sale. Buyer will have 60 days from the date of such notice to give Seller written notice as to whether or not it is agreeable to such extension. 8.03 PAGE 8 ARTICLE IX PRICE 9.01 The amount payable by Buyer each month shall be equal to the total of the Confirmed Nominated Quantities for the applicable month multiplied by the "Commodity Price" or the "Alternate Commodity Price" applicable in such month, adjusted pursuant to Article XII below for any cash-out payments that may apply. The Commodity Price shall be established monthly by negotiation pursuant to Section 9.02 and is subject to adjustment pursuant to Section 9.05. If the parties are unable to agree on the Commodity Price, the Alternate Commodity Price, determined in accordance with Section 9.03, shall apply. 9.02 Upon the written request of either party to the other, each month the parties shall negotiate in good faith to establish the Commodity Price applicable in the ensuing month (the Delivery Month). If the parties agree on the Commodity Price for any month on or before the 5th business day prior to the first day of such month (the "Agreement Due Date"), Seller shall no later than one day after such agreement is reached send to Buyer a written confirmation of such price ("Confirmation"). 9.03 If Buyer and Seller are unable to agree on the Commodity Price for the Delivery Month on or before the Agreement Due Date, the Alternate Commodity Price shall be applicable in such month and shall be equal to the arithmetic average of the following: (a) (b) PAGE 9 9.04 Upon the written request of either party to the other, Buyer and Seller shall promptly enter into good faith negotiations to determine whether the Section 9.03 procedure for establishing the Alternate Commodity Price should be modified to reflect the prices of natural gas in futures contracts, such as those traded on the New York Mercantile Exchange, or some mutually agreeable representative pricing mechanism, in order to achieve an Alternate Commodity Price that most accurately tracks the price of spot gas in the then-current gas market delivered to the Receipt Points. Pending the outcome of any such negotiation, the Alternate Commodity Price shall be determined in accordance with Section 9.03. If the negotiations result in a mutually agreed upon revised method for determining the Alternate Commodity Price, the revised method shall become effective for the Delivery Month first following the month during which the agreement was reached. If the negotiations do not result in a mutually agreed upon revised method, the matter shall not be subject to arbitration and the Section 9.03 procedures shall remain in effect. 9.05 PAGE 10 ARTICLE X QUALITY OF GAS 10.01 The gas delivered hereunder shall be merchantable gas which shall comply with the quality requirements stated in Southern's FERC Approved Tariff. ARTICLE XI METERING AND MEASUREMENT 11.01 The unit of measurement of the gas shall be one dekatherm of gas. The gas delivered hereunder shall be measured and metered by Southern at the applicable "A" and/or "A-1" Receipt Point(s) in accordance with the provisions, specifications and standards set forth in Southern's FERC Approved Tariff. Each party shall preserve or cause to be preserved for at least one (1) year all test data, charts, allocation statements and other similar records available to it, unless a longer period is prescribed by applicable regulation. ARTICLE XII BILLING AND PAYMENT 12.01 On or before the tenth (10th) day of each month, Seller shall render to Buyer a statement showing the Confirmed Nominated Quantity of gas for the preceding month and the Price therefore either (i) reduced by any cash-out payments due Southern for any portion of the Confirmed Nominated Quantity not tendered by Seller at the applicable "A" or "A-1" Receipt Point(s), or (ii) increased by any cash-out payments received by Buyer under Southern's tariff for any gas delivered to Buyer at the "A" or "A-1" Receipt Points in excess of the Confirmed Nominated Quantity. Buyer shall pay Seller the amount of such statement on or before the twentieth (20th) day of each month or the tenth (10th) day following the date of Buyer's receipt of such statement, whichever is later. PAGE 11 12.02 On or before the fifth (5th) day of each month following a month during which Buyer purchased replacement gas and/or fuel, Buyer shall render to Seller a statement showing the amount and cost of such replacement quantities. Replacement costs owed by Seller pursuant to the terms of this contract for any month shall be credited against Buyer's statement in the next month and against statements in subsequent month(s) as necessary. 