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UNITED STATES SECURITIES AND EXCHANGE
COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2005
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _____ to _____
Commission File Number 333-42578
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
(Exact name of registrant as specified in its charter)
Delaware 06-1285387
(State or other jurisdiction of (I.R.S. Employer Identification
incorporation or organization) Number)
One Corporate Drive
Suite 600
Shelton, Connecticut 06484-6211
(Address of principal executive (Zip code)
offices)
(203) 925-7200
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes [X] No [ ]
Indicate by check mark whether the registrant is an accelerated
filer (as defined in Rule 12b-2 of the Exchange Act).
Yes [ ] No [X]
IROQUOIS GAS TRANSMISSION SYSTEM, L.P. AND SUBSIDIARY
TABLE OF CONTENTS
Page No.
PART I. FINANCIAL INFORMATION
ITEM 1. Financial Statements
Consolidated Statements of Income -
Three Months Ended March 31, 2005 and 2004 3
Consolidated Balance Sheets - March 31, 2005
and December 31, 2004 4
Consolidated Statements of Cash Flows -
Three Months Ended March 31, 2005 and 2004 5
Consolidated Statement of Changes in Partners'
Equity - Three Months Ended March 31, 2005 6
Notes to Consolidated Financial Statements 7
ITEM 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8
ITEM 3. Quantitative and Qualitative Disclosures About
Market Risk 9
ITEM 4. Controls and Procedures 10
PART II. OTHER INFORMATION
ITEM 1. Legal Proceedings 11
ITEM 5. Other Information 11
ITEM 6. Exhibits 11
Signatures 12
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
IROQUOIS GAS TRANSMISSION SYSTEM, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
2005 2004
OPERATING REVENUES $40,276 $39,320
OPERATING EXPENSES
Operation and maintenance 5,565 5,887
Depreciation and amortization 8,039 7,383
Taxes other than income taxes 4,485 3,291
Operating expenses 18,089 16,561
OPERATING INCOME 22,187 22,759
OTHER INCOME/(EXPENSES)
Interest Income 198 67
Allowance for equity funds
used during construction -- 1,123
Other, net (130) (4)
Other income 68 1,186
INTEREST EXPENSE
Interest Expense 8,383 8,344
Allowance for borrowed funds
used during construction -- (1,070)
Interest Expense, Net 8,383 7,274
INCOME BEFORE INCOME TAXES 13,872 16,671
PROVISION FOR INCOME TAXES 5,661 6,835
NET INCOME $ 8,211 $ 9,836
The accompanying notes are an integral part of these consolidated
financial statements.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
IROQUOIS GAS TRANSMISSION SYSTEM, L.P. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
(In Thousands)
(Unaudited)
March 31, December 31,
ASSETS 2005 2004
CURRENT ASSETS
Cash and cash equivalents $ 35,727 $ 36,393
Accounts receivable - trade, net 6,595 6,752
Accounts receivable - affiliates 6,431 6,584
Prepaid property taxes 6,520 5,602
Insurance receivable 4,500 --
Other current assets 4,451 4,914
Total Current Assets 64,224 60,245
NATURAL GAS TRANSMISSION PLANT
Natural gas plant in service 1,105,628 1,094,821
Construction work in progress 6,546 6,472
1,112,174 1,101,293
Accumulated depreciation and amortization (357,939) (350,091)
Natural Gas Transmission Plant, Net 754,235 751,202
OTHER ASSETS AND DEFERRED CHARGES
Regulatory assets - income tax related 19,239 19,449
Regulatory assets - other 1,238 1,285
Other assets and deferred charges 11,066 11,686
Total Other Assets and Deferred Charges 31,543 32,420
TOTAL ASSETS $ 850,002 $ 843,867
LIABILITIES AND PARTNERS' EQUITY
CURRENT LIABILITIES
Accounts payable $ 535 $ 9,454
Accrued interest 11,617 4,674
Current portion of long-term debt 32,222 32,222
Customer deposits 4,410 3,899
Other current liabilities 671 2,250
Total Current Liabilities 49,455 52,499
LONG-TERM DEBT 420,000 425,556
OTHER NON-CURRENT LIABILITIES
Derivative liability - interest rate hedge,
net of tax 1,248 1,771
Other 2,559 1,486
Total Other Non-Current Liabilities 3,807 3,257
AMOUNTS EQUIVALENT TO DEFERRED INCOME TAXES
Generated by Partnership 161,935 158,669
Payable by Partners (142,696) (139,220)
Related to Other Comprehensive Income (511) (715)
Total Amounts Equivalent to Deferred
Income Taxes 18,728 18,734
COMMITMENTS AND CONTINGENCIES - -
Total Liabilities 491,990 500,046
Partners' Equity 358,012 343,821
TOTAL LIABILITIES AND PARTNERS' EQUITY $ 850,002 $ 843,867
The accompanying notes are an integral part of these consolidated financial
statements.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
IROQUOIS GAS TRANSMISSION SYSTEM, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
(Unaudited)
Three Months Ended
March 31,
2005 2004
RESTATED
OPERATING ACTIVITIES:
Net Income $ 8,211 $ 9,836
Adjusted for the following:
Depreciation and amortization 8,039 7,383
Allowance for equity funds used during construction -- (1,123)
Deferred regulatory asset-income tax related 210 (675)
Amounts equivalent to deferred income taxes (210) 675
Income and other taxes payable by partners 5,661 6,835
Other assets and deferred charges 596 684
Other non-current liabilities 1,073 (11)
CHANGES IN WORKING CAPITAL:
Accounts receivable 310 (299)
Prepaid property taxes (918) (1,792)
Insurance receivable (4,500) --
Other current assets 463 743
Accounts payable (434) (394)
Accrued interest 6,943 6,903
Customer deposits 511 (97)
Other current liabilities (1,579) 329
NET CASH PROVIDED BY OPERATING ACTIVITIES 24,376 28,997
INVESTING ACTIVITIES:
Capital expenditures (19,486) (23,933)
NET CASH USED IN INVESTING ACTIVITIES (19,486) (23,933)
FINANCING ACTIVITIES:
Repayments of long-term debt (5,556) (5,556)
NET CASH USED FOR FINANCING ACTIVITIES (5,556) (5,556)
NET DECREASE IN CASH AND TEMPORARY
CASH INVESTMENTS (666) (492)
CASH AND TEMPORARY CASH INVESTMENTS AT
BEGINNING OF YEAR 36,393 36,344
CASH AND TEMPORARY CASH INVESTMENTS AT
END OF YEAR $ 35,727 $ 35,852
Supplemental Disclosures of Cash Flow Information:
Cash paid for interest $ 1,033 $ 1,034
The accompanying notes are an integral part of these consolidated financial
statements.
