Annual Report (Form 10-K), fiscal year 1994

ITEM 1. BUSINESS
GENERAL
The Peoples Gas Light and Coke Company (Company) is a corporation created by a special act of the General Assembly of the State of Illinois (State), approved February 12, 1855, as amended on February 7, 1865.
The Company, an operating public utility, is engaged primarily in the purchase, production, storage, distribution, sale, and transportation of natural gas. It has approximately 842,000 residential, commercial, and industrial retail sales and transportation customers within the City of Chicago (City). The Company had 3,031 employees at September 30, 1994.
At September 30, 1994, the common stock of the Company and of its affiliate, North Shore Gas Company (North Shore Gas), was wholly owned by Peoples Energy Corporation (Peoples Energy).
COMPETITION
The Company is authorized by statute and/or certificates of public convenience and necessity to conduct operations in the territory that it serves. The Company holds a perpetual, non-exclusive franchise from the City.
Absent extraordinary circumstances, potential competitors are barred from constructing competing gas distribution systems in the Company's service territory by a judicial doctrine known as the "first in the field" doctrine. In addition, the high cost of installing duplicate distribution facilities would render the construction of a competing system impractical.
Competition in varying degrees exists between natural gas and other fuels or forms of energy available to consumers in the Company's service area. The capital cost of heating and cooling facilities in new high-rise buildings is higher for gas than for electricity. This circumstance, combined with stagnant high-rise construction activity, has adversely affected the ability of the Company to attach commercial high-rise buildings. However, the Company has had some success in attaching high-rise residential buildings, as gas heating results in lower operating costs.
A substantial portion of the gas that the Company delivers to its customers consists of gas that the Company's customers purchase directly from producers and marketers rather than from the Company. These direct customer gas purchases have no effect on net income because the Company provides transportation service for such gas volumes and recovers margins similar to those applicable to conventional gas sales.
ITEM 1. BUSINESS (Continued)
COMPETITION (Continued)
A pipeline may seek to provide transportation service directly to end- users. Such direct service by a pipeline to an end-user would bypass the local distributor's service and reduce the distributor's earnings. However, none of the Company's pipeline suppliers has undertaken any service bypassing the Company. The Company has a bypass rate approved by the Illinois Commerce Commission (Commission) which allows the Company to renegotiate rates with customers that are potential bypass candidates.
SALES AND RATES
The Company sells natural gas having an average heating value of approximately 1,000 British thermal units (Btu's) per cubic foot.* Sales are made and service rendered by the Company pursuant to a rate schedule on file with the Commission containing various service classifications largely reflecting customers' different uses and levels of consumption. The Gas Charge is determined in accordance with the provisions in Rider 2, Gas Charge and Refund Adjustments, to recover the costs incurred by the Company to purchase, transport, manufacture, and store gas supplies. The level of the Gas Charge under the Company's rate schedule is adjusted monthly to reflect increases or decreases in natural gas supplier charges, purchased storage service costs, transportation charges, liquefied petroleum gas costs, and feedstock costs for synthetic natural gas (SNG). In addition, under the tariffs of the Company, the difference for any fiscal year between costs recoverable through the Gas Charge and the revenues billed to customers under the Gas Charge is refunded or recovered over a 12-month billing cycle beginning the following January 1. Consistent with these tariff provisions, such difference for any month is recorded either as a current liability or a current asset (with a contra entry to gas costs), and the fiscal year-end balance is amortized over the 12-month period beginning the following January 1. The Company also has been recovering, through its rates, pipeline charges billed for transition costs resulting from the implementation of Federal Energy Regulatory Commission (FERC) Order No. 636. (See Notes 1H, 2A, and 2B of the Notes to Consolidated Financial Statements.)
The business of the Company is influenced by seasonal weather conditions because a large element of the Company's customer load consists of space heating. Weather-related deliveries can, therefore, have a significant positive or negative impact on net income. (For discussion of the effect of the seasonal nature of gas sales on cash flow, see "Liquidity" in Item 7.)
The basic marketing plan of the Company is to maintain its existing share in all market segments and develop opportunities emerging from changes in the utility environment and technological advances in new, expanded, or current natural gas applications, including cogeneration, prime movers, natural gas- fueled vehicles, and air conditioning.
- -------------------------------------------------------------------------------- * All volumes of natural gas set forth in this report are stated on a 1,000 Btu (per cubic foot) billing basis.
ITEM 1. BUSINESS (Continued)
STATE LEGISLATION AND REGULATION
The Company is subject to the jurisdiction of and regulation by the Commission, which has general supervisory and regulatory powers over practically all phases of the public utility business in Illinois, including rates and charges, issuance of securities, services and facilities, systems of accounts, investments, safety standards, transactions with affiliated interests, as defined in the Illinois Public Utilities Act, and other matters.
On October 6, 1992, the Commission issued an order approving changes in the rates of the Company that were designed to increase annual revenues by approximately $30.6 million, exclusive of additional charges for revenue taxes. The new rates were implemented on October 10, 1992. The Company was allowed a 10.40 percent return on its original-cost rate base, reflecting a 12.25 percent cost of common equity. The Commission's order also approved a rate mechanism by which the Company will recover costs associated with environmental activities, relating to past manufactured gas operations (see discussion below). (See Note 2A of the Notes to Consolidated Financial Statements.)
On September 30, 1992, the Commission issued an order in its consolidated proceedings, initiated in March 1991, regarding the appropriate ratemaking treatment of environmental costs relating to past manufactured gas operations incurred by Illinois utilities, including the Company and North Shore Gas, in connection with the investigation and treatment of residues associated with past manufactured gas operations ("environmental costs"). In its order, the Commission approved rate recovery of such environmental costs but required that the recovery occur over a five-year period without recovery of carrying charges on unrecovered balances. The Commission's order is on appeal before the Illinois Supreme Court. (See Note 2A of the Notes to Consolidated Financial Statements.)
On September 15, 1993, the Commission entered an order initiating an investigation into the appropriate means of recovery by Illinois gas utilities of pipeline charges for FERC Order No. 636 transition costs. The Commission issued its orders on rehearing in this proceeding in September 1994. (See Notes 1H, 2A, and 2B of the Notes to Consolidated Financial Statements.)
On December 16, 1994, the Company filed with the Commission proposed changes in rates that are designed to increase annual revenues by about $59.9 million, exclusive of additional charges for revenue taxes. The Company is seeking a rate of return on original-cost rate base of 10.03 percent, which reflects a 12.7 percent cost of common equity. The Company expects that the Commission, following its usual practices, will not issue a decision regarding the Company's filed rate increase request until November 1995. The Company cannot predict the outcome of its rate increase request.
ITEM 1. BUSINESS (Continued)
FEDERAL LEGISLATION AND REGULATION
By Order entered on December 6, 1968 (Holding Company Act Release No. 16233), the Securities and Exchange Commission, pursuant to Section 3(a)(1) of the Public Utility Holding Company Act of 1935 (Act), exempted Peoples Energy and its subsidiary companies as such (including the Company) from the provisions of the Act, other than Section 9(a)(2) thereof.
Most of the gas distributed by the Company is transported to the Company's distribution system by interstate pipelines. In their provision of gas sales services (gathering, transportation and storage services, and gas supply) pipelines are regulated by the FERC under the Natural Gas Act (NGA) and the Natural Gas Policy Act of 1978 (NGPA). (See "Sales and Rates" and "Current Gas Supply" in Item 1.)
The Company is subject to federal and state environmental laws. The Company is conducting environmental investigations and work at certain sites that were the location of former manufactured gas plant operations. (See Note 3 of the Notes to Consolidated Financial Statements.)
In 1992, the FERC issued Order No. 636 and successor orders that required substantial restructuring of the service obligations of interstate pipelines. (See Notes 1H, 2A, and 2B of the Notes to Consolidated Financial Statements.)
ENVIRONMENTAL MATTERS
See Note 3 of the Notes to Consolidated Financial Statements.
CURRENT GAS SUPPLY
The Company has entered into long- and short-term firm gas supply contracts. When used in conjunction with contract storage, Company-owned storage, and peak-shaving facilities, as shown in the following table, such supply is deemed sufficient to meet current and foreseeable peak and annual market requirements. SNG production is a source of the Company's annual, peak- season, and peak-day supply. The SNG plant is run at production levels that are consistent with orders of the Commission. The feedstock for the SNG plant is procured via firm supply contracts and spot purchases, as required. The current feedstocks are primarily ethane and refinery fuel gas, with naphtha and natural gasoline used for peaking.
Although the Company believes North American supply to be sufficient to meet U.S. market demands for some time, it is unable to quantify or otherwise make specific representations regarding national supply availability.
