-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, HmEuHJde7Zv3dWDwDHXSbCjJuPr9IMz6Z5guRFkFuyr9RNnkcJ2FzcjdCXuKt/84 lGSn+dAEnAH1BaFbDKvVag== 0000050183-96-000008.txt : 19960517 0000050183-96-000008.hdr.sgml : 19960517 ACCESSION NUMBER: 0000050183-96-000008 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19960331 FILED AS OF DATE: 19960515 SROS: NYSE FILER: COMPANY DATA: COMPANY CONFORMED NAME: INDIANA GAS CO INC CENTRAL INDEX KEY: 0000050183 STANDARD INDUSTRIAL CLASSIFICATION: NATURAL GAS DISTRIBUTION [4924] IRS NUMBER: 350793669 STATE OF INCORPORATION: IN FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 001-06494 FILM NUMBER: 96564753 BUSINESS ADDRESS: STREET 1: 1630 N MERIDIAN ST CITY: INDIANAPOLIS STATE: IN ZIP: 46202-1496 BUSINESS PHONE: 3179263351 MAIL ADDRESS: STREET 1: 1630 N MERIDIAN ST STREET 2: 1630 N MERIDIAN ST CITY: INDIANAPOLIS STATE: IN ZIP: 46202-1496 FORMER COMPANY: FORMER CONFORMED NAME: INDIANA GAS & WATER CO INC DATE OF NAME CHANGE: 19701023 10-Q 1 INDIANA GAS' MAR 1996 10-Q May 15, 1996 Securities and Exchange Commission Operations Center 6432 General Green Way Alexandria, VA 22312-2413 Gentlemen: We are transmitting herewith Indiana Gas Company, Inc.'s Quarterly Report on Form 10-Q for the quarter ended March 31, 1996, pursuant to the requirements of Section 13 of the Securities Exchange Act of 1934. Very truly yours, Kathleen S. Morris KSM:rs Enclosures 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, 1996 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission file number 1-6494 INDIANA GAS COMPANY, INC. (Exact name of registrant as specified in its charter) INDIANA 35-0793669 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1630 North Meridian Street, Indianapolis, Indiana 46202 (Address of principal executive offices) (Zip Code) 317-926-3351 (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 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 the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. Common Stock - Without par value 9,080,770 April 30, 1996 Class Number of shares Date TABLE OF CONTENTS Page Numbers Part I - Financial Information Consolidated Balance Sheets at March 31, 1996, and 1995 and September 30, 1995 Consolidated Statements of Income Three Months Ended March 31, 1996 and 1995, Six Months Ended March 31, 1996 and 1995, and Twelve Months Ended March 31, 1996 and 1995 Consolidated Statements of Cash Flows Six Months Ended March 31, 1996 and 1995, and Twelve Months Ended March 31, 1996 and 1995 Notes to Consolidated Financial Statements Management's Discussion and Analysis of Results of Operations and Financial Condition Part II - Other Information Item 1 - Legal Proceedings Item 4 - Submission of Matters to a Vote of Security Holders Item 6 - Exhibits and Reports on Form 8-K INDIANA GAS COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS ASSETS (Thousands - Unaudited) March 31 September 30 1996 1995 1995 UTILITY PLANT: Original cost $896,411 $846,963 $872,287 Less - accumulated depreciation and amortization 334,684 304,077 316,991 561,727 542,886 555,296 NONUTILITY PLANT - NET 184 389 188 CURRENT ASSETS: Cash and cash equivalents 36,694 20 20 Accounts receivable, less reserves of $2,990, $1,511 and $1,662 respectively 60,407 42,252 13,403 Accrued unbilled revenues 33,300 14,460 6,405 Materials and supplies - at average cost 4,178 3,952 3,890 Liquefied petroleum gas - at average cost 527 887 883 Gas in underground storage - at last-in, first-out cost 10,997 33,727 59,394 Prepayments and other 996 1,071 144 147,099 96,369 84,139 DEFERRED CHARGES: Unamortized debt discount and expense 6,783 6,708 6,800 Other 9,754 10,069 9,510 16,537 16,777 16,310 $725,547 $656,421 $655,933
INDIANA GAS COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED BALANCE SHEETS SHAREHOLDER'S EQUITY AND LIABILITIES (Thousands - Unaudited) March 31 September 30 1996 1995 1995 CAPITALIZATION: Common stock and paid-in capital $142,995 $142,995 $142,995 Retained earnings 155,417 137,240 125,159 Total common shareholder's equity 298,412 280,235 268,154 Long-term debt 193,693 153,739 173,693 492,105 433,974 441,847 CURRENT LIABILITIES: Notes payable - 12,100 2,225 Accounts payable 77,708 36,539 59,713 Refundable gas costs 3,563 25,484 4,883 Customer deposits and advance payments 3,638 8,349 20,870 Accrued taxes 24,119 23,765 7,928 Accrued interest 2,875 2,754 2,803 Other current liabilities 25,930 23,222 21,560 137,833 132,213 119,982 DEFERRED CREDITS: Deferred income taxes 65,787 61,491 65,096 Unamortized investment tax credit 11,639 12,569 12,103 Customer advances for construction 1,358 1,318 1,297 Regulatory income tax liability 3,797 4,787 3,797 Other 13,028 10,069 11,811 95,609 90,234 94,104 COMMITMENTS AND CONTINGENCIES (see Notes 8 & 9) - - - $725,547 $656,421 $655,933
INDIANA GAS COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (Thousands - Unaudited) Three Months Six Months Ended March 31 Ended March 31 1996 1995 1996 1995 OPERATING REVENUES $ 222,553 $ 150,468 $ 376,862 $ 263,530 COST OF GAS 144,017 82,549 233,214 145,060 MARGIN 78,536 67,919 143,648 118,470 OPERATING EXPENSES: Other operation and maintenance 23,018 19,282 41,708 37,450 Depreciation and amortization 8,230 7,744 16,348 15,393 Income taxes 14,593 12,693 25,998 19,204 Taxes other than income taxes 5,415 3,533 9,660 7,163 51,256 43,252 93,714 79,210 OPERATING INCOME 27,280 24,667 49,934 39,260 OTHER INCOME - NET 614 325 843 489 INCOME BEFORE INTEREST AND OTHER CHARGES 27,894 24,992 50,777 39,749 INTEREST 4,088 3,829 8,080 7,823 OTHER (24) 2 (61) (14) 4,064 3,831 8,019 7,809 NET INCOME $ 23,830 $ 21,161 $ 42,758 $ 31,940
INDIANA GAS COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF INCOME (Thousands - Unaudited) Twelve Months Ended March 31 1996 1995 OPERATING REVENUES $ 517,142 $ 391,263 COST OF GAS 306,649 210,563 MARGIN 210,493 180,700 OPERATING EXPENSES Other operation and maintenance 79,866 76,655 Depreciation and amortization 32,220 30,300 Income taxes 26,010 16,553 Taxes other than income taxes 15,535 13,613 153,631 137,121 OPERATING INCOME 56,862 43,579 OTHER INCOME - NET 1,777 1,607 INCOME BEFORE INTEREST AND OTHER 58,639 45,186 INTEREST 15,787 15,577 OTHER (75) (31) 15,712 15,546 NET INCOME $ 42,927 $ 29,640
INDIANA GAS COMPANY, INC. AND SUBSIDIARY COMPANIES CONSOLIDATED STATEMENTS OF CASH FLOWS (Thousands - Unaudited) Six Months Twelve Months Ended March 31 Ended March 31 1996 1995 1996 1995 CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 42,758 $ 31,940 $ 42,927 $ 29,640 Adjustments to reconcile net income to cash provided from operating activities - Depreciation and amortization 16,442 15,487 32,407 30,488 Deferred income taxes 691 1,604 3,081 3,591 Investment tax credit (465) (465) (930) (930) 16,668 16,626 34,558 33,149 Changes in assets and liabilities - Receivables - net (73,899) (33,270) (36,995) 28,650 Inventories 48,465 30,790 22,864 (12,406) Accounts payable, customer deposits, advance payments and other current liabilities 5,133 6,653 39,166 6,312 Accrued taxes and interest 16,263 3,413 475 (18,030) Recoverable/refundable gas costs (1,320) (6,111) (21,921) 391 Prepayments (852) (827) 75 (21) Other - net 1,793 10,397 4,925 12,817 Total adjustments 12,251 27,671 43,147 50,862 Net cash flow from operations 55,009 59,611 86,074 80,502 CASH FLOWS FROM (REQUIRED FOR) FINANCING ACTIVITIES: Sale of long-term debt 20,000 - 40,000 - Reduction in long-term debt - (3,112) (46) (21,162) Net change in short-term borrowings (2,225) (18,450) (12,100) 12,100 Dividends (12,500) (12,000) (24,750) (23,800) Net cash flow from (required for) financing activities 5,275 (33,562) 3,104 (32,862) CASH FLOWS REQUIRED FOR INVESTING ACTIVITIES: Capital expenditures (23,610) (26,049) (52,504) (55,640) Net cash flow required for investing activities (23,610) (26,049) (52,504) (55,640) NET INCREASE (DECREASE) IN CASH 36,674 - 36,674 (8,000) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 20 20 20 8,020 CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 36,694 $ 20 $ 36,694 $ 20
Notes to Consolidated Financial Statements 1. Financial Statements. Indiana Gas Company, Inc. and its subsidiaries, Terre Haute Gas Corporation (Terre Haute) and Richmond Gas Corporation (Richmond) which are doing business as Indiana Gas Company, Inc. (Indiana Gas), provide natural gas and transportation services to a diversified base of customers in 281 communities in 48 of Indiana's 92 counties. The interim condensed consolidated financial statements included in this report have been prepared by Indiana Gas, without audit, as provided in the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted as provided in such rules and regulations. Indiana Gas believes that the information in this report reflects all adjustments necessary to fairly state the results of the interim periods reported, that all such adjustments are of a normally recurring nature, and the disclosures are adequate to make the information presented not misleading. These interim financial statements should be read in conjunction with the financial statements and the notes thereto included in Indiana Gas' latest annual report on Form 10-K. Because of the seasonal nature of Indiana Gas' gas distribution operations, the results shown on a quarterly basis are not necessarily indicative of annual results. 2. Cash Flow Information. For the purposes of the Consolidated Statements of Cash Flows, Indiana Gas considers cash investments with an original maturity of three months or less to be cash equivalents. Cash paid during the periods reported for interest and income taxes were as follows: Six Months Ended Twelve Months Ended March 31 March 31 Thousands 1996 1995 1996 1995 Interest (net of amount capitalized) $ 7,500 $ 7,353 $14,188 $14,738 Income taxes $12,312 $12,676 $25,842 $25,476 3. Revenues. To more closely match revenues and expenses, revenues are recorded for all gas delivered to customers but not billed at the end of the accounting period. 4. Gas in Underground Storage. Based on the cost of purchased gas during March 1996, the cost of replacing the current portion of gas in underground storage exceeded last-in, first-out cost at March 31, 1996, by approximately $1,932,000. 5. Refundable or Recoverable Gas Costs. The cost of gas purchased and refunds from suppliers, which differ from amounts recovered through rates, are deferred and are being recovered or refunded in accordance with procedures approved by the Indiana Utility Regulatory Commission (IURC). 6. Allowance For Funds Used During Construction. An allowance for funds used during construction (AFUDC), which represents the cost of borrowed and equity funds used for construction purposes, is charged to construction work in progress during the period of construction and included in "Other Income - Net" and "Other" on the Consolidated Statements of Income. An annual AFUDC rate of 7.5 percent was used for all periods reported. The table below reflects the total AFUDC capitalized and the portion of which was computed on borrowed and equity funds for all periods reported. Three Months Ended Six Months Ended Twelve Months Ended March 31 March 31 March 31 Thousands 1996 1995 1996 1995 1996 1995 AFUDC-Borrowed Funds $ 71 $45 $155 $108 $262 $ 219 AFUDC-Equity Funds 58 37 127 88 215 178 Total AFUDC Capitalized $129 $82 $282 $196 $477 $397
7. Long-Term Debt. During December 1995, Indiana Gas issued $20 million in aggregate principal amount of its Medium-Term Notes, Series E (Notes) as follows: $5 million of 6.69% Notes due June 10, 2013, $5 million of 6.69% Notes due December 21, 2015, and $10 million of 6.69% Notes due December 29, 2015. The net proceeds from the sale of the Notes will be used to finance the refunding of Indiana Gas' 9 3/8% Series M First Mortgage Bonds in July 1996. 8. Affiliate Transactions. Indiana Energy Services, Inc. (IES), an indirect wholly- owned subsidiary of Indiana Energy (Indiana Gas' parent), provided natural gas and services to Indiana Gas from January 1, 1996 to March 31, 1996. System supply gas was provided to Indiana Gas with the commodity priced at market index. IES' sales to Indiana Gas for the three-months ended March 31, 1996 totaled $102.7 million. Effective April 1, 1996, Proliance Energy, LLC (Proliance) assumed the business of IES (see Proliance Energy, LLC in Management's Discussion and Analysis of Results of Operations and Financial Condition). The sales of gas and provision of other services to Indiana Gas by Indiana Energy's marketing affiliates will be subject to regulatory review through the quarterly gas cost adjustment proceeding currently pending before the IURC. In addition, another proceeding has been initiated by a small group of Indiana Gas' and Citizens Gas' large-volume customers who contend that the formation and operation of Proliance should be subject to IURC oversight. Management expects that these proceedings, to the extent that they move forward, will be conducted over the remainder of calendar year 1996. Indiana Gas also participates in a centralized cash management program with its parent, affiliated companies and banks which permits funding of checks as they are presented. Amounts borrowed from and accounts payable to affiliated companies, as well as checks written but not cashed are reflected in accounts payable. Amounts owed to affiliates were $57.3 million and $12.0 million at March 31, 1996 and 1995, respectively. 