PART I. FINANCIAL INFORMATION (Continued)
ITEM 1. FINANCIAL STATEMENTS (Continued)
IROQUOIS GAS TRANSMISSION SYSTEM, L.P. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' EQUITY
For the Three Months Ended March 31, 2005
(In Thousands)
(Unaudited)
Accumu-
lated
Other
Taxes Equity Equity Compre-
Payable Distribu- Contribu- hensive Total
Net by tions to tions to Income/ Partners'
Income Partners Partners Partners (loss) Equity
Balance at
December 31, 2004 $345,277 $225,780 $(505,544) $279,381 $(1,073) $343,821
Net Income 8,211 8,211
Taxes payable
By partners 5,661 5,661
Other compre-
hensive income,
net of tax 319 319
Balance at
March 31, 2005 $353,488 $231,441 $(505,544) $279,381 $ (754) $358,012
The accompanying notes are an integral part of this consolidated
financial statement.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 1. FINANCIAL STATEMENTS - (Continued)
IROQUOIS GAS TRANSMISSION SYSTEM, L.P. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
1. The consolidated financial statements included herein have been prepared
by Iroquois Gas Transmission System, L.P., referred to herein as Iroquois or
the Partnership, without audit pursuant to the rules and regulations of the
Securities and Exchange Commission. Accordingly, they reflect all
adjustments which are, in the opinion of management, necessary for a fair
presentation of the financial results for the interim periods. Certain
information and notes normally included in financial statements prepared in
accordance with generally accepted accounting principles have been condensed
or omitted pursuant to such rules and regulations. These financial statements
should be read in conjunction with the financial statements and the notes
thereto included in Iroquois' Annual Report on Form 10-K for the year ended
December 31, 2004, referred to herein as Iroquois' Form 10-K.
The preparation of financial statements in conformity with generally accepted
accounting principles in the United States of America requires management to
make assumptions and estimates that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
2. Comprehensive income consisted of the following:
(in thousands) Three months ended
March 31,
2005 2004
Net income $8,211 $9,836
Other comprehensive income(loss)
Unrealized gain/(loss)on
interest rate hedge, net of tax
of $64 and $(125) respectively 158 (313)
Reclassification to net income,
net of tax of $109 and $176 respectively 161 265
Unrealized gain (loss) on interest rate
hedge, net of reclassification adjustment 319 (48)
Comprehensive income $8,530 $9,788
3. Retirement Benefit Plans:
The components of net pension benefit costs included in the Partnership's
consolidated statements of income were as follows:
(in thousands)
Three months ended
March 31,
2005 2004
Service Cost $ 227 $ 210
Interest Cost 85 77
Expected return on plan assets (110) (88)
Amortization of prior service cost 3 3
Recognition of net actuarial loss 13 15
Net periodic pension cost $ 218 $ 217
Note 9 of the Notes to Consolidated Financial Statements in Iroquois'
December 31, 2004 Form 10-K discusses the Partnership's expected contribution
to its pension plans. For the three months ended March 31, 2005, $0.3
million of contributions have been made to its pension plans. The
Partnership plans to make further contributions of $0.5 million in 2005.
4. Prior Year Cash Flow Restatement:
The restatement shown below is the result of accruals for capital
expenditures being treated as a cash inflow from operations with a
corresponding cash use for investing activities. Rather, as required by
Statement of Financial Accounting Standards No. 95, "Statement of Cash
Flows", such amounts are to be shown as supplemental non-cash activities
until payment is made shortly after purchase, at which time the cash outflows
are shown as investing activities. This adjustment is isolated to the
presentation of the Consolidated Statement of Cash Flows and has no impact on
reported income or balance sheet information.
The following table sets forth the restatement to the Consolidated Statement
of Cash Flows for the three months ended March 31, 2004:
(in thousands)
As
Originally As
Reported Adjustment Restated
Changes in working capital -
accounts payable $(12,062) $ 11,668 $ (394)
Net cash provided by operating
activities $ 17,329 $ 11,668 $ 28,997
Cash flows from investing activities -
capital expenditures $(12,265) $(11,668) $(23,933)
Net cash used in investing activities $(12,265) $(11,668) $(23,933)
5. Commitments and Contingencies:
Eastchester Construction Incidents
On November 16, 2002, certain undersea electric transmission cables owned by
Long Island Lighting Partnership d/b/a The Long Island Power Authority, or
LIPA, and Connecticut Light and Power Partnership, or CL&P, were allegedly
damaged and/or severed when an anchor deployed by the DSV MR. SONNY, a work
vessel taking part in the construction of the Eastchester Extension,
allegedly allided with the cables. The MR. SONNY allegedly is owned by Cal
Dive International, Inc., or Cal Dive, a subcontractor of the Partnership's
general contractor, Horizon Offshore Contractors, Inc., or Horizon.
On December 6, 2002, Cal Dive commenced a maritime limitation of liability
action in the United States District Court for the Eastern District of New
York, seeking exoneration from or limitation of liability in respect of this
incident. LIPA, CL&P, the Partnership, Horizon and Thales GeoSolutions
Group, Ltd. (another of Horizon's subcontractors) have all filed claims in
the limitation action. In addition, LIPA, CL&P and their subrogated
underwriters, collectively refered to as the "Cable Interests," filed third-
party claims against the Partnership and its operating subsidiary, IPOC, as
well as Horizon and Thales, seeking recovery for their alleged losses. The
Partnership filed cross-claims against Horizon and Thales for indemnification
in respect of the Cable Interests' claims, and Horizon filed a third-party
claim against Thales. The Cable Interests subsequently agreed to dismiss
their claim against IPOC, but without prejudice to their right to re-file
that claim if they deem necessary.
The Cable Interests originally claimed a total of $34.3 million in damages,
consisting of $14.4 million for repairs and repair related costs, including
LIPA and CL&P internal costs and overheads of $4.7 million, as well as $19.9
million in consequential damages. In September 2004, the Cable Interests
amended their claim to $23.5 million, consisting of approximately $12.9
million for repairs and repair related costs and $10.6 million in
consequential damages.
