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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended September 30, 1996
Commission File Number 1-14174
AGL RESOURCES INC.
(Exact name of registrant as specified in its charter)
Georgia 58-2210952
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
303 Peachtree Street, N.E.,
Atlanta, Georgia
30308
(Address and zip code of 404-584-9470
principal executive offices) (Registrant's telephone number,
including area code)
Securities registered pursuant to Section 12(b) of the Act:
Common Stock, $5 Par Value New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
(Title of Class) (Name of exchange on which registered)
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
Aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the closing price of such stock as of
November 29,1996: $1,177,590,035.
The number of shares of Common Stock outstanding as of November 29, 1996 was
55,743,907 shares.
DOCUMENTS INCORPORATED BY REFERENCE:
Portions of the 1996 Annual Report to Shareholders for AGL Resources Inc. for
the fiscal year ended September 30, 1996, are incorporated herein by reference
in Part II and portions of the Proxy Statement for the 1997 Annual Meeting of
Shareholders are incorporated herein by reference in Part III.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
TABLE OF CONTENTS
Page
PART I
Item 1. Business............................................. 1
Item 2. Properties........................................... 13
Item 3. Legal Proceedings.................................... 13
Item 4. Submission of Matters to a Vote of
Security Holders................................... 15
Item 4.(A). Executive Officers of the Registrant................. 16
PART II
Item 5. Market for the Registrant's Common Equity
and Related Stockholder Matters.................... 17
Item 6. Selected Financial Data.............................. 17
Item 7. Management's Discussion and Analysis of
Results of Operations and Financial Condition...... 17
Item 8. Financial Statements and Supplementary Data.......... 17
Item 9. Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure............. 17
PART III
Item 10. Directors and Executive Officers of the
Registrant......................................... 18
Item 11. Executive Compensation............................... 18
Item 12. Security Ownership of Certain Beneficial
Owners and Management.............................. 18
Item 13. Certain Relationships and Related Transactions....... 18
PART IV
Item 14. Exhibits, Financial Statement Schedules
and Reports on Form 8-K............................ 19
Signatures ...................................................... 21
Part I
- --------------------------------------------------------------------------------
Item 1. Business
GENERAL
AGL Resources Inc. (AGL Resources) is a Georgia corporation incorporated
on November 27, 1995, for the primary purpose of becoming the holding company
for Atlanta Gas Light Company (AGLC), a natural gas distribution utility, and
its subsidiaries. Unless noted specifically or otherwise required by the
context, references to AGL Resources include AGLC, AGLC's wholly owned natural
gas utility subsidiary, Chattanooga Gas Company (Chattanooga), and AGL
Resources' nonregulated subsidiaries: AGL Energy Services, Inc. (AGL Energy
Services); AGL Investments, Inc. (AGL Investments); AGL Resources Service
Company (Service Company); and The Energy Spring, Inc. AGL Energy Services has
one nonregulated subsidiary, Georgia Gas Company. AGL Investments has six
nonregulated subsidiaries: Georgia Gas Service Company; Georgia Energy Company;
AGL Consumer Services, Inc.; AGL Gas Marketing, Inc.; AGL Power Services, Inc.;
and Trustees Investments, Inc. Unless noted specifically or otherwise required
by the context, references to AGLC include the operations and activities of AGLC
and Chattanooga.
AGL Resources' principal business is the distribution of natural gas to
customers in central, northwest, northeast and southeast Georgia and the
Chattanooga, Tennessee area through its natural gas distribution subsidiary,
AGLC. AGLC's major service area is the ten county metropolitan Atlanta area.
Metropolitan Atlanta has an estimated population of 3 million, constituting
approximately 41% of the total population of Georgia. Approximately 66% of
AGLC's customers are located in the Atlanta metropolitan area. These customers
consume 48% of the natural gas sold and transported and provide approximately
60% of the gas revenues of AGLC. AGLC's other principal service areas in Georgia
are the Athens, Augusta, Brunswick, Macon, Rome, Savannah and Valdosta areas.
During the fiscal year ended September 30, 1996, AGLC supplied natural gas
service to an average of approximately 1.3 million customers in Georgia
including 516 centrally metered customers serving 50,098 apartment units. AGLC
provides natural gas service in 235 cities and surrounding areas in Georgia. In
addition to AGLC's service areas in Georgia, natural gas service was supplied by
Chattanooga to an average of approximately 52,000 customers in Chattanooga and
Cleveland, Tennessee, and surrounding portions of Hamilton County and Bradley
County, Tennessee during the fiscal year ended September 30, 1996. All of AGLC's
natural gas service area is certificated by the Georgia Public Service
Commission (Georgia Commission) and the Tennessee Regulatory Authority (TRA),
formerly the Tennessee Public Service Commission.
The areas served by AGLC in Georgia outside the metropolitan areas
described in the preceding paragraph were for many years primarily agricultural,
with timber, poultry, cattle, cotton, tobacco, peanuts and soy beans among the
principal products. However, both industry and agriculture are currently
important to the economies of these areas. In addition to the industries that
use local natural resources such as pulpwood, clay, marble, talc and kaolin,
AGLC serves a number of nationally known organizations that operate
installations in Georgia. These operations increase substantially the
diversification of industry in AGLC's service area.
During fiscal 1996, AGLC added approximately 41,500 customers, based on
12-month average calculations, representing an increase over the prior year of
approximately 3%. Substantially all of this growth was in the residential and
small commercial service categories.
The ten largest customers of AGLC accounted for 1.9% and 1.4% of AGL
Resources' total operating revenues and operating margin, respectively, for the
fiscal year ended September 30, 1996. For the same period, volumes of gas sold
and transported to the ten largest customers accounted for 10.6% of total
volumes of gas sold and transported.
AGL Resources' consolidated operating revenues during the fiscal year
ended September 30, 1996, were $1.2 billion, of which approximately 58% was
derived from residential utility customers, 24% from commercial utility
customers, 14% from industrial utility customers, 2% from transportation
customers and 2% from other sources.
1
AGL Resources engages in nonregulated business activities through its
wholly owned subsidiaries, AGL Energy Services, a gas supply services company;
AGL Investments, a subsidiary established to develop and manage certain
nonregulated businesses; The Energy Spring, Inc., a retail energy marketing
company; Service Company and their subsidiaries.
During August 1995 AGLC signed an agreement with Sonat Inc. (Sonat) to
form a joint venture to acquire the business of Sonat Marketing Company, a
wholly owned subsidiary of Sonat. The joint venture, Sonat Marketing Company
L.P. (Sonat Marketing), offers natural gas sales, transportation, risk
management and storage services to natural gas users and producers in key
natural gas producing and consuming areas of the United States.
AGLC invested $32.6 million in exchange for a 35% ownership interest in
Sonat Marketing. During the third quarter of fiscal 1996, AGLC's interest in
Sonat Marketing was transferred to AGL Gas Marketing, Inc., a wholly owned
subsidiary of AGL Investments. AGL Investments has certain rights for a period
of five years to sell its interest in Sonat Marketing to Sonat at a
predetermined fixed price, as defined, or for fair market value at any time.
During June 1996 Sonat Power Marketing, Inc. and AGL Power Services,
Inc., a wholly owned subsidiary of AGL Investments (AGL Power Services), formed
a joint venture, Sonat Power Marketing, L.P. AGL Power Services invested
approximately $1 million in exchange for a 35% ownership interest in the
partnership. Sonat Power Marketing L.P. provides power marketing and all related
services in key market areas throughout the United States.
In addition to its predominant business of natural gas distribution and
its investments in joint ventures, AGL Resources, through wholly owned
subsidiaries, serves approximately 14,000 customers in Georgia and Alabama
through retail propane sales (Georgia Gas Service Company), and has minor
interests in natural gas production activities (Georgia Gas Company) and real
estate holdings (Trustees Investments, Inc.). The aggregate net income
contributed by nonregulated operations in fiscal 1996 was $3.9 million. See Part
I, Item 1, "Business - Subsidiaries."