12.03 If either party fails to pay any statement in whole or in part when due, in addition to any other rights or remedies available to the invoicing party, interest at a rate equal to the applicable average prime rate for producer refunds established by the FERC from time to time as prescribed at 18 C.F.R. 154.102(c) (2) (iii) (A) shall accrue on unpaid amounts, including on unpaid interest compounded daily, beginning on the payment due date of Seller's statement and ending when such statement is paid. The preceding provisions of this Article XII notwithstanding, if a good faith dispute arises between Buyer and Seller concerning a statement, Buyer shall pay that portion of the statement not in dispute on or before such due date, both parties shall continue to perform their obligations under the contract during such dispute, and, upon the ultimate determination of the disputed portion of the statement, Buyer shall pay Seller the remaining amount owed plus the interest accrued thereon. 12.04 Each party shall have the right to examine the books and records of the other party to the extent necessary, given reasonable notice, to verify calculations of all charts, allocation statements and other documents used in the buy/sell transaction, measurement, and/or transportation of gas delivered hereunder (to the extent such charts are available to the party) within ten (10) days after the last charge for each billing period is received by Buyer. PAGE 12 ARTICLE XIII TRANSPORTATION 13.01 Seller shall arrange and pay for the transportation of the gas sold hereunder to the applicable "A" or "A-1" Receipt Point(s). Any provision herein to the contrary notwithstanding, as part of Seller's obligation to arrange such transportation, Seller shall indemnify and hold Buyer harmless from all injuries, claims, liabilities and damages irrespective of the cause thereof (other than Buyer's gross negligence) which arise out of or in connection with such transportation. 13.02 Buyer shall arrange and pay for the transportation of the gas purchased hereunder from the applicable "A" or "A-1" Receipt Point(s) to Buyer's City Gate. If Buyer is unable to obtain transportation capacity on Southern at "A" Receipt Points, then Seller shall make gas available to Buyer at "A-1" Receipt Points in accordance with Section 4.06. 13.03 All deliveries of gas by Seller and receipts by Buyer under this contract shall be made in accordance with Southern's FERC approved tariff. Buyer will nominate quantities for receipt under Buyer's Transportation Agreement(s) with Southern at the applicable "A" or "A-1" Receipt Point(s), hereunder in an amount equal to the DCM. Buyer will timely notify Seller if Southern does not confirm any portion of the quantities nominated for receipt at such "A" or "A-1" Receipt Point(s). As set forth in Section 4.01, Buyer shall be deemed to have received and purchased a quantity of gas equal to the Confirmed Nominated Quantity; provided that Buyer is not prohibited by Southern from taking delivery at Buyer's City Gate of a quantity of gas equal to the Confirmed Nominated Quantity. 13.04 Subject to Sections 13.05, 13.06, and 13.07 below, the parties agree that any costs, expenses, or losses (including any cash-out payments or imbalance penalties) under Buyer's Transportation Agreement due to (a) imbalances at the "A" or "A-1" Receipt Point(s) shall be the responsibility of Seller and (b) imbalances at Buyer's City Gate shall be the responsibility of Buyer. PAGE 13 Buyer and Seller shall cooperate to remedy any transportation discrepancy for quantities delivered under this contract. 13.05 Without waiver of any other remedies, in the event any charges, penalties, costs or expenses are incurred or payable to Southern as a result of Seller's failure to give Buyer timely notice of any increase or decrease in daily quantities to be delivered at any Receipt Point from the quantities nominated and scheduled by Buyer in accordance with Article IV, Seller shall be responsible for such charges, penalties, costs or expenses. 13.06 Without waiver of any other remedies, in the event any charges, penalties, costs or expenses are incurred or payable to Southern as a result of Buyer's failure to give Seller timely notice of any increase or decrease in daily quantities to be accepted at any point of delivery or redelivery point from the quantities nominated and scheduled by Buyer in accordance with Article IV, Buyer shall be responsible for such charges, penalties, costs or expenses. 