A mediation was conducted in February 2005, at the conclusion of which all
parties agreed to terms for a global settlement of the litigation. A formal
settlement agreement was executed on April 11, 2005. Neither the Partnership
nor IPOC was required to contribute to the settlement, and both were given
full releases from all parties.
On February 27, 2003, the New York Power Authority, or NYPA, informed the
Partnership that one of four cables that comprised its Y-49 facility, which
is a 600 megawatt undersea electrical power interconnection between
Westchester County and LIPA's transmission system at Sands Point, New York,
allegedly sustained damage causing a disruption of power transmission over
the line and leakage of dielectric fluid. NYPA alleges that the damage was
caused by an anchor of Horizon's pipeline lay barge, the GULF HORIZON, which
was in the vicinity of NYPA's cable and was involved in work in the
Eastchester Extension at the time of the casualty.
By letter dated March 25, 2003, counsel representing NYPA and LIPA informed
the Partnership that they intend to hold the Partnership, Horizon and
Horizon's subcontractor, Thales, jointly and severally liable for the full
extent of their damages, which they allege includes emergency response costs,
repair of the damaged electrical cable, loss of use and disruption of
service, and certain other as yet unspecified damages arising out of or
relating to the incident.
The Partnership is a party to an agreement with NYPA, which provides, among
other things, that the Partnership will indemnify NYPA for damage to the Y-49
cables, which results from the Partnership's or its contractors' negligence,
acts, omissions or willful misconduct. Under the terms of the construction
contract between Horizon and the Partnership, Horizon is obligated to
indemnify the Partnership for Horizon's negligence associated with the
construction of the Eastchester Extension. Horizon is also contractually
responsible for its sub-contractor's negligence. As required by the
contract, Horizon named the Partnership as an additional named insured under
Horizon's policies of insurance. The Partnership is still investigating
whether Horizon's insurance is adequate to cover the Partnership for its
potential losses in this matter. The Partnership may also be entitled to
indemnity as an additional insured under Thales' policies of insurance. The
Partnership has placed Horizon and its underwriters on notice that it intends
to hold Horizon responsible. The Partnership has further requested that
Horizon assume its defense and hold it harmless in respect of this claim;
however, to date, Horizon has rejected this request. The Partnership has
also placed its own insurance underwriters on notice and they are funding the
costs for the Partnership's defense. The Partnership also commenced a
declaratory judgment action against Horizon's primary liability insurer
seeking coverage and is currently investigating the applicability of all
other available insurance coverages.
On August 15, 2003, Horizon commenced a maritime limitation of liability
action in the United States District Court for the Southern District of
Texas, Houston Division, captioned In the Matter of Horizon Vessels Inc., as
owner of the GULF HORIZON, seeking exoneration from or limitation of
liability in connection with this incident. Horizon's suit contends that if
it is not entitled to exoneration, its liability should be limited to $19.3
million, representing the value of the GULF HORIZON and her pending freight,
and Horizon's insurers have provided an undertaking (subject to policy
defenses) to pay any judgment that may be rendered in the suit up to $19.3
million. NYPA, LIPA and the insurers of the Y-49 cable, collectively
referred to as the "Y-49 Cable Interests," also have filed claims in the
limitation action asserting total damages of approximately $18.2 million. On
November 12, 2003, the Partnership filed an Answer in Horizon's action,
requesting that the limitation of liability action be dismissed and/or that
the limitation injunction be lifted to permit the Partnership to pursue its
claims against Horizon in the forum of its choice, or, in the alternative,
that Horizon be denied limitation rights under the Limitation Act. The
Partnership also filed a claim in Horizon's limitation action seeking
indemnity for any liability it may be found to have to the Y-49 Cable
Interests as a result of the NYPA cable incident as well as all losses
suffered by the Partnership as a result thereof, and, on a protective basis,
seeking full damages for Horizon's breaches and deficient performance under
the Partnership/Horizon construction contract, which claims are unrelated to
the NYPA cable incident. Thales also has filed a claim in the Horizon
limitation action seeking indemnity for any liability it may be found to have
to the Y-49 Cable Interests or the Partnership. The Y-49 Cable Interests and
the Partnership both filed motions to transfer the Texas action to the United
States District Court for the Eastern District of New York. Thales joined in
those motions. By order entered February 27, 2004, the court denied the
motions to transfer. However, in doing so, the court confirmed that the
Partnership could pursue its contract claims against Horizon outside of the
limitation action and that Horizon had no right to limit its liability as to
the Partnership's contract claims. The Y-49 Cable Interests filed cross
claims against the Partnership alleging claims under the Crossing Agreement
between the Partnership and NYPA and in common law tort.
The Y-49 Cable Interests filed a motion for partial summary judgment against
the Partnership on October 13, 2004. The motion asks the court to find the
Partnership liable for indemnity under the Crossing Agreement for all costs
and expenses incurred by the Y-49 Cable Interests directly related to the
emergency response to the incident and for the costs and expenses of the
temporary and permanent repairs. The Partnership believes the motion is
premature and has opposed the motion. The motion is now fully briefed and
pending before the court for decision.
The parties presently are engaging in document discovery, and the Partnership
is still in the process of investigating this incident and evaluating its
rights, obligations and responsibilities. Given the preliminary stage of
this matter, the Partnership is unable to assess the likelihood of an
unfavorable outcome and/or the amount or range of loss, if any, in the event
of an unfavorable outcome.
The Partnership has also learned that as part of the Eastchester construction
there may have been one or more violations by the contractor of the
exclusionary zones established around certain specified areas of possible
cultural resources, namely underwater archeological sites such as shipwrecks,
along the pipeline's marine route and the contractor may have placed anchors
outside the authorized construction corridor. At this time, the Partnership
has no information that any sites were in fact damaged. The Partnership has
informed the FERC and the New York State Office of Parks, Recreation and
Historic Preservation of this matter. At this time, the Partnership is
unable to determine if there will be any material adverse effect on the
Partnership's financial condition and results of operations due to this
matter.
Pursuant to its agreements with the owners of the electric transmission
cables that the Eastchester facilities cross in the Long Island Sound, the
Partnership performed certain post- construction surveys to verify the
condition of the cable crossings and confirm the location of the pipeline.