Through September 30, 1996, historic maximum daily sendout of natural gas
was approximately 2.15 billion cubic feet which occurred on February 4, 1996.
The mean temperature in the metropolitan Atlanta area that day was 11(degree) F.
AGL Resources' primary business of gas distribution through AGLC is highly
seasonal in nature and heavily dependent on weather because of the substantial
use of gas for heating purposes. However, the Georgia Commission and the TRA
have authorized the implementation of weather normalization adjustment riders,
which are designed to offset the impact that either unusually cold or unusually
warm weather has on operating margin, earnings and cash flow and are designed to
stabilize operating margin and earnings at the levels which would occur with
normal weather. For the effects of seasonal variations on quarterly earnings,
see Note 14 in Notes to Consolidated Financial Statements in AGL Resources' 1996
Annual Report to Shareholders.
On September 30, 1996, AGL Resources and its subsidiaries had 2,952
employees. Approximately 640 employees working for AGLC and 55 employees working
for Service Company are covered by provisions of collective bargaining
agreements with the General Teamsters Local Union No. 528. The master agreement,
among the Teamsters, AGLC and Service Company, provides for a $1,000 lump sum
payment to each covered employee in October 1996 and a $500 lump sum payment in
September 1997 and 1998. In addition, the pay ranges for all covered positions
are scheduled to increase 3% in September 1997 and 1998 and 3.5% in 1999. Based
on current pay levels, it is anticipated that few covered employees will see any
base rate increases until 1999. That agreement expires September 17, 2000.
A five-year collective bargaining agreement among AGLC, Service Company
and the International Union of Operating Engineers, Local Union No. 474,
covering 60 employees in Savannah, Georgia, was ratified on November 14, 1996.
The contract provides for a $1,000 lump sum payment to each covered employee in
November 1996 and a $500 lump sum payment in November 1997 and 1998. In
addition, the pay ranges for all covered positions are scheduled to increase 3%
in September 1997 and 1998, 3.5% in 1999, and 3% in the year 2000. Based on
current pay levels, it is anticipated that few covered employees will see any
base rate increases until 1998. That agreement expires November 4, 2001.
2
Additionally, AGLC has approximately 60 employees at its Chattanooga and
Cleveland, Tennessee facilities covered by an agreement with the Utility Workers
Union of America, Local Union No. 461. A new five-year agreement with the
Utility Workers became effective October 15, 1996. The agreement provides for a
$1,000 lump sum payment to each covered employee in November 1996 and a $500
lump sum payment in October 1997 and 1998. In addition, the pay ranges for all
covered positions are scheduled to increase 3% in September 1997 and 1998, 3.5%
in 1999, and 3% in the year 2000. Based on current pay levels, it is anticipated
that few covered employees will see any base rate increases until 1998. That
agreement expires October 14, 2001.
AGLC holds franchises, permits, certificates and rights which management
believes are sufficient for the operation of its properties without any
substantial restrictions and adequate for the operation of its gas distribution
business.
SUBSIDIARIES
As a result of the formation of the holding company, ownership of
nonregulated businesses was transferred from AGLC to various subsidiaries of AGL
Resources. Ownership of Georgia Gas Company (natural gas production activities)
has been transferred to AGL Energy Services. Ownership of Georgia Energy Company
(natural gas vehicle conversions), Georgia Gas Service Company (retail propane
sales) and Trustees Investments, Inc. (real estate holdings) has been
transferred to AGL Investments. AGLC's interest in Sonat Marketing Company L.P.
has been transferred to AGL Gas Marketing, Inc., a wholly owned subsidiary of
AGL Investments. In addition, AGL Investments has established two wholly owned
subsidiaries: AGL Power Services, which owns a 35% interest in Sonat Power
Marketing, L.P., and AGL Consumer Services, Inc., an energy-related consumer
products and services company. Service Company was formed during fiscal 1996 to
provide corporate support services to AGL Resources and its subsidiaries.
Expenses of Service Company are allocated to AGL Resources and its subsidiaries.
SUBSEQUENT EVENT
During December 1996, AGL Resources signed a letter of intent with
Transcontinental Gas Pipe Line Corporation (Transco) to form a joint venture,
which would be known as Cumberland Pipeline Company, to operate and market
interstate pipeline capacity. The transaction is subject to various corporate
and regulatory approvals.
Initially, the 135-mile Cumberland pipeline will consist of existing
pipeline infrastructure owned by the two companies. Projected to enter service
by November 1, 2000, Cumberland will provide service to AGLC, Chattanooga and
other markets throughout the eastern Tennessee Valley.
Affiliates of Transco and AGL Resources each will own 50% of the new
pipeline company, and an affiliate of Transco will serve as operator. The
project will be submitted to the Federal Energy Regulatory Commission for
approval in the fourth quarter of 1997.
The remainder of this page was intentionally left blank.
3
Gas Sales and Statistics
FOR THE YEARS ENDED SEPTEMBER 30
1996 1995 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------------------
Operating Revenues (Millions of Dollars)
Sales of gas
Residential ................................. $ 708.8 $ 610.6 $ 700.7 $ 658.2 $ 575.7
Commercial .................................. 288.8 243.2 285.8 268.1 231.5
Industrial .................................. 178.8 169.4 172.1 154.2 140.9
Transportation revenues ....................... 21.5 23.9 22.6 33.8 36.6
Miscellaneous revenues ........................ 19.7 15.9 18.7 16.0 9.9
- ---------------------------------------------------------------------------------------------------------------------
Total utility operating revenues .............. 1,217.6 1,063.0 1,199.9 1,130.3 994.6
- ---------------------------------------------------------------------------------------------------------------------
Other operating revenues ...................... 2.6
- ---------------------------------------------------------------------------------------------------------------------
Total operating revenues .................. $ 1,220.2 $ 1,063.0 $ 1,199.9 $ 1,130.3 $ 994.6
=====================================================================================================================
Utility Throughput
Therms sold (Millions)
Residential ................................ 1,165.4 916.8 1,003.1 1,001.4 915.4
Commercial ................................. 538.2 454.0 478.9 478.5 433.9
Industrial ................................. 449.6 526.0 424.8 388.7 445.0
- ---------------------------------------------------------------------------------------------------------------------
Therms transported ............................ 738.7 722.8 697.4 795.6 901.8
- ---------------------------------------------------------------------------------------------------------------------
Total utility throughput .................. 2,891.9 2,619.6 2,604.2 2,664.2 2,696.1
=====================================================================================================================
Average Utility Customers (Thousands)
Residential ................................... 1,289.4 1,250.4 1,215.2 1,182.7 1,152.2
Commercial .................................... 102.5 100.0 98.0 95.7 93.7
Industrial .................................... 2.6 2.6 2.5 2.5 2.5
- ---------------------------------------------------------------------------------------------------------------------
Total ..................................... 1,394.5 1,353.0 1,315.7 1,280.9 1,248.4
=====================================================================================================================
Sales, Per Average Residential Customer
Gas sold (Therms) ............................. 904 733 825 847 794
Revenue (Dollars) ............................. 550.00 488.32 576.61 556.52 499.65
Revenue per therm (Cents) ..................... 60.8 66.6 69.9 65.7 62.9
Degree Days - Atlanta Area