9. Environmental Costs. In the past, Indiana Gas and others, including former affiliates, and/or previous landowners, operated facilities for the manufacturing of gas and storage of manufactured gas. These facilities are no longer in operation and have not been operated for many years. In the manufacture and storage of such gas, various byproducts were produced, some of which may still be present at the sites where these manufactured gas plants and storage facilities were located. Management believes, and the IURC has found that, those operations were conducted in accordance with the then-applicable industry standards. However, under currently applicable environmental laws and regulations, Indiana Gas, and the others, may now be required to take remedial action if certain byproducts are found above a regulatory threshold at these sites. Indiana Gas has identified the existence, location and certain general characteristics of 26 gas manufacturing and storage sites. Removal activities have been conducted at two sites and a remedial investigation/feasibility study (RI/FS) is nearing completion at one of the sites under an agreed order between Indiana Gas and the Indiana Department of Environmental Management. Indiana Gas and others are assessing, on a site-by-site basis, whether any of the remaining 24 sites require remediation, to what extent it is required and the estimated cost. Preliminary assessments (PAs) have been completed on all but one of the sites. Site investigations (SIs) have been completed at 20 sites and supplemental site investigations (SSIs) have been conducted at 15 sites. Based upon the site work completed to date, Indiana Gas believes that a level of contamination that may require some level of remedial activity may be present at a number of the 24 sites. Indiana Gas is currently conducting groundwater monitoring at many of the sites. Indiana Gas has not begun an RI/FS at additional sites, but expects to conduct further investigation and evaluation in the future. Based upon the work performed to date, Indiana Gas has accrued remediation and related costs for the two sites where remedial activities are taking place. PA/SI, SSI and groundwater monitoring costs have been accrued for the remaining sites where appropriate. Estimated RI/FS costs and the costs of certain remedial actions that may likely be required have also been accrued. Costs associated with environmental remedial activities are accrued when such costs are probable and reasonably estimable. Indiana Gas does not believe it can provide an estimate of the reasonably possible total remediation costs for any site prior to completion of an RI/FS and the development of some sense of the timing for implementation of the potential remedial alternatives, to the extent such remediation is required. Accordingly, the total costs which may be incurred in connection with the remediation of all sites, to the extent remediation is necessary, cannot be determined at this time. Indiana Gas has been pursuing recovery from three separate sources for the costs it has incurred and expects to incur relating to the 26 sites. Those sources are insurance carriers, potentially responsible parties (PRPs) and recovery through rates from retail gas customers. On April 14, 1995, Indiana Gas filed suit against a number of insurance carriers for payment of claims for investigation and clean-up costs already incurred, as well as for a determination that those carriers are obligated to pay these costs in the future. Presently, that suit is set for trial to begin October 21, 1996, in the United States District Court for the Northern District of Indiana in Fort Wayne, Indiana. Indiana Gas has obtained cash settlements from some of the defendant insurance carriers and, as a result, those carriers have been dismissed from the suit. Indiana Gas has also completed the process of identifying PRPs for each site. PRPs include two financially viable utilities, PSI Energy, Inc. (PSI) and Northern Indiana Public Service Company (NIPSCO). PSI has been identified as a PRP at 19 of the sites. Indiana Gas has been negotiating with PSI to determine PSI's share of responsibility, although no agreement has been reached between the parties. With the help of outside counsel, Indiana Gas has prepared estimates of PSI's and other PRP's share of environmental liabilities which may exist at each of the sites based on equitable principles derived from case law or applied by parties in achieving settlements. NIPSCO has been identified as an additional PRP at five of these 19 sites. On September 27, 1995, Indiana Gas reached an agreement with NIPSCO which provides for a coordination of efforts and a sharing of investigation and clean-up costs incurred and to be incurred at the five sites in which they both have an interest. The cost sharing estimates of PSI and other PRPs, and the NIPSCO agreement, have been utilized by Indiana Gas to record a receivable from PRPs for their share of the liability for work performed by Indiana Gas to date, as well as to accrue Indiana Gas' proportionate share of the estimated cost related to work not yet performed. The receivable from PRPs of $3.5 million is reflected in Accounts Receivable on the Consolidated Balance Sheet at March 31, 1996. In January 1992, Indiana Gas filed a petition with the IURC seeking regulatory authority for, among other matters, recovery through rates of all costs Indiana Gas incurs in complying with federal, state and local environmental regulations in connection with past gas manufacturing activities. On May 3, 1995, the IURC concluded that the costs incurred by Indiana Gas to investigate and, if necessary, clean- up former manufactured gas plant sites are not utility operating expenses necessary for the provision of utility service and, therefore, are not recoverable as operating expenses from utility customers. The decision was contrary to rulings in other states where utility regulatory commissions have issued orders on the subject. The precedent cited by the IURC was a ruling related to a cancelled nuclear power plant which, unlike manufactured gas plants, never provided service to the public. Management believes applying the nuclear power plant decision to Indiana Gas' case was an incorrect application of the law and has appealed the decision to the Indiana Court of Appeals. The initial briefs for the appeal were filed on April 23, 1996, with briefing scheduled to conclude on June 25, 1996. The Commission did indicate that during Indiana Gas' next rate case it would be appropriate to quantify the effect of the investigation and clean-up activities as part of the business risk to be considered by the Commission in establishing the overall rate of return to be allowed. Indiana Gas has recorded $12.4 million for its share of environmental costs to date. As a result of its pursuit of recovery of costs from PRPs and insurance carriers, Indiana Gas has secured settlements from insurers of approximately $13.4 million. Amounts recovered in excess of its share of costs to date have been deferred. The May 3, 1995, order of the IURC has had no immediate impact on Indiana Gas' earnings since settlements with insurers exceed Indiana Gas' share of environmental liability recorded to date. The impact on Indiana Gas' financial position and results of operations of complying with federal, state and local environmental regulations related to former manufactured gas plant sites is contingent upon several uncertainties. These include the costs of any compliance activities which may occur and the timing of the actions taken, the impact of joint and several liability upon the magnitude of the contingency, the outcome of proceedings which challenge the IURC ruling on recovery of costs from customers, as well as any additional recoveries of environmental and related costs from insurance carriers. Although there can be no assurance of success, to the extent possible Indiana Gas will continue to manage the manufactured gas plant remediation program so that amounts received from insurance carriers and PRPs will be sufficient to fund all such costs. 10. Regulatory Assets and Liabilities. Indiana Gas is subject to the provisions of Statement of Financial Accounting Standards No. 71, Accounting for the Effects of Certain Types of Regulation (SFAS 71). Regulatory assets represent probable future revenue to Indiana Gas associated with certain costs which will be recovered from customers through the ratemaking process. Regulatory liabilities represent probable future reductions in revenues associated with amounts that are to be credited to customers through the ratemaking process. Regulatory assets and liabilities reflected in the Consolidated Balance Sheets as of March 31 (in thousands) relate to the following: 1996 1995 Regulatory Assets: Postretirement Benefits Other Than Pensions $ 7,182 $ 7,126 Unamortized Debt Discount and Expense 6,783 6,708 Deferred Acquisition Costs 730 751 Rate Case Costs 187 446 $14,882 $15,031 Regulatory Liabilities: Gas Costs Due to Customers, Net $ 3,563 $25,484 Amounts Due to Customers - Income Taxes, Net 3,797 4,787 Pension Costs 1,348 585 $ 8,708 $30,856
It is Indiana Gas' policy to continually assess the recoverability of costs recognized as regulatory assets and the ability to continue to account for its activities in accordance with SFAS 71, based on the criteria set forth in SFAS 71. Based on current regulation, Indiana Gas believes that its use of regulatory accounting is appropriate. If all or part of Indiana Gas' operations cease to meet the criteria of SFAS 71, a write-off of related regulatory assets and liabilities would be required. In addition, Indiana Gas would be required to determine any impairment to the carrying costs of deregulated plant and inventory assets. 11. Reclassifications. Certain reclassifications have been made to the prior periods' financial statements to conform to the current year presentation. These reclassifications have no impact on net income previously reported. Management's Discussion and Analysis of Results of Operations and Financial Condition Results of Operations Earnings Net income for the three-, six- and twelve-month periods ended March 31, 1996, when compared to the same periods one year ago are listed below. The increases in earnings for all periods reflect significantly colder weather than last year, offset somewhat by higher operation and maintenance expenses. Periods Ended March 31 (Millions) 1996 1995 Three Months $23.8 $21.2 Six Months $42.8 $31.9 Twelve Months $42.9 $29.6 The following discussion highlights the factors contributing to these results. Margin (Revenues Less Cost of Gas) Margin for the quarter ended March 31, 1996, increased $10.6 million compared to the same period last year. The increase was primarily due to weather 15 percent colder than the same period last year and 5 percent colder than normal. Margin for the six-month period ended March 31, 1996, increased $25.2 million compared to the same period last year. The increase reflects weather 26 percent colder than the same period last year and 7 percent colder than normal. Margin for the twelve-month period ended March 31, 1996, increased $29.8 million compared to the same period last year. The increase reflects weather 23 percent colder than the same period last year and 7 percent colder than normal. Additional residential and commercial customers, as well as rate recovery (beginning May 1995) of postretirement benefit costs recognized in accordance with Statement of Financial Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits Other Than Pensions (SFAS 106) also contributed to the margin increases for all periods reported. Total system throughput (combined sales and transportation) increased 16 percent (7.0 MMDth) for the second quarter of fiscal 1996, 21 percent (15.9 MMDth) for the six-month period and 16 percent (17.5 MMDth) for the twelve-month period ended March 31, 1996, compared to the same periods last year. The increases for all periods are due primarily to increases in residential and commercial space heating sales caused by colder weather. Indiana Gas' rates for transportation generally provide the same margins as are earned on the sale of gas under its sales tariffs. Approximately one-half of total system throughput represents gas used for space heating and is affected by weather. Total average cost per unit of gas purchased increased to $3.56 for the three-month period ended March 31, 1996, compared to $2.70 for the same period one year ago. For the six-month period, cost of gas per unit increased to $3.14 in the current period compared to $2.69 for the same period last year. For the twelve-month period, cost of gas per unit increased to $2.83 in the current period compared to $2.62 for the same period last year. Adjustments to Indiana Gas' rates and charges related to the cost of gas are made through gas cost adjustment (GCA) procedures established by Indiana law and administered by the Indiana Utility Regulatory Commission (IURC). The GCA passes through increases and decreases in the cost of gas to Indiana Gas' customers dollar for dollar. Operating Expenses Operation and maintenance expenses increased $3.7 million for the second quarter of fiscal 1996, $4.3 million for the six-month period and $3.2 million for the twelve-month period ended March 31, 1996, when compared to the same periods one year ago. The increases are primarily attributable to higher performance-based compensation, the recognition (beginning May 1995) of postretirement benefit costs in accordance with SFAS 106, as well as the intense cost control measures in place during the prior periods due to very warm weather. Depreciation and amortization expense increased for the three-, six- and twelve-month periods ended March 31, 1996, when compared to the same periods one year ago as the result of additions to utility plant to serve new customers and to maintain dependable service to existing customers. Federal and state income taxes increased for the three-, six- and twelve-month periods ended March 31, 1996, when compared to the same periods one year ago due to higher taxable income. Taxes other than income taxes increased for the three-, six- and twelve-month periods ended March 31, 1996, when compared to the same periods one year ago due primarily to higher gross receipts tax expense resulting from increased revenue, and higher property tax expense. Interest Expense Interest expense increased for the three- and six- month periods ended March 31, 1996, when compared to the same periods one year ago due to an increase in average debt outstanding slightly offset by a decrease in interest rates. Interest expense remained approximately the same for the twelve-month period when compared to the same period one year ago. Other Operating Matters Proliance Energy, LLC On March 15, 1996, IGC Energy, Inc., an indirect wholly-owned subsidiary of Indiana Energy (Indiana Gas' parent), and Citizens By-Products Coal Company, a wholly-owned subsidiary of Citizens Gas and Coke Utility (Citizens Gas), formed a jointly- and equally- owned limited liability corporation to provide natural gas supply and related marketing services. The new entity, Proliance Energy, LLC (Proliance), began providing services to Indiana Gas and Citizens Gas effective April 1, 1996. Proliance will also market its products and services to other gas utilities and customers in Indiana and surrounding states. Proliance has assumed the business of Indiana Energy Services, Inc. (IES), Indiana Energy's gas marketing affiliate, which had provided similar services to other customers and from January 1, 1996, to March 31, 1996, to Indiana Gas. System supply gas was provided to Indiana Gas with the commodity priced at market index. The sale of gas and provision of other services to Indiana Gas by Indiana Energy's marketing affiliates will be subject to regulatory review through the quarterly gas cost adjustment proceeding currently pending before the IURC. In addition, another proceeding has been initiated by a small group of Indiana Gas' and Citizens Gas' large-volume customers who contend that the formation and operation of Proliance should be subject to IURC oversight. Management expects that these proceedings, to the extent that they move forward, will be conducted over the remainder of calendar year 1996. 