ITEM 1. BUSINESS (Continued)
CURRENT GAS SUPPLY (Continued)
The following tabulation shows the Company's expected peak-day availability of gas in million cubic feet (MMcf) during the 1994-95 heating season:
The sources of gas supply (including gas transported for customers) in million cubic feet (MMcf) for the Company for the three fiscal years ended September 30, 1994, 1993, and 1992, were as follows:
ITEM 1. BUSINESS (Continued)
SYNTHETIC NATURAL GAS SUPPLY
The Company owns and operates an SNG plant, the McDowell Energy Center, located near Joliet, Illinois. The plant can use refinery fuel gas and a variety of natural gas liquids, including ethane, naphtha, natural gasoline, normal butane, propane, and ethane/propane mix as feedstock for the production of SNG. While sufficient annual supplies of natural gas are now available, the SNG plant remains a key part of the Company's annual, peak-season, peak-day, and longer-term gas supply assurance program.
ITEM 2.



ITEM 2. PROPERTIES
All of the principal plants and properties of the Company have been maintained in the ordinary course of business and are believed to be in satisfactory operating condition. The following is a brief description of the principal plants and operating units of the Company.
The distribution system of the Company, as of September 30, 1994, consisted of approximately 4,000 miles of distribution mains and necessary pressure regulators, approximately 495,000 services (pipe connecting the mains with piping on the customers' premises), and approximately 899,000 meters installed on customers' premises. The Company has liquefied petroleum gasification and storage facilities. In addition, it owns and has a substantial investment in office and service buildings, garages, repair shops, and motor vehicles, together with the equipment, tools, and fixtures necessary to conduct utility business.
The Company's SNG plant mentioned in Item 1 has a design peak-day production capability of 170 MMcf of gas. The plant includes feedstock pipelines, structures, and equipment to transport, store, and process the feedstock into pipeline-quality gas and to deliver the gas into the Company's transmission system.
The Company has gas storage easements covering approximately 32,000 acres located at Manlove Field near Champaign, Illinois, overlying an aquifer- type underground natural gas storage reservoir at Manlove Field, together with wells, pipes, compressors, dehydration, metering, and other equipment required to operate the facility. As of September 30, 1994, the Company had approximately 128,000 MMcf of gas stored in the reservoir, of which approximately 92,000 MMcf was cushion gas. (Cushion gas is gas injected into the storage reservoir to hold back surrounding or underlying water and to provide the pressure necessary to make the wells deliver inventory gas at desired levels.)
Also located at Manlove Field is an LNG plant, which has a storage capacity of 2,000 MMcf and is capable of regasifying 300 MMcf of gas per day. Such gas, together with the gas withdrawn from the Manlove Field reservoir, the gas transmitted by Trunkline Gas Company, and the gas produced at the SNG plant, is carried to Chicago in Company-owned transmission mains totaling 255 miles.
ITEM 2. PROPERTIES (Continued)
Most of the principal plants and properties of the Company, other than mains, services, meters, and regulators, are located on property owned in fee. Substantially all gas mains are located in public streets and alleys. A small portion of the distribution facilities is located on private property under easement grants. Meters and house regulators in use and a portion of services are located on premises being served. Certain SNG facilities, certain storage wells and other facilities of the Manlove Field storage reservoir, and certain portions of the transmission system are located on land held pursuant to leases, easements, or permits. Such land rights, as well as the gas storage easements for the reservoir, have been obtained from the apparent record owners of the land involved, in some cases without joinder of all such owners, and all such leases, easements, and permits may be subject to mortgages or other liens to which the Company is not a party.
Substantially all of the physical properties now owned or hereafter acquired by the Company are subject to (a) the first-mortgage lien of the Company's mortgage to Bank of America Illinois, (formerly named Continental Bank, National Association) Trustee, to secure the principal amount of the Company's outstanding first and refunding mortgage bonds and (b) in certain cases, other exceptions and defects that do not interfere with the use of the property.
ITEM 3.

ITEM 3. LEGAL PROCEEDINGS
See Notes 2, 3, and 4 of the Notes to Consolidated Financial Statements.
ITEM 4.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5.

ITEM 5. MARKET FOR THE COMPANY'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company is a wholly owned subsidiary of Peoples Energy.
ITEM 6.

ITEM 6. SELECTED FINANCIAL DATA (a)
ITEM 7.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
RESULTS OF OPERATIONS
NET INCOME
Net income applicable to common stock increased $188,000, to $63.8 million, in fiscal 1994 from 1993. Results for the current fiscal year include the recording of one-half of an Internal Revenue Service (IRS) income tax settlement that increased net income by $9.7 million. (See Note 7 of the Notes to Consolidated Financial Statements.) However, this benefit was largely offset by increased operating costs related to the provision for uncollectible accounts, labor, and depreciation.
In 1993, net income applicable to common stock increased $5.9 million, to $63.6 million, due principally to a rate increase that went into effect for the Company on October 10, 1992. (See Note 2A of the Notes to Consolidated Financial Statements.) Fiscal 1993 also benefited from colder weather as compared to fiscal 1992; however, such benefit was offset by a decline in gas deliveries arising principally from energy conservation measures. Fiscal 1993 was negatively affected by increased operating expenses other than gas costs, including an increase in the provision for uncollectible accounts.
A summary of variations affecting income between years is presented below, with explanations of significant differences following:
NET OPERATING REVENUES
Gross revenues of the Company are affected by changes in the unit cost of the Company's gas purchases and do not include the cost of gas supplies for customers who purchase gas directly from producers and marketers rather than from the Company. The direct customer purchases have no effect on net income because the Company provides transportation service for such gas volumes and recovers margins similar to those applicable to conventional gas sales. Changes in the unit cost of gas do not significantly affect net income because the Company's tariffs provide for dollar-for-dollar recovery of gas costs. (See Note 1H of the Notes to Consolidated Financial Statements.) The Company's tariffs also provide for dollar-for-dollar recovery of the cost of revenue taxes imposed by the State and City.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
Since income is not significantly affected by changes in revenue from customers' gas purchases from producers or marketers rather than from the Company, changes in gas costs, or changes in revenue taxes, the discussion below pertains to "net operating revenues" (operating revenues, net of gas costs and revenue taxes). The Company considers net operating revenues to be a more pertinent measure of operating results than gross revenues.
Net operating revenues in fiscal 1994 amounted to $422.5 million, virtually flat as compared with fiscal 1993. Although the weather in January 1994 was significantly colder than January 1993, the total fiscal 1994 weather impact was comparable with fiscal 1993. Customers' energy conservation measures had a negative effect in the current period.
In 1993, net operating revenues increased $30.7 million, to $425.1 million, due primarily to the impact of the October 1992 rate increase for the Company that raised net operating revenues by $32.0 million, or $19.6 million after income taxes.
OPERATION AND MAINTENANCE EXPENSES
Operation and maintenance expenses increased $9.8 million, to $230.9 million, in 1994, due mainly to an increase in the provision for uncollectible accounts and higher labor costs that arose mainly from weather-related overtime work and from start-up costs for new customer-service programs. Partially offsetting these items were a reduced workforce and lower employee benefits expenses for pensions and group insurance. Fiscal 1994 results reflect an increase of $9.5 million in the provision for uncollectible accounts, which includes a $3.7 million increase to adjust the balance sheet allowance. Without the increase in the provision for uncollectible accounts, operation and maintenance expenses would have increased by $297,000 over fiscal 1993 levels.
In 1993, operation and maintenance expenses increased $19.4 million, to $221.2 million, due principally to increased group insurance expenses, primarily attributable to the accrual of postretirement benefit costs of $9.9 million. (See Note 6B of the Notes to Consolidated Financial Statements.) This is consistent with the rate treatment allowed the Company in October 1992. Also, higher expenses resulted from labor costs, the provision for uncollectible accounts, and pension costs.
DEPRECIATION EXPENSE
Depreciation expense increased $3.2 million, to $57.8 million, in 1994, and $3.1 million, to $54.6 million, in 1993, due chiefly to depreciable property additions.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
INCOME TAXES
Income taxes, exclusive of the $3.0 million included in other income related to an IRS settlement, decreased $5.5 million, to $27.4 million, in 1994, due principally to lower pre-tax income.
In 1993, income taxes rose by $3.9 million, to $33.0 million, due primarily to higher pre-tax income and the federal tax rate change from 34 percent to 35 percent effective January 1, 1993.
OTHER INCOME
Other income increased $12.9 million, to $17.4 million, in 1994, due primarily to recording an IRS settlement of approximately $9.7 million after income taxes. (See Notes 7 and 9 of the Notes to Consolidated Financial Statements.) Also, the current fiscal year includes higher interest income reflecting larger cash balances available for investment and additional interest income from proceeds being held in a trust fund generated from the December 1993 bond issuance. (See Note 12A of the Notes to Consolidated Financial Statements.)
In 1993, other income decreased $839,000, to $4.5 million, due partially to lower interest income on short-term investments. An offsetting factor was increased interest on amounts recoverable from customers.