30-year normal ................................ 2,991 2,991 2,991 3,021 3,021
Actual ........................................ 3,191 2,121 2,565 2,852 2,552
Percentage of actual to 30-year normal ........ 106.7 70.9 85.8 94.4 84.5
Gas Account (Millions of Therms)
Natural gas purchased ......................... 1,632.9 1,406.9 1,453.6 1,629.9 1,555.4
Natural gas withdrawn from storage ............ 596.0 520.7 500.3 276.4 263.3
Gas transported ............................... 738.7 722.8 697.4 795.6 901.8
- ---------------------------------------------------------------------------------------------------------------------
Total send-out ............................ 2,967.6 2,650.4 2,651.3 2,701.9 2,720.5
Less
Unaccounted for ............................. 60.4 20.4 37.2 29.0 16.2
Company use ................................. 15.3 10.4 9.9 8.7 8.2
- ---------------------------------------------------------------------------------------------------------------------
Sold and transported to utility customers . 2,891.9 2,619.6 2,604.2 2,664.2 2,696.1
=====================================================================================================================
Cost of Gas (Millions of Dollars)
Natural gas purchased ......................... $ 547.1 $ 389.4 $ 550.1 $ 595.7 $ 487.9
Natural gas withdrawn from storage ............ 171.6 182.4 186.7 105.3 102.6
- ---------------------------------------------------------------------------------------------------------------------
Cost of gas - utility operations .............. 718.7 571.8 736.8 701.0 590.5
Cost of gas - other ........................... 1.6
- ---------------------------------------------------------------------------------------------------------------------
Total cost of gas ......................... $ 720.3 $ 571.8 $ 736.8 $ 701.0 $ 590.5
=====================================================================================================================
Utility Plant - End of Year (Millions of Dollars)
Gross plant ................................... $ 1,969.0 $ 1,919.9 $ 1,833.2 $ 1,740.6 $ 1,634.8
Net plant ..................................... $ 1,361.2 $ 1,336.6 $ 1,279.6 $ 1,217.9 $ 1,157.4
Gross plant investment per customer
(Thousands of Dollars) ...................... $ 1.4 $ 1.4 $ 1.4 $ 1.4 $ 1.3
Capital Expenditures (Millions of Dollars) ...... $ 132.5 $ 121.7 $ 122.5 $ 122.2 $ 132.9
Gas Mains - Miles of 3" Equivalent .............. 29,045 28,520 27,972 27,390 26,936
Employees - Average ............................. 2,942 3,249 3,764 3,764 3,794
Average Btu Content of Gas ...................... 1,024 1,027 1,032 1,027 1,024
=====================================================================================================================
4
GAS SUPPLY SERVICES, PRICING AND COMPETITION
General
AGLC is served directly by four interstate pipelines: Southern Natural Gas
Company (Southern), South Georgia Natural Gas Company (South Georgia),
Transcontinental Gas Pipe Line Corporation (Transco) and East Tennessee Natural
Gas Company (East Tennessee), in combination with its upstream pipeline,
Tennessee Gas Pipeline Company (Tennessee) ,the parent company and primary
source of gas for East Tennessee.
As a result of Order 636, gas purchasing decisions made by local
distribution companies (LDCs) are subject to greater review by state regulatory
commissions. Leglislation was enacted by the Georgia General Asembly in 1994
which provides for annual review and approval by the Georgia Commission of
AGLC's gas services portfolio on a prospective basis. On August 1, 1996, AGLC
made its annual gas supply plan filing for fiscal 1997 and on September 13,
1996, the Georgia Commission issued its order approving the mix of gas services
in the portfolio.
Firm Pipeline Transportation and Underground Storage
The table on the following page shows the amount of firm transportation
and describes the types and amounts of underground storage that both AGLC and
Chattanooga have elected or been assigned under Order 636. The table also shows
services that were not affected by the implementation of Order 636.
The remainder of this page was intentionally left blank.
5
Production Area Supplemental
Underground Underground
Maximum Storage Storage
Firm Maximum Maximum
Transportation Withdrawal Withdrawal Expiration
Mcf/Day Mcf/Day(1) Mcf/Day(2) Date
------- ------- ------- -------
ATLANTA GAS LIGHT COMPANY
- -------------------------
Southern
Firm Transportation 1,000 June 30, 2007
Firm Transportation 604,857 February 28, 1999
Firm Transportation 45,272 February 29, 2000
Firm Transportation 110,905 April 30, 2007
CSS 382,089 February 28, 1999
CSS 24,133 February 29, 2000
ANR - 50 113,000 March 31, 2003
ANR - 100 55,500 March 31, 2003
Transco
Firm Transportation 107,600 March 31, 2010
Firm Transportation 15,000 July 1, 2005
Firm Transportation 6,222 March 17, 2008
Firm Transportation 4,500 October 31, 2009
WSS 70,588 March 31, 2010
Eminence Storage 11,263 March 31, 1997
Eminence Storage 19,034 October 31, 2013(3)
GSS 57,016 June 30, 2001(3)
GSS 67,919 March 31, 2013(3)
LSS 17,430 March 31, 1994(4)
SS-1 20,211 March 31, 2009
LGA 41,522 October 31, 1991(4)
Cove Point LNG 66,667 April 15, 1997
Other 14,493 March 31, 2001
Other 4,831 March 31, 1997
Tennessee/East Tennessee
Firm Transportation 62,000 November 1, 2000(3)
FS Storage 29,485 November 1, 2000
CNG 3,321 March 31, 2001
South Georgia
Firm Transportation 11,877 April 30, 2007
ANR - 100 708 March 31, 2003
CSS 6,764 February 28, 1998
------- ------- -------
Total 969,233 546,677 459,297
======= ======= =======
CHATTANOOGA GAS COMPANY
- -----------------------
Southern
Firm Transportation 4,649 February 28, 2000
Firm Transportation 14,051 February 28, 2000
Firm Transportation 3,300 April 30, 2007
CSS 14,051 February 28, 2000
Tennessee/East Tennessee
Firm Transportation 45,000 November 1, 2000(3)
FS Storage 20,802 November 1, 2000
CNG 2,411 March 31, 2001
------- -------
Total 67,000 37,264
======= =======
(1) Production area storage requires a complementary amount of the firm
transportation capacity identified in the first column to move storage gas
withdrawals to AGLC's service area.
(2) Supplemental underground storage withdrawals include delivery to AGLC's
service area and do not require any of the firm transportation capacity
identified in the first column. Injections into supplemental " underground
storage require incremental transportation, primarily from transportation
identified in Column 1."
(3) Expiration dates are shown for these contracts although contracts have not
yet been executed. AGLC is operating under Natural Gas Act (NGA) certificate
authority while negotiating these contracts.
(4) AGLC is operating under NGA certificate authority while negotiating these
contracts.
6
Wellhead Supply
AGLC and Chattanooga have entered into firm wellhead supply contracts to
purchase 442,973 Mcf/day and 27,427 Mcf/day, respectively, of their firm
transportation and underground storage requirements. AGLC anticipates entering
into additional firm wellhead supply contracts by the end of December 1996 to
purchase up to 58,851 Mcf/day for AGLC and 6,342 Mcf/day for Chattanooga. AGLC
also purchases spot market gas as needed during the year.
Liquefied Natural Gas
To meet the demand for natural gas on the coldest days of the winter
months, AGLC must also maintain sufficient supplemental quantities of liquefied
natural gas (LNG) in its supply portfolio. AGLC's three strategically located
Georgia-based LNG plants -- north and south of Atlanta and near Macon --
currently provide a combined maximum daily supplement of 665,000 Mcf and a
combined usable storage capacity of 72 million gallons, equivalent to 6,214,921
Mcf. This combined maximum daily supplement is expected to increase to 765,000
Mcf in January 1997 with the installation of additional equipment at the LNG
plant north of Atlanta. Chattanooga's LNG plant provides a maximum daily
supplement of 90,000 Mcf and has a usable storage capacity of 13 million
gallons, equivalent to 1,207,574 Mcf.
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.
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
7
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 46 Negotiated Contracts. Additionally, the Georgia
Commission has approved Special Contracts between AGLC and five interruptible
customers.
