-----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, CQb9O/FdClq30pmrtDRWIXKnIQGmma5LY3hjOPxemKrZmWfKtpP9TwJIoDCsAs6+ Tvpbi8GOTaqBymtQiqsyTg== 0000008154-97-000012.txt : 19970815 0000008154-97-000012.hdr.sgml : 19970815 ACCESSION NUMBER: 0000008154-97-000012 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 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: 97662972 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 10-Q 1 ATLANTA GAS LIGHT COMPANY FORM 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 June 30, 1997 Commission Registrant; State of Incorporation; I.R.S. Employer File Number Address; and Telephone Number Identification Number 1-9905 ATLANTA GAS LIGHT COMPANY 58-0145925 (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. Yes x No Indicate the number of shares outstanding of each of the issuer's classes of common stock. As of June 30, 1997, 55,352,415 shares of Common Stock, $5.00 Par Value, were outstanding, all of which are owned by AGL Resources Inc. ATLANTA GAS LIGHT COMPANY Quarterly Report on Form 10-Q For the Quarter Ended June 30, 1997 Table of Contents Item Page Number Number PART I -- FINANCIAL INFORMATION 1 Financial Statements Condensed Consolidated Income Statements 3 Condensed Consolidated Balance Sheets 4 Condensed Consolidated Statements of Cash Flows 6 Notes to Condensed Consolidated Financial Statements 7 2 Management's Discussion and Analysis of Results of Operations and Financial Condition 12 PART II -- OTHER INFORMATION 1 Legal Proceedings 19 5 Other Information 19 6 Exhibits and Reports on Form 8-K 24 SIGNATURES 25 Page 2 of 25 Pages PART I -- FINANCIAL INFORMATION Item 1. Financial Statements ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED INCOME STATEMENTS (UNAUDITED) FOR THE THREE MONTHS, NINE MONTHS AND TWELVE MONTHS ENDED JUNE 30, 1997 AND 1996 (MILLIONS)
Three Months Nine Months Twelve Months ----------------------------------------------------------------- 1997 1996 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------------------- Operating Revenues ................ $ 206.4 $ 240.5 $ 1,041.8 $ 1,048.1 $ 1,211.3 $ 1,156.6 Cost of Gas ....................... 109.0 140.6 622.2 637.4 703.5 666.4 - -------------------------------------------------------------------------------------------------------- Operating Margin .................. 97.4 99.9 419.6 410.7 507.8 490.2 - -------------------------------------------------------------------------------------------------------- Other Operating Expenses .......... 84.8 81.2 259.1 253.2 339.4 335.1 Income Taxes ...................... 0.4 2.2 45.2 44.5 44.2 40.4 - -------------------------------------------------------------------------------------------------------- Operating Income .................. 12.2 16.5 115.3 113.0 124.2 114.7 - -------------------------------------------------------------------------------------------------------- Other Income Other income and deductions . 2.2 0.6 6.9 8.9 10.6 8.3 Income taxes ................ (0.9) (0.4) (2.6) (3.4) (4.0) (3.2) - -------------------------------------------------------------------------------------------------------- Total other income-net .. 1.3 0.2 4.3 5.5 6.6 5.1 - -------------------------------------------------------------------------------------------------------- Income Before Interest Charges .... 13.5 16.7 119.6 118.5 130.8 119.8 Interest Charges .................. 12.4 11.7 39.8 36.9 52.0 47.9 - -------------------------------------------------------------------------------------------------------- Net Income ........................ 1.1 5.0 79.8 81.6 78.8 71.9 - -------------------------------------------------------------------------------------------------------- Dividends on Preferred Stock ...... 1.1 1.1 3.3 3.3 4.4 4.4 - -------------------------------------------------------------------------------------------------------- Earnings Available for Common Stock $ 0.0 $ 3.9 $ 76.5 $ 78.3 $ 74.4 $ 67.5 ========================================================================================================
See notes to condensed consolidated financial statements. Page 3 of 25 Pages ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (MILLIONS)
September June 30, 30, ---------------------- --------- 1997 1996 1996 ASSETS (Unaudited) - ---------------------------------------------------------------------------------------- Utility Plant ....................................... $ 2,041.5 $ 1,999.2 $ 1,969.0 Less accumulated depreciation ................. 638.7 619.3 607.8 - ---------------------------------------------------------------------------------------- Utility plant-net ......................... 1,402.8 1,379.9 1,361.2 - ---------------------------------------------------------------------------------------- Current Assets Cash and cash equivalents ..................... 0.8 1.3 7.9 Receivables (less allowance for uncollectible accounts of $4.7 at June 30, 1997, $3.1 at June 30, 1996, and $2.7 at September 30, 1996) ................................. 112.7 130.1 91.3 Inventories Natural gas stored underground ............ 95.4 72.7 144.0 Liquefied natural gas ..................... 15.1 9.7 16.8 Materials and supplies .................... 7.4 8.1 7.9 Other ..................................... 0.3 0.1 Deferred purchased gas adjustment ............. 9.0 4.7 Other ......................................... 7.3 10.1 10.3 - ---------------------------------------------------------------------------------------- Total current assets ...................... 247.7 232.3 283.0 - ---------------------------------------------------------------------------------------- Deferred Debits and Other Assets Unrecovered environmental response costs ...... 44.4 36.0 38.0 Unrecovered integrated resource plan costs .... 4.5 9.5 10.0 Receivable from AGL Resources - prepaid pension 3.1 Other ......................................... 36.5 34.4 36.0 - ---------------------------------------------------------------------------------------- Total deferred debits and other assets .... 88.5 79.9 84.0 - ---------------------------------------------------------------------------------------- Total Assets ........................................ $ 1,739.0 $ 1,692.1 $ 1,728.2 ========================================================================================
See notes to condensed consolidated financial statements. Page 4 of 25 Pages ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (MILLIONS, EXCEPT PAR VALUE DATA)
September June 30, 30, --------------------- --------- 1997 1996 1996 CAPITALIZATION AND LIABILITIES (Unaudited) - ------------------------------------------------------------------------------------------------- Capitalization Common stock, $5 par value, shares issued and outstanding of 55.4 at June 30, 1997, June 30, 1996, and September 30, 1996 ............................. $ 276.8 $ 276.8 $ 276.8 Premium on capital stock ............................... 166.2 166.2 166.2 Earnings reinvested .................................... 86.0 110.9 59.7 - ------------------------------------------------------------------------------------------------- Total common stock equity .......................... 529.0 553.9 502.7 - ------------------------------------------------------------------------------------------------- Preferred stock, cumulative $100 par or stated value, shares issued and outstanding of 0.6 at June 30, 1997, June 30, 1996, and September 30, 1996 ........ 44.5 58.5 58.5 Long-term debt ......................................... 584.5 554.5 554.5 - ------------------------------------------------------------------------------------------------- Total capitalization ............................... 1,158.0 1,166.9 1,115.7 - ------------------------------------------------------------------------------------------------- Current Liabilities Redemption requirements on preferred stock ............. 14.3 0.3 0.3 Short-term debt ........................................ 33.5 71.9 152.0 Accounts payable-trade ................................. 60.9 68.5 72.7 Payable to associated companies ........................ 57.2 1.9 2.7 Deferred purchased gas adjustment ...................... 3.4 Customer deposits ...................................... 29.1 27.8 27.8 Interest ............................................... 18.9 17.6 25.7 Taxes .................................................. 32.1 25.8 16.0 Other .................................................. 26.1 27.6 26.6 - ------------------------------------------------------------------------------------------------- Total current liabilities .......................... 272.1 244.8 323.8 - ------------------------------------------------------------------------------------------------- Long-Term Liabilities Accrued environmental response costs ................... 31.3 28.6 30.4 Payable to AGL Resources - accrued pension costs ....... 4.9 4.9 Payable to AGL Resources - accrued postretirement benefits costs ..................................... 36.7 34.7 36.2 Deferred credits ....................................... 60.4 62.6 60.9 - ------------------------------------------------------------------------------------------------- Total long-term liabilities ........................ 128.4 130.8 132.4 - ------------------------------------------------------------------------------------------------- Accumulated Deferred Income Taxes ............................ 180.5 149.6 156.3 - ------------------------------------------------------------------------------------------------- Total Capitalization and Liabilities ......................... $ 1,739.0 $ 1,692.1 $ 1,728.2 =================================================================================================
See notes to condensed consolidated financial statements. Page 5 of 25 Pages ATLANTA GAS LIGHT COMPANY AND SUBISIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) FOR THE NINE MONTHS AND TWELVE MONTHS ENDED JUNE 30, 1997 AND 1996 (MILLIONS)
Nine Months Twelve Months ------------------ ------------------ 1997 1996 1997 1996 - -------------------------------------------------------------------------------------------- Cash Flows from Operating Activities Net income .................................. $ 79.8 $ 81.6 $ 78.8 $ 71.9 Adjustments to reconcile net income to net cash flow from operating activities Depreciation and amortization ........... 48.1 49.3 64.2 64.5 Deferred income taxes ................... 10.2 10.8 24.5 19.3 Noncash compensation expense ............ 2.1 2.4 Noncash restructuring costs ............. 1.0 Other ................................... (1.8) (1.7) (2.5) (2.2) Changes in certain assets and liabilities ... 88.8 (33.1) 43.4 (92.0) - -------------------------------------------------------------------------------------------- Net cash flow from operating activities 225.1 109.0 208.4 64.9 - -------------------------------------------------------------------------------------------- Cash Flows from Financing Activities Sale of common stock, net of expenses ....... 1.0 1.3 Short-term borrowings, net .................. (118.5) 20.9 (38.4) 71.9 Sale of long-term debt ...................... 30.0 30.0 Common stock dividends paid to parent ....... (45.3) (39.1) (60.0) (50.9) Preferred stock dividends ................... (3.3) (3.3) (4.4) (4.4) - -------------------------------------------------------------------------------------------- Net cash flow from financing activities (137.1) (20.5) (72.8) 17.9 - -------------------------------------------------------------------------------------------- Cash Flows from Investing Activities Utility plant expenditures .................. (94.5) (91.3) (135.3) (129.4) Investment in joint venture ................. (32.6) Nonutility capital expenditures ............. 1.1 1.6 Cost of removal, net of salvage ............. (0.6) (0.7) (0.8) 0.5 - -------------------------------------------------------------------------------------------- Net cash flow from investing activities (95.1) (90.9) (136.1) (159.9) - -------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents ......................... (7.1) (2.4) (0.5) (77.1) Cash and cash equivalents at beginning of year ................... 7.9 3.7 1.3 78.4 - -------------------------------------------------------------------------------------------- Cash and cash equivalents at end of year ......................... $ 0.8 $ 1.3 $ 0.8 $ 1.3 ============================================================================================ Supplemental Information Cash paid during the period for Interest ................................ $ 46.9 $ 44.9 $ 51.2 $ 49.0 Income taxes ............................ $ 19.1 $ 13.3 $ 23.7 $ 18.2