INCOME DEDUCTIONS
Income deductions rose by $3.5 million, to $41.5 million, in 1994, due primarily to increased interest on long-term debt reflecting additional debt outstanding. (See Note 12A of the Notes to Consolidated Financial Statements.)
In 1993, income deductions decreased $2.4 million, to $38.0 million, due chiefly to reduced interest on long-term debt, gas bill credit deposits, budget accounts, and amounts refundable to customers.
OTHER MATTERS
EFFECT OF WEATHER. Weather variations affect the volumes of gas delivered for heating purposes and, therefore, can have a significant positive or negative impact on net income and coverage ratios.
EFFECT OF INFLATION. The Company is affected by inflation through increases in operating expenses and replacement of utility plant assets at costs higher than historical costs. Gas costs, the Company's largest operating cost, and revenue taxes are recovered dollar-for-dollar in rates. Increases in other operating costs are recovered through rate cases. Although there is a time lag in the recovery through rate cases of increased cost levels, the effect of this lag is mitigated by the use of a future test year in rate decisions. The Company recovers the cost of depreciable utility property through depreciation charges based on historical costs. Such charges do not reflect current costs or inflation-adjusted costs of utility plant. However, the Company believes that the manner of setting utility rates generally affords an opportunity to earn a fair return on shareholder investment.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
ACCOUNTING STANDARDS. In March 1993, the Company adopted, effective October 1, 1992, the liability method of accounting for deferred income taxes required by Statement of Financial Accounting Standards (SFAS) No. 109. (See Note 1G of the Notes to Consolidated Financial Statements.)
Effective October 1, 1993, the Company adopted SFAS No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions." This statement requires the accrual of the expected costs of such benefits during the employees' years of service. (See Note 6B of the Notes to Consolidated Financial Statements.)
In November 1992, the Financial Accounting Standards Board (FASB) issued SFAS No. 112, "Employers' Accounting for Postemployment Benefits." This statement requires the accrual of certain benefits provided to former or inactive employees after employment but before retirement. SFAS No. 112 requires adoption by the Company no later than fiscal 1995. (See Note 6C of the Notes to Consolidated Financial Statements.)
FERC ORDER 636 COSTS. In 1992, the FERC issued Order No. 636 and successor orders that required substantial restructuring of the service obligations of interstate pipelines. (See Notes 1H, 2A, and 2B of the Notes to Consolidated Financial Statements.)
On September 15, 1993, the Commission entered an order initiating an investigation into the appropriate means of recovery by Illinois gas utilities of pipeline charges for FERC Order No. 636 transition costs. The Commission issued its orders on rehearing in this proceeding in September 1994. (See Notes 1H, 2A, and 2B of the Notes to Consolidated Financial Statements.)
REENGINEERING STUDY. The Company is undertaking a major project to reengineer its business processes with the goal of increasing efficiency, responsiveness to customer needs, and cost effectiveness. The project commenced in September 1994 and is expected to continue for at least two years.
LIQUIDITY
SOURCE OF FUNDS. The Company has access to outside capital markets and to internal sources of funds that together provide sufficient resources to meet capital requirements. It does not anticipate any changes that would materially alter its current liquidity position.
Due to the seasonal nature of gas usage, a major portion of cash collections occurs between November and April. Because of timing differences in the receipt and disbursement of cash and the level of construction requirements, the Company may borrow on a short-term basis. Short-term borrowings are repaid with cash from operations, other short-term borrowings, or refinanced on a permanent basis with debt or equity, depending on capital market conditions and capital structure considerations.
CREDIT LINES. The Company has lines of credit of approximately $131 million of which North Shore Gas may borrow up to $30 million. At September 30, 1994, the Company and North Shore Gas had unused credit available from banks of approximately $130 million. (See Note 11 of the Notes to Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
CASH FLOW ACTIVITIES. Net cash provided by operating activities in 1994 increased by approximately $70.7 million, due mainly to increases related to net receivables and rate adjustments recoverable or refundable. Such items were partially offset by decreases associated with deferred credits and accounts payable. In 1993, net cash provided by operating activities increased by $13.9 million, due primarily to increases related to deferred credits, deferred charges, rate adjustments recoverable or refundable, accounts payable, and accrued taxes. These increases were offset in part by a decrease associated with net receivables.
Net cash used in investing activities for 1994, 1993, and 1992 mainly represents the level of capital expenditures in the respective years.
Net cash used in financing activities in 1994 reflects the new debt issues during the year, primarily used for construction activities. In 1993, net cash provided by financing activities reflects the debt issuance during the period, primarily to refund previously issued debt and preferred stock.
INTEREST COVERAGE. Coverage ratios for the Company's fixed charges for fiscal 1994, 1993, and 1992 were 3.28, 3.57, and 3.18, respectively. The current fiscal year ratio reflects the recording of the fiscal 1994 portion of an IRS settlement in income. (See Note 7 of the Notes to Consolidated Financial Statements.) The 1993 ratio includes the effect of the rate increase granted in October 1992 as well as decreased fixed charges, partially offset by increased operating expenses.
DEBT RATINGS. The long-term debt of the Company is rated Aa3 by Moody's Investors Service and AA- by Standard and Poor's Corporation. There has been no change in these ratings since fiscal 1985. The commercial paper of the Company has the top rating from the major rating agencies. On October 24, 1994, Standard and Poor's Corporation affirmed its ratings of the Company's long-term debt and commercial paper but changed its ratings outlook for the Company to "negative" from "stable."
ENVIRONMENTAL MATTERS. The Company is conducting environmental investigations and work at certain sites that were the location of former manufactured gas operations. (See Note 3 of the Notes to Consolidated Financial Statements.)
REGULATORY ACTIONS. On October 6, 1992, the Commission issued an order approving changes in rates of the Company that were designed to increase annual revenues by approximately $30.6 million, exclusive of additional charges for revenue taxes. (See Note 2A of the Notes to Consolidated Financial Statements.) In addition, the order approved a rate mechanism by which the Company will recover costs associated with environmental activities, relating to past manufactured gas operations. (See Note 3 of the Notes to Consolidated Financial Statements.)
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION (Continued)
On September 30, 1992, the Commission issued an order in its consolidated proceedings, initiated in March 1991, regarding the appropriate ratemaking treatment of environmental costs relating to past manufactured gas operations incurred by Illinois utilities, including the Company and North Shore Gas. In its order, the Commission approved rate recovery of such environmental costs but required that the recovery occur over a five-year period without recovery of carrying charges on unrecovered balances. The Commission's order is on appeal before the Illinois Supreme Court. (See Note 2A of the Notes to Consolidated Financial Statements.)
The Company filed proposed changes in rates with the Commission in December 1994. (See Item 1. Business - State Legislation and Regulation of this report.)
CAPITAL RESOURCES
CAPITAL SPENDING. Capital expenditures for additions, replacements, and improvements to the utility plant were $74.6 million in 1994, $108.9 million in 1993, and $92.1 million in 1992.
The decline in fiscal 1994 expenditures from 1993 was partly the result of completing certain major projects that were undertaken to enhance gas supply. The current year amount reflects a level consistent with the financial goals of the Company and maintains system safety. Expenditures in 1994 included $9.0 million for the third year of the four-year program to enhance the peak-day withdrawal capability at the Manlove Field underground storage site. Expenditures for that project in fiscal 1993 and 1992 amounted to $10.7 million and $4.0 million, respectively.
Additional expenditures in fiscal 1993 included $7.7 million for a liquefied natural gas vaporizer replacement project at Manlove Field. Fiscal 1992 expenditures included $5.0 million for the purchase and installation of high-tech meter-reading devices.
Capital expenditures for fiscal 1995 are expected to be about $81.6 million, an increase of $7.0 million from the 1994 level. Estimated expenditures in 1995 include the continuation of the cast iron main replacement program, $10.4 million for computer and office equipment, and $1.3 million to complete the underground storage site enhancement.
The Company anticipates that future cash needs for capital expenditures and sinking fund requirements and maturities will be met through internally generated funds, intercompany loans from Peoples Energy, borrowing arrangements with banks and/or the issuance of commercial paper on an interim basis, and periodic long-term financing involving equity or first mortgage bonds.
BONDS ISSUED. On December 22, 1993, the City of Chicago issued $102 million, in aggregate principal amount, of gas supply revenue bonds, which were collateralized by an equal amount of the Company's 30-year first mortgage bonds. The proceeds were lent to the Company for the purpose of financing the construction of certain facilities within the City. (See Note 12A of the Notes to Consolidated Financial Statements.)
Additional bonds are issuable by the Company, upon approval by the Commission, subject to limitations imposed by certain restrictive provisions of the subsidiaries' open-end mortgages and supplements thereto. These restrictions are not expected to have an impact on the Company's ability to issue additional debt, as needed.
ITEM 8.


ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Page ----
Statement of Management's Responsibility 19
Report of Independent Public Accountants 20
Consolidated Statements of Income for fiscal years ended September 30, 1994, 1993, and 1992 21
Consolidated Statements of Retained Earnings for fiscal years ended September 30, 1994, 1993, and 1992 21
Consolidated Balance Sheets as of September 30, 1994 and 1993 22
Consolidated Capitalization Statements as of September 30, 1994 and 1993 23
Consolidated Statements of Cash Flows for fiscal years ended September 30, 1994, 1993, and 1992 24
Notes to Consolidated Financial Statements 25
STATEMENT OF MANAGEMENT'S RESPONSIBILITY
The financial statements and other financial information included in this report were prepared by management, who is responsible for the integrity and objectivity of the presented data. The consolidated financial statements of the Company and its subsidiaries were prepared in conformity with generally accepted accounting principles and necessarily include some amounts that are based on the best estimates and judgments of management.
The Company maintains internal accounting systems and related administrative controls, along with internal audit programs, that are designed to provide reasonable assurance that the accounting records are accurate and assets are safeguarded from loss or unauthorized use. Consequently, management believes that the accounting records and controls are adequate to produce reliable financial statements.
Arthur Andersen LLP, the Company's independent public accountants approved by Peoples Energy's shareholders, as a part of their audit of the financial statements, selectively reviews and tests certain aspects of internal accounting controls solely to determine the nature, timing, and extent of audit tests. Management has made available to Arthur Andersen LLP all of the Company's financial records and related data and believes that all representations made to the independent public accountants during their audit were valid and appropriate.
The Audit Committee of the Board of Directors of Peoples Energy, comprised of six outside directors, meets periodically with management, the internal auditors, and Arthur Andersen LLP, jointly and separately, to assure that appropriate responsibilities are discharged. These meetings include discussion and review of accounting principles and practices, internal accounting controls, audit results, and the presentation of financial information in the annual report.
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To The Peoples Gas Light and Coke Company:
We have audited the accompanying consolidated balance sheets and consolidated capitalization statements of The Peoples Gas Light and Coke Company (an Illinois corporation, hereinafter referred to as the Company and a wholly owned subsidiary of Peoples Energy Corporation) and subsidiary companies as of September 30, 1994 and 1993, and the related consolidated statements of income, retained earnings, and cash flows for each of the three years in the period ended September 30, 1994. These financial statements and the schedules referred to below are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company and subsidiary companies as of September 30, 1994 and 1993, and the results of their operations and cash flows for each of the three years in the period ended September 30, 1994, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic financial statements taken as a whole. The financial statement schedules listed in Item 14(a)2 are presented for purposes of complying with the Securities and Exchange Commission's rules and are not part of the basic financial statements. These financial statement schedules have been subjected to the auditing procedures applied in the audit of the basic financial statements and, in our opinion, fairly state, in all material respects, the financial data required to be set forth therein in relation to the basic financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Chicago, Illinois November 2, 1994
CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF RETAINED EARNINGS
The Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED BALANCE SHEETS
The Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED CAPITALIZATION STATEMENTS
The Notes to Consolidated Financial Statements are an integral part of these statements.
CONSOLIDATED STATEMENTS OF CASH FLOWS
The Notes to Consolidated Financial Statements are an integral part of these statements.
THE PEOPLES GAS LIGHT AND COKE COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1A Principles of Consolidation
All subsidiaries are included in the consolidated financial statements. All significant intercompany transactions have been eliminated in consolidation. Certain items previously reported for years prior to 1994 have been reclassified to conform with the current-year presentation.
1B Concentration of Credit Risk
The Company provides natural gas service to approximately 842,000 customers within the City of Chicago. Credit risk for the Company is spread over a diversified base of residential, commercial, and industrial retail sales and transportation customers.
The Company encourages customers to participate in its long-standing budget payment program, which allows the cost of higher gas consumption levels, associated with the heating season, to be spread over a 12-month billing cycle. Customers' payment records are continually monitored and credit deposits are required, where indicated, to minimize uncollectible write-offs.
1C Revenue Recognition
Gas sales revenues for retail customers are recorded on the accrual basis for all gas delivered during the month, including an estimate for gas delivered but unbilled at the end of each month.
1D Property, Plant and Equipment
Property, plant and equipment is stated at original cost and includes appropriate amounts of payroll taxes, employee benefit costs, administrative costs, and an allowance for funds used during construction.
1E Maintenance and Depreciation
The Company charges the cost of maintenance and repairs of property and minor renewals and improvements of property to maintenance expense. When depreciable property is retired, its original cost is charged to the accumulated provision for depreciation.
The provision for depreciation substantially reflects the systematic amortization of the original cost of depreciable property over estimated useful lives on the straight-line method. Additionally, actual dismantling cost, net of salvage, is included in the provision for depreciation in the month incurred. The amounts provided are designed to cover not only losses due to wear and tear that are not restored by maintenance, but also losses due to obsolescence and inadequacy.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The provision for depreciation, expressed as an annual percentage of original cost of depreciable property, is as follows:
1F Statement of Cash Flows
For purposes of the balance sheet and the statement of cash flows, the Company considers all short-term liquid investments with maturities of three months or less to be cash equivalents.
Income taxes and interest paid (excluding capitalized interest) were as follows:
1G Income Taxes
The recording of deferred income taxes results from the use of accelerated depreciation methods and certain other timing differences in recognition of income and expense for tax and financial statement purposes.
Investment tax credits have been deferred and are being amortized through credits to income over the book lives of related property.
In March 1993, the Company adopted, effective October 1, 1992, the liability method of accounting for deferred income taxes required by SFAS No. 109, "Accounting for Income Taxes." Under the liability method, deferred income taxes have been recorded using currently enacted tax rates for the differences between the tax basis of assets and liabilities and the basis reported in the financial statements. Due to the effects of regulation on the Company, certain adjustments made to deferred income taxes to reflect the adoption of SFAS No. 109 are, in turn, debited or credited to regulatory assets or liabilities. Such adjustments had no material impact on financial position or results of operations of the Company. (See Note 7.)
The preceding deferred-tax and tax-credit accounting conforms with regulations of the Commission.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1H Recovery of Gas Costs, Including Charges for Transition Costs
Under the tariffs of the Company, the difference for any fiscal year between costs recoverable through the Gas Charge and revenues billed to customers under the Gas Charge is refunded or recovered over a 12-month billing cycle beginning the following January 1. Consistent with these tariff provisions, such difference for any month is recorded either as a current liability or as a current asset (with a contra entry to Gas Costs), and the fiscal year-end balance is amortized over the 12-month period beginning the following January 1.
The Commission conducts annual proceedings regarding, for each gas utility, the reconciliation of revenues from the Gas Charge and related costs incurred for gas. In such proceedings, costs recovered by a utility through the Gas Charge are subject to challenge. Such proceedings regarding the Company for fiscal years 1992 through 1994 are currently pending before the Commission.
Pursuant to FERC Order No. 636 and successor orders, pipelines are allowed to recover from their customers so-called transition costs. These costs arise from the restructuring of pipeline service obligations required by the 636 Orders. The Company is currently recovering pipeline charges for transition costs through an existing provision of the Gas Charge. The Commission entered an order on March 9, 1994, providing for the full recovery of all such charges from customers. In September 1994, the Commission entered orders on rehearing that retained the provision for full recovery from customers. (See Notes 2A and 2B.)
1I Gas in Storage
Storage injections are priced at the fiscal-year average of costs of natural gas purchased and synthetic natural gas (SNG) produced. The Company's SNG production costs include costs of feedstock plus plant operation and maintenance costs. Withdrawals from storage are priced on the last-in, first-out (LIFO) cost method. The estimated current replacement cost of gas in inventory, at September 30, 1994 and 1993, exceeded the LIFO cost by approximately $175 million and $217 million, respectively.
2. RATES AND REGULATION
2A Utility Rate Proceedings
RATE ORDER. On October 6, 1992, the Commission issued an order approving changes in the rates of the Company that were designed to increase annual revenues by approximately $30.6 million, exclusive of additional charges for revenue taxes. The new rates were implemented on October 10, 1992. The Company was allowed a 10.40 percent return on its original-cost rate base, reflecting a 12.25 percent cost of common equity. The Commission's order also approved a rate mechanism by which the Company will recover costs associated with environmental activities, relating to past manufactured gas operations (see discussion below). The Company and several parties appealed the Commission's order to the Illinois Appellate Court. In August 1994, the Illinois Appellate Court dismissed the appeal. That dismissal is now final and non-appealable.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
ENVIRONMENTAL COST RECOVERY. On September 30, 1992, the Commission issued an order in its consolidated proceedings, initiated in March 1991, regarding the appropriate ratemaking treatment of environmental costs relating to past manufactured gas operations incurred by Illinois utilities, including the Company and North Shore Gas, in connection with the investigation and treatment of residues associated with past manufactured gas operations ("environmental costs"). In its order, the Commission approved rate recovery of such environmental costs but required that the recovery occur over a five-year period without recovery of carrying charges on unrecovered balances. Reimbursements of environmental costs from insurance carriers or other entities are to be netted against costs and reflected in rates over a five-year period. In November 1992, several parties, including the Company and North Shore Gas, appealed the Commission's order to the Illinois Appellate Court. On December 29, 1993, the Third District Appellate Court issued its opinion affirming the Commission's order in the consolidated proceedings. On April 6, 1994, the Illinois Supreme Court allowed an appeal of the Appellate Court's decision. Any change made pursuant to the Supreme Court's order on appeal would have a prospective effect only.