For additional information regarding competitive initiatives in Georgia,
see Part I, Item 1, "Business - State Regulatory Matters."
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 7, 1996, the TRA
hearing officer recommended approval of 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.
FEDERAL REGULATORY MATTERS
Order 636
On July 16, 1996, the United States Court of Appeals for the District of
Columbia Circuit (D.C. Circuit) issued its ruling in UNITED DISTRIBUTION COS. V.
FERC, concerning the appeals from Order No. 636, which mandated the unbundling
of interstate pipeline sales service and established new open access
transportation regulations. The court generally upheld the Federal Energy
Regulatory Commission's (FERC) orders against a broad array of challenges, but
remanded the orders to the FERC for reconsideration of certain issues, including
the FERC's decision to permit pipelines to pass all of their gas supply
realignment (GSR) costs through to their customers and its decision to require
interruptible transportation customers to bear 10% of GSR costs. The FERC has
not yet issued an order on remand, and thus it is not known whether the FERC
will change its GSR policies. On October 29, 1996, the D.C. Circuit rejected
requests for rehearing filed by AGLC and others, which sought reversal of the
court's ruling affirming the FERC's authority over capacity release by LDCs. The
court's order is subject to possible further proceedings before the United
States Supreme Court.
AGLC, based on filings with FERC by its pipeline suppliers, currently
estimates that its portion of transition costs, costs that previously were
recovered in the pipelines' rate for bundled sales services, from all of its
pipeline suppliers would be approximately $109.9 million. Such filings currently
are pending before FERC for final approval, and the transition costs are being
collected subject to refund. Approximately $80.6 million of such costs have been
incurred by AGLC as of September 30, 1996, and are being recovered from its
customers under the purchased gas provisions of AGLC's rate schedules.
Transition costs have not affected the total cost of gas to AGLC's customers
significantly because (1) AGLC purchases its wellhead gas supplies based on
market prices that are below the cost of gas previously embedded in the bundled
pipelines' sales service rates and (2) many elements of transition costs
previously were embedded in the rates for the pipelines' bundled sales service.
See Part I, Item 1, "State Regulatory Matters - Gas Supply Filing" in this Form
10-K for further discussion of recovery of gas costs.
Details concerning the status of the Order 636 restructuring proceedings
involving the pipelines that serve AGLC directly are set forth below.
8
SOUTHERN
Restructuring Proceeding.
AGLC has filed several petitions for review with the D. C. Circuit
concerning various aspects of Southern's restructuring. Those aspects include
favorable treatment of small customers, rate mitigation, mitigation of GSR
costs, and tying of firm storage service to firm transportation service. AGLC
has moved to withdraw those petitions for review in light of the FERC's approval
of the restructuring settlement between Southern and its customers, as discussed
below, but the court has not yet acted on AGLC's motion.
GSR Cost Recovery Proceeding.
On April 11, 1996, the FERC issued an order constituting final approval of
the settlement agreement between AGLC, Southern, and other customers which
resolves virtually all pending Southern proceedings before the FERC and the
courts. The settlement resolves Southern's pending general rate proceedings,
which relate to Southern's rates charged from January 1, 1991, through the
present. The settlement provides for rate reductions and refund offsets against
GSR costs. It also resolves Southern's Order No. 636 transition cost proceedings
and provides for revisions to Southern's tariff. The FERC's approval of the
settlement is subject to action on petitions for review filed by parties
opposing the settlement.
On April 25, 1996, the FERC issued an order accepting Southern's March 29,
1996, filing to reduce its volumetric GSR surcharge for consenting parties to
the restructuring settlement to reflect actual GSR costs incurred by Southern
through December 31, 1995. Southern continues to make quarterly and monthly
transition cost filings to recover costs from contesting parties to the
settlement, and the FERC has ordered that such costs may be recovered by
Southern, subject to the outcome of a hearing for contesting parties. However,
GSR and other transition cost charges to AGLC are in accordance with the
settlement. Assuming the FERC's approval of the settlement is upheld on judicial
review, AGLC's share of Southern's transition costs is estimated to be $85.5
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
September 30, 1996, $70.9 million of such costs have already been incurred by
AGLC.
TENNESSEE
Restructuring Proceeding.
AGLC has filed several petitions for review with the D. C. Circuit
concerning various aspects of Tennessee's restructuring. Those aspects include
favorable treatment for small customers, rate mitigation and others. AGLC also
has filed a petition for review of FERC orders concerning Tennessee's service
obligation to AGLC. AGLC's petitions for review currently are pending with the
court.
GSR Cost Recovery Proceeding.
Tennessee has made several quarterly GSR recovery filings. AGLC's estimated
liability as a result of Tennessee's prior GSR recovery filings is approximately
$16.8 million, assuming that the FERC does not change its GSR policies pursuant
to the Order No. 636 remand and subject to possible reduction based on the
hearing FERC established to investigate Tennessee's costs. AGLC is actively
participating in Tennessee's GSR cost recovery proceeding. As of September 30,
1996, $5.4 million of such costs have been incurred by AGLC.
Columbia Gas Transmission Corporation.
AGLC has filed a petition for review of a FERC order approving a settlement
between Tennessee and Columbia Gas Transmission Corporation (Columbia). The
settlement resolves issues relating to Columbia's upstream capacity on
Tennessee's system, as well as certain other matters between the two pipelines.
AGLC has sought review of the order on the ground that the FERC has failed to
ensure that Tennessee's customers will be made whole with respect to Tennessee's
agreement to permit Columbia to abandon certain contracts for capacity on
Tennessee's system.
FERC Rate Proceedings
AGLC also is participating in various rate proceedings before the FERC
involving applications for rate changes filed by its pipeline suppliers. To the
extent that these cases have not been settled, as described below, the rates
filed in these proceedings have been accepted, and made effective subject to
refund and the outcome of the FERC proceedings.
9
SOUTHERN
As noted above, the FERC has approved the restructuring settlement
agreement between AGLC, Southern, and other customers that resolves all issues
between AGLC and Southern for Southern's outstanding rate proceedings.
SOUTH GEORGIA
On December 20, 1995, the FERC issued an order upholding an initial
decision by an administrative law judge (ALJ) in South Georgia's rate case that
South Georgia's interruptible transportation (IT) rate should be based on a load
factor of 100% on a prospective basis. AGLC supported the 100% load factor IT
rate at the hearing in this proceeding. No party has sought rehearing of the
FERC's ruling, which is therefore final.
TENNESSEE
On April 5, 1996, Tennessee filed with the FERC a comprehensive settlement
to resolve all issues in its current rate case. The settlement provides for a
reduction of approximately $83 million in the cost of service underlying
Tennessee's rates in effect since July 1, 1995, and also provides for Tennessee
to share a portion of costs associated with firm capacity relinquished by its
customers. AGLC filed comments supporting the settlement. AGLC's estimated
annual reduction in cost is $2.2 million. The FERC approved the proposed
settlement on October 30, 1996, but the order approving the settlement is
pending requests for rehearing and therefore is not yet final.
On July 3, 1996, the FERC issued an order on exceptions from the rulings of
an ALJ in a prior Tennessee rate case. Among other things, the FERC's order,
which is to have prospective effect, rejects a proposal to unbundle Tennessee's
production area rates from its market area rates. AGLC supported the unbundling
proposal. The order also upholds the ALJ's ruling that Tennessee's interruptible
transportation rates should be set at the 100% load factor derivative of the
firm transportation rate. AGLC supported the 100% load factor proposal. The
order also rejects proposals to revise Tennessee's rate zone boundaries. AGLC
has opposed such proposals. The FERC's rulings may impact the rates contained in
the settlement agreement in Tennessee's FERC rate case, which was approved by
the FERC on November 1, 1996. The FERCs order approving the settlement is
pending requests for rehearing and therefore is not yet final.