Specifically, the Partnership had constructed a "structure" over the Y-50
cable system consisting of lightweight flexible concrete mattresses under the
pipeline, specially fabricated concrete blocks adjacent to the pipeline and
crushed rock. The surveys and additional follow-up studies indicate that the
"structure" may have settled to a greater extent than originally anticipated
and that its location is believed to be 65 feet north of the location where
the pipeline crosses the Y-50 cable. The Partnership has been discussing
this matter with the owner of the Y-50 cable system as to whether and how
these issues should be modified and notified the FERC by letter dated
September 3, 2004. Given the preliminary stage of this matter, the
Partnership is unable to assess the likelihood of an unfavorable outcome
and/or the amount or range of costs, if any, in the event of an unfavorable
outcome.
Capobianco, A. vs. Iroquois Gas & Consolidated Edison Company of New York
On January 28, 2004, Anthony Capobianco filed a complaint against the
Partnership, IPOC and Consolidated Edison Company of New York in the Supreme
Court of the State of New York, New York County (Index No. 101366/04). The
complaint alleges that Mr. Capobianco, an employee of Hallen Construction
Company, Inc., or Hallen, sustained personal injuries resulting from an
electrical current causing severe electrical shock while performing his
duties as part of the construction of the Hunts Point segment of the
Partnership's Eastchester project. Hallen was the Partnership's contractor
employed to construct that segment of the project. The claim is asserted for
damages in the amount of $10 million. The Partnership has notified its
insurance carriers and an answer has been filed to the complaint. Hallen's
insurer has agreed to indemnify and defend the Partnership in this action up
to the $1 million limit of its general liability insurance policy.
Additionally, Hallen has coverage under an excess liability policy up to $20
million. Given the preliminary nature of this matter, at this time, the
Partnership is unable to determine the likelihood of an unfavorable outcome
and/or the amount or range of loss, if any, in the event of an unfavorable
outcome.
National Energy & Gas Transmission Inc. (NEGT) and its Subsidiaries'
Bankruptcy Filing
On July 8, 2003, PG&E Corporation reported that NEGT and a number of its
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. These subsidiaries include PG&E Energy Trading
Holdings Corporation, PG&E Energy Trading-Gas Corporation, PG&E Energy
Trading-Power Corporation, PG&E ET Investments Corporation, and US Gen New
England, Inc.
US Gen NE had two firm transportation service agreements with the
Partnership, one for 40,702 Dth/d, which expires on November 1, 2013, and one
for 12,000 Dth/d, which expires on April 1, 2018. The total monthly demand
charges for both contracts were $0.5 million. On September 5, 2003, the
bankruptcy court authorized the rejection of US Gen NE's two firm
transportation contracts. In February 2004, the Partnership entered into a
ten year contract for the 12,000 Dth/d while the remaining unsubscribed
capacity of 40,720 Dth/d will continue to be remarketed on a short term basis
until longer term market opportunities emerge. On October 15, 2003, the
Partnership filed a proof of claim with the bankruptcy court for $49.8
million, representing the present value of the two rejected contracts.
On March 2, 2005 , representatives of the Partnership and US Gen NE agreed in
principal to a settlement agreement regarding the Partnership's proof of
claim with the bankruptcy court. Under said settlement, the Partnership
expects to receive $8.4 million, the value of its mitigated claim as well as,
approximately $2.1 million as a result of retained cash collaterals for a
total settlement of approximately $10.5 million plus 4% interest accruing
from the start of the claim. Based on US Gen NE's disclosure statement filed
with the Bankruptcy Court, US GEN NE estimates to pay 100% of each unsecured
claim. On April 5, 2005, the settlement was approved by the Bankruptcy Court.
On May 12, 2005, the Bankruptcy Court approved US Gen NE's Plan of
Liquidation. A distribution is anticipated in June 2005. The Partnership
expects to record any funds received as part of this bankruptcy proceeding as
"Other Income."
Enron Corp. and Affiliated Entities Bankruptcy Filing
Enron Corp. and Enron North America Corp., collectively Enron, filed
voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York, or Bankruptcy Court, in 2001. In October 2002, the
Partnership filed Proofs of Claim with the Bankruptcy Court in the amount of
$1.6 million for Claim 1 and in the amount of Unknown dollars for Claim 2
resulting from termination by Enron of the Partnership's Gas Transportation
(Contract No. R-1250-05). On February 22, 2005, by Letter Agreement, Enron
agreed to allow the Partnership $1.8 million (two claims for $0.9 million
each) in unsecured claims, subject to the approval of the Bankruptcy Court.
Based on Enron's disclosure statement, Enron estimates to pay 20% of each
unsecured claim. The Partnership expects to record any funds received as
part of this bankruptcy proceeding as "Other Income."
No liabilities have been recorded by the Partnership in conjunction with any
of the preceding legal matters.
Brookfield Project (FERC Docket No. CP02-31-000)
On October 31, 2002 the FERC issued a certificate authorizing the Partnership
to construct the Brookfield Project facilities.
Based on communications with its prospective customers regarding the timing
of their needs for new firm transportation service, the Partnership had
determined that a temporary deferral of the construction of the Brookfield
Project was necessary. Specifically, Astoria Energy LLC, or Astoria, the
largest shipper for the Brookfield Project, had requested that its service be
deferred until November 1, 2005. On February 28, 2003, the Partnership and
Astoria executed an amendment to their precedent agreements reflecting this
deferral. However, on August 1, 2003, Astoria elected to terminate its
precedent agreements with the Partnership. The other original Brookfield
Project shipper, PPL Energy Plus, LLC, or PPL, also elected to terminate its
precedent agreement, and the Partnership is currently remarketing the
Brookfield Project capacity. Additionally, the Partnership is exploring
other services and products that may also utilize Brookfield Project
capacity. As of March 31, 2005, the Partnership had incurred approximately
$2.5 million in construction expenditures related to the Brookfield Project,
primarily related to the purchase of the Brookfield site.
In anticipation of these developments, on April 22, 2003, the Partnership
requested an eighteen month extension from the FERC to extend the
construction completion time of the Brookfield Project to October 31, 2005.
On May 14, 2003, the FERC granted the Partnership's request and extended the
construction completion date to November 1, 2005.