FERC ORDER NO. 636 COST RECOVERY. On September 15, 1993, the Commission entered an order initiating an investigation into the appropriate means of recovery by Illinois gas utilities of pipeline charges for FERC Order No. 636 transition costs. The Commission issued a final order in this proceeding on March 9, 1994. The order provides for the full recovery of transition costs from the Company's gas service customers and transportation customers to the extent they contract for firm standby service. The Citizens Utility Board and State's Attorney of Cook County filed an application for rehearing of the March 9 order with the Commission. On May 4, 1994, the Commission granted rehearing, limited to the question of the allocation of transition costs. In September 1994, the Commission entered orders on rehearing. In its orders on rehearing, the Commission continued to provide for full recovery of transition costs, but directed that, effective November 1, 1994, gas supply realignment (GSR) costs (one of the four categories of transition costs) be recovered on a uniform volumetric basis from all transportation and sales customers. (See Notes 1H and 2B.)
2B FERC Orders 636, 636-A, and 636-B
In 1992, the FERC issued Order Nos. 636, 636-A, and 636-B. There are numerous appeals of the 636 Orders pending before the Federal Circuit Court of Appeal for the D.C. Circuit.
The 636 Orders require substantial restructuring of the service obligations of interstate pipelines. Among other things, the 636 Orders mandated "unbundling" of existing pipeline gas sales services. Mandatory unbundling requires pipelines to sell separately the various components of their gas sales services (gathering, transportation and storage services, and gas supply). These components were previously combined or "bundled" in gas services such as those purchased by the Company. To address concerns raised by utilities about reliability of service to their service territories, the 636 Orders required pipelines to offer a "no-notice" transportation service under which firm transporters can receive delivery of gas up to their contractual capacity level on any day without prior scheduling. Further, the 636 Orders provided for mechanisms for pipelines to recover prudently incurred transition costs associated with the restructuring process.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The FERC initiated individual restructuring proceedings for each interstate pipeline. Each pipeline submitted a proposal to bring it into compliance with the requirements of the 636 Orders. The restructured tariffs of Natural Gas Pipeline Company of America (Natural), the principal pipeline serving the Company, went into effect December 1, 1993. The restructured tariffs of other pipelines serving the Company had previously gone into effect. Several appeals of the orders approving Natural's and other pipelines' restructured tariffs are pending before the Federal Circuit Court of Appeal for the D.C. Circuit.
As part of the restructuring process, the Company elected necessary levels of restructured services, including no-notice services, from the menu of restructured services offered by the various pipelines. Also during 1993, the Company took the steps necessary to obtain reliable gas supply as a replacement for the bundled merchant service supply which was no longer available from the interstate pipelines to any significant extent.
Under the 636 Orders, pipelines must make separate rate filings to recover transition costs. There are four categories of such costs, the largest of which for the Company is GSR costs. The Company is subject to charges for transition cost recovery by Natural. Charges for transition costs commenced on January 1, 1994. Appropriate accruals for transition costs have been recorded. The Company is currently recovering transition costs through the Gas Charge. On September 29, 1994, the FERC approved a Stipulation and Agreement (Agreement) filed by Natural. The Agreement places a cap of approximately $103 million on the amount of GSR costs recoverable by Natural from the Company.
The 636 Orders are not expected to have a material adverse effect on financial position or results of operations of the Company. (See Notes 1H and 2A.)
3. ENVIRONMENTAL MATTERS
The Company, its predecessors, and certain former affiliates operated facilities in the past for manufacturing gas and storing manufactured gas. In connection with manufacturing and storing gas, various by-products and waste materials were produced, some of which might have been disposed of rather than sold. Under certain laws and regulations relating to the protection of the environment, the Company might be required to undertake remedial action with respect to some of these materials, if found at the sites.
The current owner of a site in McCook, Illinois, near Chicago, has advised the Company that the owner has found what appear to be wastes associated with by-products of the gas manufacturing process under its property. The owner has asserted that these wastes are the responsibility of the Company. The Company is currently evaluating this claim.
The Company, in cooperation with the IEPA, is conducting investigations of certain sites (a total of 29) to determine whether remedial action might be necessary. The investigations were initiated pursuant to an informal request by the IEPA. To the best of the Company's knowledge, similar informal requests have been made by the IEPA to other major Illinois gas and electric utilities. The Company has engaged environmental consulting firms to assist in the Company's investigations. At this time, except for the 110th Street Station site (discussed below), it is not known what, if any, remedial action will be necessary at the sites or, if necessary, what the cost of any such action would be. As discussed below, the Company may conduct an RI/FS at the Pitney Court Station and Division Street sites under the supervision of the IEPA. In addition, the Company is conducting investigations under the supervision of the IEPA at the 110th Street Station and Equitable Distribution Station sites.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In August 1988, the IEPA conducted an inspection at the Company's Division Street property in Chicago. During the inspection, the IEPA and the Company took several soil samples for laboratory analysis. The analysis of the samples collected by the Company indicates the presence of certain substances within the soil of the Division Street property that could be attributable to former manufactured gas operations. The Company may conduct an RI/FS of the property under the supervision of the IEPA.
The current owners of a site in Chicago, formerly called Pitney Court Station, have advised the Company that they found what appear to be gas manufacturing wastes underneath their property. The owners have demanded monetary compensation from the Company because of the presence of such wastes. The Company has rejected this demand, but may conduct an RI/FS of the site under the supervision of the IEPA.
The Company has observed what appear to be gas purification wastes on a site in Chicago, formerly called the 110th Street Station, and property contiguous thereto. The Company has fenced the site and the contiguous property and is conducting a study under the supervision of the IEPA to determine the feasibility of a limited removal action.
The current owners at a site in Chicago, formerly called South Station, have advised the Company that they have found what appear to be gas manufacturing wastes underneath their property. The owners have demanded monetary compensation from the Company because of the presence of such wastes. The Company is currently evaluating this claim.
The Company recently became aware of a planned residential development at a site in Chicago, formerly called the Equitable Distribution Station. The current owners of the site and the Company have agreed that the Company should conduct a preliminary investigation to determine whether gas manufacturing wastes are present at the site.
The Company is accruing and deferring the costs it incurs in connection with all of the sites, including related legal expenses, pending recovery through rates or from insurance carriers or other entities. As of September 30, 1994, the total of the costs deferred by the Company, net of recoveries, was $10.3 million. This amount includes an estimate of the costs of the investigations initiated at the request of the IEPA at the sites referred to above. The amount also includes an estimate of the costs of remediation at the 110th Street Station site in Chicago, at the minimum amount of the current estimated range of such costs. The costs of remediation at the other sites cannot be determined until more is known about the nature and extent of contamination and the remedial action, if any, to be required by the IEPA. While the Company intends to seek contribution from other entities for the costs incurred at the sites, the full extent of such contributions cannot be determined at this time.
The Company has filed suit against a number of insurance carriers for the recovery of environmental costs relating to its former manufactured gas operations. The suit asks the court to declare that the insurers are liable under policies in effect between 1938 and 1985 for costs incurred or to be incurred by the Company in connection with former manufactured gas sites in Chicago. The Company is also asking the court to award damages stemming from the insurers' breach of their contractual obligation to defend and indemnify the Company against these costs. At this time, management cannot determine the timing and extent of the Company's recovery of costs from its insurance carriers. Accordingly, the costs deferred as of September 30, 1994 have not been reduced to reflect recoveries from insurance carriers.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Costs incurred by the Company for environmental activities relating to former manufactured gas operations will be recovered from insurance carriers or other entities or through rates for utility service. Accordingly, management believes that the costs incurred by the Company in connection with the sites will not have a material adverse effect on financial position or results of operations. The Company is authorized to recover the costs of environmental activities relating to its former manufactured gas operations under rate mechanisms approved by the Commission. As of September 30, 1994, the Company had recovered $185,000 of such costs through rates. (See Note 2A for a discussion of proceedings regarding the recovery of such costs through utility rates.)