TRANSCO
On June 19, 1996, Transco filed a proposed partial settlement to resolve
cost of service and throughput issues in its current rate case. The partial
settlement reserves certain cost allocation and rate design issues for hearing,
including roll-in of Transco's incrementally priced Leidy Line facilities and
Transco's use of the straight-fixed-variable rate design methodology. The
proposal provides for a reduction of approximately $58 million in the cost of
service underlying Transco's rates that have been in effect since September 1,
1995. The estimated annual reduction in costs to AGLC is $2.4 million. AGLC
filed comments in support of the proposed settlement, which was approved by the
FERC on November 1, 1996. The FERC's order approving the settlement is pending
requests for rehearing and therefore is not yet final.
On July 3, 1996, the FERC issued an order on exceptions from the rulings of
an ALJ in a prior Transco rate case. Among other things, the FERC's order, which
is to have prospective effect, rejects Transco's proposal to established a
firm-to-the-wellhead production area rate design, but permits Transco to file a
rate case to establish firm-to-the-wellhead rates if customers with entitlements
to production area capacity are permitted to determine whether they require such
capacity in an open season. AGLC opposed Transco's firm-to-the-wellhead
proposal. The order also reverses the ALJ's ruling that Transco must establish a
separate production area cost of service. AGLC had filed exceptions seeking
reversal of this aspect of the ALJ's ruling. AGLC has joined other Transco
customers in seeking rehearing of the July 3, 1996 order with respect to the
FERC's determination that Transco may file a new proposal to establish
firm-to-the-wellhead rates, and also has sought clarification that the FERC's
order does not eliminate protections against abandonment that originated in the
settlements by which AGLC and other customers agreed to convert from sales to
firm transportation service.
On November 1, 1996, Transco filed to increase its rates by approximately
$83 million over the last rates approved by the FERC. Among other things,
Transco filed its own proposal to roll into systemwide rates the costs of the
incrementally-priced Leidy Line and Southern Expansion facilities on a
prospective basis, after a hearing. AGLC filed a protest challenging the roll-in
proposal and the magnitude of the requested rate increase. On November 29, 1996,
the FERC issued an order accepting Transco's filing, subject to refund and a
hearing, and consolidated Transco's roll-in proposal with its ongoing rate case,
where a Leidy Line roll-in proposal by other parties is being litigated.
10
ANR PIPELINE
ANR Pipeline (ANR) provides transportation services to Southern under a
case-specific certificate issued by the FERC in 1980. Southern entered into this
transportation arrangement with ANR in order to provide Southern's customers,
including AGLC, access to storage facilities owned and operated by ANR Storage
Company. According to Southern, approximately 96% of Southern's service
entitlement on ANR is used to serve AGLC. AGLC has actively participated in the
hearing procedures established by the FERC with respect to ANR's general rate
proceeding, supporting a reduced transportation rate for ANR's services to
Southern. That proceeding currently is pending for decision before an ALJ.
Miscellaneous
SECONDARY MARKETS
On July 31, 1996, the FERC issued a notice of proposed rulemaking
concerning changes to the FERC's regulations governing release of firm pipeline
capacity, as well as the sale by pipelines of interruptible transportation and
short-term firm capacity. The FERC is not proposing to eliminate the prohibition
against pricing released capacity at higher than the pipeline's maximum tariff
rate for firm service. However, the FERC has solicited applications from
pipelines and local distribution companies to participate in a pilot program in
which the prices for released firm capacity, interruptible transportation, and
short-term firm capacity are not capped. AGLC has not sought permission to
participate in the pilot program, but is monitoring the process. One of AGLC's
pipeline suppliers, Transco, sought approval to participate in the pilot
program, but the FERC rejected Transco's application.
NEGOTIATED RATES
The FERC has issued a policy statement authorizing pipelines to establish
mechanisms by which they may charge separately negotiated rates to particular
customers in lieu of their tariff rates. The FERC has required pipelines to
retain in their tariffs a "recourse rate," which must be approved by the FERC,
and which must be available to those customers that do not choose to separately
negotiate a rate with the pipeline. Of the pipelines that supply AGLC, Transco,
Tennessee, and East Tennessee have requested authority to separately negotiate
rates. The FERC has approved the applications by Transco, Tennessee, and the
application filed by East Tennessee. The FERC's policy statement has been
appealed to the D. C. Circuit, and AGLC has intervened in that proceeding.
Arcadian
The FERC has granted final approval to the settlement between Southern
and Arcadian Corporation (Arcadian); see Part I, Item 3, "Legal Proceedings."
The settlement resolves both Arcadian's FERC complaint against Southern and
Arcadian's antitrust lawsuit against Southern and AGLC. The settlement provides
for Southern to provide firm transportation service to Arcadian at a negotiated
rate for an initial term of five years ending October 31, 1998. In addition, the
settlement establishes tariff language addressing the conditions under which
Southern will address future requests for direct transportation service. AGLC
sought rehearing of the FERC's order approving the settlement but the FERC
rejected AGLC's rehearing request on November 26, 1996. AGLC had petitioned for
review of the FERC's prior orders in this proceeding in the United States Court
of Appeals for the Eleventh Circuit. AGLC's appeals have been held in abeyance
pending action by the FERC on AGLC's rehearing request. If the FERC's orders
approving the restructuring settlement between Southern, AGLC and the other
customers are upheld on appeal, it will resolve the undue discrimination issue
raised by AGLC in Southern's current rate case.
On April 22, 1996, AGLC filed to withdraw portions of its request for
rehearing of the FERC's order approving the November 12, 1993, settlement
between Arcadian and Southern. The portions of the request for rehearing that
AGLC proposes to withdraw, pursuant to the restructuring settlement with
Southern, are those that allege that Southern's discounted rates to Arcadian
constitute an anticompetitive "price squeeze" against AGLC.
AGLC cannot predict the outcome of these federal proceedings nor
determine the ultimate effect, if any, such proceedings may have on AGLC.
STATE REGULATORY MATTERS
Atlanta Gas Light Company
REGULATORY REFORM INITIATIVES
Two regulatory reform initiatives are pending in Georgia, both designed
to increase competition and reduce the role of regulation within the natural gas
industry. The first such initiative is the subject of a proceeding at the
Georgia Commission; the second initiative is before study committees of the
Georgia General Assembly.
11
With respect to the first initiative, on November 20, 1995, the Georgia
Commission issued a Natural Gas Notice of Inquiry soliciting comments on how to
introduce more competition into natural gas markets within Georgia. Following
written comments and oral presentations from numerous parties, on May 21, 1996,
the Georgia Commission adopted a Policy Statement that, among other things, sets
up a distinction between competitive and natural monopoly services; favors
performance-based regulation in lieu of traditional cost-of-service regulation;
calls for unbundling interruptible service; directs the Georgia Commission 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, on June 10, 1996, AGLC filed a comprehensive plan for serving
interruptible markets called the Natural Gas Service Provider Selection Plan
(the Plan). 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 marketing affiliates of
utilities. Hearings on the proposal began in December 1996 and are scheduled to
resume in January and February 1997. A decision is expected from the Georgia
Commission prior to March 1, 1997.
The second major initiative to increase competition and decrease the role
of regulation in Georgia is before study committees of the Georgia General
Assembly. The 1996 Georgia General Assembly considered, but delayed action on,
The Natural Gas Fair Pricing Act, which would have allowed local gas companies
to negotiate contract prices and terms for gas services with large commercial
and industrial customers absent Georgia Commission-mandated rates. The Georgia
General Assembly stated through resolutions a desire to fashion a more
comprehensive approach to deregulation and unbundling of natural gas services in
Georgia. Those resolutions, adopted during the 1996 session, created Senate and
House committees to study and recommend a comprehensive course of action by
December 31, 1996, for deregulating natural gas markets in Georgia.