See notes to condensed consolidated financial statements. Page 6 of 25 Pages ATLANTA GAS LIGHT COMPANY AND SUBSIDIARIES NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) 1. Implementation of Holding Company Reorganization On March 6, 1996, following shareholder approval, Atlanta Gas Light Company (AGLC) completed a corporate restructuring in which a new company, AGL Resources Inc. (AGL Resources), became the holding company for AGLC, AGLC's wholly owned natural gas utility subsidiary, Chattanooga Gas Company (Chattanooga), and AGLC's nonregulated subsidiaries. The consolidated financial statements of AGLC include the financial statements of AGLC and Chattanooga and unless noted specifically or otherwise required by the context, references to AGLC include the operations and activities of AGLC and Chattanooga. During fiscal 1996 ownership of AGLC's nonregulated business, Georgia Gas Company (natural gas production activities), was transferred to AGL Energy Services, Inc. (AGL Energy Services). Ownership of AGLC's other nonregulated businesses, Georgia Gas Service Company (propane sales) and Trustees Investments, Inc. (real estate holdings), was transferred to AGL Investments, Inc. (AGL Investments). AGLC's interest in Sonat Marketing Company L.P. was transferred to AGL Gas Marketing, Inc., a wholly owned subsidiary of AGL Investments. The transfer of AGLC's nonregulated businesses to those subsidiaries of AGL Resources was effected through a noncash dividend of $45.9 million during fiscal 1996. AGL Resources Service Company (Service Company) was formed during fiscal 1996 to provide corporate support services to AGLC, AGL Resources and its other subsidiaries. The transfer of related assets and accumulated deferred income tax liabilities from AGLC to Service Company and other nonregulated subsidiaries of AGL Resources was effected through noncash dividends of $34.3 million during the fourth quarter of fiscal 1996 and $4.8 million during the first quarter of fiscal 1997. As a result of those noncash dividends, utility plant-net decreased by $48.4 million and accumulated deferred income tax decreased by $9.3 million. Expenses of Service Company are allocated to AGLC, AGL Resources and its other subsidiaries. 2. Interim Financial Statements In the opinion of management, 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. 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, 1996 and 1995. Certain 1996 amounts have been reclassified for comparability with 1997 amounts. 3. Earnings Since consumption of natural gas is dependent to a large extent on weather, the majority of AGLC's income is realized during the winter months. Earnings for three-month and nine-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 Page 7 of 25 Pages (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 of earnings for the twelve-month periods ended June 30, 1997 and 1996. 4. Environmental Matters 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 also three sites in Florida which have been investigated by environmental authorities in connection with which AGLC may be contacted as a potentially responsible party. In that regard, AGLC has learned that the U. S. Environmental Protection Agency (EPA) has conducted an Expanded Site Investigation at the former MGP site in Sanford, Florida and has concluded that MGP impacts are present in a nearby lake. The consequences of this finding have not been determined. AGLC's response to MGP sites in Georgia is proceeding under two state regulatory programs. First, AGLC has entered into consent orders with the Georgia Environmental Protection Division (EPD) with respect to four sites: Augusta, Griffin, Savannah and Valdosta. Under these consent orders, AGLC is obligated to investigate and, if necessary, remediate environmental impacts at the sites. AGLC has completed soil remediation at the Griffin site and expects to monitor groundwater for three to six years. Assessment activities are being conducted at Augusta and have been completed at Savannah. Those assessment activities are expected to be completed principally during fiscal 1997. In addition, AGLC has completed removal of the gas storage holder at the Augusta site. Second, AGLC's response to all Georgia sites is proceeding under Georgia's Hazardous Site Response Act (HSRA). AGLC submitted to EPD formal notifications relating to all of its nine owned MGP sites, and EPD had listed seven of those sites (Athens, Augusta, Brunswick, Griffin, Savannah, Valdosta and Waycross) on the Hazardous Site Inventory (HSI). EPD has not listed the Macon site on the HSI at this time. EPD also has listed the Rome site, which AGLC has acquired, on the HSI. Under the HSRA regulations, EPD has determined the four sites subject to consent orders require corrective action; EPD also has determined the Athens site requires corrective action and will determine whether corrective action is required at the three remaining sites (Brunswick, Rome and Waycross) in due course. In that respect, however, AGLC has submitted to EPD Compliance Status Reports (CSRs) for the Brunswick and Rome MGP sites, and AGLC has concluded that some degree of response action is likely to be required at those sites. AGLC has estimated that, under the most favorable circumstances reasonably possible, the future cost to AGLC of investigating and remediating the former MGP sites could be as low as $31.3 million. Alternatively, AGLC has estimated that, under reasonably possible unfavorable circumstances, the future cost to AGLC of investigating and remediating the former MGP sites could be as high as $117.3 million. Those estimates have been adjusted from the September 30, 1996 estimates to reflect settlements of property damage claims at certain sites. AGLC cannot at this time determine the range of costs that may be associated with investigation and cleanup of the lake near the Sanford MGP site, which costs may be material. Accordingly, the foregoing estimated range now excludes those costs and reflects only AGLC's current estimate of the range of costs for which cost recovery claims against AGLC are reasonably likely. In addition, those costs do not include other expenses, such as property damage claims and natural resource damage claims, for which AGLC may ultimately be held liable, but for which neither the existence nor the amount of such liabilities can be reasonably forecast. Within the stated range of $31.3 million to $117.3 million, no amount within the range can be reliably Page 8 of 25 Pages identified as a better estimate than any other estimate. Therefore, a liability at the low end of this range and a corresponding regulatory asset have been recorded on the financial statements. AGLC has two means of recovering the expenses associated with the former MGP sites. First, the Georgia Commission has approved the recovery by AGLC of Environmental Response Costs, as defined, pursuant to an 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 conducted a financial and management process audit related to the MGP sites, cleanup activities at the sites and environmental response costs that have been incurred for purposes of the ERCRR. On October 10, 1996, the Georgia Commission issued an order to prohibit funds collected through the ERCRR from being used for the payment of any damage award, including punitive damages, as a result of any litigation associated with any of the MGP sites in which AGLC is involved. AGLC is currently pursuing judicial review of the October 10, 1996 order. Second, AGLC is seeking recovery of appropriate costs from its insurers and other potentially responsible parties. With respect to its insurers, AGLC filed a declaratory judgment action against 23 of its insurance companies in 1991. After the trial court entered a judgment adverse to AGLC and AGLC appealed that ruling, the Eleventh Circuit Court of Appeals held that the case did not present a case or controversy when filed, and the case was remanded with instructions to dismiss. Since the Eleventh Circuit's decision, AGLC has settled with, or is close to settlement with, most of the major insurers. AGLC has not determined what actions it will take with respect to non-settling insurers. 5. Competition AGLC competes to supply natural gas to interruptible customers who are capable of switching to alternative fuels, including propane, fuel and waste oils, electricity and, in some cases, combustible wood by-products. AGLC also competes to supply gas to interruptible customers who might seek to bypass its distribution system. AGLC can price distribution services to interruptible customers four ways. First, multiple rates are established under the rate schedules of AGLC's tariff approved by the Georgia Commission. If an existing tariff rate does not produce a price competitive with a customer's relevant competitive alternative, three alternate pricing mechanisms exist: Negotiated Contracts, Interruptible Transportation and Sales Maintenance (ITSM) discounts, and Special Contracts. On February 17, 1995, the Georgia Commission approved a settlement that permits AGLC to negotiate contracts with customers who have the option of bypassing AGLC's facilities (Bypass Customers) to receive natural gas from other suppliers. The bypass avoidance contracts (Negotiated Contracts) 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, after 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 in effect. None of the Negotiated Contracts filed to date with the Georgia Commission have been rejected. Page 9 of 25 Pages 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. Under the recovery mechanism, AGLC is allowed to recover from other customers 75% of the difference between (a) the nongas cost revenue that was received from the potential Bypass Customer during the most recent 12-month period and (b) the nongas cost revenue that is calculated to be received from the lower Negotiated Contract rate applied to the same volumetric level. Concerning the remaining 25% of the difference, AGLC is allowed to retain a 44% share of capacity release revenues in excess of $5 million until AGLC is made whole for discounts from Negotiated Contracts. To the extent there are additional capacity release revenues, AGLC is allowed to retain 15% of such amounts. In addition to Negotiated Contracts, which are designed to serve existing and potential Bypass Customers, AGLC's 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 Negotiated Contract procedures. A Special Contract, for example, could involve AGLC providing a long-term service contract to compete with alternative fuels where physical bypass is not the relevant competition. Pursuant to the approved settlement, AGLC has filed and is providing service pursuant to 50 Negotiated Contracts. Additionally, the Georgia Commission has approved Special Contracts between AGLC and seven interruptible customers. On November 27, 1996, the Tennessee Regulatory Authority (TRA) approved a settlement that permits Chattanooga to negotiate contracts with large commercial or industrial customers who are capable of bypassing Chattanooga's distribution system. The settlement provides for approval on an experimental basis, with the Tennessee Regulatory Authority (TRA) to review the measure two years from the approval date. The pricing terms provided in any such contract may be neither less than Chattanooga's marginal cost of providing service nor greater than the filed tariff rate generally applicable to such service. Chattanooga can recover 50% of the difference between the contract rate and the applicable tariff rate through the balancing account of the purchased gas adjustment provisions of Chattanooga's rate schedules. Pursuant to the approved settlement, Chattanooga has entered into four negotiated contracts which are currently under review by the TRA. The 1997 session of the Georgia General Assembly passed legislation which provides a legal framework for comprehensive deregulation of many aspects of the natural gas business in Georgia. Senate Bill 215, the Natural Gas Competition and Deregulation Act, which became law on April 14, 1997, if implemented by AGLC with respect to its system, would result in the application of an alternative form of regulation, such as performance based regulation, to AGLC. Pursuant to a separate election, AGLC, as an electing distribution company, could choose to exit the merchant function and fully unbundle its system. Senate Bill 215 provides for a transition period leading to a condition of effective competition in the natural gas markets. An electing distribution company would unbundle all services to its natural gas customers, assign firm delivery capacity to certificated marketers selling the gas commodity and create a secondary transportation market for interruptible transportation capacity. Marketers, including unregulated affiliates of AGLC, would compete to sell natural gas to all customers at market-based prices. AGLC would continue to provide intrastate transportation of the gas to end users through its existing system, subject to Page 10 of 25 Pages continued rate regulation by the Georgia Commission. In addition, the Georgia Commission would continue to regulate safety, access, and quality of service pursuant to an alternative form of regulation. The law provides for marketer standards and rules of business practice to ensure that the benefits of a competitive natural gas market are available to all customers on the AGLC system. It imposes an obligation to serve on marketers with a corresponding universal service fund which can also facilitate the extension of AGLC facilities in order to serve the public interest. In order to implement the new law, the Georgia Commission must undertake and complete several rulemakings by December 31, 1997. As the process of considering and adopting these rules progresses, the extent of and schedule for actions under the legislation by AGLC will evolve further. Currently, in accordance with Statement of Financial Accounting Standard No. 71, "Accounting for the Effects of Certain Types of Regulation," (SFAS 71), AGLC has recorded regulatory assets and liabilities which represent regulator-approved deferrals resulting from the ratemaking process. Recently, the staff of the Securities and Exchange Commission has questioned the continued applicability of SFAS 71 to portions of the business of three California utilities, as a result of legislation recently enacted in California. The Emerging Issues Task Force (EITF) held discussions of this issue at its July 1997 meeting. The EITF concluded that once legislation is passed to deregulate a segment of a utility and that legislation includes sufficient detail for the enterprise to determine how the transition plan will affect that segment, SFAS 71 should be discontinued for that segment of the utility. The state of Georgia has enacted legislation (Senate Bill 215) which allows deregulation of the merchant function and unbundling of certain ancillary services of local gas distribution companies. Each local gas company within the state may elect to be subject to Senate Bill 215 or continue to be regulated in the traditional manner. Under either scenario, the rates to transport natural gas through the intrastate pipe system of the local gas distribution company will be regulated by the Georgia Commission. Since the activities associated with AGLC's SFAS 71 regulatory assets and liabilities continue to be regulated, AGLC has concluded that the continued application of SFAS 71 remains appropriate. On May 1, 1997, Chattanooga filed a rate proceeding with the TRA seeking an increase in revenues of $4.4 million annually. Revenues from the rate increase will be used to improve and expand Chattanooga's natural gas distribution system, to recover increased operation, maintenance and tax expenses, and to provide a reasonable return to investors. Under the TRA's rules and regulations, the effective date of the requested new rates has been suspended until November 1, 1997. A schedule for hearings has not yet been established by the TRA. 6. Accounting Developments In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS 130) and Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). AGLC will adopt SFAS 130 and SFAS 131 in fiscal year 1999. SFAS 130 establishes