13.07 For the purpose of Sections 13.05 and 13.06, notice will be deemed timely if, under the circumstances, it should have given the party receiving such notice reasonably sufficient time to notify Southern of such changes in quantities by the time required under the terms of Southern's FERC Approved Tariff. ARTICLE XIV GOVERNMENTAL REGULATIONS 14.01 This contract shall be subject to all valid applicable state, federal and local laws, rules and regulations; provided, that either party hereto shall be entitled to regard all laws, rules and regulations issued by any federal or state regulatory body as valid and may act in accordance therewith until such time as the same may be held invalid by final judgment in a court of competent jurisdiction. Nothing herein shall be taken to preclude Buyer or Seller or both from contesting the validity of any such law(s), rule(s) or regulation(s). PAGE 14 14.02 In the event that the FERC, Congress or any other governmental body asserting jurisdiction ("governmental authority") (i) imposes price controls on natural gas (ii) prohibits or prevents any of the transactions described in (a) this contract, (b) any agency agreement between Buyer and Seller or (c) any transportation agreement between Southern and Buyer or Seller covering the transportation of the gas delivered hereunder; (iii) directly or indirectly materially and adversely conditions such transactions in a form that is unacceptable in the sole judgment of the party affected thereby, or (iv) adopts any law, action, rule or order which directly or indirectly, materially and adversely affects a party's rights or obligations hereunder (each of the events described above being referred to herein as an "adverse governmental action"), or if a governmental authority declares that an adverse governmental action shall be effective on a future date, then the party affected by such adverse governmental action (the "affected party") shall notify the other party of such adverse governmental action. Buyer and Seller shall then promptly commence negotiations in good faith in order to equitably adjust the rights and obligations of the parties in the light of such adverse governmental action. If the parties are unable to reach agreement, the affected party may terminate this contract at any time on or after the effective date of such adverse governmental action by giving written notice of termination to the other party. However, if such adverse governmental action becomes effective in any month from October through April inclusive, upon Buyer's request, Seller shall continue to deliver gas hereunder until the following May 1, provided that: (i) Seller is able to obtain sufficient supplies of gas to satisfy Buyer's requirements hereunder without affecting Seller's ability to fulfill Seller's other firm sales contract obligations that are not suspended by such adverse governmental action, and (ii) Buyer or Seller can arrange the necessary transportation, and (iii) Buyer shall agree in writing to keep Seller whole on a monthly basis with respect to all increased costs Seller may incur by so continuing to perform this contract. Any provision herein to the contrary notwithstanding, the affected party may terminate its performance of this contract effective immediately if continued performance hereof would cause such party to be in violation of any enforceable law, action, rule, order or regulation under this article. PAGE 15 14.03 Buyer shall use due diligence to maximize its sales of gas in its franchise area on reasonable terms and conditions. Notwithstanding Buyer's due diligence, Buyer's ability to resell gas available for purchase under this contract may be adversely affected by such factors as conservation, and competition from other sellers of natural gas (including by-pass). If, at any time, after the effective date hereof, Buyer determines that it no longer requires some or all of the gas available to it under this contract because of loss of firm load or loss of load due to by-pass, Buyer may reduce the DCM by an amount equal to or less than (a) in the event of the loss of firm load, the product of (i) the difference between Buyer's Normalized Firm Load as of September 30, 1994 and Buyer's Normalized Firm Load as of the then most recent September 30, and (ii) a fraction the numerator of which shall be the DCM under this contract and the denominator of which shall be the total of the DCM's under the Wellhead Contracts then in effect, and/or (b) in the event of loss of load due to by-pass(es), the product of (i) the total volume attributable to the by-pass(es) and (ii) a fraction the numerator of which shall be the DCM under this contract and the denominator of which shall be the total of the DCM's under the Wellhead Contracts then in effect. ARTICLE XV FORCE MAJEURE 15.01 No failure or delay in performance, whether in whole or in part, by either Seller or Buyer shall be deemed to be a breach hereof when such failure or delay is occasioned by or due to any acts of God, strikes, lockouts, or other industrial disturbances, acts of the public enemy, sabotage, wars, blockades, insurrections, riots, epidemics, landslides, lightning, earthquakes, floods, storms, fires, washouts, arrests