The separate Senate and House study committees conducted joint meetings
during September, October and November 1996, with the goal of crafting a
comprehensive deregulation bill for the 1997 General Assembly, which convenes in
January 1997. The natural gas deregulation plan under consideration by the
committees would unbundle services to all of AGLC's natural gas customers, would
continue AGLC's role as the intrastate transporter of natural gas, would allow
AGLC to assign firm delivery capacity to certificated marketers who would sell
the gas commodity, and would create a secondary transportation market for
interruptible transportation capacity.
Although AGL Resources cannot predict the outcome of these two regulatory
reform initiatives, it supports both the plan under consideration by the Georgia
Commission and the plan under consideration by the Georgia General Assembly.
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. In addition, allowing gas to be sold to all customers by numerous
marketers, including nonregulated subsidiaries of AGL Resources, would provide
new business opportunities.
GAS COST RECOVERY FILING
Pursuant to legislation enacted by the Georgia General Assembly, each
investor-owned local gas distribution company is required to file on or before
August 1 of each year, a proposed gas supply plan for the subsequent year, as
well as a proposed cost recovery factor to be used during the same time period.
Costs of natural gas supply, interstate transportation and storage incurred
pursuant to an approved plan may be recovered under the purchased gas provisions
of AGLC's rate schedules.
On August 1, 1996, AGLC filed its 1997 Gas Supply Plan, which consists of
gas supply, transportation and storage options designed to provide reliable
service to firm customers at the best cost. On September 13, 1996, the Georgia
Commission approved the entire supply portfolio contained in the 1997 Gas Supply
Plan.
As part of the 1997 Gas Supply Plan, AGLC is authorized to continue
limited gas supply hedging activities. The 1997 hedging program has been
expanded beyond the program approved in the 1996 Gas Supply Plan. The financial
results of all hedging activities are passed through to firm service customers
under the purchased gas provisions of AGLC's rate schedules. Accordingly, there
is no earnings impact as a result of the hedging program.
12
Chattanooga Gas Company
RATE FILINGS
On May 1, 1995, Chattanooga filed a rate proceeding with the TRA seeking
an increase in revenues of $5.2 million annually. On September 27, 1995, a
settlement agreement was reached that provides for an annual increase in
revenues of approximately $2.5 million, effective November 1, 1995.
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Item 2. Properties
AGL Resources considers its property and the property of its subsidiaries
to be well maintained, in good operating condition and suitable for their
intended purposes.
AGLC's properties consist primarily of distribution systems and related
facilities and local offices serving 235 cities and surrounding areas in the
State of Georgia and 12 cities and surrounding areas in the State of Tennessee.
As of September 30, 1996, AGLC had 25,642 miles of mains and 5,952,000 Mcf of
LNG storage capacity in three LNG plants to supplement the gas supply in very
cold weather or emergencies. Chattanooga had 1,328 miles of mains and 1,076,000
Mcf of LNG storage capacity in its one LNG plant. At September 30, 1996, AGLC's
gross utility plant amounted to approximately $2.0 billion.
AGL Resources' gross nonutility property amounted to approximately $81
million, consisting principally of assets related to Service Company.
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Item 3. Legal Proceedings
The nature of the business of AGL Resources and its subsidiaries
ordinarily results in periodic regulatory proceedings before various state and
federal authorities and/or litigation incidental to the business. For
information regarding regulatory proceedings, see the preceding sections in Part
I, Item 1, "Business - Federal Regulatory Matters" and "Business - State
Regulatory Matters."
Arcadian
ARCADIAN CORPORATION V. SOUTHERN NATURAL GAS COMPANY AND ATLANTA GAS LIGHT
COMPANY, U. S. District Court for the Southern District of Georgia, Augusta
Division, Case No. CV192-006. On January 10, 1992, Arcadian, an industrial
customer of AGLC, filed a complaint against Southern and AGLC alleging violation
of the federal antitrust laws and seeking treble damages in excess of $45
million. In the complaint, Arcadian alleged that Southern and AGL conspired to
restrain trade by agreeing not to compete in the provision of direct
transportation service to end users in the areas served by AGLC. AGLC denied the
allegations of the complaint.
On November 30, 1993, a proposed settlement between Southern and Arcadian
was filed with FERC that would resolve both Arcadian's FERC complaint against
Southern and Arcadian's antitrust lawsuit against Southern and AGLC. The
settlement provided for firm and interruptible transportation service from
Southern to Arcadian at discounted rates for an initial term of five years. In
addition, the settlement establishes tariff conditions for addressing future
requests for direct transportation service. In connection with the proposed
settlement, the antitrust lawsuit has been stayed and administratively closed.
On May 12, 1994, FERC approved the settlement over AGLC's objections. AGLC has
sought rehearing of the FERC's order approving the settlement, and has
petitioned for review in the United States Court of Appeals for the Eleventh
Circuit. AGLC's appeals are currently being held in abeyance pending action by
the FERC on AGLC's rehearing request.
On April 22, 1996, AGLC filed to withdraw portions of its request for
rehearing of the FERC's order approving the November 12, 1993, settlement
between Arcadian and Southern. The arguments that AGLC proposes to withdraw,
pursuant to the restructuring settlement with Southern, are those that allege
that Southern's discounted rates to Arcadian constitute an anticompetitive
"price squeeze" against AGLC.
13
Environmental Matters
AGLC has identified nine sites in Georgia where it currently owns all or
part of a manufactured gas plant (MGP) site. These sites are located in Athens,
Augusta, Brunswick, Griffin, Macon, Rome, Savannah, Valdosta and Waycross. In
addition, AGLC has identified three other sites in Georgia which AGLC does not
now own, but that may have been associated with the operation of MGPs by AGLC or
its predecessors. These sites are located in Atlanta (2) and Macon. A
Preliminary Assessment (PA) was conducted at each of those twelve sites, and a
subsequent Site Investigation (SI) was conducted at ten sites (all but the two
Atlanta sites). Results from those investigations reveal environmental impacts
at and near nine sites (all but the two Atlanta sites and the second Macon
site).
In addition, AGLC has identified three sites in Florida which may have
been associated with AGLC or its predecessors. One of these, located in Sanford,
Florida, is now the subject of an Expanded Site Investigation (ESI) which has
been or is being conducted by the U.S. Environmental Protection Agency (EPA).
Investigations at the site by AGLC and others have indicated environmental
impacts on and near the site. In addition, the current owner of this site,
Florida Public Utilities Company (FPUC), had previously filed suit against AGLC
and others alleging that AGLC is a former "owner" and seeking to obtain a
declaratory judgment that all defendants are jointly and severally liable for
past and future costs of investigating and remediating the site.
That suit has since been dismissed by FPUC without prejudice.
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
obliged to investigate and, if necessary, remediate impacts at the site. AGLC
developed a proposed Corrective Action Plan (CAP) for the Griffin site, is now
conducting certain follow-up investigations in response to EPD's comments, and
expects to submit a revised CAP once EPD clarifies certain regulatory matters.
Assessment activities are being conducted at Augusta and Savannah. In addition,
AGLC is in the process of planning certain interim remedial measures at the
Augusta MGP site. Those measures are expected to be implemented principally
during fiscal 1997.
Second, AGLC's response to all Georgia sites is proceeding in substantial
compliance with Georgia's "Hazardous Site Response Act" (HSRA). AGLC submitted
to EPD formal notifications pertaining to all of its owned MGP sites, and EPD
had listed seven sites (Athens, Augusta, Brunswick, Griffin, Savannah, Valdosta
and Waycross) on the state's "Hazardous Site Inventory" (HSI). EPD has not
listed the Macon site on the HSI at this time. In addition, EPD has also listed
the Rome site on the HSI. Under the HSRA regulations, the four sites subject to
consent orders are presumed to require corrective action; EPD will determine
whether corrective action is required at the four remaining sites (Athens,
Brunswick, Rome and Waycross) in due course. In that respect, however, AGLC has
submitted Compliance Status Reports (CSRs) for the Athens, Brunswick and Rome
MGP sites, and AGLC has concluded that these sites do not meet applicable risk
reduction standards. Accordingly, some degree of response action is likely to be
required at those sites.