1996 Settlement Agreement As provided in the previous year's settlement agreement among Indiana Gas, the Office of Utility Consumer Counselor (OUCC) and a group of large-volume users, the OUCC performed an investigation during fiscal 1995 to consider an increase to Indiana Gas' authorized utility operating income. These parties then entered a series of negotiations designed to increase Indiana Gas' opportunity to earn on its recent capital investments while avoiding the necessity of a general rate filing. As a result of these negotiations, the IURC approved on November 9, 1995, a settlement agreement which provided, among other things, for the following: (1) an increase in Indiana Gas' authorized utility operating income from $51.1 million to $54.2 million beginning in fiscal 1996; (2) with certain specified exceptions, Indiana Gas may not file a petition to increase its base rates until November 15, 1996; and (3) an agreement to a number of operational and other service enhancements for large-volume customers. Environmental Matters Indiana Gas is currently conducting environmental investigations and work at certain sites that were the locations of former manufactured gas plants. It is seeking to recover the costs of the investigations and work from insurance carriers, other potentially responsible parties (PRPs) and customers. On May 3, 1995, Indiana Gas received an order from the IURC in which the Commission concluded that the costs incurred by Indiana Gas to investigate and, if necessary, clean- up former manufactured gas plant sites are not utility operating expenses necessary for the provision of service and, therefore, are not recoverable as operating expenses from utility customers. The order is being appealed. The IURC order has had no immediate impact on Indiana Gas' earnings since settlements with insurers of $13.4 million exceed Indiana Gas' share of environmental liability recorded to date. For further information regarding the status of investigation and remediation of the sites, PRPs, recovery from insurers, financial reporting and ratemaking, see Note 9. Indiana Legislative Matters On April 26, 1995, the Indiana General Assembly enacted legislation which provides new flexibility to the IURC for future regulation of Indiana utilities and modifies the application of the earnings test. The new law recognizes that competition is increasing in the provision of energy services and that flexibility in the regulation of energy services providers is essential to the well-being of the state, its economy and its citizens. Under the law, an energy utility can present to the IURC a broad range of proposals from performance-based ratemaking to complete deregulation of a utility's operations. The law gives the IURC the authority to adopt alternative regulatory practices, procedures, and mechanisms and establish rates and charges that are in the public interest, and will enhance or maintain the value of the energy utility's retail energy services or property. It also provides authority to the IURC to establish rates and charges based on market or average prices that use performance-based rewards or penalties, or which are designed to promote efficiency in the rendering of retail energy services. The IURC applies the Indiana statute authorizing the GCA procedures to reduce rates when necessary so as to limit utility operating income to the level authorized in the last general rate order. On a quarterly basis, this earnings test is performed by comparing Indiana Gas' authorized utility operating income to its actual utility operating income (weather normalized) for the previous 12 months. In the past, one-fourth of the amounts over the authorized utility operating income would be refundable to Indiana Gas' customers each quarter. The new law revises the earnings test to provide that no refund be paid to the extent a utility has not earned its authorized utility operating income over the previous 60 months (or during the period since the utility's last rate order, if longer). The revised test provides Indiana Gas a greater opportunity to earn its authorized utility operating income over the long term. Liquidity and Capital Resources New construction to provide service to a growing customer base and normal system maintenance and improvements will continue to require substantial capital expenditures. For the twelve months ended March 31, 1996, Indiana Gas' capital expenditures totaled $52.5 million. Of this amount, 100 percent was provided by funds generated internally (net income less dividends plus charges to net income not requiring funds). Capital expenditures for fiscal 1996 were estimated at $58.8 million of which $23.6 million have been expended during the six-month period ended March 31, 1996. Indiana Gas' goal is to fund internally approximately 75 percent of its construction program. Capitalization objectives for Indiana Gas are 55-65 percent common equity and 35-45 percent long-term debt. This will help Indiana Gas to maintain its high creditworthiness. The long-term debt of Indiana Gas is currently rated Aa3 by Moody's Investors Service and AA- by Standard & Poor's Corporation. Indiana Gas' ratio of earnings to fixed charges was 5.1 for the twelve months ended March 31, 1996 (see Exhibit 12). On April 5, 1995, Indiana Gas filed with the Securities and Exchange Commission (SEC) a prospectus supplement for the offering of its Medium-Term Notes, Series E (Notes) with an aggregate principal amount of up to $55 million. The Notes were registered under the existing shelf registration statement filed November 20, 1992, with the SEC with respect to the issuance of up to $90 million in aggregate principal amount of debt securities ($35 million was previously withdrawn from this shelf as a result of the December 9, 1992, issuance of 6 5/8%, Series D Notes). Indiana Gas plans to issue the Notes from time to time through 1997. The Notes, when issued, will be due not less than 9 months and not more than 40 years from the date of issue, and will bear interest at a fixed or variable rate as negotiated between the purchaser and Indiana Gas. The net proceeds from the sale of the Notes will be used to finance, in part, the refunding of long-term debt, Indiana Gas' continuing construction program and for other corporate purposes. During June 1995, $20 million in aggregate principal amount of the Notes were issued as follows: $5 million of the 7.15% Notes due March 15, 2015, $5 million of 6.31% Notes due June 10, 2025, and $10 million of 6.53% Notes due June 27, 2025. During December 1995, an additional $20 million in aggregate principal amount of the Notes were issued as follows: $5 million of 6.69% Notes due June 10, 2013, $5 million of 6.69% Notes due December 21, 2015, and $10 million of 6.69% Notes due December 29, 2015. The net proceeds from the December issuances will be used to finance the refunding of Indiana Gas' 9 3/8% Series M First Mortgage Bonds in July 1996. The nature of Indiana Gas' business creates large short- term cash working capital requirements primarily to finance customer accounts receivable, unbilled utility revenues resulting from cycle billing, gas in underground storage and construction expenditures until permanently financed. Short-term borrowings tend to be greatest during the heating season when accounts receivable and unbilled utility revenues are at their highest. Depending on cost, commercial paper or bank lines of credit are used as sources of short-term financing. Indiana Gas' commercial paper is rated P-1 by Moody's and A-1+ by Standard & Poor's. Long-term financial strength and flexibility require maintaining throughput volumes, controlling costs and, if absolutely necessary, securing timely increases in rates to recover costs and provide a fair and reasonable return to shareholders. Part II - Other Information Item 1. Legal Proceedings See Note 9 of the Notes to Consolidated Financial Statements for litigation matters involving insurance carriers pertaining to Indiana Gas' former manufactured gas plants and storage facilities. Item 4. Submission of Matters to a Vote of Security Holders At the annual meeting of shareholders of Indiana Gas Company, Inc. on January 26, 1996, (the "Annual Meeting"), the shareholders elected the following directors by the vote specified opposite each director's name: Broker Director Votes For (1) Votes Withheld Abstentions Non-Vote Gerald L. Bepko 9,080,770 - - - Lawrence A. Ferger 9,080,770 - - - Anton H. George 9,080,770 - - - James C. Shook 9,080,770 - - - (1) All outstanding shares of Indiana Gas' common stock are held by its parent company, Indiana Energy, Inc.
The terms of the other eight board members, Paul T. Baker, Niel C. Ellerbrook, Loren K. Evans, Otto N. Frenzel III, Don E. Marsh, Fred A. Poole, Richard P. Rechter and Jean L. Wojtowicz will expire in January 1997 or January 1998. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 10-A Gas Sales and Management Services Agreement between Indiana Gas Company, Inc. and Indiana Energy Services, Inc., effective January 1, 1996, filed herewith. 10-B Formation Agreement among Indiana Energy, Inc., Indiana Gas Company, Inc., IGC Energy, Inc., Indiana Energy Services, Inc., Citizens Gas & Coke Utility, Citizens By- Products Coal Company, Citizens Energy Services Corporation, and Proliance Energy, LLC, effective March 15, 1996. Incorporated by reference to Exhibit 10-C to the Quarterly Report on Form 10-Q of Indiana Energy, Inc. for the quarterly period ended March 31, 1996. 10-C Gas Sales and Portfolio Administration Agreement between Indiana Gas Company, Inc. and Proliance Energy, LLC, effective March 15, 1996, for services to begin April 1, 1996, filed herewith. 12 Computation of Ratio of Earnings to Fixed Charges, filed herewith. 27 Financial Data Schedule, filed herewith. (b) No Current Reports on Form 8-K were filed during the quarter ended March 31, 1996. 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. INDIANA GAS COMPANY, INC. Registrant Dated May 15, 1996 /s/Niel C. Ellerbrook Niel C. Ellerbrook Senior Vice President and Chief Financial Officer Dated May 15, 1996 /s/Jerome A. Benkert Jerome A. Benkert Vice President and Controller EX-10 2 EXHIBIT 10-A FOR INDIANA GAS EXHIBIT 10-A Indiana Gas Company, Inc. / Indiana Energy Services, Inc. Gas Sales And Management Services Agreement January 1, 1996 GAS SALES AND MANAGEMENT SERVICES AGREEMENT This Gas Sales and Management Services Agreement ("Agreement") is entered and effective the 1st day of January, 1996, by and between INDIANA GAS COMPANY, INC. ("Buyer") and INDIANA ENERGY SERVICES, INC. ("Seller") (collectively, the "Parties"). Buyer and Seller agree as follows: Recitals: 1. Seller is a corporation incorporated and existing under the laws of the State of Indiana, with its principal place of business at 1630 North Meridian Street, Indianapolis, Indiana. 2. Buyer is a corporation incorporated and existing under the laws of the State of Indiana, with its principal place of business at 1630 North Meridian Street, Indianapolis, Indiana. 3. This Agreement contains the mutual promises and covenants pursuant to which Buyer as a purchaser of natural gas and management services, and Seller as a merchant of natural gas and management services, shall perform the transactions described herein. 4. Under this Agreement, Seller agrees to provide natural gas and management services consistent with the terms and conditions contained herein. Definitions: The following terms shall have the following definitions for this Agreement and its Appendices: 1. The term "Transporter" shall mean the transporting pipeline(s) to Buyer, for example, ANR, PEPL, Texas Gas or TETCO as applicable to the transaction involved. 2. Transporters' names shall include, without limitation: The term "ANR" shall mean ANR Pipeline Company. The term "PEPL" shall mean Panhandle Eastern Pipe Line Company. The term "Texas Gas" shall mean Texas Gas Transmission Corporation. The term "TETCO" shall mean Texas Eastern Transmission Corporation. 3. The term "Transporter's Tariff" shall mean the tariff provisions of Transporter, as approved by the Federal Energy Regulatory Commission, or any successor thereto, ("FERC"), including changes to such tariff made after this Agreement is effective, and Buyer's or Seller's contractual arrangements with Transporter. If FERC should determine that Transporter's Tariff shall cease to apply, in whole or in part, to transactions hereunder, the Parties will promptly meet to determine and negotiate mutually acceptable replacement guidelines and standards. In that event, until an agreement is reached, the most recently effective Transporter's Tariff shall continue to apply. 4. The term "Btu" shall mean British thermal unit, as defined in Transporter's Tariff. 5. The term "Contract Month" shall mean a calendar month during the effectiveness of this Agreement, as interpreted in light of Transporter's Tariff. 6. The term "Day" shall be defined as it is defined in Transporter's Tariff, or as applied by Transporter. 7. "Delivery Points" shall mean the points of delivery of Gas from Seller to Buyer as specified in Appendix A. 8. The term "Gas" shall mean natural gas. 9. The term "Marketed Quantities" shall mean all quantities marketed by Seller under Article 4 of this Agreement. 