On June 27, 2003, the Partnership purchased real property in Brookfield, CT,
which was previously approved by the FERC as suitable for construction of the
Brookfield compressor station. In accordance with the FERC approval, the site
must be remediated before construction takes place. On November 3, 2004,
the Connecticut Department of Environmental Protection approved the project's
site remediation plan and scope of work schedule. Work began in late November
2004 and is anticipated to be completed in Spring 2005. Site remediation is
not expected to have a material adverse impact on the Partnership's operating
results or financial condition.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Iroquois Gas Transmission System, L.P., or the Partnership, is a Delaware
limited partnership. It owns and operates a 412-mile interstate natural gas
transmission pipeline from the Canada-United States border near Waddington,
New York to South Commack, Long Island, New York including an approximate 36-
mile mainline extension from Northport, New York through the Long Island
Sound to Hunts Point, New York, also referred to as the Eastchester
Extension. The Eastchester Extension was placed into service on February 5,
2004. The Partnership provides service to local gas distribution companies,
electric utilities and electric power generators, as well as marketers and
other end-users, directly or indirectly, by connecting with pipelines and
interconnects throughout the northeastern United States. The Partnership is
exclusively a transporter of natural gas in interstate commerce and operates
under authority granted by the Federal Energy Regulatory Commission, or the
FERC. The Partnership was organized in 1989 and commenced full operations in
1992, creating a link between markets in the states of Connecticut,
Massachusetts, New Hampshire, New Jersey, New York and Rhode Island, and
western Canada natural gas supplies.
On November 9, 2004 TransCanada Corporation and Shell US Gas & Power LLC
announced plans to develop an offshore liquefied natural gas, or LNG,
regasification terminal, named Broadwater Energy, in the New York State
waters of Long Island Sound. The expected in-service date of the facility is
late 2010. The Partnership is in discussions with the proponents of this
project as to potential interconnection of the LNG terminal with the
Partnership's existing facilities. Given the preliminary stage of this
matter, the Partnership is unable to assess the possible effects, if any, of
the LNG project, if ultimately constructed, on its system.
Results of Operations
The components of Operating Revenues and Volumes Transported are provided in
the following table:
Three months ended
Revenues and Volumes Delivered March 31,
2005 2004
Operating Revenues (dollars in millions)
Long-term firm reserved service $ 37.0 $ 34.1
Short-term firm/interruptible/other 3.3 5.2
Total revenues $ 40.3 $ 39.3
Volumes Transported (millions of dekatherms)
Long-term firm reserved service 77.3 77.0
Short-term firm/interruptible/other 12.8 16.8
Total volumes transported 90.1 93.8
Short-term firm represents firm service contracts of less than one year.
Other revenue includes deferred asset surcharges, park and loan service
revenue and marketing fees.
The Partnership receives revenues under long-term firm reserved
transportation service contracts with shippers in accordance with service
rates approved by the FERC. The Partnership also has interruptible
transportation service revenues which are at the margin and thus can have a
significant impact on net income. Such revenues include short-term firm
reserved transportation service contracts having terms of less than one year
as well as standard interruptible transportation service contracts. While it
is common for pipelines to be obligated under their FERC-approved rate
structures to share some of their interruptible transportation service
revenues with long-term firm reserved service shippers, Iroquois is not
currently obligated to do so under the terms of its currently effective rate
settlement which expires December 31, 2007. However, there can be no
assurance that this will be the case in the future.
Three-month period ended March 31, 2005 compared to the three-month period
ended March 31, 2004.
Revenues. Total revenues increased $1.0 million, or 2.6%, to $40.3 million
for the three-month period ended March 31, 2005 from $39.3 million for the
three-month period ended March 31, 2004.
Long-term firm reserved service revenues increased $2.9 million, or 8.5%, to
$37.0 million for the three months ended March 31, 2005 from $34.1 million
for the same period in 2004. This increase was primarily due to additional
revenues from the Eastchester Extension of approximately $3.8 million due to
its February 5, 2004 in-service date and approximately $1.7 million of
revenues attributable to the commencement of new long-term firm contracts in
the third quarter of 2004. These increases were partially offset by
decreased long-term firm reserved service revenues of $2.5 million primarily
due to a rate decrease of approximately $0.04 per dekatherm over the first
quarter of 2004.
Short-term firm/interruptible/other revenues decreased $1.9 million, or
36.5%, to $3.3 million for the three-month period ended March 31, 2005 from
$5.2 million for the same period in 2004, primarily due to lower volumes
associated with decreased market demand for natural gas during the three-
month period ended March 31, 2005 as compared to the same period in 2004.
Depreciation and Amortization. Depreciation and amortization increased $0.6
million, or 8.1%, to $8.0 million for the three-month period ended March
31, 2005 from $7.4 million for the same period in 2004, primarily due to the
February 5, 2004 in-service date of the Eastchester Extension.
Taxes other than income taxes. Taxes other than income taxes encompass
property and school taxes paid to various state jurisdictions for mainline,
metering and compression facilities along the pipeline system of Iroquois.
Taxes other than income taxes increased $1.2 million, or 36.4%, to $4.5
million for the three-month period ended March 31, 2005 from $3.3 million for
the three-month period ended March 31, 2004 primarily due to assessments on
facilities related to the Eastchester Extension.
Other Income/(Expenses). Other income/(expenses) include certain investment
income and the net of income and expense adjustments not recognized
elsewhere. Other income/(expenses) decreased $1.1 million, for the three-
month period ended March 31, 2005 as compared to the three-month period ended
March 31, 2004 primarily due to a decrease in the allowance for equity funds
used during construction, or equity AFUDC. The decrease in the equity AFUDC
related primarily to the February 5, 2004 in-service date of the Eastchester
Extension.
Interest Expense, Net. Interest expense, net increased $1.1 million, or
15.1%, to $8.4 million for the three-month period ended March 31, 2005 from
$7.3 million for the three-month period ended March 31, 2004 primarily due to
a decrease in interest capitalized, related to the February 5, 2004 in-
service date of the Partnership's Eastchester Extension.
Provision for Taxes. Provision for taxes decreased $1.1 million, or 16.2%,
to $5.7 million for the three-month period ended March 13, 2005 from $6.8
million for the same period in 2004, primarily due to a decrease in taxable
income.
Liquidity and Capital Resources
For the first three months of 2005, the Partnership's source of financing has
been cash flow from operations. The Partnership's ongoing operations will
require the availability of funds to service debt, fund working capital, and
make capital expenditures on the Partnership's existing facilities and
expansion projects. The Partnership expects to fund its 2005 ongoing
operations through internal sources.
Net cash provided by operating activities decreased to $24.4 million in the
first three months of 2005 compared to $29.0 million in the first three
months of 2004, primarily due to a decrease in net income and an increase in
accounts receivable associated with insurance recoveries related to
Eastchester. Net cash used for financing activities was $5.6 million for the
first three months of 2005 and 2004, consisting of the repayment of long-term
debt.