4. GAS OVER-PRESSURE CONDITION
On January 17, 1992, an over-pressure condition occurred in the gas mains of the Company serving an approximately one-square-mile area of the Near Northwest Side of the City of Chicago. The over-pressure condition caused a major explosion and numerous fires. The Company is aware of four deaths and 14 personal injuries allegedly resulting from the explosion and fires. The Company also has been informed that damage occurred in an estimated 28 buildings. There was also damage, such as broken windows, wall cracks, and water damage, to additional buildings.
A number of lawsuits have been filed against the Company as a result of the over-pressure condition. The lawsuits include wrongful-death claims and several class actions that seek to certify as a class those persons who suffered bodily harm and/or property damage. All of the suits allege negligence and seek compensatory damages. Some of the lawsuits also seek punitive damages. These suits have not quantified the alleged damages except for certain amounts that are not material.
In January 1993, the National Transportation Safety Board (NTSB) completed its report regarding its investigation of the over-pressure incident that occurred on January 17, 1992. In its report, the NTSB stated that "the probable cause of the over-pressure accident and the resulting losses was the failure of Peoples Gas Light Coke Company to adequately train its gas operations section employees in recognizing and correctly responding to abnormal situations, which consequently led to the failure of the gas operations section crew to properly monitor and control the pressure of the gas being supplied to the low-pressure gas system during a routine inspection."
In June 1993, the Staff of the Illinois Commerce Commission (Commission Staff) released its report concerning the over-pressure incident. In its report, the Commission Staff concluded that employee error was the probable cause of the over-pressurization. The report was critical of the Company's training of its personnel in its gas operations section and of some of the Company's practices at the time of the incident.
The Company strongly disagrees with the criticisms by the NTSB and the Commission Staff of the training given by the Company to personnel in its gas operations section. The Company also disagrees with some of the findings and conclusions of the Commission Staff, including several of the Commission Staff's findings and its theory, analysis, and conclusions pertaining to the probable cause of the over-pressurization.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company carries substantial insurance coverage. If liability were found on the part of the Company, management believes that any costs incurred for damages will be adequately covered by insurance. However, the Company's primary insurance carrier has asserted that under Illinois law, liability for punitive damages is not insurable. The Company has advised the insurance carrier that it disagrees and intends to assert all of its rights against the carrier including its right to obtain recovery for punitive damages, if any. Management is not aware of any conduct on its part or by employees of the Company that would give rise to punitive damages under Illinois law. Accordingly, management believes that the incident will not have a material adverse effect on financial position or results of operations of the Company.
5. LONG-TERM LEASE
In March 1985, the Company sold its headquarters office building and entered into a lease with an initial 10-year term and two five-year renewal options at the market rate in effect at each option date. The Company is accounting for this as an operating lease in accordance with SFAS No. 13, "Accounting for Leases." The rental obligation consists of a base rent of approximately $4.3 million per year and additional annual escalations based on operating costs, taxes, and increases in the Consumer Price Index. Rental expense under this arrangement was $6.1 million for each of the fiscal years 1994 and 1993.
In October 1993, the Company entered into a new 15-year lease to relocate its headquarters office on or before March 1, 1995. Rental expense will be comparable with the present lease.
6. EMPLOYEE BENEFITS
6A Pensions
The Company participates in two defined benefit pension plans covering substantially all employees. These plans provide pension benefits that generally are based on an employee's length of service, compensation during the five years preceding retirement, and social security benefits. Annual contributions are made to the plans based upon actuarial determinations and in consideration of tax regulations and funding requirements under federal law.
The Company also has a non-qualified pension plan that provides certain employees with pension benefits in excess of qualified plan limits imposed by federal tax law.
Net pension cost for all plans for fiscal 1994, 1993, and 1992 included the following components:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The calculation of pension cost assumed a long-term rate of return on assets of 7.5 percent for 1992 through 1994.
The following table shows the estimated funded status of the Company's pension plans at September 30, 1994 and 1993:
The projected benefit obligation was determined using a discount rate of 6.5 percent for 1994 and 5.75 percent for 1993, and assumed future compensation increases of 5.0 percent for each year. Plan assets consist primarily of marketable equity and fixed-income securities.
6B Postretirement Benefits Other Than Pensions
The Company also provides certain health care and life insurance benefits for retired employees. Substantially all employees may become eligible for such benefit coverage if they reach retirement age while working for the Company. The plans are funded based upon actuarial determinations and in consideration of tax regulations and funding requirements under federal law.
The Company adopted SFAS No. 106 effective October 1, 1993. SFAS No. 106 requires the accrual of the expected costs of such benefits during the employees' years of service.
Net postretirement benefit cost for all plans for fiscal 1994 included the following components:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The calculation of postretirement benefit cost assumed a long-term rate of return on assets of 7.5 percent.
The Company recognized total postretirement costs of $13.9 million during fiscal 1994. Of this amount, $7.7 million was funded through trust funds for future benefit payments. Such costs during fiscal year 1993 were $16.1 million, of which $9.9 million was funded.
In October 1992, the Company was granted rates by the Commission that included its estimated postretirement benefit costs determined on the accrual basis of accounting. (See Note 2A.) The financial reporting for postretirement benefit costs of the Company is consistent with the related rate treatment. Due to regulatory treatment, the adoption of SFAS No. 106 did not have a material effect on financial position or results of operations.
The following table sets forth the estimated funded status for the postretirement health care and life insurance plans at September 30, 1994:
The total APBO was determined using a discount rate of 7.75 percent and assumed future compensation increases of 5.0 percent. The unfunded obligation will be amortized over 20 years. Plan assets consist primarily of marketable equity and fixed-income securities.
For measurement purposes, a health care cost trend rate of 10.25 percent was assumed for fiscal 1995, and that rate thereafter will decline to 5.0 percent in 2003 and subsequent years. The health care cost trend rate assumption has a significant effect on the amounts reported. Increasing the assumed health care cost trend rate by one percentage point for each future year would have increased the APBO at September 30, 1994, by $7.3 million and the aggregate of service and interest cost components of the net periodic postretirement benefit cost by $1.0 million annually.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6C Postemployment Benefits
In November 1992, the FASB issued SFAS No. 112. This statement requires the accrual of certain benefits provided to former or inactive employees after employment but before retirement. The Company adopted SFAS No. 112 effective October 1, 1994. Implementation of this statement will not have a material effect on financial position or results of operations.
7. TAX MATTERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
See Note 1G for discussion of the adoption of SFAS No. 109 effective October 1, 1992. Set forth in the table below are the temporary differences which gave rise to the net deferred income tax liabilities:
The sources of significant timing differences which gave rise to federal deferred income taxes for the year prior to adoption of SFAS No. 109 was as follows:
The following is a reconciliation between the computed federal income tax expense (tax rate of 35 percent for 1994, 34.75 percent for 1993, and 34 percent for 1992, times pre-tax book income) and the total provision for federal income tax expenses:
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On September 30, 1993, the Company received notification from the IRS that settlement of past income tax returns had been reached for fiscal years 1978 through 1990. The IRS settlement resulted in 1994 payments of principal and interest to the Company in total amount of approximately $25 million, or $19.4 million after income taxes. The Company has received regulatory authorization to defer the recording of the settlement amount in income for fiscal year 1993, and to record its portion of the settlement amount in income for fiscal years 1994 and 1995. The Company has represented to the Commission that, having received this accounting authorization, it will not file a request for an increase in base rates before December 1994. The regulatory treatment of the IRS settlement having been resolved in November 1993, the Company included $12.7 million, or $9.7 million after income taxes, in income in 1994. The amount after income taxes is included in Other Income - Miscellaneous. At September 30, 1994, approximately $12.7 million is included in Reserves and Deferred Credits - Other. The Company will amortize its remaining portion of the settlement amount in income in fiscal year 1995, the effect of which will be to offset increases in costs that the utility will incur during that year.
8. ASSETS SUBJECT TO LIEN
The Indenture of Mortgage, dated January 2, 1926, as supplemented, securing the first and refunding mortgage bonds issued by the Company, constitutes a direct, first-mortgage lien on substantially all property owned by the Company.
9. OTHER INCOME - MISCELLANEOUS
10. CAPITAL COMMITMENTS
Total contract and purchase order commitments of the Company at September 30, 1994, amounted to approximately $5.6 million.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
11. SHORT-TERM BORROWINGS AND CREDIT LINES
Short-term cash needs of the Company and North Shore Gas are met through intercompany loans from Peoples Energy, bank loans, and/or the issuance of commercial paper. The outstanding total amount of bank loans and commercial paper issuances cannot at any time exceed total bank credit then in effect.
On February 1, 1994, the Company reduced its lines of credit to approximately $154 million from $184 million in effect since November 1, 1993. North Shore Gas was authorized to borrow up to $20 million of the aggregate $154 million. On July 1, 1994, the Company reduced its lines of credit to approximately $131 million of which North Shore Gas may borrow up to $30 million. Agreements covering $93.7 million of the total will expire on June 29, 1995. The agreement covering the remaining $37.4 million will expire on January 31, 1997. Such lines of credit cover projected short-term credit needs of the Company and North Shore Gas and support the long-term debt treatment of the Company's adjustable-rate mortgage bonds. Payment for the lines of credit is by fee.