10. The terms "MMBtu", "Dekatherm" or "DTH" shall mean one million (1,000,000) Btus. 11. The term "Maximum Daily Quantity" shall mean the maximum quantity of Gas which Seller shall be obligated to supply on a firm basis to Buyer's Delivery Points on a particular day. 12. The term "Maximum Seasonal Quantity" shall mean the maximum quantity of Gas which Seller shall be obligated to supply on a firm basis to Buyer's Delivery Points in a summer or winter season. 13. The term "Nominated Daily Quantity" shall mean the quantity of Gas nominated on a particular day to Buyer's Delivery Points and to storage for Buyer. 14. The term "Summer" shall mean the summer season months of April through October, inclusive. 15. The term "Winter" shall mean the winter season months of November through March, inclusive. 16. The term "Portfolio Contracts" shall mean all storage and transportation agreements to which Buyer is a party and which are utilized to provide Gas to Buyer. Article 1 - Gas Sales 1.1 Seller represents, agrees, and warrants that Seller can and shall stand ready to provide on a firm basis for Buyer's purchase at Buyer's Delivery Points the daily and seasonal quantities of Gas set forth herein. 1.2 During the term of this Agreement, unless Seller is unable to meet Buyer's Gas requirements, Buyer agrees Seller shall be its sole supplier of Gas. 1.3 The maximum daily quantities of Gas which Seller shall be obligated to provide on a firm basis at Buyer's Delivery Points are Buyer's Maximum Daily Quantities specified in Appendix B. 1.4 The maximum seasonal quantities which Seller shall be obligated to provide on a firm basis at Buyer's Delivery Points are Buyer's Maximum Seasonal Quantities specified in Appendix B. 1.5 Under this Agreement Seller may fulfill its obligation to provide Gas sales to Buyer by using both the Portfolio Contracts and contracts entered into by and between Seller and third parties, including suppliers, pipelines and other service providers. Seller shall not be obligated to enter into commitments with suppliers, pipelines or other service providers which extend beyond the term or scope of this Agreement. Article 2 - Gas Sales Charges 2.1 For all Maximum Daily Quantities specified in Appendix B, Buyer agrees to pay Seller each Contract Month the then-applicable transportation and storage costs to stand ready to deliver Gas to Buyer's Delivery Points on a firm basis. Appendix C contains the currently-effective methodology for determining the applicable storage and transportation costs. 2.2 For all Maximum Seasonal Quantities specified in Appendix B, Buyer agrees to pay Seller each Contract Month the applicable supplier reservation costs specified in Appendix D, as updated from time to time as provided in Article 7. 2.3 For all commodity quantities, Buyer shall pay to Seller each Contract Month an amount determined by multiplying the applicable Nominated Daily Quantities for the Contract Month, by the applicable price per MMBtu as determined pursuant to the pricing provisions of Appendix E. These pricing provisions shall reflect pricing methods for Gas supply, and all other variable costs incurred by Seller as provided in Appendix E. The other variable costs shall include, without limitation, transportation commodity or usage charges, injection and withdrawal costs, volumetric surcharges, and fuel as reflected in each Transporter's Tariff and the applicable service agreements. 2.4 Buyer will pay taxes, if any, which are imposed with respect to Gas delivered hereunder and which are not reflected in the pricing methods in Appendix E. Article 3 - Portfolio Management Services 3.1 Buyer and Seller agree Seller shall provide all of Buyer's portfolio management services as necessary to assure a reliable supply of Gas to meet Buyer's Gas requirements. 3.2 Seller shall manage all of the Portfolio Contracts. Services provided shall include Gas acquisition, the scheduling of receipt and delivery quantities with Gas suppliers and pipeline transporters, pipeline storage inventory management, supply and portfolio planning, and periodic portfolio management reporting. 3.3 The Parties agree to act in a timely manner to assign, release, or enter into agency agreements for all of the Portfolio Contracts and Buyer's Gas supply agreements. 3.4 Seller shall provide Gas supply planning as part of its portfolio management service. Seller shall prepare Gas supply plans on a seasonal, monthly and daily basis for Buyer. Operating procedures shall be agreed to by the Parties to govern the preparation and implementation of the supply plans. 3.5 Seller shall provide portfolio planning as part of its portfolio management service. Seller and Buyer shall review periodically Buyer's Portfolio Contracts for potential changes. Seller shall represent Buyer in negotiations with suppliers and pipelines to effectuate the portfolio changes. 3.6 Seller agrees to provide Buyer federal regulatory management services during the term of this Agreement. Seller shall review all FERC regulatory filings that could reasonably be expected to impact the Gas sales or management services provided by Seller to Buyer. Seller shall inform Buyer on a timely basis of Seller's review and analysis. Buyer shall timely communicate its interests to Seller. Seller shall provide for representation of Buyer's interests in federal regulatory proceedings. Seller shall provide Buyer with periodic written reports on the status of federal regulatory proceedings in which Seller represents Buyer. Article 4 - Marketing Management Services 4.1 The Parties agree that Seller shall provide all of Buyer's marketing management services, as provided in this Article 4, during the term of this Agreement. 4.2 Seller agrees to actively pursue the sale at market prices of otherwise unutilized storage and transportation entitlements paid for by Buyer pursuant to this Agreement. These entitlements may be marketed by Seller to any retail or resale customer. Seller shall credit to Buyer all amounts so realized by Seller for these otherwise unutilized entitlements. 4.3 Seller shall manage the Gas acquisition and pricing determination portions of Buyer's Interruptible Company- supplied Gas supply sales pursuant to Buyer's Appendix B to its I.U.R.C. Tariff for Gas service, as the same may be in effect from time to time. Article 5 - Management Services Fees 5.1 For portfolio management services provided under Article 3 during the term of this Agreement, each Contract Month Buyer agrees to pay Seller the portfolio management service fee as specified in Appendix F. 5.2 For marketing management services provided under Article 4 during the term of this Agreement, each Contract Month Buyer agrees to pay Seller the marketing management services fee as specified in Appendix F. Article 6 - Term 6.1 The initial term of this Agreement shall extend until October 31, 2000. If neither party terminates this Agreement by written notice at least two (2) calendar years prior to expiration of the initial term, the Agreement will remain in effect for an additional one (1) year after the original expiration date. Thereafter, the Agreement will continue year to year unless terminated with two (2) years prior written notice provided prior to November 1 of any year. Article 7 - Changes to Appendices 7.1 The Parties agree to make changes to Appendix A as necessary to reflect Buyer's pipeline delivery point changes. 7.2 The Parties agree that Appendix B will be subject to change upon the provision of prior, timely written notice from Buyer to Seller of such change, including the basis for the change, and subject to the terms of this Agreement. Unless otherwise agreed to by the Parties, any such change shall be effective no sooner than sixty (60) days after Buyer's notice. Such changes will be conditioned on Buyer's agreement to pay applicable costs associated with the change. 7.3 The Parties agree that Appendices C, D and E will be subject to change from time to time as provided in those appendices. 7.4 The Parties agree that changes to Appendices F and H will occur only upon mutual written agreement. 7.5 The Parties agree that changes in Appendix G can be made by either party at any time. Article 8 - Operations 8.1 Buyer and Seller agree to accept for purposes of this Agreement the applicable quality, delivery pressure, measurement and other applicable rules, procedures, guidelines, tariff provisions, contractual arrangements and policies of suppliers or Transporter, as the same may change from time to time. Article 9 - Force Majeure 9.1 All obligations of the Parties to this Agreement shall be suspended while and only for so long as compliance is prevented by a cause beyond the control of the party claiming force majeure, such as an "Act of God", war, civil disturbance, operational or performance failure or declaration of force majeure by a supplier, leased storage field operator, or transporter, operational flow order(s), Federal or State or local law, or binding order of a court or governmental agency, provided the suspension shall be only to the extent performance was prevented by the event of force majeure and provided the party claiming force majeure provides notice by telephone or by telecopy with reasonably full particulars to the other party at or near the time the party becomes aware of the force majeure. A party claiming force majeure hereunder shall have the duty to make all reasonable efforts to remedy the force majeure condition as promptly as possible. 9.2 Notice of force majeure must be provided to the representatives designated in Appendix G for Buyer or Seller. Article 10 - Penalties 10.1 Seller shall be liable for all penalties, cashouts, or other costs imposed on Buyer or Seller by any third Parties, including Seller's transporters and Transporter, to the extent that such penalties, cashouts or other costs are caused by Seller's actions or inaction. Buyer shall be liable for all penalties, cashouts, or other costs imposed on Buyer or Seller by any third Parties, including Seller's transporters and Transporter, to the extent that such penalties, cashouts or other costs are caused by Buyer's actions or inaction. Article 11 - Billing and Payment 11.1 Following each Contract Month Seller shall furnish, or have furnished, an itemized statement to Buyer stating the amounts due Seller pursuant to this Agreement (the "Statement"). Following the receipt of Seller's Statement, Buyer shall make payment by the due date. Invoice date, due date, and payment method shall be as specified in Appendix H. 11.2 Interest shall accrue on all late payments commencing on the applicable due date at the then current prime rate of National City Bank, Indianapolis, Indiana, or its successor, or the maximum lawful rate, whichever is lower. Article 12 - Remedies 12.1 If Seller fails to deliver scheduled Gas and such inability to deliver is not excused under this Agreement, then Seller shall reimburse Buyer for the amount of increased cost to Buyer of acquiring replacement Gas. The amount owed by Seller to Buyer hereunder shall be calculated as the product of (a) the difference, if positive, between (i) the increased price paid for replacement Gas, including any additional transportation, fuel and other variable costs incurred to receive such replacement Gas, and (ii) the then applicable commodity charge, and (b) the difference between the scheduled Gas and the quantity of Gas actually delivered by Seller. Buyer and Seller agree to act in good faith with respect to purchases of such replacement Gas so as to minimize Seller's obligations to Buyer under this Section. 12.2 If Buyer fails to receive the Gas as scheduled and such inability to receive is not excused under this Agreement, then Buyer shall reimburse Seller for the loss resulting therefrom. The amount owed by Buyer to Seller hereunder shall be calculated as the product of (a) the difference, if positive, between (i) the then applicable commodity charge and (ii) the lesser price received from a third party purchaser, including any additional transportation, fuel and other variable costs incurred to deliver Gas to a third party purchaser, and (b) the difference between the scheduled Gas and the quantity of Gas actually received by Buyer. Seller and Buyer agree to act in good faith with respect to sales of such Gas to a third party purchaser so as to minimize Buyer's obligations to Seller under this Section. 12.3 If the failure of Seller or Buyer under 12.1 or 12.2 above is substantial and is not cured after reasonable written notice, the non-failing party may, in addition to the other remedies provided by this Article 12, elect to terminate this Agreement prospectively. 12.4 The Parties agree that the actual losses incurred by a party as a result of the other party's failure to deliver or receive quantities of Gas would be uncertain and impossible to determine with precision. As a result, the remedies provided in accordance with this Article 12 for the failure to deliver or receive certain quantities of Gas, respectively, shall be the failing party's entire and sole liability to the non- failing party, and the right to recover such remedies shall be the non-failing party's sole and exclusive remedy for the failing party's failure or breach of its obligation to deliver or receive the scheduled Gas under this Agreement. The remedies provided pursuant to this Article are in lieu of and exclude any and all other liabilities of the failing party as may be provided by contract, equity, or law for any such failures or breaches, including, without limitation, the obligation of either party to deliver or receive quantities hereunder in relation to the sale or purchase of Gas to or from other parties. Article 13 - Correspondence 13.1 Except as provided in Article 9.2, any notice, statement or bill shall be in writing and shall be duly delivered when (a) mailed, postage prepaid, by registered, certified, or first class mail, or (b) sent by prepaid overnight delivery to the applicable address, or (c) sent by hand delivery, or (d) sent by telecopy directed to the appropriate person and telecopy number with hard copy also delivered as in (a), (b) or (c) above. Addresses, telephone numbers, and telecopy numbers are specified in Appendix G. Buyer or Seller may change the notice information in Appendix G by providing new designations to the other party by registered or certified mail. Article 14 - Renegotiation to Preserve Agreement 14.1 If any provision of this Agreement is declared or rendered unlawful by a court of law or regulatory authority with jurisdiction over either of the Parties or deemed unlawful because of a statutory or other change in the law, or if either party suffers a substantial economic detriment due either to a determination relating to this Agreement by such an authority, or as a result of fundamental changes in the market place or other substantial changes in existing circumstances, the Parties will promptly meet to determine and negotiate a mutually acceptable agreement on such replacement provisions necessary to maintain the benefits and obligations that arise under this Agreement. Article 15 - Miscellaneous 15.1 This Agreement is subject to all applicable laws, orders, rules, and regulations of any State or Federal governmental body or official having jurisdiction and both Seller and Buyer agree that the transactions agreed to hereunder shall be conditioned upon compliance with all such laws, orders, rules, and regulations. 