standards for reporting and displaying of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. Management does not expect SFAS 130 or SFAS 131 to have a significant impact on the presentation of AGLC's consolidated financial statements. Page 11 of 25 Pages Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION On March 6, 1996, Atlanta Gas Light Company (AGLC) completed a corporate restructuring in which a new company, AGL Resources Inc. (AGL Resources) became the holding company for AGLC and its subsidiaries. During calendar 1996, ownership of AGLC's nonregulated businesses was transferred to AGL Resources and its various subsidiaries. Unless noted specifically or otherwise required by the context, references to AGLC include the operations and activities of AGLC and Chattanooga. The following discussion and analysis reflects events affecting AGLC's results of operations and financial condition and factors expected to impact its future operations. See Note 1 in Notes to Condensed Consolidated Financial Statements in this Form 10-Q. Forward Looking Statements The Private Securities Litigation Reform Act of 1995 provides for the use of cautionary statements accompanying forward looking statements. Management's Discussion and Analysis of Results of Operations and Financial Condition includes forward looking statements concerning, among other things, estimated costs of environmental remediation, deregulation and restructuring costs. The future results for AGLC generally may be affected by many factors, among which are uncertainty as to the regulatory issues, both state and federal, and uncertainty with regard to environmental issues and competitive issues in general. Results of Operations Three-Month Periods Ended June 30, 1997 and 1996 Explained below are the major factors that had a significant effect on results of operations for the three-month period ended June 30, 1997, compared with the same period in 1996. Operating revenues decreased 14.2% for the three-month period ended June 30, 1997, compared with the same period in 1996 primarily due to decreased volumes of gas sold as a result of a shift by certain interruptible customers from interruptible sales to transportation service. Operating revenues are less when gas is transported for a customer than when it is sold to that customer. AGLC's transportation rate generates the same operating margin as the applicable sales rate schedule for interruptible sales of gas; therefore, net income is not affected. AGLC balances the cost of gas with revenues collected from customers under the purchased gas provisions of its 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. Cost of gas decreased 22.5% during the three-month period ended June 30, 1997, compared with the same period in 1996. The decrease in the cost of AGLC's gas supply was primarily due to decreased volumes of gas sold principally as a result of a shift by certain interruptible customers from interruptible sales to transportation service. Operating margin decreased 2.5% for the three-month period ended June 30, 1997, compared with the same period in 1996 primarily due to decreased volumes of gas sold and transported. Operating expenses increased 4.4% for the three-month period ended June 30, 1997, compared with the same period in 1996 primarily due to increased (1) labor and labor-related expenses and (2) uncollectible accounts Page 12 of 25 Pages expense. The increase in operating expenses was offset partly by decreased (1) maintenance of general plant and (2) outside services employed. Other income increased $1.1 million for the three-month period ended June 30, 1997, compared with the same period in 1996 primarily due to (1) the recovery from customers of carrying costs not included in base rates related to storage gas inventories and (2) the recovery from customers of carrying costs attributable to an increase in underrecovered deferred purchased gas costs. Income taxes decreased $1.3 million for the three-month period ended June 30, 1997, compared with the same period in 1996 primarily due to decreased taxable income. Interest charges increased $0.7 million for the three-month period ended June 30, 1997, compared with the same period in 1996 primarily due to increased amounts of long-term and short-term debt outstanding during the period. Earnings available for common stock for the three-month period ended June 30, 1997, was $0, compared with $3.9 million for the same period in 1996. The decrease in earnings available for common stock was primarily due to (1) decreased operating margin and (2) increased other operating expenses. The decrease in earnings available for common stock was offset partly by increased other income. Nine-Month Periods Ended June 30, 1997 and 1996 Explained below are the major factors that had a significant effect on results of operations for the nine-month period ended June 30, 1997, compared with the same period in 1996. Operating revenues decreased $6.3 million for the nine-month period ended June 30, 1997, compared with the same period in 1996 primarily due to (1) decreased volumes of gas sold as a result of weather that was 24.7% warmer than during the same period in 1996 and (2) a shift by certain interruptible customers from interruptible sales to transportation service. Operating revenues are less when gas is transported for a customer than when it is sold to that customer. AGLC's transportation rate generates the same operating margin as the applicable sales rate schedule for interruptible sales of gas; therefore, net income is not affected. The decrease in operating revenues was offset partly by growth in the number of customers served. AGLC balances the cost of gas with revenues collected from customers under the purchased gas provisions of its 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. Cost of gas decreased 2.4% during the nine-month period ended June 30, 1997, compared with the same period in 1996. The decrease in the cost of AGLC's gas supply was primarily due to (1) decreased volumes of gas sold as a result of weather that was 24.7% warmer than during the same period in 1996 and (2) a shift by certain interruptible customers from interruptible sales to transportation service. Operating margin increased 2.2% for the nine-month period ended June 30, 1997, compared with the same period in 1996 primarily due to growth in the number of customers served. WNARs approved by the Georgia Commission and the TRA stabilized margin at the level which would occur with normal weather for the nine-month periods ended June 30, 1997 and 1996. As a result of the WNARs, weather conditions experienced do not have a significant impact on the comparability of operating margin. Operating expenses increased 2.3% for the nine-month period ended June 30, 1997, compared with the same period in 1996 primarily due to increased (1) uncollectible accounts expense, (2) ad valorem taxes and (3) injuries Page 13 of 25 Pages and damages expenses. The increase in operating expenses was offset partly by decreased outside services employed. Other income decreased $1.2 million for the nine-month period ended June 30, 1997, compared with the same period in 1996 primarily due to nonregulated subsidiary income of $3.7 million recorded during the nine-month period ended June 30, 1996. Those nonregulated subsidiaries were transferred to AGL Resources and its subsidiaries subsequent to March 1996 (see Note 1 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q). The decrease in other income was offset partly by (1) the recovery from customers of carrying costs not included in base rates related to storage gas inventories, (2) the recovery from customers of carrying costs attributable to an increase in underrecovered deferred purchased gas costs and (3) recoveries of environmental response costs from insurance carriers and third parties. Income taxes decreased $0.1 million for the nine-month period ended June 30, 1997, compared with the same period in 1996 primarily due to decreased taxable income. Interest charges increased $2.9 million for the nine-month period ended June 30, 1997, compared with the same period in 1996 primarily due to increased amounts of short-term and long-term debt outstanding during the period. Earnings available for common stock for the nine-month period ended June 30, 1997, was $76.5 million, compared with $78.3 million for the same period in 1996. The decrease in earnings available for common stock was primarily due to (1) increased operating expenses, (2) increased interest charges and (3) decreased other income. The decrease in earnings available for common stock was offset partly by growth in the number of customers served. Twelve-Month Periods Ended June 30, 1997 and 1996 Explained below are the major factors that had a significant effect on results of operations for the twelve-month period ended June 30, 1997, compared with the same period in 1996. Operating revenues increased 4.7% for the twelve-month period ended June 30, 1997, compared with the same period in 1996 primarily due to (1) an increase in the cost of the gas supply recovered from customers under the purchased gas provisions of AGLC's rate schedules, as explained in the following paragraph and (2) growth in the number of customers served. The increase in operating revenues was offset partly by (1) decreased volumes of gas sold as a result of weather that was 25.2% warmer than during the same period in 1996 and (2) a shift by certain interruptible customers from interruptible sales to transportation service. Operating revenues are less when gas is transported for a customer than when it is sold to that customer. AGLC's transportation rate generates the same operating margin as the applicable sales rate schedule for interruptible sales of gas; therefore, net income is not affected. AGLC balances the cost of gas with revenues collected from customers under the purchased gas provisions of its 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. Cost of gas increased 5.6% during the twelve-month period ended June 30, 1997, compared with the same period in 1996. The increase in the cost of AGLC's gas supply was primarily due to an increase in the cost of gas purchased for system supply. The increase in cost of gas was offset partly by (1) decreased volumes of gas sold as a result of weather that was 25.2% warmer than during the same period in 1996 and (2) a shift by certain interruptible customers from interruptible sales to transportation service. Page 14 of 25 Pages Operating margin increased 3.6% for the twelve-month period ended June 30, 1997, compared with the same period in 1996 primarily due to (1) revised firm services 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) and (2) growth in the number of customers served. WNARs approved by the Georgia Commission and the TRA stabilized margin at the level which would occur with normal weather for the twelve-month periods ended June 30, 1997 and 1996. As a result of the WNARs, weather conditions experienced do not have a significant impact on the comparability of operating margin. Operating expenses increased 1.3% for the twelve-month period ended June 30, 1997, compared with the same period in 1996 primarily due to increased (1) uncollectible accounts expense, (2) expenses related to AGLC's IRP which are recovered through an IRP Cost Recovery Rider approved by the Georgia Commission, (3) injuries and damages expense and (4) franchise expenses which are recovered through a Franchise Recovery Rider approved by the Georgia Commission. AGLC balances IRP and franchise expenses which are included in operating expenses with revenues collected under the riders, thereby eliminating the effect that recovery of IRP and franchise expenses would otherwise have on net income. Operating expenses excluding IRP and franchise expenses increased $2.4 million, or 0.8%. The increase in operating expenses was offset partly by decreased outside services employed. Other income increased $1.5 million for the twelve-month period ended June 30, 1997, compared with the same period in 1996 primarily due to (1) the recovery from customers of carrying costs attributable to an increase in underrecovered deferred purchased gas costs, (2) recoveries of environmental response costs from insurance carriers and third parties and (3) the recovery from customers of carrying costs not included in base rates related to storage gas inventories. The increase in other income was offset partly by nonregulated subsidiary income of $3.7 million recorded during the twelve-month period ended June 30, 1996. Those nonregulated subsidiaries were transferred to AGL Resources and its subsidiaries subsequent to March 1996 (see Note 1 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q). Income taxes increased $4.6 million for the twelve-month period ended June 30, 1997, compared with the same period in 1996 primarily due to increased taxable income. Interest charges increased $4.1 million for the twelve-month period ended June 30, 1997, compared with the same period in 1996 primarily due to increased amounts of short-term and long-term debt outstanding during the period. Earnings available for common stock for the twelve-month period ended June 30, 1997, was $74.4 million, compared with $67.5 million for the same period in 1996. The increase in earnings available for common stock was primarily due to (1) increased operating margin and (2) increased other income. The increase in earnings available for common stock was offset partly by (1) increased operating expenses and (2) increased interest expense. Financial Condition AGLC's business is highly seasonal in nature and typically shows a substantial increase in accounts receivable from customers from September 30 to June 30 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 $21.4 million and inventory of gas stored underground and liquefied natural gas decreased $50.3 million during the nine-month period ended June 30, 1997. Accounts payable decreased $11.8 million during the nine-month period ended June 30, 1997, primarily due to a $7 million decrease in accounts payable to gas suppliers. Page 15 of 25 Pages Accounts receivable decreased $17.4 million from June 30, 1996 to June 30, 1997, primarily due to decreased operating revenues. Inventory of gas stored underground and liquefied natural gas increased $28.1 million from June 30, 1996 to June 30, 1997, primarily due to decreased volumes of gas withdrawn from storage