12. LONG-TERM DEBT
12A Issuance of Bonds
On December 22, 1993, the City of Chicago issued $102 million, in aggregate principal amount, of gas supply revenue bonds ($75 million 5-3/4 percent Series A and $27 million adjustable-rate Series B), which were collateralized by an equal amount of the Company's 30-year first mortgage bonds. The proceeds were lent to the Company for the purpose of financing the construction of certain facilities within the City. The proceeds are being held in a trust fund until drawn down by the Company for reimbursement of construction expenditures.
In accordance with provisions of the Internal Revenue Code and regulations thereunder, any arbitrage income must be paid to the federal government. Additionally, all assets financed through this arrangement must be depreciated on a straight-line basis for tax purposes.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
12B Interest-Rate Adjustments
The rate of interest on the City of Joliet 1984 Series C Bonds, which are secured by the Company's Adjustable-Rate Bonds, Series W, is subject to adjustment annually on October 1. Owners of the Series C Bonds have the right to tender such bonds at par during a limited period prior to that date. The Company is obligated to purchase any such bonds tendered if they cannot be remarketed. All Series C Bonds that were tendered prior to October 1, 1994, have been remarketed. The interest rate on such bonds is 4.2 percent for the period October 1, 1994, through September 30, 1995.
The rate of interest on the City of Chicago 1993 Series B Bonds, which are secured by the Company's Adjustable-Rate Bonds, Series EE, currently is subject to adjustment annually on December 1. Owners of the Series B Bonds have the right to tender such bonds at par during a limited period prior to that date. The Company is obligated to purchase any such bonds tendered if they cannot be remarketed. The interest rate on such bonds is 2.55 percent for the period December 1, 1993, through November 30, 1994.
12C Fair Value of Financial Instruments
The estimated fair value of the Company's $549.2 million carrying amount of long-term debt approximated $585.7 million as of September 30, 1994. As of September 30, 1993, the estimated fair value of the Company's $447.2 million carrying amount of long-term debt approximated $478.7 million. The estimated fair value of the Company's long-term debt is based on quoted market prices or yields for issues with similar terms and remaining maturities. The carrying amount of all other financial instruments approximates fair value.
13. DEFERRED CHARGES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. QUARTERLY FINANCIAL DATA (UNAUDITED)
The fluctuation in quarterly results is primarily due to the seasonal nature of the gas distribution business. Results for the first quarter of fiscal 1994 include the recording of one-half of an IRS settlement, in income, increasing net income by $9.6 million.
ITEM 9.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10.



ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
IDENTIFICATION OF DIRECTORS
Company Name, Principal Occupation, Age at Directorship and Other Directorships 11-30-94 Since - --------------------------------------------------- -------- ------------
Kenneth S. Balaskovits 52 1993 Vice President and Controller of the Company, Peoples Energy, and North Shore Gas; Director of North Shore Gas.
J. Bruce Hasch 56 1986 President and Chief Operating Officer of the Company, Peoples Energy, and North Shore Gas; Director of Peoples Energy and North Shore Gas.
James Hinchliff 54 1985 Senior Vice President and General Counsel of the Company, Peoples Energy, and North Shore Gas; Director of North Shore Gas.
Michael S. Reeves 59 1988 Executive Vice President of the Company, Peoples Energy, and North Shore Gas; Director of Peoples Energy and North Shore Gas.
Richard E. Terry 57 1982 Chairman of the Board and Chief Executive Officer of the Company, Peoples Energy, and North Shore Gas; Director of Peoples Energy and North Shore Gas. Mr. Terry is also a director of Harris Bankcorp, Inc., Harris Trust and Savings Bank, and Amsted Industries.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY (Continued)
IDENTIFICATION OF EXECUTIVE OFFICERS
Position at Age at Position Name November 30, 1994 11-30-94 Held Since - ---------------------- ----------------------------- -------- ----------
Kenneth S. Balaskovits Vice President and Controller 52 1993
Frank H. Blackmore Vice President 59 1989
Emmet P. Cassidy Secretary and Treasurer 61 1989
Patrick J. Doyle Vice President 57 1985
Joan T. Gagen Vice President 43 1994
J. Bruce Hasch President and Chief Operating 56 1990 Officer
James Hinchliff Senior Vice President and 54 1989 General Counsel
John C. Ibach Vice President 47 1992
Thomas J. O'Sullivan Division Vice President 52 1992
Thomas M. Patrick Vice President 48 1989
James D. Pitts, Jr. Vice President 56 1989
Michael S. Reeves Executive Vice President 59 1987
Norman F. Sidler, Jr. Division Vice President 55 1991
Richard E. Terry Chairman of the Board and 57 1990 Chief Executive Officer
Directors and executive officers of the Company were elected to serve for a term of one year or until their successors are duly elected and qualified, except for Messrs. O'Sullivan and Sidler, who were appointed.
There are no family relationships among directors and executive officers of the Company.
All of the directors and executive officers of the Company have been continuously employed by the Company and/or its affiliates in various capacities for at least 10 years.
ITEM 11.

ITEM 11. EXECUTIVE COMPENSATION
The following tables set forth information concerning annual and long-term compensation and grants of stock options, stock appreciation rights and restricted stock awards under Peoples Energy's Long-Term Incentive Compensation Plan. All compensation was paid by the Company and its affiliates (Peoples Energy and North Shore Gas) for services in all capacities during the three fiscal years set forth below, to (1) the Chief Executive Officer and (2) the four most highly compensated executive officers of the Company other than the Chief Executive Officer.
SUMMARY COMPENSATION TABLE
ITEM 11. EXECUTIVE COMPENSATION (Continued)
OPTIONS/SAR GRANTS IN FISCAL 1994
INDIVIDUAL GRANTS
ITEM 11. EXECUTIVE COMPENSATION (Continued)
AGGREGATED OPTION/SAR EXERCISES IN FISCAL 1994 AND FISCAL YEAR-END OPTION/SAR VALUES
ITEM 11. EXECUTIVE COMPENSATION (Continued)
PENSION PLAN TABLE
The above table illustrates various annual straight-life benefits at normal retirement (age 65) for the indicated levels of average annual compensation and various periods of service, assuming no future changes in Peoples Energy's pension benefits. The compensation used in the computation of annual retirement benefits is substantially equivalent to the salary and bonus reported in the Summary Compensation Table. The benefit amounts shown reflect reduction for applicable Social Security benefits.
Average annual compensation is the average 12-month compensation for the highest 60 consecutive months of the last 120 months of service prior to retirement. Compensation is total salary paid to an employee by the Company and/or its affiliates, including bonuses under Peoples Energy's Short-Term Incentive Compensation Plan, pre-tax contributions under Peoples Energy's Capital Accumulation Plan, pre-tax contributions under Peoples Energy's Health and Dependent Care Spending Accounts Plan, and pre-tax contributions for life and health care insurance, but excluding moving allowances, exercise of stock options and SARs, and other compensation that has been deferred.
As of September 30, 1994, the credited years of retirement benefit service for the individuals listed in the Summary Compensation Table were as follows: Mr. Terry, 30 years; Mr. Hasch, 34 years; Mr. Reeves, 38 years; Mr. Hinchliff, 22 years; and Mr. Doyle, 30 years. The benefits shown in the foregoing table are subject to maximum limitations under the Employee Retirement Income Security Act of 1974, as amended, and the Internal Revenue Code of 1986, as amended. Should these benefits at the time of retirement exceed the then-permissible limits of the applicable Act, the excess would be paid by the Company as supplemental unfunded pensions. The benefits shown give effect to these supplemental pension benefits.
ITEM 12.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
As of November 30, 1994, voting securities of the Company were beneficially owned as follows:
SECURITY OWNERSHIP OF MANAGEMENT
No equity securities of the Company are beneficially owned directly or indirectly by any director or officer of the Company.
Shares of common stock, without par value, of Peoples Energy beneficially owned directly or indirectly by all directors and certain executive officers of the Company and all directors and executive officers of the Company as a group at November 30, 1994, are as follows:
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT (Continued)
(3) Includes shares of restricted stock awarded under Peoples Energy's Long- Term Incentive Compensation Plan, the restrictions on which had not lapsed as of November 30, 1994, as follows: Messrs. Balaskovits, 2,320; Doyle, 3,275; Hasch, 8,230; Hinchliff, 5,575; Reeves, 5,575; Terry, 13,425; and all executive officers as a group, 43,170. Owners of shares of restricted stock have the right to vote such shares and to receive dividends thereon, but have no investment power with respect to such shares until the restrictions thereon lapse.
CHANGES IN CONTROL
None.