15.2 Seller and Buyer expressly agree that laws of the State of Indiana shall govern the validity, construction, interpretation and effect of this Agreement, without regard to principles of conflicts of law. 15.3 Either party may pledge, mortgage or assign its rights hereunder as security for indebtedness or assign this Agreement to an affiliate. This Agreement is otherwise non-assignable except with the prior written consent of Buyer and Seller. 15.4 This Agreement is conditioned on the continued solvency of Buyer and Seller. If one party becomes insolvent or seeks bankruptcy relief, the other party may prospectively terminate this Agreement on prior written notice without further obligation other than to pay for services or Gas previously provided. 15.5 Notwithstanding any other provisions herein, the Parties hereto waive any and all rights, claims, or causes of action arising under this Agreement for incidental, consequential or punitive damages. 15.6 Neither Buyer nor Seller intend for the provisions of this Agreement to benefit any third party. No third party shall have any right to enforce the terms of this Agreement against Buyer or Seller. 15.7 The Parties acknowledge that their respective business records and information are confidential in nature and may contain proprietary and trade secret information. Notwithstanding the foregoing, Seller agrees to provide Buyer access to those records required to verify Seller's Statements to Buyer. Confidential records and information in the possession of either party shall not be divulged to third parties without prior consent of the other party. 15.8 In interpretation and construction of this Agreement, no presumption shall be made against any party on grounds such party drafted the Agreement or any provision thereof. 15.9 No waiver by either party of one or more defaults or breaches by the other in performance of any of the terms or provisions of this Agreement shall operate or be construed as a waiver of any future default or breach, whether of a like or of a different character. 15.10 The terms and conditions contained herein constitute the full and complete agreement between the Parties and any change to be made must be submitted in writing and executed by both Parties. 15.11 Each party represents that it has all necessary power and authority to enter into and perform its obligations under this Agreement and that this Agreement constitutes a legal, valid and binding obligation of that party enforceable against it in accordance with its terms, except as such enforceability may be affected by any bankruptcy law or the application of principles of equity. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in duplicate originals. "SELLER" INDIANA ENERGY SERVICES, INC. By: /s/Carl L. Chapman (Signature) Carl L. Chapman (Name) Its: President (Title) "BUYER" INDIANA GAS COMPANY, INC. By: /s/Jerrold L. Ulrey (Signature) Jerrold L. Ulrey (Name) Its: Vice President - Gas Supply and Rates (Title) Indiana Gas Company, Inc. / Indiana Energy Services, Inc. Gas Sales And Management Services Agreement APPENDICES INDEX Appendix Title A Buyer's Delivery Points B Buyer's Maximum Quantities C Storage and Transportation Costs D Supplier Reservation Costs E Commodity Purchases a. Gas Supply Charges b. Other Variable Costs F Management Services Fees a. Portfolio Management Fee b. Marketing Management Fee G Notices H Invoice/Payment Data APPENDIX A - Buyer's Delivery Points North/East System Delivery Point 2509 Dana 2510 Danville 2515 Elwood 2516 Fairmont 2530 Noblesville 2531 North Salem 2535 Richmond 2538 Tipton 2576 Huntington 2597 Crawfordsville 2605 Upland 2684 Unionport 2751 Montpelier 2754 Sheridan 2757 Bloomingdale 2772 Newport 2780 Lebanon 2795 Anderson 2796 Zionsville 2812 Carpentersville 2822 Fowlerton 2823 Richmond 5233 Anderson 121N Rural 5530 Cent. Ind. Rurals 5531 West of Zions 5532 North of Zions 5534 East of King 5864 King 010530010 East Hancock School 010530030 Hope 010530070 Dunkirk APPENDIX A - Buyer's Delivery Points Central/Terre Haute System Delivery Point 14411 Bedford 14412 Bedford 14421 Cloverdale 14431 Columbus 14432 Columbus 14433 Columbus 14441 Martinsville 14451 Greencastle 14452 Greencastle 14461 Bargersville 14463 Bargersville 14481 Mitchell 14482 Mitchell 14491 Needmore 14492 Needmore 14493 Needmore 14501 Seymour 14511 Waynesville 14512 Waynesville 14521 Rural (Mitchell) 14522 Rural (Martinsville) 14523 Rural (Terre Haute) 14531 Crane 14533 Crane 18411 Clay City 18412 Clay City 18413 Clay City 18414 Clay City 18421 Sand Cut 18422 Sand Cut 18423 Sand Cut 18424 Sand Cut APPENDIX A - Buyer's Delivery Points Central/Terre Haute System (Continued) Delivery Point 18431 Brazil 18432 Brazil 18441 Center Point 18442 Center Point 18443 Center Point 18444 Center Point 18451 Clinton 18452 Clinton 18461 Hercules Clinton 18462 Hercules Clinton 18491 Terre Haute-2 18492 Terre Haute-2 18501 Terre Haute-3 18502 Terre Haute-3 18511 Terre Haute-4 18521 Stuckey Rd. 18522 Stuckey Rd. 18523 Stuckey Rd. 18531 Rural Ind. 18541 Terre Haute-6 18542 Terre Haute-6 18571 Magaret (Terre Haute) 18573 Magaret (Terre Haute) 037047100 West Shelbyville APPENDIX A - Buyer's Delivery Points South System Delivery Point 17031 Locust, KY 17032 Locust, KY 17251 Crestwood, KY 17252 Crestwood, KY Greensburg System Delivery Point 70017 Greensburg 70940 Westport Amendment Seller and Buyer agree that this Appendix A may be amended as provided in this Agreement, which amendment ultimately will be memorialized in a revised Appendix A. INDIANA ENERGY SERVICES, INC. INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX B - Buyer's Maximum Quantities Maximum Daily Quantities (in Dth) Central/ Month North/East Terre Haute South Greensburg January 500,263 225,760 67,050 8,126 February 489,004 238,600 63,421 7,645 March 406,915 190,327 49,525 6,040 April 279,473 128,138 28,020 3,690 May 224,802 102,132 17,295 2,622 June 154,174 70,537 14,837 2,654 July 121,590 52,664 9,527 2,049 August 121,305 52,524 9,498 2,044 September 185,179 87,589 19,957 3,234 October 276,079 109,178 35,351 5,121 November 381,044 187,126 46,140 5,834 December 498,411 224,778 65,571 7,896 Maximum Seasonal Quantities (in Dth) Central/ Month North/East Terre Haute South Greensburg Summer 14,864,954 9,033,530 1,818,879 341,116 Winter 37,679,047 20,333,923 5,513,673 697,711 APPENDIX B - Buyer's Maximum Quantities Amendment Seller and Buyer agree that this Appendix B may be amended as provided in this Agreement, which amendment ultimately will be memorialized in a revised Appendix B. INDIANA ENERGY SERVICES, INC. INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates Appendix C - Storage and Transportation Costs The transportation and storage costs shall be determined based upon the rates and charges applicable under each Transporter's Tariff, including the sheets identified below, as well as other applicable sheets, as all of those sheets may be in effect from time to time, and costs arising under applicable agreements, including the agreements identified below, as well as this Agreement. While Seller and Buyer agree that the identified tariff sheets and agreements are intended to be a complete listing of the applicable tariff sheets and applicable agreements, they further agree that the omission of the reference of one or more sheets or agreements from that list will not affect Buyer's obligation to Seller for rates, charges and costs incurred thereunder. North/East System PEPL Contract No. Tariff Sheet No. 11713 Sheet No. 11 11714 Sheet No. 5 11715 Sheet No. 5 11716 Sheet No. 5 11718 Sheet No. 5 11719 Discounted Rate Agreement 11720 Discounted Rate Agreement 11721 Sheet No. 5 12044 Sheet No. 11 12045 Sheet No. 5 APPENDIX C - Storage and Transportation Costs North/East System (continued) ANR Contract No. Tariff Sheet No. X-22 Sheet No. 16 Sheet No. 14 Sheet No. 15 19100 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 18 20250 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 18 20300 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 18 32300 Sheet No. 10 33050 Sheet No. 10 70300 Sheet No. 68G TBD-1 Discount Agreement ANR Storage Company Contract No. Tariff Sheet No. TBD-2 Discount Agreement Appendix C - Storage and Transportation Costs Central/Terre Haute System Texas Gas G-3 Contract No. Tariff Sheet No. N0325 Sheet No. 10 Sheet No. 226 Sheet No. 226F Sheet No. 226L T3780 Sheet No. 11 Sheet No. 226 Sheet No. 226F Sheet No. 226L TBD-3 Discount Rate Agreement South System Texas Gas G-4 Contract No. Tariff Sheet No. N0420 Sheet No. 10 Sheet No. 226 Sheet No. 226F Sheet No. 226L T3739 Sheet No. 11 Sheet No. 226 Sheet No. 226F Sheet No. 226L Greensburg System Texas Eastern Contract No. Tariff Sheet No. 800171 Sheet No. 35 400109 Sheet No. 43 TBD-4 Discount Rate Agreement Trunkline Contract No. Tariff Sheet No. TBD-5 Discount Rate Agreement Amendment Seller and Buyer agree that this Appendix C may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix C. INDIANA ENERGY SERVICES, INC. INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX D - Supplier Reservation Costs Supplier Reservation Costs January 1, 1996 to March 31, 1996 System Winter Summer North/East $441,529 0 South /Central/Terre Haute $279,235 0 Greensburg $ 6,212 0 Amendment Seller and Buyer agree that this Appendix D may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix D. INDIANA ENERGY SERVICES, INC. INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates Appendix E- Commodity Purchases This Appendix E addresses the gas supply and other variable costs applicable to Nominated Daily Quantities, as identified below. For Monthly Baseload Purchases: Buyer shall pay to Seller each Contract Month an amount determined by multiplying the monthly baseload quantities of Gas scheduled for Buyer's purchase under this Agreement during the Contract Month, by a price per MMBtu determined using the first monthly index for Inside FERC's GAS MARKET REPORT, in the table "PRICES OF SPOT GAS DELIVERED TO INTERSTATE PIPELINES" for the applicable zone, specified below, for the applicable month. In addition, all other applicable variable costs as identified below shall apply. For Daily Swing Purchases: Buyer shall pay to Seller each Contract Month an amount determined by summing all applicable "Daily Amounts" for the Contract Month. A "Daily Amount" shall be calculated for each day during the Contract Month for which Buyer has scheduled daily swing quantities of Gas for purchase. The "Daily Amounts" shall be determined by multiplying (a) the swing quantities of gas scheduled for the particular day of the Contract Month, by (b) a price per MMBtu determined using the arithmetic average of the high and low prices in the price range reported in Gas Daily, in the table "DAILY PRICE SURVEY", for the applicable zone, specified below, for the applicable day. As to any day for which Gas Daily for any reason (e.g. holidays and weekends) does not publish the above referenced prices, the applicable prices shall be that utilized for the last prior day such is published. In addition, all other applicable variable costs as identified below shall apply. For Other Purchases: For any purchases not covered by a specified pricing method, pricing shall be as negotiated and mutually agreed to in writing by the Parties. For Summer Storage Refill: For summer refill of leased storage, Buyer shall pay to Seller an amount based on averaging the seven Summer monthly indices as defined above for Monthly Baseload Purchases, for the applicable supply area, and based upon presuming storage refill quantities to be equally split between the summer months. For summer refill of company storage, the parties will agree on the extent to which an index average method will be used, after consideration of the operational scheduling needs of company storage. In addition, all other applicable variable costs as identified below shall apply. For Storage Withdrawals: For quantities of storage withdrawals for which Buyer has previously paid for commodity, all applicable other variable costs as identified below shall apply. Appendix E- Commodity Purchases System Applicable Monthly Indices North/East PEPL - Texas, Oklahoma ANR - Louisiana Central/Terre Haute Texas Gas - Zone 1 Texas Gas - Zone SL South Texas Gas - Zone 1 Texas Gas - Zone SL Greensburg/Westport TETCO - East Louisiana TETCO - West Louisiana TETCO - East Texas TETCO - South Texas Trunkline - Field Zone (Texas, La.) System Applicable Daily Indices North/East PEPL - Oklahoma ANR - Louisiana-Onshore South Central/Terre Haute Texas Gas SL - Louisiana-Onshore South Texas Gas (entire Z1) - East Texas-North La. Area South Texas Gas SL - Louisiana-Onshore South Texas Gas (entire Z1) - East Texas-North La. Area Greensburg/Westport TETCO (ELA) - Louisiana-Onshore South TETCO (WLA) - Louisiana-Onshore South TETCO (ETX) - East Texas - North La. Area TETCO (STX) - South - Corpus Christi Trunkline - East - Houston - Katy Trunkline - South - Corpus Christi Trunkline - Louisiana - Onshore South APPENDIX E- Commodity Purchases - Other Variable Costs The other variable costs shall be determined based upon the rates and charges applicable under each Transporter's Tariff, including the sheets identified below, as well as other applicable sheets, as