as a result of weather that was 25.2% warmer during the twelve-month period ended June 30, 1997, compared with the same period in 1996. Accounts payable decreased $7.6 million from June 30, 1996 to June 30, 1997, primarily due to a $5.8 million decrease in accounts payable to gas suppliers. The purchasing practices of AGLC are subject to review by the Georgia Commission under legislation enacted by the Georgia General Assembly (Gas Supply Plan Legislation). The Gas Supply Plan Legislation establishes procedures for review and approval, in advance, 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 1997, 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 Federal Energy Regulatory Commission (FERC) Order No. 636 transition costs that are currently being charged by AGLC's pipeline suppliers. See Part II, Item 5, "Other Information - Federal Regulatory Matters - Order No. 636," in this Form 10-Q. AGLC currently estimates that its portion of transition costs resulting from the FERC Order No. 636 restructuring proceedings from all of its pipeline suppliers, that have been filed to be recovered to date, could be as high as approximately $105 million. This estimate assumes that the restructuring settlement of Southern Natural Gas Company (Southern) approved by FERC is not overturned on judicial review and that FERC does not alter its GSR recovery policies on rehearing of its Order No. 636-C. Although some filings by AGLC's pipeline suppliers have been finally approved by FERC, other such filings are pending final FERC approval, and the transition costs are being collected subject to refund. Approximately $90.4 million of such costs have been incurred by AGLC as of June 30, 1997, recovery of which is provided under the purchased gas provisions of AGLC's rate schedules. For further discussion of the effects of FERC Order No. 636 on AGLC, see Part II, Item 5, "Other Information - Federal Regulatory Matters" of this Form 10-Q. On August 1, 1997, AGLC filed its Gas Supply Plan for the twelve-month period beginning October 1, 1997, which consists of gas supply, transportation and storage options designed to provide reliable service to firm customers at the best cost. The proposed plan is similar to the plan currently in effect. The Georgia Commission may approve the entire supply portfolio contained in the proposed 1998 Gas Supply Plan, modify the proposed plan or adopt a plan of its own. A Georgia Commission decision is scheduled for September 12, 1997. Since the passage of Gas Supply Plan Legislation, the Georgia Commission has consistently approved AGLC's proposed supply portfolio. Additionally, the proposed 1998 Gas Supply Plan contains a gas supply incentive mechanism for off-system sales that is consistent with the incentive mechanism in Senate Bill 215 (the Natural Gas Competition and Deregulation Act) and an expanded hedging program. Under the plan, firm service customers and shareholders would share revenues in excess of the costs of the sale and the actual cost of the sale would be passed through to firm service customers under the purchased gas adjustment provisions (PGA) of AGLC's rate schedules. The financial results of all hedging activities are passed through to firm service customers under the PGA and, accordingly, there is no impact on net income as a result of the hedging program. As noted above, AGLC recovers the cost of gas under the purchased gas provisions of its rate schedules. AGLC was in an underrecovery position of $9 million as of June 30, 1997, an overrecovery position of $3.4 million as of June 30, 1996, and an underrecovery position of $4.7 million as of September 30, 1996. Under the provisions of AGLC's rate schedules, any underrecoveries of gas costs are included in current assets and have no effect on net income. Page 16 of 25 Pages Cash and cash equivalents decreased $7.1 million and $0.5 million for the nine-month and twelve-month periods ended June 30, 1997, primarily to offset other working capital requirements. The expenditures for plant and other property totaled $94.5 million and $135.3 million for the nine-month and twelve-month periods ended June 30, 1997. Service Company was formed during fiscal 1996 to provide corporate support services to AGLC, AGL Resources and its other subsidiaries. The transfer of related assets and accumulated deferred income tax liabilities from AGLC to Service Company and other nonregulated subsidiaries was effected through noncash dividends of $34.3 million during the fourth quarter of fiscal 1996 and $4.8 million during the first quarter of fiscal 1997. As a result of those noncash dividends, utility plant-net decreased by $48.4 million and accumulated deferred income tax decreased by $9.3 million. Expenses of Service Company are allocated to AGL Resources and its subsidiaries. AGLC has accrued liabilities of $31.3 million as of June 30, 1997, $28.6 million as of June 30, 1996, and $30.4 million as of September 30, 1996, for estimated future expenditures covering investigation and remediation of MGP sites which are expected to be made over a period of several years. 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, pursuant to the ERCRR. In connection with the ERCRR, the staff of the Georgia Commission conducted a financial and management process audit related to the MGP sites, cleanup activities at the sites and environmental response costs that have been incurred for purposes of the ERCRR. On October 10, 1996, the Georgia Commission issued an order to prohibit funds collected through the ERCRR from being used for the payment of any damage award, including punitive damages, as a result of any litigation associated with any of the MGP sites in which AGLC is involved. AGLC is currently pursuing judicial review of the October 10, 1996, order. See Note 4 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. In July 1997, AGLC called for the redemption on August 15, 1997, of its 4.5% Cumulative Preferred Stock, 4.72% Cumulative Preferred Stock, 5% Cumulative Preferred Stock, 7.84% Cumulative Preferred Stock, and 8.32% Cumulative Preferred Stock at the current call price in effect for each issue. Accordingly, a current liability associated with those redemptions of $14.3 million is recorded in the financial statements. Long-term debt outstanding increased $30 million during the nine-month and twelve-month periods ended June 30, 1997, as a result of the issuance by AGLC of $30 million in principal amount of Medium-Term Notes, Series C in November 1996. The notes were issued under a registration statement filed with the Securities and Exchange Commission in September 1993 covering the periodic offer and sale of up to $300 million in principal amount of Medium-Term Notes, Series C. As of June 30, 1997, AGLC had issued $224.5 million in principal amount of Medium-Term Notes Series C, with maturity dates ranging from ten to 30 years and with interest rates ranging from 5.9% to 7.2%. Net proceeds from the issuance of Medium-Term Notes were used to fund capital expenditures, to repay short-term debt and for other corporate purposes. During July 1997, the remaining $75.5 million principal amount of Medium Term Notes Series C were issued, with maturity dates ranging from 20 to 30 years and with interest rates ranging from 7.2% to 7.3%. Net proceeds from that issue will be used to repay short-term debt and for other corporate purposes. Short-term debt decreased $118.5 million and $38.4 million for the nine-month and twelve-month periods ended June 30, 1997, respectively, primarily due to the issuance of long-term debt and the use of proceeds from external financing activities of AGL Resources to repay short-term debt. On February 17, 1995, the Georgia Commission approved a settlement that permits AGLC to negotiate contracts with customers who have the option of bypassing AGLC's facilities (Bypass Customers) to receive Page 17 of 25 Pages natural gas from other suppliers. The bypass avoidance contracts (Negotiated Contracts) 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, after 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 in effect. None of the Negotiated Contracts filed to date 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. See Note 5 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. On November 27, 1996, the TRA approved a settlement that permits Chattanooga to negotiate contracts with large commercial or industrial customers who are capable of bypassing Chattanooga's distribution system. The settlement provides for approval on an experimental basis, with the TRA to review the measure two years from the approval date. The pricing terms provided in any such contract may be neither less than Chattanooga's marginal cost of providing service nor greater than the filed tariff rate generally applicable to such service. Chattanooga can recover 50% of the difference between the contract rate and the applicable tariff rate through the balancing account of the purchased gas adjustment provisions of Chattanooga's rate schedules. The 1997 session of the Georgia General Assembly enacted legislation which provides a legal framework for comprehensive deregulation of many aspects of the natural gas business in Georgia. Senate Bill 215, the Natural Gas Competition and Deregulation Act, which became law on April 14, 1997, if implemented by AGLC with respect to its system, would result in the application of an alternative form of regulation, such as performance based regulation, to AGLC. Pursuant to a separate election, AGLC, as an electing distribution company, could choose to exit the merchant function and fully unbundle its system. See Note 5 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. On May 1, 1997, Chattanooga filed a rate proceeding with the TRA seeking an increase in revenues of $4.4 million annually. Revenues from the rate increase will be used to improve and expand Chattanooga's natural gas distribution system, to recover increased operation, maintenance and tax expenses, and to provide a reasonable return to investors. Under the TRA's rules and regulations, the effective date of the requested new rates has been suspended until November 1, 1997. A schedule for hearings has not yet been established by the TRA. Accounting Developments In June 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 130, "Reporting Comprehensive Income" (SFAS 130) and Statement of Financial Accounting Standard No. 131, "Disclosures about Segments of an Enterprise and Related Information" (SFAS 131). AGLC will adopt SFAS 130 and SFAS 131 in fiscal year 1999. SFAS 130 establishes standards for reporting and displaying of comprehensive income and its components (revenues, expenses, gains, and losses) in a full set of general-purpose financial statements. SFAS 131 establishes standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports issued to shareholders. Management does not expect SFAS 130 or SFAS 131 to have a significant impact on the presentation of AGLC's consolidated financial statements. Page 18 of 25 Pages 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, 1996 and should be read in conjunction therewith. Item 1. Legal Proceedings See Item 5. Item 5. Other Information Federal Regulatory Matters Order No. 636 On May 12, 1997, the United States Supreme Court denied petitions for certiorari filed by AGLC and others challenging the ruling of the United States Court of Appeals for the District of Columbia Circuit in United Distribution Cos. v. FERC that FERC has authority over capacity release by local distribution companies. AGLC currently estimates that its portion of transition costs (which include unrecovered gas costs, GSR costs and various stranded costs resulting from unbundling of interstate pipeline sales service) from all of its pipeline suppliers filed with the FERC to date to be recovered could be as high as approximately $105.1 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 the restructuring settlement agreement of Southern approved by FERC is not overturned on judicial review and that FERC does not alter its GSR recovery policies on rehearing of its Order 636-C. Although some filings by AGLC's pipeline suppliers have been finally approved by FERC, other such filings are pending final FERC approval. Approximately $90.4 million of transition costs have been incurred by AGLC as of June 30, 1997, 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. 