and restraints of rulers and peoples, civil disturbances, explosions, breakage or accident to machinery or lines of pipe, hydrate obstructions of lines of pipe, lack of pipeline capacity due to a force majeure event experienced by persons transporting or storing gas for Buyer or Seller, repairs, maintenance, improvement, replacement or alterations to plants, lines of pipe or related facilities, partial or complete failure to perform by persons transporting or storing gas for Buyer or Seller, inability of either party to obtain necessary PAGE 16 machinery, materials or permits or to obtain easements or rights of way, freezing of a well or delivery facility, well blowouts, craterings, the act of any court or governmental authority, or any other cause, whether of the kind herein enumerated or otherwise, not reasonably within the control of the party claiming suspension and which, by the exercise of due diligence, such party is unable to prevent or overcome; provided, however, that the settlement of strikes or lockouts shall be entirely within the discretion of the party having the difficulty, and the requirement that any force majeure shall be remedied with the exercise of diligence shall not require the settlement of strikes or lockouts by acceding to the demands of opposing parties when such course is inadvisable in the discretion of the party having difficulty. Under no circumstances shall failure of the gas supply reserves being purchased by Seller be deemed an event of force majeure. 15.02 Such causes or contingencies affecting the performance of this contract by any party hereto, however, shall not relieve such party of liability in the event of its negligence or in the event of its failure to remedy the situation and remove the cause in an adequate manner and with all reasonable dispatch. Nor shall such causes or contingencies affecting the performance of this contract relieve any party from its obligations to make payments of amounts when due. Nor shall such causes or contingencies relieve any party of liability, unless such party shall give notice and full particulars of the same in writing or by telegraph to the other party as soon as possible after the occurrence relied on, and like notice shall be given upon termination of such force majeure conditions. 15.03 If, due to force majeure, the gas available for delivery by Seller is insufficient to meet all of Seller's firm sales obligations to Buyer then deliveries will be made in accordance with Section 5.01(c) of this Agreement. PAGE 17 ARTICLE XVI WARRANTY OF TITLE 16.01 Seller warrants title to all gas delivered by it, that it has the right to sell or deliver the same, and that such gas is free from liens and adverse claims of every kind. Seller shall pay or cause to be paid all taxes and other sums due on the gathering and handling of the gas delivered by Seller. Seller shall indemnify and save Buyer harmless from and against all suits, actions, damages, costs and expenses arising from or out of any breach of this provision. ARTICLE XVII RESPONSIBILITY 17.01 As between the parties hereto, Seller shall be deemed to be in exclusive control and possession of the gas sold hereunder until such gas has been delivered to the applicable "A" or "A-1" Receipt Point(s), after which point Buyer shall be deemed to be in exclusive control and possession of such gas. 17.02 The party deemed to be in control and possession of the gas sold hereunder shall be responsible for and shall indemnify the other party with respect to any claims, liabilities or damages arising therefrom when such gas is in that party's control and possession. ARTICLE XVIII GENERAL PROVISIONS 18.01 In the event the Third Party Seller at the "A" Receipt Point(s) exercises its right, pursuant to Section 2.2 of Article II of the sales contract between such Third Party Seller and Seller, to have gas quantities permanently released from such sales contract between such Third Party Seller and Seller, then Seller shall have the right upon sixty (60) days prior written notice, to reduce the DCM hereunder by the volume set forth in Seller's notice; provided, however, that said reduction shall not exceed the volume released by the Third Party Seller and shall constitute a pro rata share of the total reduction made by Seller under all firm sales contracts as a result thereof. PAGE 18 18.02 Upon sixty (60) days notice from Buyer, Seller shall provide to Buyer (subject to Section 18.08) on the next anniversary of the effective date hereof, a statement of the estimated average deliverability for the next year, to the best of Seller's knowledge, information and belief at the time, of (a) (i) Seller's gas supplies located behind the "A" Receipt Points and (ii) the total of Seller's firm gas sales commitments with a term of one year or longer behind the same "A" Receipt Points, and (b) (i) Seller's gas supplies located behind "A-1" Receipt Points and (ii) the total of Seller's firm gas sales commitments with a total of one year or longer behind the same "A-1" Receipt Points. 