AGLC has estimated the investigation and remediation expenses likely to
be associated with the former MGP sites. First, since such liabilities are often
spread among potentially responsible parties, AGLC's ultimate liability will, in
some cases, be limited to AGLC's equitable share of such expenses under the
circumstances. Therefore, where reasonably possible, AGLC has attempted to
estimate the range of AGLC's equitable share, given AGLC's current knowledge of
relevant facts, including the current methods of equitable apportionment and the
solvency of potential contributors. Where such an estimation was not reasonably
possible, AGLC has estimated a range of expenses without adjustment for AGLC's
equitable share. Second, the regulatory structure of the cleanup requirements
under HSRA has permitted AGLC to estimate future investigation and remediation
costs for the Georgia MGP sites, assuming such costs arise under this framework.
Applying both of these concepts to those sites where some future action
presently appears reasonably possible, 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 $30.4
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 $110.8 million. If
additional sites were added to those for which action now appears reasonably
likely, or if substantially more stringent cleanups were required, or if site
conditions are markedly worse than those now anticipated, the costs could be
higher. In addition, those costs do not include other expenses, such as property
damage claims, for which AGLC may
14
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 $30.4
million to $110.8 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 in 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 has undertaken 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 intends to seek recovery of appropriate costs from its
insurers and other potentially responsible parties. With respect to its
insurers, in 1991, AGLC filed a declaratory judgment action against 23 of its
insurance companies. 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. During fiscal 1996 AGLC recovered $14.7 million from its
insurance carriers and other potentially responsible parties. In accordance with
provisions of the ERCRR, AGLC recognized other income of $2.9 million and
established regulatory liabilities for the remainder of those recoveries.
Other Legal Proceedings
With regard to other legal proceedings, AGL Resources 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 AGL Resources.
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Item 4. Submission of Matters to a Vote of Security Holdlers
No matters were submitted to a vote of security holders during the fourth
quarter of the fiscal year covered by this report.
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15
Item 4.(A) Executive Officers of the Registrant
Set forth below, in accordance with General Instruction G(3) of Form 10-K
and Instruction 3 of Item 401(b) of Regulation S-K, is certain information
regarding the executive officers of AGL Resources. Unless otherwise indicated,
the information set forth is as of September 30, 1996.
DAVID R. JONES, age 59, President and Chief Executive Officer of AGL
Resources (since January 1996), President and Chief Executive Officer and
director of Service Company (since August 1996), President and Chief Executive
officer of AGLC (since 1988) and director of AGLC (since 1985); director of the
Federal Reserve Bank of Atlanta. Mr. Jones has been a director of AGL Resources
since January 1996.
CHARLES W. BASS, age 49, Executive Vice President and Chief Operating
Officer of AGL Resources since August 1996, Executive Vice President Market
Service and Development of AGLC from 1994 until 1996 and Senior Vice President
Governmental and Regulatory Affairs of AGLC from 1988 until 1994 .
THOMAS H. BENSON, age 51, Executive Vice President of AGL Resources and
Chief Operating Officer of AGLC since August 1996, Executive Vice President
Customer Operations of AGLC from 1994 until 1996 and Senior Vice President
Operations and Engineering of AGLC from 1988 until 1994.
ROBERT L. GOOCHER, age 46, Executive Vice President of AGL Resources and
Chief Operating Officer of Service Company since August 1996, Executive Vice
President Business Support of AGLC from 1994 until 1996, Senior Vice President
and Chief Financial Officer of AGLC from 1992 until 1994, Vice President Finance
of AGLC from 1991 until 1992 and Vice President and Augusta Division manager of
AGLC from 1987 until 1991.
CHARLIE J. LAIL, age 57, Senior Vice President Operations Improvement of
AGLC since 1994, Senior Vice President Divisions of AGLC from 1992 until 1994,
Vice President Divisions of AGLC from 1991 until 1992 and Vice President and
Northeast Georgia Division manager of AGLC from 1988 until 1991.
RICHARD H. WOODWARD, Jr., age 49, Vice President of AGL Resources and
President of AGL Investments since August 1996, Senior Vice President Business
Development of AGLC from 1994 until 1996 and Senior Vice President Corporate
Services of AGLC from 1988 until 1994.
MICHAEL D. HUTCHINS, age 45, Vice President Operations and Engineering of
AGLC since 1994, Vice President Engineering of AGLC from 1989 until 1994.
CLAYTON H. PREBLE, age 49, Vice President of AGL Resources and President
of The Energy Spring, Inc., since August 1996, Vice President -- Marketing of
AGLC from 1994 until 1996, Vice President Corporate Planning of AGLC from 1994
until 1994, Director Corporate Planning of AGLC from 1992 until 1994 and
Northeast Georgia Division manager of AGLC from 1991 until 1992.
J. MICHAEL RILEY, age 45, Vice President and Chief Financial Officer of
AGL Resources since August 1996 and Chief Financial Officer of AGLC since
November 1996, Vice President Finance and Accounting of AGLC from 1994 until
1996, Vice President and Controller of AGLC from 1991 until 1994 and Controller
of AGLC from 1986 until 1991.
There are no family relationships among the executive officers.
All officers generally are elected annually by the Board of Directors at
the first meeting following the Annual Meeting of Shareholders in February.
16
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Part II
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Item 5. Market for the Registrants' Common Equity and Related Stockholder
Matters
Information relating to the market for holders of and dividends on AGL
Resources' common stock is set forth under the caption "Shareholder Information"
on page 47 of AGL Resources' 1996 Annual Report. Such information is
incorporated herein by reference. Portions of the 1996 Annual Report are filed
as Exhibit 13 to this report.
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Item 6. Selected Financial Data
Selected financial data for AGL Resources for each year of the five-year
period ended September 30, 1996 is set forth under the caption "Selected
Financial Data" on page 45 of AGL Resources' 1996 Annual Report referred to in
Item 5 above. Such five-year selected financial data is incorporated herein by
reference.
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Item 7. Management's Discussion and Analysis of Results of Operations
and Financial Condition
A discussion of AGL Resources' results of operations and financial
condition is set forth under the caption "Management's Discussion and Analysis
of Results of Operations and Financial Condition" on pages 22 through 29 of AGL
Resources' 1996 Annual Report referred to in Item 5 above. Such discussion is
incorporated herein by reference.
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Item 8. Financial Statements and Supplementary Data
The following financial statements of AGL Resources, which are set forth
on pages 30 through 44 of AGL Resources' 1996 Annual Report referred to in Item
5 above, are incorporated herein by reference:
Statements of Consolidated Income for the years ended September 30, 1996,
1995 and 1994.
Statements of Consolidated Cash Flows for the years ended September 30,
1996, 1995 and 1994.
Consolidated Balance Sheets as of September 30, 1996 and 1995.
Statements of Consolidated Common Stock Equity for the years ended
September 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
The supplementary financial information required by Item 302 of Regulation
S-K is set forth in Note 14 in Notes to Consolidated Financial Statements in
AGL Resources' 1996 Annual Report to Shareholders.
The following supplemental data is submitted herewith:
Financial Statement Schedule - Valuation and Qualifying Account -
Allowance for Uncollectible Accounts.
Independent Auditors' Report.