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, since AGLC is a consenting party, its GSR and other transition cost charges are in accordance with Southern's restructuring 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 $86.9 million. This estimate would not be affected by the remand of Order No. 636, unless FERC's approval of the settlement is not upheld on judicial review. As of June 30, 1997, $78 million of such costs have already been incurred by AGLC. TENNESSEE GSR Cost Recovery Proceeding. FERC's April 16, 1997 order approving the restructuring settlement between Tennessee Gas Pipeline Company (Tennessee) and its customers became final when no party sought rehearing within the statutory period. As a consequence, Tennessee's recovery of GSR costs from AGLC is now pursuant to the settlement. AGLC's estimated liability for GSR costs as a result of the settlement is approximately $13 million. As of June 30, 1997, $6.9 million of such costs have already been incurred by AGLC. Page 19 of 25 Pages FERC Rate Proceedings TRANSCO The consolidated hearing to address the proposal of Transcontinental Gas Pipe Line Corporation (Transco) to roll into its general system rates the costs associated with the Leidy Line and Southern expansion facilities has concluded, and the matter currently is pending briefing by the parties and an initial decision by the administrative law judge. AGLC has submitted testimony in Transco's current rate case to advocate the creation of a balancing charge on Transco's system. Arcadian On May 20, 1997, the United States Court of Appeals for the Eleventh Circuit issued an order consolidating the various appeals filed by AGLC and others of the FERC's orders in Arcadian Corp. v. Southern Natural Gas Co. and ruling that those appeals are no longer being held in abeyance. The consolidated cases are now pending briefing and decision. AGLC cannot predict the outcome of these federal proceedings nor can it determine the ultimate effect, if any, such proceedings may have on AGLC. State Regulatory Matters The 1997 session of the Georgia General Assembly enacted legislation which provides a legal framework for comprehensive deregulation of many aspects of the natural gas business in Georgia. Senate Bill 215, the Natural Gas Competition and Deregulation Act, which became law on April 14, 1997, if implemented by AGLC with respect to its system, would result in the application of an alternative form of regulation, such as performance based regulation, to AGLC. Pursuant to a separate election, AGLC, as an electing distribution company, could choose to exit the merchant function and fully unbundle its system. Senate Bill 215 provides for a transition period leading to a condition of effective competition in the natural gas markets. An electing distribution company would unbundle all services to its natural gas customers, assign firm delivery capacity to certificated marketers selling the gas commodity and create a secondary transportation market for interruptible transportation capacity. Marketers, including unregulated affiliates of AGLC, would compete to sell natural gas to all customers at market-based prices. AGLC would continue to provide intrastate transportation of the gas to end users through its existing system, subject to continued rate regulation by the Georgia Commission. In addition, the Georgia Commission would continue to regulate safety, access, and quality of service pursuant to an alternative form of regulation. The law provides for marketer standards and rules of business practice to ensure that the benefits of a competitive natural gas market are available to all customers on the AGLC system. It imposes an obligation to serve on marketers with a corresponding universal service fund which can also facilitate the extension of AGLC facilities in order to serve the public interest. In order to implement the new law, the Georgia Commission must undertake and complete several rulemakings by December 31, 1997. As the process of considering and adopting these rules progresses, the extent of and schedule for actions under the legislation by AGLC will evolve further. On May 21, 1996, the Georgia Commission adopted a Policy Statement following its November 20, 1995, Notice of Inquiry concerning changes in state regulatory guidelines to respond to trends toward increased competition in natural gas markets. Among other things, the Policy Statement sets up a distinction between competitive and natural monopoly services; favors performance-based regulation in lieu of traditional Page 20 of 25 Pages cost-of-service regulation; calls for unbundling interruptible service; directs the Georgia Commission's staff to develop standards of conduct for utilities and their marketing affiliates; and invites pilot programs for unbundling services to residential and small business customers. Consistent with specific goals in the Georgia Commission's Policy Statement, AGLC filed on June 10, 1996, the Natural Gas Service Provider Selection Plan (the Plan), a comprehensive plan for serving interruptible markets. The Plan proposes further unbundling of services to provide large customers more service options and the ability to purchase only those services they require. Proposed tariff changes would allow AGLC to cease its sales service function and the associated sales obligation for large customers; implement delivery-only service for large customers on a firm and interruptible basis; and provide pooling services to marketers. The Plan also includes proposed standards of conduct for utilities and utility marketing affiliates. The Georgia Commission granted AGLC's Motion for Continuance on January 30, 1997, moving the Georgia Commission to suspend the proceeding after a showing that all parties of record had expressed an interest in pursuing settlement discussions in lieu of rebuttal hearings. On August 5, 1997, AGLC notified the Georgia Commission that the settlement discussions had concluded without reaching a settlement. Pursuant to the Georgia Commission's order dated January 30, 1997, granting AGLC's motion to suspend the proceeding, the new statutory deadline for a decision by the Georgia Commission on the Plan is September 19, 1997. A schedule for rebuttal testimony and briefs has not yet been established by the Georgia Commission. AGLC supports both the Plan under consideration by the Georgia Commission and the new regulatory model contemplated by Senate Bill 215. AGLC currently makes no profit on the purchase and sale of gas because actual gas costs are passed through to customers under the purchased gas provisions of AGLC's rate schedules. Earnings are provided through revenues received for intrastate transportation of the commodity. Consequently, allowing AGLC to cease its sales service function and the associated sales obligation would not adversely affect AGLC's ability to earn a return on its distribution system investment. Gas will be sold to all customers by numerous marketers, including nonregulated subsidiaries of AGL Resources. On July 22, 1996, Chattanooga filed a plan with the TRA that permits Chattanooga to negotiate contracts with customers in Tennessee who have long-term competitive options, including bypass. On November 27, 1996, the TRA approved a settlement that permits Chattanooga to negotiate contracts with large commercial or industrial customers who are capable of bypassing Chattanooga's distribution system. The settlement provides for approval on an experimental basis, with the TRA to review the measure two years from the approval date. The pricing terms provided in any such contract may be neither less than Chattanooga's marginal cost of providing service nor greater than the filed tariff rate generally applicable to such service. Chattanooga can recover 50% of the difference between the contract rate and the applicable tariff rate through the balancing account of the purchased gas adjustment provisions of Chattanooga's rate schedules. On May 1, 1997, Chattanooga filed a rate proceeding with the TRA seeking an increase in revenues of $4.4 million annually. Revenues from the rate increase will be used to improve and expand Chattanooga's natural gas distribution system, to recover increased operation, maintenance and tax expenses, and to provide a reasonable return to investors. Under the TRA's rules and regulations, the effective date of the requested new rates has been suspended until November 1, 1997. A schedule for hearings has not yet been established by the TRA. See Note 5 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q for a discussion of state regulatory matters relating to competition. Page 21 of 25 Pages 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 also three sites in Florida which have been investigated by environmental authorities in connection with which AGLC may be contacted as a potentially responsible party. In that regard, AGLC has learned that the EPA has conducted an Expanded Site Investigation at the former MGP site in Sanford, Florida and has concluded that MGP impacts are present in a nearby lake. The consequences of this finding have not been determined. AGLC's response to MGP sites in Georgia is proceeding under two state regulatory programs. First, AGLC has entered into consent orders with the EPD with respect to four sites: Augusta, Griffin, Savannah and Valdosta. Under these consent orders, AGLC is obligated to investigate and, if necessary, remediate environmental impacts at the sites. AGLC has completed soil remediation at the Griffin site and expects to monitor groundwater for three to six years. Assessment activities are being conducted at Augusta and have been completed at Savannah. Those assessment activities are expected to be completed principally during fiscal 1997. In addition, AGLC has completed removal of the gas storage holder at the Augusta site. Second, AGLC's response to all Georgia sites is proceeding under Georgia's HSRA. AGLC submitted to EPD formal notifications relating to all of its nine owned MGP sites, and EPD had listed seven of those sites (Athens, Augusta, Brunswick, Griffin, Savannah, Valdosta and Waycross) on the HSI. EPD has not listed the Macon site on the HSI at this time. EPD also has listed the Rome site, which AGLC has acquired, on the HSI. Under the HSRA regulations, EPD has determined the four sites subject to consent orders require corrective action; EPD also has determined the Athens site requires corrective action and will determine whether corrective action is required at the three remaining sites (Brunswick, Rome and Waycross) in due course. In that respect, however, AGLC has submitted to EPD CSRs for the Brunswick and Rome MGP sites, and AGLC has concluded that some degree of response action is likely to be required at those sites. AGLC has estimated that, under the most favorable circumstances reasonably possible, the future cost to AGLC of investigating and remediating the former MGP sites could be as low as $31.3 million. Alternatively, AGLC has estimated that, under reasonably possible unfavorable circumstances, the future cost to AGLC of investigating and remediating the former MGP sites could be as high as $117.3 million. Those estimates have been adjusted from the September 30, 1996 estimates to reflect settlements of property damage claims at certain sites. AGLC cannot at this time determine the range of costs that may be associated with investigation and cleanup of the lake near the Sanford MGP site, which costs may be material. Accordingly, the foregoing estimated range now excludes those costs and reflects only AGLC's current estimate of the range of costs for which cost recovery claims against AGLC are reasonably likely. In addition, those costs do not include other expenses, such as property damage claims and natural resource damage claims, for which AGLC may ultimately be held liable, but for which neither the existence nor the amount of such liabilities can be reasonably forecast. Within the stated range of $31.3 million to $117.3 million, no amount within the range can be reliably identified as a better estimate than any other estimate. Therefore, a liability at the low end of this range and a corresponding regulatory asset have been recorded on the financial statements. AGLC has two means of recovering the expenses associated with the former MGP sites. First, the Georgia Commission has approved the recovery by AGLC of Environmental Response Costs, as defined, 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 conducted a financial and management process audit related to the MGP sites, cleanup activities at the sites and environmental Page 22 of 25 Pages response costs that have been incurred for purposes of the ERCRR. On October 10, 1996, the Georgia Commission issued an order to prohibit funds collected through the ERCRR from being used for the payment of any damage award, including punitive damages, as a result of any litigation associated with any of the MGP sites in which AGLC is involved. AGLC is currently pursuing judicial review of the October 10, 1996, order. Second, AGLC is seeking recovery of appropriate costs from its insurers and other potentially responsible parties. See Note 4 to Notes to Condensed Consolidated Financial Statements in this Form 10-Q. Other Legal Proceedings On February 10, 1995, a class action lawsuit captioned Trinity Christian Methodist Episcopal Church, et al. v. Atlanta Gas Light Company, No. 95-RCCV-93, was filed in the Superior Court of Richmond County, Georgia seeking to recover for damage to property owned by persons adjacent to and nearby the former manufactured gas plant site in Augusta, Georgia. On December 13, 1996, the parties reached a preliminary settlement, which was finally approved by the Court on April 15, 1997. Pursuant to the settlement, there is a claims process before an umpire to determine either the full fair market value of properties tendered to AGLC or the diminution in fair market value of properties not tendered to AGLC. Thus far, awards have been made to fifty-four (54) property owners in the class totaling approximately $5.7 million, including legal fees and expenses of the plaintiffs. There are approximately eighty-four (84) awards yet to be made. AGLC has filed motions to vacate six awards totaling approximately $4.4 million. An order was entered on July 8, 1997, denying the motion to vacate. AGLC has filed a notice of appeal to the Georgia Court of Appeals seeking to reverse the denial of the motion to vacate. With regard to other legal proceedings, AGLC is a party, as both plaintiff and defendant, to a number of other suits, claims and counterclaims on an ongoing basis. Management believes that the outcome of all litigation in which it is involved will not have a material adverse effect on the consolidated financial statements of AGLC. (The remainder of this page was intentionally left blank.) Page 23 of 25 Pages Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10.1 - Letter Agreement amending FT-A Contract No. 4235, dated May 20, 1997, between Atlanta Gas Light Company and East Tennessee Natural Gas Company. 10.2 - Amendatory Agreement dated April 21, 1997, between Atlanta Gas Light Company and Southern Natural Gas Company, amending Exhibits 10.28, 10.29, 10.31 and 10.34, Form 10-K for the fiscal year ended September 30, 1996. 10.3 - Amendatory Agreement dated April 21, 1997, between Chattanooga Gas Company and Southern Natural Gas Company, amending Exhibit 10.37, Form 10-K for the fiscal year ended September 30, 1996. 10.4 - Amendatory Agreement dated April 21, 1997, between Chattanooga Gas Company and Southern Natural Gas Company, amending Exhibit 10.35, Form 10-K for the fiscal year ended September 30, 1996. 10.5 - Amendatory Agreement dated April 21, 1997, between Chattanooga Gas Company and Southern Natural Gas Company, amending Exhibit 10.36, Form 10-K for the fiscal year ended September 30, 1996. 10.6 - Letter Agreement dated April 21, 1997, between Atlanta Gas Light Company and Southern Natural Gas Company. 27 - Financial Data Schedule. (b) Reports on Form 8-K. None. 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. Atlanta Gas Light Company (Registrant) Date August 14, 1997 /s/ David R. Jones David R. Jones Chief Executive Officer Date August 14, 1997 /s/ J. Michael Riley J. Michael Riley Vice President and Chief Financial Officer (Principal Accounting and Financial Officer) EX-27 2 ATLANTA GAS LIGHT COMPANY FINANCIAL DATA SCHEDULE WARNING: THE EDGAR SYSTEM ENCOUNTERED ERROR(S) WHILE PROCESSING THIS SCHEDULE.