18.03 Except as otherwise provided in this contract, any notice, request, demand, payment or statement provided for in this contract shall be in writing and shall be (a) mailed by registered or certified mail and deemed duly delivered when mailed or (b) delivered by any type of telecommunication or delivered in hand, to the address of the parties hereto as follows: BUYER: For Notices (by mail): Atlanta Gas Light Company P. O. Box 4569 Atlanta, Georgia 30302-4569 Attention: Mr. Stephen J. Gunther For Notices (by telephone): (404) 584-3896 For Notices (by facsimile machine): Facsimile Machine: (404) 584-3703 For Notices (by courier): Atlanta Gas Light Company 303 Peachtree Street, N.E. Atlanta, Georgia 30308-3249 Attention: Mr. Stephen J. Gunther For Payment and Billing (by mail): Atlanta Gas Light Company P. O. Box 4569 Atlanta, Georgia 30302-4569 Attention: Gas Supply Analyst PAGE 19 For Payment and Billing (by courier): Atlanta Gas Light Company 303 Peachtree Street, N.E. Atlanta, Georgia 30308-3249 Attention: Gas Supply Analyst SELLER: For Notices and Billing (by mail): For Notices (by facsimile machine): For Payment: or to such other address as either party shall from time to time designate by correspondence to the other party. 18.04 This contract shall not be assignable by either party in whole or in part, except with the consent of the other party, which shall not be unreasonably withheld. This contract shall inure to the benefit of and be binding upon permitted successors and assigns. 18.05 This contract is for the sole and exclusive benefit of the parties hereto. Nothing expressed or implied herein is intended to benefit any other person, firm or corporation not a party hereto and none of such other persons shall have any legal or equitable right, remedy or claim under this contract or under any provision hereof. 18.06 This agreement constitutes the entire contract between the parties pertaining to the subject matter hereof; supersedes all prior agreements and understandings, whether oral or written, which the parties may have in connection herewith; and may not be modified except by PAGE 20 written agreement of the parties. The parties and their legal counsel have cooperated in the drafting of this contract and it shall therefore be deemed their joint work product and shall not be construed against either party by reason of its preparation. 18.07 THE INTERPRETATION AND PERFORMANCE OF THIS CONTRACT SHALL BE IN ACCORDANCE WITH AND CONTROLLED BY THE LAWS OF THE STATE OF GEORGIA, EXCEPT FOR THE CHOICE OF LAW DOCTRINE THAT REFERS TO THE LAWS OF ANOTHER JURISDICTION. 18.08 The parties acknowledge that this contract and all documents and information provided to either party pursuant to this contract contain commercially sensitive information and each party agrees that it will not, without the written consent of the other, disclose to any third party, this contract or the terms or provisions thereof except to the extent, and only to the extent, that disclosure is required (a) by law or by a court or administrative agency having jurisdiction over the disclosing party; (b) to obtain transportation of the gas purchased and sold hereunder; or (c) in the course of an audit of the disclosing party, and further provided that upon learning that disclosure is required by law or by a court or administrative agency, the party required to make such disclosure shall immediately notify the other party and shall take all reasonable steps requested by such other party to limit the extent of such disclosure. 18.09 No waiver by either party of any one or more defaults by the other in the performance of any provision of this contract shall operate or be construed as a waiver of any future default or defaults, whether of a like or of a different character. 18.10 The Exhibit(s) attached hereto are incorporated herein by reference and made a part of this contract for all purposes. 18.11 The descriptive headings of the provisions of this contract are formulated and used for convenience only and will not be deemed to effect the meaning or construction of any such provision. PAGE 21 IN WITNESS WHEREOF, this instrument is executed as of the day and year first above written. WITNESS: Its ______________________________ Its _______________________________ WITNESS: ATLANTA GAS LIGHT COMPANY Its: /s/ Charles R. Sanders /s/ Stephen J. Gunther Title: Vice President PAGE 22 EXHIBIT "A" "A" RECEIPT POINT(S) Maximum SNG Point Description SNG Meter No. Nomination Quantity PAGE 23 -----END PRIVACY-ENHANCED MESSAGE-----