The Partnership has a $10.0 million, 364-day, variable rate revolving line of
credit to support working capital requirements. As of March 31, 2005 and
December 31, 2004, the outstanding principal balance on the revolving credit
facility was $10.0 million.
Capital expenditures in the first three months of 2005 were $19.5 million,
compared to $23.9 million in the first three months of 2004. Expenditures in
the first three months of 2005 primarily represent the settlement of
outstanding claims with Eastchester contractors, partially offset by
insurance recoveries associated with the Eastchester project, while 2004
expenditures were primarily related to Eastchester construction.
Total capital expenditures for 2005 are estimated to be approximately $25.1
million, including the Eastchester expenditures referenced previously and
approximately $2.5 million for installation of a vent valve on Long Island.
The remaining capital expenditures planned for 2005 are primarily for various
general plant purchases. The Partnership expects to fund its 2005 capital
expenditures through internal sources.
The Partnership's management makes recommendations to the partnership
management committee regarding the amount and timing of distributions to
partners. The amount and timing of distributions is subject to internal cash
requirements for construction, financing and operational requirements.
Distributions and cash calls require the approval of the management
committee. There were no cash distributions to partners during the first
three months of 2005 or during the same period in 2004.
Off-Balance Sheet Transactions
At March 31, 2005, the Partnership had no off-balance sheet transactions,
arrangements or other relationships with unconsolidated entities or persons
that would adversely affect liquidity, availability of capital resources,
financial position or results of operations.
Information Regarding Forward Looking Statements
This quarterly report contains various forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended and Section
21E of the Securities Exchange Act of 1934, as amended. Such forward-looking
statements are based on current expectations, are not guarantees of future
performance and include assumptions about future market conditions,
operations and results. They are made in reliance on the "safe harbor"
provisions of the Private Securities Litigation Reform Act of 1995. The
Partnership can give no assurance that such expectations will be achieved.
Among the many factors that could cause actual results to differ materially
from those in the forward-looking statements herein are: future demand and
prices for natural gas; availability of supplies of Canadian natural gas;
regulatory, political, legislative and judicial developments, particularly
with regard to regulation by the Federal Energy Regulatory Commission; the
cost of the Partnership's expansion projects, including the Eastchester
Extension; competitive conditions in the marketplace; changes in the
receptivity of the financial markets to the Partnership or other oil and gas
credit similar to Iroquois and, accordingly, our strategy for financing any
such change in business strategy or expansion. A discussion of these and
other factors which may affect our actual results, performance, achievements
or financial position is contained in the "Risk Factors" section of the
Partnership's Annual Report on Form 10-K, which is on file with the United
States Securities and Exchange Commission.
PART I. FINANCIAL INFORMATION - (Continued)
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Market risk represents the risk of changes in value of a financial
instrument, derivative or non-derivative, caused by fluctuations in interest
rates and prices. The following discussion of the Partnership's risk
management activities includes forward-looking statements that involve risks
and uncertainties. Actual results could differ materially from those
contemplated in the forward-looking statements. The Partnership handles
market risks in accordance with established policies, which may include
various derivative transactions.
The financial instruments held or issued by the Partnership are for purposes
other than trading or speculation. The Partnership is exposed to risk
resulting from interest rate changes on its variable-rate debt. The
Partnership uses interest rate swap agreements to manage the risk of
increases in certain variable rate issues. It records amounts paid and
received under those agreements as adjustments to the interest expense of the
specific debt issues. The Partnership believes that there is no material
market risk associated with these agreements. As of March 31, 2005, the
Partnership had $82.2 million of variable-rate debt outstanding, of which
approximately $23.6 million is fixed out under the interest rate swap
agreements. Holding other variables constant, including levels of
indebtedness, a one-percentage point change in interest rates would impact
pre-tax earnings by approximately $0.6 million.
The Partnership's pension plan assets are made up of equity and fixed income
investments. Fluctuations in those markets could cause the Partnership to
recognize increased or decreased pension income or expense.
PART I. FINANCIAL INFORMATION - (Concluded)
ITEM 4. CONTROLS AND PROCEDURES
As of the end of the period covered by this report, an evaluation was carried
out, under the supervision and with the participation of the Partnership's
management, including the Partnership's principle executive officer and chief
financial officer, of the effectiveness of the Partnership's disclosure
controls and procedures pursuant to Exchange Act Rule 15d-15(b). Based upon
that evaluation, the Partnership's principle executive officer and chief
financial officer concluded that the Partnership's disclosure controls and
procedures are effective.
There have been no changes in the Partnership's internal control over
financial reporting that have materially affected, or are reasonably likely
to materially affect, the Partnership's internal control over financial
reporting.
PART II. OTHER INFORMATION
IROQUOIS GAS TRANSMISSION SYSTEM, L.P. AND SUBSIDIARY
ITEM 1. Legal Proceedings
A description of the Partnership's legal proceedings is contained in the
Partnership's Annual Report on Form 10-K for the year ended December 31,
2004. Those descriptions remain accurate except as updated below.
Eastchester Construction Incidents
On November 16, 2002, certain undersea electric transmission cables owned by
Long Island Lighting Partnership d/b/a The Long Island Power Authority, or
LIPA, and Connecticut Light and Power Partnership, or CL&P, were allegedly
damaged and/or severed when an anchor deployed by the DSV MR. SONNY, a work
vessel taking part in the construction of the Eastchester Extension,
allegedly allided with the cables. The MR. SONNY allegedly is owned by Cal
Dive International, Inc., or Cal Dive, a subcontractor of the Partnership's
general contractor, Horizon Offshore Contractors, Inc., or Horizon.
On December 6, 2002, Cal Dive commenced a maritime limitation of liability
action in the United States District Court for the Eastern District of New
York, seeking exoneration from or limitation of liability in respect of this
incident. LIPA, CL&P, the Partnership, Horizon and Thales GeoSolutions
Group, Ltd. (another of Horizon's subcontractors) have all filed claims in
the limitation action. In addition, LIPA, CL&P and their subrogated
underwriters, collectively refered to as the "Cable Interests," filed third-
party claims against the Partnership and its operating subsidiary, IPOC, as
well as Horizon and Thales, seeking recovery for their alleged losses. The
Partnership filed cross-claims against Horizon and Thales for indemnification
in respect of the Cable Interests' claims, and Horizon filed a third-party
claim against Thales. The Cable Interests subsequently agreed to dismiss
their claim against IPOC, but without prejudice to their right to re-file
that claim if they deem necessary.