UT 0000008154 ATLANTA GAS LIGHT COMPANY 1,000,000 9-MOS SEP-30-1997 OCT-01-1996 JUN-30-1997 PER-BOOK 1,403 0 248 73 15 1,739 277 166 86 529 45 585 33 0 0 0 14 0 0 533 1,739 1,042 48 259 881 115 5 120 40 80 3 77 45 32 225 0.00 0.00
EX-10 3 ATLANTA GAS LIGHT COMPANY EXHIBIT 10.1 Exhibit 10.1 [LETTERHEAD OF EL PASO ENERGY APPEARS HERE] May 20,1997 Ms. Eileen G. Stanek Atlanta Gas Light Company 303 Peachtree St., N.E. Atlanta, GA 30308 RE: Firm Transportation Contract Restructuring ETNG FT-A Contract No. 4235 Whereas Atlanta Gas Light (AGL) has requested that East Tennessee Natural Gas Company (ETNG) permit it to reduce the Contract Transportation Quantity (TQ) of Contract Number 4235 (FN1), and Whereas ETNG has determined that such reduction in Transportation Quantity will enable ETNG to reduce the required mainline facilities associated with ETNG's recent open season expansion and subsequent Certificate of Public Convenience and Necessity issued by the Federal Energy Regulatory Commission (FERC) in Docket CP96-696-000, Therefore, ETNG hereby agrees to amend FT-A Contract Number 4235, and AGL agrees to such amendment, to reflect a reduction in the TQ by 2,700 Dth/d to a total TQ of 61,160 Dth/d with such reduction applied to the primary receipt point at Nora's Dickenson County Receiving (meter number 759315) and the primary delivery point at Atlanta (meter number 759014). The 2,700 Dth/d reduction in AGL's TQ under Contract No. 4235 shall commence and be effective on the date that service commences for shippers under ETNG's open season expansion which utilizes the 2,700 Dth/d of capacity being permanently relinquished by AGL. ETNG anticipates that service to the open season expansion shippers will commence on or about November 1, 1997. However, any delay in the commencement of service to open season expansion shippers will result in a corresponding delay in the permanent relinquishment of capacity. Please have the appropriate representative execute both copies on behalf of AGL and return to the undersigned. Upon receipt, ETNG will return one fully executed original to your attention for your files. Signed originals must be returned to the undersigned on or before seven (7) days from the date of this letter, or this agreement may be nullified. Sincerely, /s/ William E. Wickman William E. Wickman EAST TENNESSEE NATURAL GAS ATLANTA GAS LIGHT By: Signature not legible By: /s/ Thomas H. Benson Title: AGENT AND ATTORNEY-IN-FACT Title: Executive Vice President & Chief Operating Officer Date: 6/2/97 Date: 5/3/97 (FN1) AGL has not executed an agreement for service under ETNG's Rate Schedule FT-A. For purposes of this agreement, the term "FT-A Contract Number 4235" refers to ETNG's obligation to provide firm transportation service, and AGL's obligation to purchase such service, pursuant to the orders of the Federal Energy Regulatory Commission in East Tennessee's Order No. 636 restructuring proceeding. East Tennessee Natural Gas Co., 65 FERC 61,356 (1993); 67 FERC 61,196 (1994). EX-10 4 ATLANTA GAS LIGHT COMPANY EXHIBIT 10.2 Exhibit 10.2 Amendatory Agreement This Amendment is entered into this 21St day of April, 1997, between SOUTHERN NATURAL GAS COMPANY ("Company") and ATLANTA GAS LIGHT COMPANY ("Shipper"). RECITALS: 1 Company and Shipper are parties to a firm transportation agreement dated September 1, 1994 (#902470) for 100,000 Mcf per day, as amended March 1, 1995 and August 23, 1996 (the "September FT Agreement"), a firm transportation agreement dated November 1, 1994 (#904460), as amended March 1, 1995, June 1, 1995, and August 23, 1996, for 253,812 Mcf per day (the "November FT Agreement"), a no-notice firm transportation agreement dated November 1, 1994 (#904460), as amended March 1, 1995 and August 23, 1996, for 406,222 Mcf per day (the "FT-NN Agreement"), and a contract storage service agreement dated November 1, 1994 as amended March 1, 1995 and August 23, 1996, (#S20150) for 20,117,674 Mcf (the "CSS Agreement"); 2. Shipper has notified Company that it desires to extend the term of the September FT Agreement, the November FT Agreement, the FT-NN Agreement, and the CSS Agreement as provided below. AGREEMENTS: In consideration for the premises and the mutual promises and covenants contained herein, the parties agree as follows: 1 . Section 4.1 of the September FT Agreement shall be deleted in its entirety and the following Section 4. 1 substituted therefor: 4.1 Subject to the provisions hereof, this Agreement shall become effective as of the date first hereinabove written and shall be in full force and effect for a primary term through August 31, 2002, and shall continue and remain in force and effect for successive terms of one year each thereafter if the parties mutually agree in writing to each such yearly extension at least 365 days prior to the end of the primary term or any subsequent yearly extension. 2. The Second Revised Exhibit E to the September FT Agreement shall be deleted in its entirety and the Third Revised Exhibit E attached hereto shall be substituted therefor. 3. The First Revised Exhibit B to the November FT Agreement and the FT-NN Agreement shall each be deleted in its entirety and the Second Revised Exhibit B attached hereto shall be substituted therefor. 4. Section 4.1 of the November FT Agreement shall be deleted in its entirety and the following Section 4. 1 substituted therefor: 4.1 Subject to the provisions hereof, this Agreement shall become effective as of the date first hereinabove written and shall be in fun force and effect for a primary term through the following dates: (a) April 30, 2007, for 108,905 Mcf per day of Transportation Demand and June 30, 2007, for 1,000 Mcf per day of Transportation Demand and shall continue and remain in force and effect for successive terms of one year each after the end of each primary term for the specified volume, unless and until canceled with respect to the associated volume by either party giving 180 days written notice to the other party prior to the end of the specified primary term or any yearly extension thereof; (b) August 31, 2003, for 21,139 Mcf per day of Transportation Demand and shall continue and remain in force and effect for successive terms of one year each thereafter if the parties mutually agree in writing to each such yearly extension at least 365 days prior to the end of the primary term or subsequent yearly extension; and (c) August 31, 2002, for 122,768 Mcf per day of Transportation Demand and shall continue and remain in force and effect for successive terms of one year each thereafter if the parties mutually agree in writing to each such yearly extension at least 365 days prior to the end of the primary term or subsequent yearly extension. - 2 - 5. Section 4. 1 of the FT-NN Agreement shall be deleted in its entirety and the following Section 4. 1 substituted therefor: 4.1 Subject to the provisions hereof, this Agreement shall become effective as of the date first hereinabove written and shall be in full force and effect for a primary term through the following dates: (a) August 3l, 2003, for 24,133 Mcf per day of Transportation Demand and shall continue and remain in force and effect for successive terms of one year each thereafter if the parties mutually agree in writing to each such yearly extension at least 365 days prior to the end of the primary term or subsequent yearly extension; and (b) August 31, 2002, for 382,089 Mcf per day .. of Transportation Demand and shall continue and remain in force and effect for successive terms of one year each thereafter if the parties mutually agree in writing to each such yearly extension at least 365 days prior to the end of the primary term or subsequent yearly extension. 6. Section 4.1 of the CSS Agreement shall be deleted in its entirety and the following Section 4.1 substituted therefor: 4.1 Subject to the provisions hereof, this Agreement shall become effective as of the date first hereinabove written and shall be in full force and effect for a primary term through the following dates: (a) August 3l, 2003, for 1,195,179 Mcf per day of Maximum Storage Quantity and shall continue and remain in force and effect for successive terms of one year each thereafter if, the parties mutually agree in writing to each such yearly extension at least 365 days prior to the end of the primary term or subsequent yearly extension; and (b) August 31, 2002, for 18,922,495 Mcf per day of Maximum Storage Quantity and shall continue and remain in force and effect for successive terms of one year each thereafter if the parties mutually agree -3 - in writing to each such yearly extension at least 365 days prior to the end of the primary term or subsequent yearly extension. 7. This Amendatory Agreement is subject to a condition subsequent that the FERC issue an order approving Company's certificate application and facilities design in its upcoming expansion filing in Docket No. CP97- to provide additional firm service to customers in eastern Tennessee and elsewhere in Zones 2 and 3 (the "ET Phase II Application"). If the FERC either (i) does not issue an order approving the ET Phase II Application by June 1, 1999, or (ii) approves the ET Phase II Application but modifies the ET Phase II facilities design, in the ET Phase II certificate proceeding or in any other proceeding, in a manner that is unacceptable to Company or Shipper, then either Company or Shipper may terminate this Amendatory Agreement upon 30 days written prior notice to the other party, to be given no later than 30 days after the occurrence of such event described in (i) or (ii). If such termination occurs before March 1, 1999, the terms of the Amendatory Agreement between Company and Shipper dated August 23, 1996 shall continue to apply as provided therein. If such termination occurs after March 1, 1999, but before August 31, 2002, the terms of such August 23, 1996 Amendatory Agreement shall continue to apply as provided therein and all of the service agreements described in such Amendatory Agreement with terms ending on March 1, 1999, or March 1, 2000, and the discounted reservation rate under the September FT Agreement, shall be extended through the later of (a) February 28, 2000, or (b) a date six months after the termination of this Amendatory Agreement pursuant to this paragraph 7. 8. Except as provided herein, the September FT Agreement, the November FT Agreement, the FT-NN Agreement, and the CSS Agreement shall remain in full force and effect as written. 9. This Amendment is subject to all applicable, valid laws, orders, rules, and regulations of any governmental entity having jurisdiction over the parties or the subject matter hereof. WHEREFORE, the parties have executed this Amendment through their duly authorized representatives to be effective as of the date first written above. ATTEST: SOUTHERN NATURAL GAS COMPANY By: /s/ James J. Cleary By: /s/ James E. Moylan, Jr. Title: Vice President Title: President -4- ATTEST: ATLANTA GAS LIGHT COMPANY By: /s/ Charlie J. Lail By: /s/ Thomas H. Benson Title: Sr. V.P. Title: Executive Vice President and Chief Operating Officer - 5 - Service Agreement No. 902470 THIRD REVISED EXHIBIT E DISCOUNT INFORMATION Discounted Rates: (1) The Reservation Charge under this Agreement shall be the lesser of (i) $10.50/Mcf ($10.284/dt effective January 1, 1997), or (ii) the maximum lawful applicable reservation charge as approved by the FERC and in effect from time to time; (2) The applicable GSR Cost Surcharge and GSR Volumetric Surcharge shall be capped at 50% each; (3) All other surcharges shall be assessed at full rate under this Agreement. Discounted Rate Effective from 3/1/95 through 8/31/2002 /s/ Thomas H. Benson /s/ James E. Moylan, Jr. ATLANTA GAS LIGHT COMPANY SOUTHERN NATURAL GAS COMPANY Exhibit B Second Revised Exhibit B Page No. 1 of 5 Effective Date 1997/05/01 ATLANTA GAS LIGHT COMPANY The legal description of the Delivery Points listed below are more particularly set forth in the Company's Delivery Point catalogs, a copy of which can be requested from Company or accessed through SoNet, Company's electronic computer system. Pages I through 3 of this exhibit reflect Maximum Daily Delivery Quantities for FT Service Agreement No. 904460 and FT-NN Service Agreement No. 904461.