all of those sheets may be in effect from time to time, and costs arising under applicable agreements, including the agreements identified below, as well as this Agreement. North/East PEPL Contract No. Tariff Sheet No. 11713 Sheet No. 11 11714 Sheet No. 5 11715 Sheet No. 5 11716 Sheet No. 5 11717 Sheet No. 5 11719 Discounted Rate Agreement 11720 Discounted Rate Agreement 11721 Sheet No. 5 12044 Sheet No. 11 12045 Sheet No. 5 APPENDIX E - Commodity Purchases - Other Variable Costs North/East ANR Contract No. Tariff Sheet No. X-22 Sheet No. 16 Sheet No. 14 Sheet No. 15 Sheet No. 19 19100 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 19 20250 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 19 20300 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 19 32300 Sheet No. 10 Sheet No. 19 33050 Sheet No. 10 Sheet No. 19 70300 Sheet No. 68G APPENDIX E - Commodity Purchases - Other Variable Costs Central/Terre Haute System Texas Gas G-3 Contract No. Tariff Sheet No. N0325 Sheet No. 10 Sheet No. 14 T3780 Sheet No. 11 Sheet No. 11A Sheet No. 14 South System Texas Gas G-4 Contract No. Tariff Sheet No. N0420 Sheet No. 10 Sheet No. 14 T3739 Sheet No. 11 Sheet No. 11A Sheet No. 14 APPENDIX E - Commodity Purchases - Other Variable Costs Greensburg System Texas Eastern Contract No. Tariff Sheet No. 800171 Sheet No. 36 Sheet No. 126 Sheet No. 127 Sheet No. 128 Sheet No. 129 400109 Sheet No. 43 Sheet No. 126 Sheet No. 127 Sheet No. 128 Sheet No. 129 While Seller and Buyer agree that the identified tariff sheets and agreements are intended to be a complete listing of the applicable tariff sheets and applicable agreements, they further agree that the omission of the reference of one or more sheets or agreements from that list will not affect Buyer's obligation to Seller for rates, charges and costs incurred thereunder. Amendment Seller and Buyer agree that this Appendix E may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix E. INDIANA ENERGY SERVICES, INC. INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX F - Management Services Fees Portfolio Management Service Fee Buyer shall pay to Seller a portfolio management service fee derived as follows: In each month of year one of the initial term of this Agreement, Buyer shall pay to Seller a fee equal to one-twelfth of Buyer's annual costs, projected for the twelve months ended December 31, 1996, to otherwise perform the gas supply function (the "Base Year Amount"). In year two, the Base Year Amount shall be adjusted to reflect the annual effect of the application of the Consumer Price Index for the preceding year, minus a productivity factor of one percent, provided that, in no event shall the adjustment be a negative number. The Base Year Amount shall be similarly adjusted each year during the term of the Agreement, each annual adjustment being cumulative of all prior adjustments. The Parties agree that in the event there occurs a material change in the circumstances which resulted in the execution of this Agreement, i.e., fundamental changes in the natural gas market place or a significant change in the nature or extent of the services to be provided or received hereunder, and which materially impacts the portfolio management service costs, the Parties will negotiate in good faith to account for that material change in the circumstances and to adjust the portfolio management service fee accordingly. Marketing Management Service Fee Per Dth of Marketed Quantities Fee Market Price Achieved $0.01 $0.01-0.0599 $0.02 $0.06-0.0999 $0.03 $0.10-0.1399 $0.04 $0.14-0.1799 $0.05 $0.18-0.2199 $0.06 $0.22-0.2599 $0.07 $0.26-0.2999 $0.08 $0.30-0.3399 $0.09 $0.34-9.3799 $0.10 $0.38-0.4199 $0.11 $0.42-0.4599 $0.12 $0.46-0.4999 $0.13 $0.50-0.5399 $0.14 $0.54-0.5799 $0.15 $0.58-0.6199 $0.16 $0.62-0.6599 APPENDIX F - Management Services Fees (Continued) Amendment Seller and Buyer agree that this Appendix F may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix F. INDIANA ENERGY SERVICES, INC. INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX G- Notices Invoice Information: Buyer: Seller: Indiana Gas Company, Inc. Brad McHenry Corporate Accounting Indiana Energy Services, Inc. Attn.: Judy Shular 1630 North Meridian Street 1630 North Meridian Street Indianapolis, IN 46202 Indianapolis, IN 46202 (317) 321-0353 (317) 321-0461 Payments: Buyer: Seller: National City Bank National City Bank For the Account of: For the Account of: Indiana Gas Company, Inc. Indiana Energy Services, Inc. Supply Plans/Operational/Force Majeure: Buyer: Seller: Supply Plans Supply Plans Mark Classick - (317) 321-0605 Brian Azman - (317) 321-0422 Operational Operational Randy Gary - (317) 321-0507 Curt Hribernik - (317) 321-0610 Force Majeure Force Majeure Randy Gary (317) 321-0507 Brian Azman - (317) 321-0422 Frank Lindsey (317) 321-0334 Curt Hribernik - (317) 321-0610 Gas Controller on Duty (317) 321-0535 John Talley - (317) 321-0479 Indiana Gas Company, Inc. Indiana Energy Services, Inc. 1630 North Meridian Street 1630 North Meridian Street Indianapolis, IN 46202 Indianapolis, IN 46202 (317) 321-0787 (Telecopy) (317) 921-2760 (Telecopy) All Other Notices: Buyer: Seller: Gas Control Department John R. Talley Attn.: Randy Gary Indiana Energy Services, Inc. 1630 North Meridian Street 1630 North Meridian Street Indianapolis, IN 46202 Indianapolis, IN 46202 APPENDIX G- Notices (Continued) Amendment Seller and Buyer agree that this Appendix G may be amended from time to time as provided in this Agreement, which amendment ultimately will be memorialized in a revised Appendix G. INDIANA ENERGY SERVICES, INC. INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX H - Invoice/Payment Data Invoice Date - On or before the tenth (10th) day after the Contract Month. Due Date - Five (5) days after Receipt of Invoice. Payment Method - By wire transfer to account specified on invoice. Amendment Seller and Buyer agree that this Appendix H may be amended from time to time by mutual agreement of the Parties, which amendment ultimately will be memorialized in a revised Appendix H. INDIANA ENERGY SERVICES, INC. INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates EX-10 3 EXHIBIT 10-C FOR INDIANA GAS 10-Q EXHIBIT 10-C GAS SALES AND PORTFOLIO ADMINISTRATION AGREEMENT THIS GAS SALES AND PORTFOLIO ADMINISTRATION AGREEMENT ("Agreement") is entered and effective the 15th day of March, 1996, for services to begin April 1, 1996, by and between INDIANA GAS COMPANY, INC. ("Buyer") and PROLIANCE ENERGY, LLC ("Seller") (collectively, the "Parties" or individually "Party"). Buyer and Seller agree as follows: RECITALS 1. Seller is a limited liability company created and existing under the laws of the State of Indiana, with its registered office at One North Capitol Avenue, Indianapolis, Indiana. 2. Buyer is a corporation incorporated and existing under the laws of the State of Indiana with its principal place of business at 1630 North Meridian Street, Indianapolis, Indiana. 3. This Agreement contains the mutual promises and covenants pursuant to which Buyer as a purchaser of natural gas and portfolio administration services, and Seller as a merchant of natural gas and portfolio administration services, shall perform the transactions described herein. 4. Under this Agreement, Seller agrees to provide natural gas and portfolio administration services consistent with the terms and conditions contained herein. DEFINITIONS The following terms shall have the following definitions for this Agreement and its Appendices: 1. The term "ANR" shall mean ANR Pipeline Company. 2. The term "Balancing Quantities" shall mean the quantity of Gas which satisfies the difference between the Gas quantities scheduled for delivery to Buyer's Delivery Points and the actual physical flow of Gas taken by Buyer at the Delivery Points. 3. The term "Btu" shall mean British thermal unit, as defined in Transporter's Tariff. 4. The term "Contract Month" shall mean a calendar month during the effectiveness of this Agreement, as interpreted in light of Transporter's Tariff. 5. The term "Contract Rates" shall be the demand rates as described in Appendix C. 6. The term "Day" shall be defined as it is defined in "Transporter's Tariff," or as applied by "Transporter." 7. The term "Delivery Points" shall mean the points of delivery of Gas from Seller to Buyer as specified in Appendix A. 8. The term "FERC" shall mean the Federal Energy Regulatory Commission. 9. The term "Gas" shall mean natural gas. 10. The term "Maximum Daily Quantities" or "MDQ" shall mean the maximum quantity of Gas which Seller shall be obligated to supply on a firm basis to Buyer's Delivery Points on a particular day. 11. The term "Maximum Portfolio Entitlement" shall mean the maximum deliverability that Buyer is entitled to under the contracts identified on Appendix C. 12. The term "Maximum Seasonal Quantities" or "MSQ" shall mean the maximum quantity of Gas which Seller shall be obligated to supply on a firm basis to Buyer's Delivery Points in a Summer or Winter. 13. The terms "MMBtu," "Dekatherm" or "DTH" shall mean one million (1,000,000) Btus. 14. The term "Nominated Daily Quantities" shall mean the quantity of Gas nominated on a particular day for delivery to Buyer's Delivery Points, including deliveries to storage for Buyer. 15. The term "PEPL" shall mean Panhandle Eastern Pipe Line Company. 16. The term "Portfolio Contracts" shall mean all of the contracts that may be utilized to provide Gas to Buyer, except as provided in Section 1.2, and which are identified on Appendix C. 17. The term "Summer" shall mean the summer season months of April through October, inclusive. 18. The term "TETCO" shall mean Texas Eastern Transmission Corporation. 19. The term "Texas Gas" shall mean Texas Gas Transmission Corporation. 20. The term "Transportation Credit" shall mean the Gas cost credit specified in Appendix C. 21. The term "Transporter" shall mean the transporting pipeline(s) interconnected with Buyer, including without limitation ANR, PEPL, TETCO or Texas Gas, as applicable to the transaction involved. 22. The term "Transporter's Tariff" shall mean the tariff provisions of Transporter, as approved by the FERC, or any successor thereto, and Buyer's or Seller's contractual arrangements with Transporter, including changes to such tariff and arrangements made after this Agreement is effective. 23. The term "Winter" shall mean the winter season months of November through March, inclusive. ARTICLE 1 - GAS SALES 1.1. Seller represents, agrees and warrants that Seller can and shall stand ready to provide on a firm basis for Buyer's purchase at Buyer's Delivery Points the daily and seasonal quantities of Gas set forth herein. 1.2. During the term of this Agreement, unless Seller is unable to meet Buyer's Gas requirements, Buyer agrees that Seller shall be its sole supplier of Gas. However, Buyer shall have and maintain the right to produce, utilize, purchase or sell any and all: (a) Gas produced in Indiana which Buyer may be required to purchase under Ind. Code 8-1-2-87.6 or any successor provision thereto of the Indiana Code, or (b) propane. 1.3. The Maximum Daily Quantities which Seller shall be obligated to provide on a firm basis at Buyer's Delivery Points are specified in Appendix B. 1.4. The Maximum Seasonal Quantities during Winter or Summer which Seller shall be obligated to provide on a firm basis at the Delivery Points are specified in Appendix B. 1.5. Buyer shall assign or release, or cause to be assigned or released, to Seller, and Seller shall accept, subject to the terms and conditions of the applicable assignment, release or agency contract (as set forth below), all of the Portfolio Contracts. In the event a third party consent for the assignment or release of any Portfolio Contract cannot be obtained or an assignment or release would not be economically desirable or timely, Seller is hereby appointed as agent for all purposes to administer such contracts until such time as such an assignment or release is effected. Under this Agreement, Seller may fulfill its obligation to provide Gas to Buyer by using both the Portfolio Contracts and contracts entered into by and between Seller and third parties, including suppliers, pipelines and other service providers. Seller shall not be obligated to enter into commitments with suppliers, pipelines or other service providers which extend beyond the term or scope of this Agreement. 1.6. If FERC should determine that Transporter's Tariff shall cease to apply, in whole or in part, to transactions hereunder, the Parties will promptly meet to determine and negotiate mutually acceptable replacement guidelines and standards. In that event, until an agreement is reached, the most recently effective Transporter's Tariff shall continue to apply for all purposes under this Agreement. Upon acceptance of the replacement guidelines and standards, Buyer and Seller agree to apply the replacement guidelines and standards retroactively to the cessation date of Transporter's Tariff. Any resolution shall be implemented within thirty (30) days of the acceptance of the replacement guidelines and standards. ARTICLE 2 - GAS SALES CHARGES 2.1. For all Maximum Portfolio Entitlements, Buyer shall pay Seller each Contract Month the then-applicable Contract Rates specified in Appendix C in order for Seller to stand ready to deliver Gas to Buyer's Delivery Points on a firm basis. Seller shall provide Buyer the Transportation Credit specified in Appendix C. 2.2. Buyer shall pay Seller each Contract Month the applicable supplier reservation costs specified in Appendix D, as updated from time to time as provided in Article 6. 2.3. For all commodity quantities, Buyer shall pay Seller each Contract Month an amount determined by multiplying the applicable Nominated Daily Quantities and Balancing Quantities for the Contract Month, by the applicable price per MMBtu as determined pursuant to the commodity pricing provisions of Appendix E. These pricing provisions shall reflect pricing methods for Gas supply, and all other variable costs incurred by Seller as provided in Appendix E. The other variable costs shall include all applicable costs, including without limitation, transportation commodity or usage charges, injection and withdrawal costs, volumetric surcharges, and fuel as reflected in each Transporter's Tariff and the applicable service agreements. 