The Cable Interests originally claimed a total of $34.3 million in damages,
consisting of $14.4 million for repairs and repair related costs, including
LIPA and CL&P internal costs and overheads of $4.7 million, as well as $19.9
million in consequential damages. In September 2004, the Cable Interests
amended their claim to $23.5 million, consisting of approximately $12.9
million for repairs and repair related costs and $10.6 million in
consequential damages.
A mediation was conducted in February 2005, at the conclusion of which all
parties agreed to terms for a global settlement of the litigation. Neither
the Partnership nor IPOC was required to contribute to the settlement. A
formal settlement agreement was executed on April 11, 2005 and both were
given full releases from all parties.
On February 27, 2003, the New York Power Authority, or NYPA, informed the
Partnership that one of four cables that comprised its Y-49 facility, which
is a 600 megawatt undersea electrical power interconnection between
Westchester County and LIPA's transmission system at Sands Point, New York,
allegedly sustained damage causing a disruption of power transmission over
the line and leakage of dielectric fluid. NYPA alleges that the damage was
caused by an anchor of Horizon's pipeline lay barge, the GULF HORIZON, which
was in the vicinity of NYPA's cable and was involved in work in the
Eastchester Extension at the time of the casualty.
By letter dated March 25, 2003, counsel representing NYPA and LIPA informed
the Partnership that they intend to hold the Partnership, Horizon and
Horizon's subcontractor, Thales, jointly and severally liable for the full
extent of their damages, which they allege includes emergency response costs,
repair of the damaged electrical cable, loss of use and disruption of
service, and certain other as yet unspecified damages arising out of or
relating to the incident.
The Partnership is a party to an agreement with NYPA, which provides, among
other things, that the Partnership will indemnify NYPA for damage to the Y-49
cables, which results from the Partnership's or its contractors' negligence,
acts, omissions or willful misconduct. Under the terms of the construction
contract between Horizon and the Partnership, Horizon is obligated to
indemnify the Partnership for Horizon's negligence associated with the
construction of the Eastchester Extension. Horizon is also contractually
responsible for its sub-contractor's negligence. As required by the
contract, Horizon named the Partnership as an additional named insured under
Horizon's policies of insurance. The Partnership is still investigating
whether Horizon's insurance is adequate to cover the Partnership for its
potential losses in this matter. The Partnership may also be entitled to
indemnity as an additional insured under Thales' policies of insurance. The
Partnership has placed Horizon and its underwriters on notice that it intends
to hold Horizon responsible. The Partnership has further requested that
Horizon assume its defense and hold it harmless in respect of this claim;
however, to date, Horizon has rejected this request. The Partnership has
also placed its own insurance underwriters on notice and they are funding the
costs for the Partnership's defense. The Partnership also commenced a
declaratory judgment action against Horizon's primary liability insurer
seeking coverage and is currently investigating the applicability of all
other available insurance coverages.
On August 15, 2003, Horizon commenced a maritime limitation of liability
action in the United States District Court for the Southern District of
Texas, Houston Division, captioned In the Matter of Horizon Vessels Inc., as
owner of the GULF HORIZON, seeking exoneration from or limitation of
liability in connection with this incident. Horizon's suit contends that if
it is not entitled to exoneration, its liability should be limited to $19.3
million, representing the value of the GULF HORIZON and her pending freight,
and Horizon's insurers have provided an undertaking (subject to policy
defenses) to pay any judgment that may be rendered in the suit up to $19.3
million. NYPA, LIPA and the insurers of the Y-49 cable, collectively
referred to as the "Y-49 Cable Interests," also have filed claims in the
limitation action asserting total damages of approximately $18.2 million. On
November 12, 2003, the Partnership filed an Answer in Horizon's action,
requesting that the limitation of liability action be dismissed and/or that
the limitation injunction be lifted to permit the Partnership to pursue its
claims against Horizon in the forum of its choice, or, in the alternative,
that Horizon be denied limitation rights under the Limitation Act. The
Partnership also filed a claim in Horizon's limitation action seeking
indemnity for any liability it may be found to have to the Y-49 Cable
Interests as a result of the NYPA cable incident as well as all losses
suffered by the Partnership as a result thereof, and, on a protective basis,
seeking full damages for Horizon's breaches and deficient performance under
the Partnership/Horizon construction contract, which claims are unrelated to
the NYPA cable incident. Thales also has filed a claim in the Horizon
limitation action seeking indemnity for any liability it may be found to have
to the Y-49 Cable Interests or the Partnership. The Y-49 Cable Interests and
the Partnership both filed motions to transfer the Texas action to the United
States District Court for the Eastern District of New York. Thales joined in
those motions. By order entered February 27, 2004, the court denied the
motions to transfer. However, in doing so, the court confirmed that the
Partnership could pursue its contract claims against Horizon outside of the
limitation action and that Horizon had no right to limit its liability as to
the Partnership's contract claims. The Y-49 Cable Interests filed cross
claims against the Partnership alleging claims under the Crossing Agreement
between the Partnership and NYPA and in common law tort.
The Y-49 Cable Interests filed a motion for partial summary judgment against
the Partnership on October 13, 2004. The motion asks the court to find the
Partnership liable for indemnity under the Crossing Agreement for all costs
and expenses incurred by the Y-49 Cable Interests directly related to the
emergency response to the incident and for the costs and expenses of the
temporary and permanent repairs. The Partnership believes the motion is
premature and has opposed the motion. The motion is now fully briefed and
pending before the court for decision.
The parties presently are engaging in document discovery, and the Partnership
is still in the process of investigating this incident and evaluating its
rights, obligations and responsibilities. Given the preliminary stage of
this matter, the Partnership is unable to assess the likelihood of an
unfavorable outcome and/or the amount or range of loss, if any, in the event
of an unfavorable outcome.
The Partnership has also learned that as part of the Eastchester construction
there may have been one or more violations by the contractor of the
exclusionary zones established around certain specified areas of possible
cultural resources, namely underwater archeological sites such as shipwrecks,
along the pipeline's marine route and the contractor may have placed anchors
outside the authorized construction corridor. At this time, the Partnership
has no information that any sites were in fact damaged. The Partnership has
informed the FERC and the New York State Office of Parks, Recreation and
Historic Preservation of this matter. At this time, the Partnership is
unable to determine if there will be any material adverse effect on the
Partnership's financial condition and results of operations due to this
matter.