ITEM 13.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company provides general corporate and support services to Peoples Energy pursuant to an Intercompany Service Agreement (Agreement), the terms of which were approved by the Commission. In fiscal 1994, the Company furnished general corporate services in the amount of $3,733,596 and support services in the amount of $94,560 to Peoples Energy under the Agreement.
PART IV
ITEM 14.

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. Financial Statements: Page ---- See Part II, Item 8. 18
2. Financial Statement Schedules:
Schedule Number --------
V Property, Plant and Equipment, at Original Cost 51 VI Accumulated Provision for Depreciation of Property, Plant and Equipment 52 VIII Valuation and Qualifying Accounts 53 IX Short-Term Borrowings 54 X Supplementary Income Statement Information 55
3. Exhibits:
See Exhibit Index on page 57.
(b) Reports on Form 8-K filed during the final quarter of fiscal year 1994:
None.
Schedule V THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES PROPERTY, PLANT AND EQUIPMENT, AT ORIGINAL COST (Thousands)
Schedule VI THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES ACCUMULATED PROVISION FOR DEPRECIATION OF PROPERTY, PLANT AND EQUIPMENT (Thousands)
SCHEDULE VIII
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
VALUATION AND QUALIFYING ACCOUNTS
(Thousands)
SCHEDULE IX
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
SHORT-TERM BORROWINGS
SCHEDULE X
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
SUPPLEMENTARY INCOME STATEMENT INFORMATION
Maintenance, depreciation, royalties, advertising costs, and research and development costs, other than those specifically disclosed in the Consolidated Statements of Income, are not significant.
Significant taxes charged to costs and expenses, other than payroll and income taxes, are summarized as follows:
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
THE PEOPLES GAS LIGHT AND COKE COMPANY
Date: December 22, 1994 By: /s/ RICHARD E. TERRY ----------------- ---------------------------------- Richard E. Terry Chairman of the Board and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated on December 22, 1994.
/s/ RICHARD E. TERRY Chairman of the Board and Chief Executive - ------------------------------ Officer and Director Richard E. Terry (Principal Executive Officer)
/s/ KENNETH S. BALASKOVITS Vice President and Controller and Director - ------------------------------ (Principal Financial and Accounting Kenneth S. Balaskovits Officer)
/s/ J. BRUCE HASCH Director - ------------------------------ J. Bruce Hasch
/s/ JAMES HINCHLIFF Director - ------------------------------ James Hinchliff
/s/ MICHAEL S. REEVES Director - ------------------------------ Michael S. Reeves
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
EXHIBIT INDEX
(a) The exhibits listed below are filed herewith and made a part thereof:
Exhibit Number Description of Document ------- --------------------------------------------------
3(a) Amendment to the By-Laws of the Registrant, dated February 1, 1992.
3(b) By-Laws of the Registrant, as amended on February 1, 1992.
3(c) Amendment to the By-Laws of the Registrant, dated December 7, 1994.
3(d) By-Laws of the Registrant, as amended on December 7, 1994.
10 Firm Transportation Service Agreement Under Rate Schedule FT between the Company and Trunkline Gas Company, dated as of December 1, 1993.
12 Statement re: Computation of Ratio of Earnings to Fixed Charges.
27 Financial Data Schedule
(b) Exhibits listed below have been filed heretofore with the Securities and Exchange Commission pursuant to the Securities Act of 1933, as amended, and/or the Securities Exchange Act of 1934, as amended, and are incorporated herein by reference. The file number and exhibit number of each such exhibit are stated in the description of such exhibits.
3(e) Articles of Incorporation of the Registrant, as amended on January 20, 1988 (Registrant Form 10-K for fiscal year ended September 30, 1988, Exhibit 3(b)).
4(a) First and Refunding Mortgage, dated January 2, 1926, from Chicago By-Product Coke Company to Illinois Merchants Trust Company, Trustee, assumed by the Company by Indenture dated March 1, 1928 (May 17, 1935, Exhibit B-6a, Exhibit B-6b A-2 File No. 2-2151, 1936); Supplemental Indenture dated as of May 20, 1936, from the Company to Continental Illinois National Bank and Trust Company of Chicago, Trustee (Form 8-K for the year 1936, Exhibit B-6f); Supplemental Indenture dated as of March 10, 1950 (Form 8-K for the month of March 1950, Exhibit B-6i); Supplemental Indenture dated as of June 1, 1951 (File No. 2-8989, Post-Effective, Exhibit 7-4(b)); Supplemental Indenture dated as of July 15, 1966 (Form 8- K for the month of July 1966, Exhibit 2); Supplemental Indenture dated as of August 15, 1967 (File No. 2-26983, Post-Effective, Exhibit 2-4); Supplemental Indenture dated as of September 15, 1970 (File No. 2-38168, Post-Effective Exhibit 2-2); Supplemental Indenture dated as of April 1, 1972 (File No. 2-43367, Post- Effective Exhibit 2-2); Supplemental Indenture dated as of July 15, 1973 (File No. 2-48430,
THE PEOPLES GAS LIGHT AND COKE COMPANY AND SUBSIDIARY COMPANIES
EXHIBIT INDEX (Continued)
4(a) Exhibit 4-2); Supplemental Indenture dated as of June 1, 1984, cont'd. Exhibit 4-1, Supplemental Indenture dated June 1, 1984, Exhibit 4-2, Supplemental Indenture dated October 1, 1984, Exhibit 4-3 (Form 10-K for fiscal year ended September 30, 1984); Supplemental Indentures dated March 1, 1985, Exhibits 4-1, 4-2, 4-3, 4-4, respectively (Form 10-K for fiscal year ended September 30, 1985); Supplemental Indenture dated May 1, 1990 (Form 10-K for the fiscal year ended September 30, 1990, Exhibit 4); Supplemental Indenture dated as of April 1, 1993 (Form 8-K dated as of May 5, 1933, Exhibit 1); Supplemental Indenture dated as of December 1, 1993 (Form 10-Q for the quarterly period ended December 31, 1993, Exhibit 4(a)); Supplemental Indenture dated as of December 1, 1993 (Form 10-Q for the quarterly period ended December 31, 1993, Exhibit 4(b)).
10(a) Office Building Lease Agreement (Registrant Form 10-K for fiscal year ended September 30, 1985, Exhibit 10).
10(b) Storage Service Agreement Under Rate Schedule S-1 between the Company and Natural Gas Pipeline Company of America, dated as of November 30, 1990 (Registrant Form 10-K for the fiscal year ended September 30, 1993, Exhibit 10(a)); Firm Transportation Service Agreement Under Rate Schedule FTS between the Company and Natural Gas Pipeline Company of America, dated as of August 13, 1990 (Registrant Form 10-K for the fiscal year ended September 30, 1993, Exhibit 10(b)); Firm Transportation Service Agreement Under Rate Schedule FTS between the Company and Natural Gas Pipeline Company of America, dated as of October 8, 1990 (Registrant Form 10-K for the fiscal year ended September 30, 1993, Exhibit 10(c)); Firm Transportation Service Agreement Under Rate Schedule FTS between the Company and Natural Gas Pipeline Company of America, dated as of October 8, 1990 (Registrant Form 10-K for the fiscal year ended September 30, 1993, Exhibit 10(d)); Firm Transportation Service Agreement Under Rate Schedule FTS between the Company and Natural Gas Pipeline Company of America, dated as of January 1, 1992 (Registrant Form 10-K for the fiscal year ended September 30, 1993, Exhibit 10(e)); Firm Transportation Service Agreement Under Rate Schedule FTS between the Company and Natural Gas Pipeline Company of America, dated as of January 1, 1992 (Registrant Form 10-K for the fiscal year ended September 30, 1993, Exhibit 10(f)); Firm Transportation Service Agreement Under Rate Schedule FTS between the Company and Natural Gas Pipeline Company of America, dated as of January 1, 1992 (Registrant Form 10-K for the fiscal year ended September 30, 1993, Exhibit 10(g)); Firm Transportation Service Agreement Under Rate Schedule FTS between the Company and Natural Gas Pipeline Company of America, dated as of February 1, 1992 (Registrant Form 10-K for the fiscal year ended September 30, 1993, Exhibit 10(h)).
10(c) Lease dated October 20, 1993, between Prudential Plaza Associates, as Landlord, and the Company, as Tenant (Registrant Form 10-Q for the quarterly period ended December 31, 1993, Exhibit 10(a)).
10(d) Firm Transportation Service Agreement Under Rate Schedule FTS between the Company and Natural Gas Pipeline Company of America, dated as of December 1, 1993 (Registrant Form 10-Q for the quarterly period ended December 31, 1993, Exhibit 10(b)); Firm Transportation Service Agreement Under Rate Schedule S-2 between the Company and Natural Gas Pipeline Company of America, dated as of December 1, 1993 (Registrant Form 10-Q for the quarterly period ended December 31, 1993, Exhibit 10(c)).