Delivery Delivery MDDQ Meter Capability Cont. Point Point in Daily Hourly Press. Description Code MCF (Mcf/d) (Mcf/h) (psig) Notes - ----------- ---- --- ------- ------- ------ ----- Atlanta Area 683600 255,814 A Fulton Ind'ial 910800 48,000 2,000 Line East Point 911000 20,000 1,000 Line 200# - 335# So. Atlanta #1 911300 137,000 8,200 290 Sewell Road 911400 270,000 14,000 Line < 335#, B So. Atlanta #2 911600 172,000 7,165 Line Marietta 912200 50,000 3,000 Reg 300# - 500#, F Hampton 913000 4,200 252 290 AGL Farm Taps 907000 Chatsworth 907600 2,127 Line Catoosa County 907800 258 300 Ringgold 908000 3,814 275 Macon Area 911500 53,916 A North Macon 915400 50,000 3,000 Line East Macon 915500 27,500 1,700 Line West Macon 915600 14,400 864 Line Macon-Mville #l 915800 89,395 5,360 Line D Macon-Mville #2 915900 60,000 3,600 Line D Jeffersonville 918200 2,110 126 Line >400# Savannah Area 911800 69,327 A Savannah #1 934600 30,000 1,800 125 Savannah #2 934700 46,500 2,790 Line >300# Savannah #3 934800 6,000 250 150 Savannah #4 934900 28,800 1,200 Line >400# Plant McIntosh 935000 69,327 8,703 Line >400# Griffin 913400 18,750 290 Forsyth 917200 2,073 Line
Exhibit B Second Revised Exhibit B Page No. 2 of 5 Effective Date 1997/05/01 ATLANTA GAS LIGHT COMPANY The legal description of the Delivery Points listed below are more particularly set forth in the Company's Delivery Point catalogs, a copy of which can be requested from Company or accessed through SoNet, Company's electronic computer system. Pages I through 3 of this exhibit reflect Maximum Daily Delivery Quantities for FT Service Agreement No. 904460 and FT-NN Service Agreement No. 904461.
Delivery Delivery MDDQ Meter Capability Cont. Point Point in Daily Hourly Press. Description Code MCF (Mcf/d) (Mcf/h) (psig) Notes - ----------- ---- --- ------- ------- ------ ----- Zebulon 917400 555 Line Thomaston 917600 7,406 150 Barnesville 917800 3,567 250 Jackson 918000 2,385 Reg 400# - 600# Danville 918400 350 400 Dexter 918600 410 400 AGL-Laurens Co. 918700 46,817 Line >700#,E Warrenton 930600 4,429 325 Blythe 931600 160 300 Sandersville 932500 6,430 Line >700# S'field-Guyton 934200 850 Reg 380# - 400# Rome Area 940013 29,971 A Rome #1 904200 13,300 800 Line >450# Rome #2 904300 20,000 1,100 260 Rome #3 904400 11,000 540 Line >400# Shannon 906200 1,300 70 150 C Augusta Area 940016 69,381 A Augusta #1 932000 53,140 3,188 400 Augusta #2 932100 35,000 1,500 Line Augusta #3 932200 18,333 1,100 500 Augusta #4 932300 19,200 800 Line New-Yat-Dal Area 940018 47,162 A Villa Rica 909400 1,875 113 150 Dallas #2 909800 9,600 400 300 Yates Junction 910100 20,400 850 Line Newnan Junction 910200 8,500 492 Line Douglasville 910400 10,800 450 Line >250#
Exhibit B Second Revised Exhibit B Page No. 3 of 5 Effective Date 1997/05/01 ATLANTA GAS LIGHT COMPANY The legal description of the Delivery Points listed below are more particularly set forth in the Company's Delivery Point catalogs, a copy of which can be requested from Company or accessed through SoNet, Company's electronic computer system. Pages I through 3 of this exhibit reflect Maximum Daily Delivery Quantities for FT Service Agreement No. 904460 and FT-NN Service Agreement No. 904461.
Delivery Delivery MDDQ Meter Capability Cont. Point Point in Daily Hourly Press. Description Code MCF (Mcf/d) (Mcf/h) (psig) Notes - ----------- ---- --- ------- ------- ------ ----- Calhoun Area 940019 4,552 A Calhoun #1 907200 9,640 578 230 Calhoun #2 907300 9,640 402 Line >350# Ctown-Rmart Area 940020 10,321 A Cedartown 903600 7,300 430 250 Rockmart 903800 7,800 470 250 Car'llton Area 940026 19,209 A Bowden 902800 1,560 65 300 Bremen 903000 5,544 231 300 Carrollton 909000 16,152 673 310 Temple 909200 1,200 50 150 GRAND TOTAL 660,034
Atlanta Gas Light Company Southern Natural Gas Company By: /s/ Thomas H. Benson By: /s/ James J. Cleary Vice President Date: 5/6/97 Date: 5/1/97 Exhibit B Second Revised Exhibit B Page No. 4 of 5 Effective Date 1997/05/01 ATLANTA GAS LIGHT COMPANY The legal description of the Delivery Points listed below are more particularly set forth in the Company's Delivery Point catalogs, a copy of which can be requested from Company or accessed through SoNet, Company's electronic computer system. Page 4 of this exhibit reflects Maximum Daily Delivery Quantities for FT Service Agreement No. 902470.