2.4. Buyer will pay taxes, if any, which are imposed with respect to Gas delivered hereunder and which are not reflected in the pricing methods in Appendix E; provided, however, Buyer shall have no obligation to pay any sales or use taxes for which it delivers to Seller an appropriate exemption certificate. ARTICLE 3 - BALANCING 3.1. Seller shall provide Buyer with Balancing Quantities as part of its gas sales and portfolio administration services. Balancing procedures shall be agreed to by the Parties. ARTICLE 4 - PORTFOLIO ADMINISTRATION SERVICES 4.1. Buyer and Seller agree that during the term of this Agreement Seller shall provide all of Buyer's portfolio administration services. 4.2. Seller's portfolio administration services shall include without limitation Gas acquisition, scheduling receipt and delivery quantities with Gas suppliers and pipeline transporters, scheduling pipeline storage inventory quantities, providing delivered Gas supplies, supply and portfolio planning, and periodic portfolio reporting. Buyer shall retain complete unilateral control of its physical Gas delivery, distribution, transportation and storage facilities. 4.3. Seller shall provide Gas supply planning to Buyer as part of its portfolio administration services. Supply planning/gas control procedures shall be agreed to by the Parties to govern the preparation and implementation of the supply plans. 4.4. Seller shall provide portfolio planning as part of its portfolio administration services. Seller and Buyer shall review periodically Buyer's supply requirements for potential changes. Any portfolio entitlement changes are subject to Buyer's prior approval. Seller shall represent Buyer in negotiations with suppliers and pipelines to effectuate the portfolio changes. Seller agrees that it will maintain for Buyer's benefit firm contracts for transportation and other delivery services (specifying Buyer's primary Delivery Points) and Gas supply that will fully meet the MDQ and MSQ of Buyer as set forth in the agreed upon supply plans. 4.5. During the term of this Agreement, Seller shall review all FERC regulatory filings that could reasonably be expected to impact the Gas supply or portfolio administration services provided by Seller to Buyer. Seller shall inform Buyer on a timely basis of Seller's review and analysis. Buyer shall timely communicate its interests to Seller. Seller shall provide for representation to protect the Parties' interests in FERC proceedings and related appeals and notify Buyer promptly concerning any conflict of interest it may identify. In the event Seller's interests conflict with those of Buyer, Buyer and Seller shall be free to represent their interests directly. Seller shall provide Buyer with periodic written reports on the status of such proceedings in which Seller represents Buyer. 4.6. During the term of this Agreement, Buyer agrees to pay Seller the portfolio administration service fee specified in Appendix F. ARTICLE 5 - TERM 5.1. The initial term of this Agreement shall be through October 31, 2000. If neither Party terminates this Agreement by written notice at least twenty-four (24) months prior to expiration of the initial term, the Agreement will remain in effect for an additional one (1) year after the original expiration date. Thereafter, the Agreement will continue year to year unless terminated by written notice given at least twenty- four (24) months prior to the expiration date of the then current Agreement. 5.2. Notwithstanding the provisions of Section 5.1, this Agreement shall not remain in effect beyond, and shall terminate upon, the expiration of the wind-up period specified in Section 6.03 of Seller's Fundamental Operating Agreement. During the course of any such wind-up of Seller's affairs, the sole supplier requirements established in Sections 1.2 and 4.1 of this Agreement shall be waived with respect to any Gas or related services under any Portfolio Contracts assigned or transferred to Buyer or its designee, or released from any agency established under this Agreement, pursuant to Section 6.05 of the above- referenced Fundamental Operating Agreement. Any minimum purchase requirements imposed on Buyer under this Agreement shall be reduced accordingly. The portfolio administration service fee during the wind-up period shall be reduced to the extent reductions in actual portfolio administration costs occur. ARTICLE 6 - CHANGES TO APPENDICES 6.1. The Parties agree to make changes to Appendix A as necessary to reflect changes in Buyer's Delivery Points. 6.2 The Parties agree to make changes, after timely notice, to Appendix B as necessary to reflect changes in Buyer's MDQ and MSQ. Buyer agrees to pay any appropriate cost increases resulting from these changes. 6.3. The Parties agree that Appendices C, D, E, F and I will be subject to change from time to time as provided in those Appendices. 6.4. The Parties agree that changes in Appendix G can be made by either party at any time. Buyer or Seller may change the notice information in Appendix G by providing new designations to the other Party by registered or certified mail. 6.5. The Parties agree that changes to Appendix H will occur only upon mutual written agreement. ARTICLE 7 - OPERATIONS 7.1. Buyer and Seller agree to accept for purposes of this Agreement the applicable quality, delivery pressure, measurement and other applicable rules, procedures, guidelines, tariff provisions, contractual arrangements and policies of suppliers or Transporter, as the same may change from time to time. ARTICLE 8 - FORCE MAJEURE 8.1. All obligations of the Parties to this Agreement shall be suspended while and only for so long as compliance is prevented by a cause beyond the control of the Party claiming force majeure, such as an Act of God, war, civil disturbance, operational or performance failure or declaration of force majeure by a supplier, leased storage field operator, transporter, or other service provider, operational flow order(s), federal or state or local law, or binding order of a court or governmental agency, provided the suspension shall be only to the extent performance was prevented by the event of force majeure and provided the Party claiming force majeure provides notice by telephone or by telecopy with reasonably full particulars to the other Party at or near the time the Party becomes aware of the force majeure, with written confirmation sent within seventy-two (72) hours. A Party claiming force majeure hereunder shall have the duty to make all reasonable efforts to remedy the force majeure condition as promptly as possible. 8.2. Notice of force majeure must be provided to the representatives for Buyer or Seller designated in Appendix G. ARTICLE 9 - PENALTIES 9.1. Seller shall be liable for all imbalance or other penalties, cash-outs, or other costs imposed on Buyer or Seller by any third party, including without limitation Seller's upstream or other transporters and Transporters, to the extent that such penalties, cash-outs or other costs are caused by Seller's actions or inaction. Buyer shall be liable for all imbalance or other penalties, cash-outs, or other costs imposed on Buyer or Seller by any third parties, including without limitation Seller's upstream or other transporters and Transporters, to the extent that such penalties, cash-outs or other costs are caused by Buyer's actions or inaction. ARTICLE 10 - BILLING AND PAYMENT 10.1. Following each Contract Month, Seller shall furnish, or have furnished, an itemized statement to Buyer stating the amounts due Seller pursuant to this Agreement (the "Statement"). Following the receipt of Seller's Statement, Buyer shall make payment by the due date. Invoice date, due date, and payment method shall be as specified in Appendix H. 10.2. Interest shall accrue on all late payments commencing on the applicable due date at the then current prime rate of National City Bank, Indianapolis, Indiana, or its successor, or the maximum lawful rate, whichever is lower. ARTICLE 11 - REMEDIES 11.1. If Seller fails to deliver scheduled Gas and such failure to deliver is not excused under this Agreement, then Seller shall reimburse Buyer for the amount of increased cost to Buyer of acquiring replacement Gas. The amount owed by Seller to Buyer hereunder shall be calculated as the product of (a) the difference, if positive, between (i) the price paid for replacement Gas, including any additional transportation, fuel and other variable costs incurred to receive such replacement Gas, and (ii) the then applicable commodity charge, and (b) the difference between the scheduled Gas and the quantity of Gas actually delivered by Seller. Buyer and Seller agree to act in good faith with respect to purchases of such replacement Gas so as to minimize Seller's obligations to Buyer under this Section. 11.2. If Buyer fails to receive scheduled Gas and such failure to receive is not excused under this Agreement, then Buyer shall reimburse Seller in an amount calculated as the product of (a) the difference, if positive, between (i) the then applicable commodity charge and (ii) the price received from a third party purchaser, including any additional transportation, fuel and other variable costs incurred to deliver Gas to a third party purchaser, and (b) the difference between the scheduled Gas and the quantity of Gas actually received by Buyer. Seller and Buyer agree to act in good faith with respect to sales of such Gas to a third party purchaser so as to minimize Buyer's obligations to Seller under this Section. 11.3. The Parties agree that the actual losses incurred by a Party as a result of the other Party's failure to deliver or receive quantities of Gas would be uncertain and impossible to determine with precision. As a result, the remedies provided in Article 11 for the failure to deliver or receive certain quantities of Gas, respectively, shall be the failing Party's entire and sole liability to the non-failing Party, and the right to recover such remedies shall be the non-failing Party's sole and exclusive remedy for the failing Party's failure or breach of its obligation to deliver or receive the scheduled Gas under this Agreement. The remedies provided pursuant to this Article are in lieu of and exclude any and all other liabilities of the failing Party as may be provided by contract, equity, or law for any such failures or breaches, including, without limitation, the obligation of either Party to deliver or receive quantities hereunder in relation to the sale or purchase of Gas to or from other parties. ARTICLE 12 - CORRESPONDENCE 12.1. Except as provided in Section 8.2, any notice, statement or bill shall be in writing and shall be duly delivered when (a) mailed, postage prepaid, by registered, certified, or first-class mail, or (b) sent by prepaid overnight delivery to the applicable address, or (c) sent by hand delivery, or (d) sent by telecopy directed to the appropriate person and telecopy number with hard copy also delivered as in (a), (b) or (c) above. Addresses, telephone numbers, and telecopy numbers are specified in Appendix G. ARTICLE 13 - RENEGOTIATION TO PRESERVE AGREEMENT 13.1. If any provision of this Agreement is declared or rendered unlawful by a court of law or regulatory authority with jurisdiction over either of the parties or deemed unlawful because of a statutory or other change in the law, or if either Party suffers a substantial economic detriment due either to a determination relating to this Agreement by such an authority, or as a result of fundamental changes in the marketplace or other substantial changes in existing circumstances, the Parties will promptly meet to determine and negotiate a mutually acceptable agreement on such replacement provisions necessary to maintain the benefits and obligations that arise under this Agreement. ARTICLE 14 - MISCELLANEOUS 14.1. This Agreement is subject to all applicable laws, orders, rules, and regulations of any state or federal governmental body or official having jurisdiction and both Seller and Buyer agree that the transactions agreed to hereunder shall be conditioned upon compliance with all such laws, orders, rules and regulations. 14.2. Seller and Buyer expressly agree that laws of the State of Indiana shall govern the validity, construction, interpretation and effect of this Agreement. 14.3. Either Party may pledge, mortgage or assign its rights hereunder as security for indebtedness. This Agreement is otherwise non-assignable except with the prior written consent of Buyer and Seller. 14.4. This Agreement is conditioned on the continued solvency of Buyer and Seller. If one Party becomes insolvent or seeks bankruptcy relief, the other party may prospectively terminate this Agreement on prior written notice without further obligation other than to pay for services or Gas previously provided. In the event of such termination, in order to ensure the continued reliable provision of gas supply service to Buyer's customers, the wind-up provisions of Section 6.05 of the Fundamental Operating Agreement shall apply. 14.5. Notwithstanding any other provisions herein, the Parties hereto waive any and all rights, claims, or causes of action arising under this Agreement for incidental, consequential or punitive damages. 14.6. Neither Buyer nor Seller intends for the provisions of this Agreement to benefit any third party. No third party shall have any right to enforce the terms of this Agreement against Buyer or Seller. 14.7. The Parties acknowledge that their respective business records and information are confidential in nature and may contain proprietary and trade secret information. Notwithstanding the foregoing, Seller agrees to provide Buyer access to those records required to verify Seller's Statements to Buyer. Confidential records and information in the possession of either Party shall not be divulged to third parties without prior consent of the other Party. 14.8. In interpretation and construction of this Agreement, no presumption shall be made against any Party on grounds such Party drafted the Agreement or any provision thereof. 14.9. No waiver by either Party of one or more defaults or breaches by the other in performance of any of the terms or provisions of this Agreement shall operate or be construed as a waiver of any future default or breach, whether of a like or of a different character. 