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Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None
17
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Part III
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Item 10. Directors and Executive Officers of the Registrants
Information relating to nominees for director of AGL Resources is set
forth under the caption "Election of Directors-Information Concerning Nominees"
in the Proxy Statement for the 1996 Annual Meeting of Shareholders. Such
information is incorporated herein by reference. The definitive Proxy Statement
will be filed with the Securities and Exchange Commission within 120 days after
AGL Resources' fiscal year end. Information relating to the executive officers
of AGL Resources, pursuant to Instruction 3 of Item 401(b) of Regulation S-K and
General Instruction G(3) of Form 10-K, is set forth at Part I, Item 4(A) of this
report under the caption "Executive Officers of the Registrant."
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Item 11. Executive Compensation
Information relating to executive compensation is set forth under the
caption "Executive Compensation" in the Proxy Statement referred to in Item 10
above. Such information is incorporated herein by reference.
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Item 12. Security Ownership of Certain Beneficial Owners and Management
Information relating to ownership of common stock of AGL Resources by
certain persons is set forth under the caption "Security Ownership of
Management" in the Proxy Statement referred to in Item 10 above. Such
information is incorporated herein by reference.
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Item 13. Certain Relationships and Related Transactions
Information relating to existing or proposed relationships or transactions
between AGL Resources and any affiliate of AGL Resources is set forth under the
caption "Compensation Committee Interlocks and Insider Participation" in the
Proxy Statement referred to in Item 10 above. Such information is incorporated
herein by reference.
The remainder of this page was intentionally left blank.
18
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Part IV
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Item 14. Exhibits, Financial Statements Scheduled and Reports on Form 8-K
(a) Documents Filed as Part of This Report:
1. Financial Statements
Included under Item 8 are the following financial
statements:
Statements of Consolidated Income for the Years Ended
September 30, 1996, 1995 and 1994.
Statements of Consolidated Cash Flows for the Years Ended
September 30, 1996, 1995 and 1994.
Consolidated Balance Sheets as of September 30, 1996 and
1995.
Statements of Consolidated Common Stock Equity for the Years
Ended September 30, 1996, 1995 and 1994.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Supplemental Consolidated Financial Schedules for Each of the
Three Years in the Period Ended September 30, 1996:
Independent Auditors' Report.
II. - Valuation and Qualifying Account--Allowance for
Uncollectible Accounts.
Schedules other than those referred to above are omitted and
are not applicable or not required, or the required
information is shown in the financial statements or notes
thereto.
3. Exhibits
Where an exhibit is filed by incorporation by reference to a
previously filed registration statement or report, such
registration statement or report is identified in parentheses.
3.1 - Amended and Restated Articles of Incorporation filed January 5,
1996, with the Secretary of State of the State of Georgia
(Exhibit B to the Proxy Statement and Prospectus filed as a part
of Amendment No. 1 to Registration Statement on Form S-4, No.
33-99826).
3.2 - Bylaws (Exhibit 3.2 to Registration Statement on Form S-4, No.
33-99826).
4.1 - Specimen form of Common Stock Certificate
19
4.2 - Specimen form of Right Certificate (Exhibit 1 to Form 8-K filed
March 6, 1996).
10.1 - Executive Compensation Plans and Arrangements
10.1.a - Executive Severance Pay Plan of AGL Resources Inc.
10.1.b - AGL Resources Inc. Long-Term Stock Incentive Plan of 1990
(Exhibit 10(ii), Atlanta Gas Light Company Form 10-K for the
fiscal year ended September 30, 1991).
10.1.c - First Amendment to the AGL Resources Inc. Long-Term
Stock Incentive Plan of 1990 (Exhibit B to the Atlanta Gas Light
Company Proxy Statement for the Annual Meeting of Shareholders
held February 5, 1993).
10.1.d - Third Amendment to the AGL Resources Inc. Long-Term
Stock Incentive Plan of 1990 (Exhibit C to the Proxy Statement
and Prospectus filed as a part of Amendment No. 1 to
Registration Statement on Form S-4, No. 33-99826).
10.1.e - AGL Resources Inc. Nonqualified Savings Plan (Exhibit 10(a),
Atlanta Gas Light Company Form 10-K for the fiscal year ended
September 30, 1995).
10.1.f - AGL Resources Inc. Non-Employee Directors Equity Compensation
Plan (Exhibit B to the Proxy Statement and Prospectus filed as a
part of Amendment No. 1 to Registration Statement on Form S-4,
No. 33-99826).
13 - Portions of the AGL Resources Inc. 1996 Annual Report to
Shareholders.
21 - Subsidiaries of AGL Resources Inc.
23 - Independent Auditors' Consent.
24 - Powers of Attorney (included with Signature Page hereto).
27 - Financial Data Schedule.
(b) Reports on Form 8-K
No Form 8-K was filed during the last quarter of the year ended September
30, 1996.
The remainder of this page was intentionally left blank.
20
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, on November 1, 1996.
AGL RESOURCES INC.
By: /s/ David R. Jones
David R. Jones
President and Chief Executive Officer
POWERS OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints David R. Jones and J. Michael Riley, and
each of them, his or her true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him or her and in his or her name,
place and stead, in any and all capacities, to sign the Annual Report on Form
10-K for the fiscal year ended September 30, 1996 and any and all amendments to
such Annual Report, and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, and each of them, full power
and authority to do and perform each and every act and thing requisite or
necessary to be done, as fully to all intents and purposes as he or she might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or their or his substitute or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities indicated as of November 1, 1996.
Signatures Title
/s/ David R. Jones
David R. Jones President and Chief Executive Officer
(Principal Executive Officer) and Director
/s/ J. Michael Riley
J. Michael Riley Vice President and Chief Financial Officer
(Principal Accounting and Financial Officer)
/s/ Frank Barron, Jr.
Frank Barron, Jr. Director
21
/s/ W. Waldo Bradley
W. Waldo Bradley Director
/s/ Otis A. Brumby, Jr.
Otis A. Brumby, Jr. Director
/s/ L.L. Gellerstedt, III
L.L. Gellerstedt, III Director
/s/ Albert G. Norman, Jr.
Albert G. Norman, Jr. Director
/s/ D. Raymond Riddle
D. Raymond Riddle Director
/s/ Betty L. Siegel
Betty L. Siegel Director
/s/ Ben J. Tarbutton, Jr.
Ben J. Tarbutton, Jr. Director
/s/ Charles McKenzie Taylor
Charles McKenzie Taylor Director
/s/ Felker W. Ward, Jr.
Felker W. Ward, Jr. Director
*By /s/ J. Michael Riley
J. Michael Riley
as Attorney-in-Fact
22
INDEPENDENT AUDITORS' REPORT
To the Shareholders and Board of Directors of AGL Resources Inc.:
We have audited the consolidated balance sheets of AGL Resources Inc. and its
subsidiaries as of September 30, 1996 and 1995, and the related statements of
consolidated income, common stock equity, and cash flows for each of the three
years in the period ended September 30, 1996, and have issued our report thereon
dated November 5, 1996; such financial statements and report are included in
your 1996 Annual Report to Shareholders and are incorporated herein by
reference. Our audits also included the financial statement schedule of AGL
Resources Inc. and subsidiaries, listed in Item 14. This financial statement
schedule is the responsibility of AGL Resources Inc.'s management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/S/ DELOITTE & TOUCHE LLP
DELOITTE & TOUCHE LLP
Atlanta, Georgia
November 5, 1996
23
SCHEDULE II
AGL RESOURCES INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNT
ALLOWANCE FOR UNCOLLECTIBLE ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
(IN MILLIONS)
- --------------------------------------------------------------------------------
1996 1995 1994
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Balance, beginning of year ................. 4.4 2.8 1.9
Additions:
Provisions charged to income ............. 4.7 5.3 7.5
Recovery of accounts
previously written off
as uncollectible ....................... 8.6 6.6 7.1
------ ------ ------
Total ................................ 17.7 14.7 16.5
Deduction:
Accounts written off
as uncollectible ....................... 14.9 10.3 13.7
------ ------ ------
Balance, end of year ....................... 2.8 4.4 2.8
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24