Pursuant to its agreements with the owners of the electric transmission
cables that the Eastchester facilities cross in the Long Island Sound, the
Partnership performed certain post- construction surveys to verify the
condition of the cable crossings and confirm the location of the pipeline.
Specifically, the Partnership had constructed a "structure" over the Y-50
cable system consisting of lightweight flexible concrete mattresses under the
pipeline, specially fabricated concrete blocks adjacent to the pipeline and
crushed rock. The surveys and additional follow-up studies indicate that the
"structure" may have settled to a greater extent than originally anticipated
and that its location is believed to be 65 feet north of the location where
the pipeline crosses the Y-50 cable. The Partnership has been discussing
this matter with the owner of the Y-50 cable system as to whether and how
these issues should be modified and notified the FERC by letter dated
September 3, 2004. Given the preliminary stage of this matter, the
Partnership is unable to assess the likelihood of an unfavorable outcome
and/or the amount or range of costs, if any, in the event of an unfavorable
outcome.
Capobianco, A. vs. Iroquois Gas & Consolidated Edison Company of New York
On January 28, 2004, Anthony Capobianco filed a complaint against the
Partnership, IPOC and Consolidated Edison Company of New York in the Supreme
Court of the State of New York, New York County (Index No. 101366/04). The
complaint alleges that Mr. Capobianco, an employee of Hallen Construction
Company, Inc., or Hallen, sustained personal injuries resulting from an
electrical current causing severe electrical shock while performing his
duties as part of the construction of the Hunts Point segment of the
Partnership's Eastchester project. Hallen was the Partnership's contractor
employed to construct that segment of the project. The claim is asserted for
damages in the amount of $10 million. The Partnership has notified its
insurance carriers and an answer has been filed to the complaint. Hallen's
insurer has agreed to indemnify and defend the Partnership in this action up
to the $1 million limit of its general liability insurance policy.
Additionally, Hallen has coverage under an excess liability policy up to $20
million. Given the preliminary nature of this matter, at this time, the
Partnership is unable to determine the likelihood of an unfavorable outcome
and/or the amount or range of loss, if any, in the event of an unfavorable
outcome.
National Energy & Gas Transmission Inc. (NEGT) and its Subsidiaries'
Bankruptcy Filing
On July 8, 2003, PG&E Corporation reported that NEGT and a number of its
subsidiaries filed voluntary petitions for reorganization under Chapter 11 of
the U.S. Bankruptcy Code. These subsidiaries include PG&E Energy Trading
Holdings Corporation, PG&E Energy Trading-Gas Corporation, PG&E Energy
Trading-Power Corporation, PG&E ET Investments Corporation, and US Gen New
England, Inc.
US Gen NE had two firm transportation service agreements with the
Partnership, one for 40,702 Dth/d, which expires on November 1, 2013, and one
for 12,000 Dth/d, which expires on April 1, 2018. The total monthly demand
charges for both contracts were $0.5 million. On September 5, 2003, the
bankruptcy court authorized the rejection of US Gen NE's two firm
transportation contracts. In February 2004, the Partnership entered into a
ten year contract for the 12,000 Dth/d while the remaining unsubscribed
capacity of 40,720 Dth/d will continue to be remarketed on a short term basis
until longer term market opportunities emerge. On October 15, 2003, the
Partnership filed a proof of claim with the bankruptcy court for $49.8
million, representing the present value of the two rejected contracts.
On March 2, 2005, representatives of the Partnership and US Gen NE agreed in
principal to a settlement agreement regarding the Partnership's proof of
claim with the bankruptcy court. Under said settlement, the Partnership
expects to receive $8.4 million, the value of its mitigated claim as well as,
approximately $2.1 million as a result of retained cash collaterals for a
total settlement of approximately $10.5 million plus 4% interest accruing
from the start of the claim. Based on US Gen NE's disclosure statement filed
with the Bankruptcy Court, US GEN NE estimates to pay 100% of each unsecured
claim. On April 5, 2005, the settlement was approved by the Bankruptcy Court.
On May 12, 2005, the Bankruptcy Court approved US Gen NE's Plan of
Liquidation. A distribution is anticipated in June 2005. The Partnership
expects to record any funds received as part of this bankruptcy proceeding as
"Other Income."
Enron Corp. and Affiliated Entities Bankruptcy Filing
Enron Corp. and Enron North America Corp., collectively Enron, filed
voluntary petitions for relief under Chapter 11 of the United States
Bankruptcy Code in the United States Bankruptcy Court for the Southern
District of New York, or Bankruptcy Court, in 2001. In October 2002, the
Partnership filed Proofs of Claim with the Bankruptcy Court in the amount of
$1.6 million for Claim 1 and in the amount of Unknown dollars for Claim 2
resulting from termination by Enron of the Partnership's Gas Transportation
(Contract No. R-1250-05). On February 22, 2005, by Letter Agreement, Enron
agreed to allow the Partnership $1.8 million in unsecured claims, subject to
the approval of the Bankruptcy Court. Based on Enron's disclosure statement,
Enron estimates to pay 20% of each unsecured claim. The Partnership expects
to record any funds received as part of this bankruptcy proceeding as "Other
Income."
No liabilities have been recorded by the Partnership in conjunction with any
of the preceding legal matters.
ITEMS 2-4 are not applicable.
ITEM 5. Other Information
None.
ITEM 6. EXHIBITS
(a) Exhibits:
Index to Exhibits
Exhibit
Number
31.1 Certification of the Chief Executive Officer to Rule 15d-14(a) under
the Securities Exchange Act of 1934.
31.2 Certification of the Chief Financial Officer pursuant to Rule
15d-14(a) under the Securities Exchange Act of 1934.
32.1 Certification pursuant to Rule 15d-14(b) under the Securities
Exchange Act of 1934 and 18 U.S.C. Section 1350.
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.
IROQUOIS GAS TRANSMISSION SYSTEM, L.P.
(A Delaware Limited Partnership)
Date: May 23, 2005 By: Iroquois Pipeline Operating Company,
as its Agent
/S/ E.J. Holm
_________________
E.J. Holm
President
/S/ Paul Bailey
_________________
Paul Bailey
Vice President & Chief Financial Officer