Delivery Delivery MDDQ Meter Capability Cont. Point Point in Daily Hourly Press. Description Code MCF (Mcf/d) (Mcf/h) (psig) Notes - ----------- ---- --- ------- ------- ------ ----- Atlanta Area 683600 100,000 A Fulton lnd'ial 910800 48,000 2,000 Line East Point 911000 20,000 1,000 Line 200# - 335# So. Atlanta #1 911300 137,000 8,200 290 Sewell Road 911400 270,000 14,000 Line < 335#, B So. Atlanta #2 911600 172,000 7,165 Line Marietta 912200 50,000 3,000 Reg 300# - 500#, F Hampton 913000 4,200 252 290 GRAND TOTAL 100,000
Atlanta Gas Light Company Southern Natural Gas Company By: /s/ Thomas H. Benson By: James J. Cleary Vice President Date: 5/6/97 Date: 5/1/97 Exhibit B First Revised Exhibit B Page No. 5 of 5 Effective Date 1998/11/01 Atlanta Gas Light Company Service Agreement Nos. 904460, 904461 and 902470 (A) Company's obligation to deliver gas at each measurement station comprising this Delivery Point is limited to the delivery capacity of Company's facilities (at the measurement station and of the upstream pipelines serving said station) as it exists from time to time. (B) At a delivery pressure of 300 PSIG, the maximum hourly rate will be 12,000 Mcf; and the maximum daily rate 258,470 Mcf. (C) Maximum hourly rate to be 80 Mcf upon the installation of additional meter (after notification by purchaser) when required increased load. (D) In accordance with ordering Paragraph (B) of the Commission's Order issued December 27, 1973, in Docket No. CP74-7, combined deliveries through the Macon-Milledgeville No. 1 and No. 2 Meter Stations for any calendar year may not exceed 20,047,991 Mcf. (E) The maximum hourly volume under Section 10.2 of the General Terms and Conditions of Company's FERC Gas Tariff shall be the lesser of 6% of the MDDQ or 2,200 Mcf/h. (F) Notwithstanding the provisions of Note A to this Exhibit B, once the facilities proposed in Company's phase II expansion filing to serve customers in East Tennessee in Docket No. CP97-____ are placed in service, Company's obligation will be to provide delivery capacity to the Marietta Delivery Point of 4,000 Mcf of gas per hour on a steady state basis within AGL's firm transportation capacity of 355,814 Mcf/d for the Atlanta Area. The maximum hourly volume for the Atlanta Area Delivery Point under Section 10.2 of the General Terms and conditions of Company's FERC Gas Tariff shall be 6% of Shipper's total MDDQ for the Atlanta Area Delivery Point. EX-10 5 ATLANTA GAS LIGHT COMPANY EXHIBIT 10.3 Exhibit 10.3 AMENDATORY AGREEMENT This Amendment is entered into this 21st day of April, 1997, between SOUTHERN NATURAL GAS COMPANY ("Company") and CHATTANOOGA GAS COMPANY ("Shipper"). WITNESSETH: WHEREAS, Company and Shipper are parties to a contract storage service agreement dated November 1, 1994, (#S20130) as amended March 1, 1995, and July 26, 1996, under Company's Rate Schedule CSS ("Agreement") for 695,871 Mcf (maximum storage quantity) for a primary term through February 28, 2000; and WHEREAS, Company and Shipper have had discussions regarding an extension of the primary term under the Agreement as more specifically provided for herein; NOW, THEREFORE, in consideration of the premises and the mutual benefits and covenants contained herein, the parties agree as follows: 1. Section 4.1 of the CSS Agreement shall be deleted in its entirety and the following Section 4.1 substituted therefor: "Subject to the provisions hereof, this Agreement shall become effective as of the date first hereinabove written and shall be in full force and effect for a primary term through August 31, 2003, and shall continue and remain in force and effect for successive terms of one year each thereafter if the parties mutually agree in writing to each such yearly extension at least 365 days prior to the end of the primary term or any subsequent yearly extension." 2. Except as provided herein, the Agreement shall remain in full force and effect as written. 3. This Amendment is subject to all applicable, valid laws, orders, rules, and regulations of any governmental entity having jurisdiction over the parties or the subject mater hereof. 4. This Amendment shall be binding on the parties' respective successors and assigns. WHEREFORE, the parties have executed this Amendment through their duly authorized representatives to be effective as of the date first written above. ATTEST: SOUTHERN NATURAL GAS COMPANY By: /s/ James J. Cleary By: /s/ James E. Moylan, Jr. Title: Vice President Title: President ATTEST: CHATTANOOGA GAS COMPANY By: /s/ Melanie M. Platt By: /s/ Harrison F. Thompson Title: V.P. & Corp. Secy. Title: President - 2 - EX-10 6 ATLANTA GAS LIGHT COMPANY EXHIBIT 10.4 Exhibit 10.4 AMENDATORY AGREEMENT This Amendment is entered into this 21st day of April, 1997, between SOUTHERN NATURAL GAS COMPANY ("Company") and CHATTANOOGA GAS COMPANY ("Shipper"). WITNESSETH: WHEREAS, Company and Shipper are parties to a firm transportation agreement dated November 1, 1994, (#904470) as amended March 1, 1995, and July 26, 1996, under Company's Rate Schedule FT ("Agreement") for an aggregate quantity of 7,949 Mcf per day of Transportation Demand for separately stated terms; and WHEREAS, Company and Shipper have had discussions regarding an extension of the primary term for a portion of the Transportation Demand under the Agreement as more specifically provided for herein; NOW, THEREFORE, in consideration of the premises and the mutual benefits and covenants contained herein, the parties agree as follows: 1. Section 4.1 of the FT Agreement shall be deleted in its entirety and the following Section 4. 1 substituted therefor: "Subject to the provisions hereof, this Agreement shall become effective as of the date first hereinabove written and shall be in full force and effect for primary terms through the following dates: (a) April 30, 2007, for 3,300 Mcf per day of Transportation Demand, and shall continue and remain in force and effect for successive terms of one year each thereafter, unless and until canceled by either party giving 180 days written notice to the other party prior to the end of the primary term or any yearly extension thereof, and (b) August 31, 2003, for 4,649 Mcf per day of Transportation Demand, and shall continue and remain in force and effect for successive terms of one year each thereafter if the parties' mutually agree in writing to each such yearly extension at least 365 days prior to the end of the primary term or subsequent yearly extension." 2. Except as provided herein, the Agreement shall remain in full force and effect as written. 3. This Amendment is subject to all applicable, valid laws, orders, rules, and regulations of any governmental entity having jurisdiction over the parties or the subject mater hereof. 4. This Amendment shall be binding on the parties' respective successors and assigns. WHEREFORE, the parties have executed this Amendment through their duly authorized representatives to be effective as of the date first written above. ATTEST: SOUTHERN NATURAL GAS COMPANY By: /s/ James J. Cleary By: /s/ James E. Moylan, Jr. Title: Vice President Title: President ATTEST: CHATTANOOGA GAS COMPANY By: /s/ Melanie M. Platt By: /s/ Harrison F. Thompson Title: V. P. and Corp. Secy Title: President - 2 - EX-10 7 ATLANTA GAS LIGHT COMPANY EXHIBIT 10.5 Exhibit 10.5 AMENDATORY AGREEMENT This Amendment is entered into this 21st day of April, 1997, between SOUTHERN NATURAL GAS COMPANY ("Company") and CHATTANOOGA GAS COMPANY ("Shipper"). WITNESSETH: WHEREAS, Company and Shipper are parties to a firm transportation-no notice agreement dated November 1, 1994, (#904471) as amended March 1, 1995, and July 26, 1996, under Company's Rate Schedule FT-NN ("Agreement") for 14,051 Mcf per day of Transportation Demand for a primary term through February 28, 2000; and WHEREAS, Company and Shipper have had discussions regarding an extension of the primary term under the Agreement as more specifically provided for herein; NOW, THEREFORE, in consideration of the premises and the mutual benefits and covenants contained herein, the parties agree as follows: 1. Section 4.1 of the FT-NN Agreement shall be deleted in its entirety and the following Section 4.1 substituted therefor: "Subject to the provisions hereof, this Agreement shall become effective as of the date first hereinabove written and shall be in full force and effect for a primary term through August 31, 2003, and shall continue and remain in force and effect for successive terms of one year each thereafter if the parties mutually agree in writing to each such yearly extension at least 365 days prior to the end of the primary term or any subsequent yearly extension." 2. Except as provided herein, the Agreement shall remain in full force and effect as written. 3. This Amendment is subject to all applicable, valid laws, orders, rules, and regulations of any governmental entity having jurisdiction over the parties or the subject mater hereof. 4. This Amendment shall be binding on the parties' respective successors and assigns. WHEREFORE, the parties have executed this Amendment through their duly authorized representatives to be effective as of the date first written above. ATTEST: SOUTHERN NATURAL GAS COMPANY By: /s/ James J. Cleary By: /s/ James E. Moylan, Jr. Title: Vice President Title: President ATTEST: CHATTANOOGA GAS COMPANY By: /s/ Melanie M. Platt By: /s/ Harrison F. Thompson Title: V. P. and Corp. Secy. Title: President - 2 - EX-10 8 ATLANTA GAS LIGHT COMPANY EXHIBIT 10.6 Exhibit 10.6 [LETTERHEAD OF SOUTHERN NATURAL GAS COMPANY APPEARS HERE] SOUTHERN NATURAL GAS April 21, 1997 Mr. Stephen J. Gunther President AGL Energy Services, Inc. Post Office Box 4569 Atlanta, Georgia 30302-4569 Dear Steve: This letter is to clarify Southern's position on various items that we have recently discussed regarding service levels to Atlanta Gas Light Company ("AGL") as a result of Southern's upcoming expansion filing of approximately 65,000 Mcf/d to serve customers in East Tennessee and elsewhere in Zones 3 and 2 (the "ET Phase II Filing"). To this end, Southern confirms the following items: 1. Southern will design its facilities for the ET Phase II Filing in a manner that will enable Southern to provide deliveries to AGL's Marietta meter station of 4,000 Mcf of gas per hour on a steady state basis at a pressure of not less than 300 psig once such facilities are placed in service. Such deliveries would be within AGL's firm transportation capacity of 355,814 Mcf/d for the Atlanta Area, as described in Exhibit B to AGL's Service Agreement Nos. 904460, 904461, and 902470. 2. The facilities in the ET Phase II Filing will be designed to enable Southern to provide approximately 65,000 Mcf/d of additional firm service to Zones 2 and 3. Based on its TGNET gas flow model, Southern expects that the level of IT service to delivery points in Zone 3 will be as set forth in the attached schedule upon installation of the facilities in the ET Phase II filing. While this reflects Southern's best estimate, based on our gas flow model, of the expected level of IT services that will be available to Zone 3 with the installation [LETTERHEAD OF SOUTHERN NATURAL GAS COMPANY APPEARS HERE] Mr. Stephen J. Gunter April 21, 1997 Page 2 of the ET Phase II facilities, the actual level of IT service to delivery points in Zone 3 will depend upon a number of factors including, among other things, the physical gas flows, future gas loads, future expansion facilities, and the IT allocation method utilized. Under the IT allocation method currently utilized, the IT loss in the Atlanta Area due to the ET Phase II expansion would be a pro-rata share of the IT loss in Zone 3 (based on the Atlanta group's IT allocation per such method compared to the total IT allocated to Zone 3 under such method). Southern acknowledges that neither it nor AGL has agreed by this letter to maintain the current IT allocation method in the future. 3. Southern clarifies its position that as long as AGL retains at least 760,000 Mcf/d of long-term FT and FT-NN contracts, a. Southern will propose in its East Tennessee Phase II Filing, and in future pipeline expansions, a facilities design that preserves the ability of AGL to shift up to 53,916 Mcf/d of firm capacity on a preferred interruptible ("B-1") basis from AGL's Macon Area delivery point to AGL's Atlanta Area delivery points. b. Southern will defend such design(s) in its East Tennessee Phase II Filing, and in future pipeline expansions, if challenged at FERC, and will oppose efforts by FERC Staff and/or other intervenors to modify or alter the design of such facilities in a manner that would reduce or eliminate AGL's ability to shift up to 53,916 Mcf/d on a B-1 basis from the Macon Area delivery point to AGL's Atlanta Area delivery points. If in the future AGL reduces its level of FT and FT-NN contracts pursuant to Southern's initiation of the right of first refusal procedures ("ROFR") prior to September 1, 2002, as provided in Section 20 of Southern's tariff, the 760,000 Mcf/d threshold described above will be reduced by the amount of capacity relinquished by AGL as a result of such ROFR [LETTERHEAD OF SOUTHERN NATURAL GAS COMPANY APPEARS HERE] Mr. Stephen J. Gunter April 21, 1997 Page 3 procedure(s), but not to exceed a reduction of 30,000 Mcf/d in the aggregate. This provision does not apply to the ROFR procedures initiated in connection with the ET Phase II Filing. However, it is intended to allow AGL some latitude with respect to its level of FT and FT-NN in the future, while maintaining Southern's agreement to propose and defend facility designs in the ET Phase II Filing, and in future pipeline expansions, which preserve the ability of AGL to shift up to 53,916 Mcf/d of firm capacity on a preferred interruptible ("B-1") basis from its Macon Area delivery point to its Atlanta Area delivery point. If AGL has any questions about any of the above clarification items or disagrees with any of them please advise us as soon as possible. Very truly yours, SOUTHERN NATURAL GAS COMPANY By: /s/ James J. Cleary James J. Cleary -----END PRIVACY-ENHANCED MESSAGE-----