14.10. The terms and conditions contained in this Agreement and its Appendices herein constitute the full and complete agreement between the Parties and any change to be made must be submitted in writing and executed by both Parties. 14.11. Each Party represents that it has all necessary power and authority to enter into and perform its obligations under this Agreement and that this Agreement constitutes a legal, valid and binding obligation of that Party enforceable against it in accordance with its terms, except as such enforceability may be affected by any bankruptcy law or the application of principles of equity. 14.12. Seller agrees that there shall be no pattern of adverse distinction and no pattern of undue discrimination in carrying out its obligations under this Agreement relating to Buyer as compared to other parties to whom Seller furnishes Gas supply and portfolio administration services. 14.13. In the event any of the terms, covenants or conditions of this Agreement, or any amendment hereto, or the application of any such terms, covenants or conditions shall be held invalid as to any Party or circumstance by any court having jurisdiction, all other terms, covenants, or conditions of this Agreement, or any amendment hereto, and their application, shall not be affected thereby and shall remain in full force and effect. IN WITNESS WHEREOF, the Parties hereto have executed this Agreement in duplicate originals. "SELLER" PROLIANCE ENERGY, LLC By: /s/Carl L. Chapman Carl L. Chapman President "BUYER" INDIANA GAS COMPANY, INC. By: /s/Jerrold L. Ulrey Jerrold L. Ulrey Vice President INDEX TO APPENDICES APPENDIX A - Buyer's Delivery Points APPENDIX B - Buyer's Maximum Quantities APPENDIX C - Portfolio Information APPENDIX D - Supplier Reservation Costs APPENDIX E - Commodity Purchases APPENDIX F - Portfolio Administration Service Fee APPENDIX G - Notices APPENDIX H - Invoice/Payment Data Gas Sales And Portfolio Administration Agreement APPENDICES INDEX Appendix Title A Buyer's Primary Delivery Points B Buyer's Maximum Quantities C Portfolio Information D Supplier Reservation Costs E Commodity Purchases F Portfolio Administration Service Fees G Notices H Invoice/Payment Data I Diversion of Entitlements APPENDIX A - Buyer's Primary Delivery Points North/East System Delivery Point Delivery Point 2509 Dana 010530070 Dunkirk 2510 Danville 032150100 Muncie 2515 Elwood 037045550 ANR Storage Facilities 2516 Fairmount ANRX22 Storage Injection Points 2530 Noblesville PEPL IND GAS-INJ 2531 North Salem CGCU Points of Interconnection 2535 Richmond with Citizens Gas & 2538 Tipton Coke Utility 2576 Huntington 2597 Crawfordsville 2605 Upland 2684 Unionport 2751 Montpelier 2754 Sheridan 2757 Bloomingdale 2772 Newport 2780 Lebanon 2795 Anderson 2796 Zionsville 2812 Carpentersville 2822 Fowlerton 2823 Richmond 5233 Anderson 121N Rural 5530 Cent. Ind. Rurals 5531 West of Zionsville 5532 North of Zionsville 5534 East of King 5864 King 010530010 East Hancock School 010530030 Hope APPENDIX A - Buyer's Primary Delivery Points Central/Terre Haute System Delivery Point 14411 Bedford 14412 Bedford 14431 Columbus 14432 Columbus 14433 Columbus 14461 Bargersville 14463 Bargersville 14481 Mitchell 14482 Mitchell 14491 Needmore 14492 Needmore 14493 Needmore 14501 Seymour 14511 Waynesville 14512 Waynesville 14521 Rural (Mitchell) 14522 Rural (Martinsville) 14523 Rural (Terre Haute) 14531 Crane 14533 Crane 18421 Sand Cut 18422 Sand Cut 18423 Sand Cut 18424 Sand Cut APPENDIX A - Buyer's Primary Delivery Points Central/Terre Haute System (Continued) Delivery Point 18451 Clinton 18452 Clinton 18461 Hercules Clinton 18462 Hercules Clinton 18491 Terre Haute-2 18492 Terre Haute-2 18501 Terre Haute-3 18502 Terre Haute-3 18511 Terre Haute-4 18521 Stuckey Rd. 18522 Stuckey Rd. 18523 Stuckey Rd. 18531 Rural Ind. 18541 Terre Haute-6 18542 Terre Haute-6 18571 Magaret (Terre Haute) 18573 Magaret (Terre Haute) 037047100 West Shelbyville CGCU Points of Interconnection with Citizens Gas & Coke Utility APPENDIX A - Buyer's Primary Delivery Points South System Delivery Point 17031 Locust, KY 17032 Locust, KY 17251 Crestwood, KY 17252 Crestwood, KY Greensburg System Delivery Point 70017 Greensburg 70940 Westport TETCO TETCO Storage Facilities Amendment Seller and Buyer agree that this Appendix A may be amended as provided in this Agreement, which amendment ultimately will be memorialized in a revised Appendix A. PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX B - Buyer's Maximum Quantities Maximum Daily Quantities (in Dth) Central/ Month North/East Terre Haute South Greensburg April 257,000 125,000 31,500 3,420 May 206,000 94,900 20,100 2,610 June 152,000 70,800 15,400 2,630 July 94,100 38,900 5,530 1,550 August 119,000 52,800 9,890 2,020 September183,000 88,200 20,900 3,220 October 251,000 112,000 37,600 5,060 November 366,000 180,000 46,700 5,590 December 482,000 217,000 66,700 7,330 January 505,000 220,000 72,400 7,330 February 469,000 220,000 63,900 7,300 March 395,000 186,000 50,800 5,860 Maximum Seasonal Quantities (in Dth) Central/ Month North/East Terre Haute South Greensburg Summer 1996 11,202,130 5,850,260 1,676,840 267,145 Winter 1996-97 38,579,050 21,473,920 5,513,670 697,710 APPENDIX B - Buyer's Maximum Quantities Amendment Seller and Buyer agree that this Appendix B may be amended as provided in this Agreement, which amendment ultimately will be memorialized in a revised Appendix B. PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates Appendix C - Portfolio Information I. Contracts and Contract Rates The applicable demand costs shall be determined based upon the rates and charges specified in each Transporter's Tariff, including any applicable direct bills, surcharges, or as other costs specified by the sheets identified below, or other applicable sheets, as all of those sheets may be in effect from time to time, and costs arising under applicable agreements, including the agreements identified below, as well as this Agreement. While Seller and Buyer agree that the identified tariff sheets and agreements are intended to be a complete listing of the applicable tariff sheets and applicable agreements, they further agree that the omission of the reference of one or more sheets or agreements from that list will not affect Buyer's obligation to Seller for rates, charges and costs incurred thereunder. Seller shall provide to Buyer all Transporter refunds which are received by Seller relative to Contracts or Contract Rates referenced below or relative to any agreements referencing the contracts below. Contract No. Contract Rate 11713 Sheet No. 11 11714 Sheet No. 5 11715 Sheet No. 5 11716 Sheet No. 5 11718 Sheet No. 5 11719 Tariff Letter 11720 Tariff Letter 11721 Sheet No. 5 12044 Sheet No. 11 12045 Sheet No. 5 X-22 Sheet No. 16 Sheet No. 14 Sheet No. 15 19100 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 18 Appendix C - Portfolio Information Contract No. Contract Rate 20250 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 18 20300 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 18 32300 Sheet No. 10 33050 Sheet No. 10 70300 Sheet No. 68G N0325 Sheet No. 10 Sheet No. 10 T3780 Sheet No. 11 Sheet No. 11 N0420 Sheet No. 10 Sheet No. 10 T3739 Sheet No. 11 Sheet No. 11 800171 Sheet No. 35 400109 Sheet No. 43 WSS Appendix I PSS Appendix I Appendix C - Portfolio Information II. Transportation Credit 1. Seller shall provide to Buyer, as a credit against the Contract Rates, a Transportation Credit ("TC") for the sale from the Buyer to Seller of projected available annual portfolio entitlements. 2. The Transportation Credit shall be calculated from time to time to reflect changes in projected available annual entitlements, based on the following formula: TC = Base TC x Projected Available Annual Entitlements Base Available Annual Entitlements Where: a. Base TC = $1,864,000 b. Base Available Annual Entitlements = 35,913,000 Dth c. Projected Available Annual Entitlements = Total Entitlements - Normal Demand (i) Total Entitlements are the sum of the quantities of longhaul pipeline transportation entitlements reserved by Buyer. (ii) Normal Demand is the projected normal weather quantity of Buyer's firm longhaul pipeline deliveries for firm customers. 3. The TC shall be divided among months based upon the projected available monthly entitlements. Amendment Seller and Buyer agree that this Appendix C may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix C. PROLIANCE ENERGY LLC INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX D - Supplier Reservation Costs Supplier Reservation Costs April 1, 1996 to October 31, 1996 I. Reserved Commodity Quantities a. Monthly Baseload Reserved Quantity (dth) System Central/ Month North/East Terre Greensburg South Haute April 110,424 39,136 2,927 9,914 May 86,222 25,047 2,764 3,914 June 73,595 25,047 2,493 2,087 July 68,830 22,556 1,680 2,087 August 70,438 25,047 2,190 2,087 September 72,542 25,047 2,493 2,087 October 88,326 35,483 1,689 2,087 APPENDIX D - Supplier Reservation Costs b. Daily Swing Reserved Quantity (dth) System Central/ Month North/East Terre Greensburg South Haute April 124,774 8,179 1,061 12,071 May 145,894 10,787 65 17,063 June 87,216 0 358 13,985 July 0 0 0 3,684 August 36,708 0 0 8,234 September 116,746 22,268 997 19,724 October 136,038 11,832 1,222 16,415 II. Applicable Reservation Rates (dth/day) System Winter Months April, 1996** Monthly Daily Monthly Daily Index Index Index Index Reserved Reserved Reserved Reserved Quantity Quantity Quantity Quantity North/East * * $0.023 $0.0315 Central/Terre Haute * * $0.01636 $0.00606 Greensburg * * $0.025 $0.045 South * * $0.01636 $0.00606 *To be determined. **October prices are to be determined, other Summer 1996 months are $0.00. APPENDIX D - Supplier Reservation Costs Assignment/Agency Administration of Supply Agreements Buyer and Seller agree that quantities reserved under supply reservation contracts entered into by Buyer prior to April 1, 1996, and for which Seller has accepted assignment or agency administration duties, shall be included in the Reserved Commodity Quantities with Applicable Reservation Rates as set forth in the original supply reservation contracts. Amendment Seller and Buyer agree that this Appendix D may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix D. PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates Appendix E- Commodity Purchases This Appendix E addresses the gas supply and other variable costs applicable to Nominated Daily Quantities and Balancing Quantities as identified below. For Monthly Baseload Purchases: Buyer shall pay to Seller each Contract Month an amount determined by multiplying the monthly baseload quantities of Gas scheduled for Buyer's purchase under this Agreement during the Contract Month, by a price per MMBtu determined using the first monthly index from Inside FERC's GAS MARKET REPORT, in the table "PRICES OF SPOT GAS DELIVERED TO INTERSTATE PIPELINES" for the applicable zone, specified below, for the applicable month, plus all other applicable variable costs as identified below shall apply. For Daily Swing Purchases: Buyer shall pay to Seller each Contract Month an amount determined by summing all applicable "Daily Amounts" for the Contract Month. A "Daily Amount" shall be calculated for each day during the Contract Month for which daily swing quantities of Gas have been confirmed for purchase. The "Daily Amounts" shall be determined by multiplying (a) the confirmed swing quantities of gas scheduled for the particular day of the Contract Month, by (b) a price per MMBtu determined using the arithmetic average of the high and low prices in the price range reported in Gas Daily, in the table "DAILY PRICE SURVEY", for the applicable zone, specified below, for the applicable day. As to any day for which Gas Daily for any reason (e.g. holidays and weekends) does not publish the above referenced prices, the applicable prices shall be that utilized for the last prior day such is published. In addition all other applicable variable costs as identified below shall apply. For Other Purchases: For any purchases not covered by a specified pricing method, pricing shall be as negotiated and mutually agreed to in writing by the Parties. For Summer Storage Refill: For summer refill of leased storage, Buyer shall pay to Seller an amount based on averaging the seven summer monthly indices for the applicable supply area, and based upon presuming storage refill quantities to be equally split between the summer months. For summer refill of company storage, the parties will agree on the extent to which an index average method will be used, after consideration of the operational scheduling needs of company storage. In addition, all other applicable variable costs as identified below shall apply. Appendix E- Commodity Purchases For Storage Withdrawals: For quantities of storage withdrawals for which Buyer has previously paid for commodity, applicable storage withdrawal variable costs as identified below shall apply. For Applicable Indices: System Applicable Monthly Indices North/East PEPL - Texas, Oklahoma ANR - Louisiana Central/Terre Haute Texas Gas - Zone 1 Texas Gas - Zone SL South Texas Gas - Zone 1 Texas Gas - Zone SL Greensburg TETCO - East Louisiana TETCO - West Louisiana TETCO - East Texas TETCO - South Texas North/East PEPL - Oklahoma ANR - Louisiana-Onshore South Central/Terre Haute Texas Gas SL South Texas Gas SL Greensburg TETCO (ELA) - Louisiana-Onshore South TETCO (WLA) - Louisiana-Onshore South TETCO (ETX) - East Texas - North La. Area TETCO (STX) - South - Corpus Christi APPENDIX E- Commodity Purchases (Continued) System Applicable Monthly Indices North PEPL - Texas, Oklahoma (mainline) South Texas Gas - Zone 1 Texas Gas - Zone 2 Natural Gas Intelligence Gas Price Index Texas Panhandle/Anadarko Basin/Oklahoma System Applicable Daily Indices North/East PEPL - Oklahoma ANR - Louisiana - Onshore South Central/Terre Haute Texas Gas SL - Louisiana - Onshore South Texas Gas (entire Z1) - East Texas - North La. Area South Texas Gas SL - Louisiana - Onshore South Texas Gas (entire Z1) - East Texas - North La. Area Greensburg/Westport TETCO (ELA) - Louisiana - Onshore South TETCO (WLA) - Louisiana - Onshore South TETCO (ETX) - East Texas - North La. Area TETCO (STX) - South - Corpus Christi Trunkline - East - Houston - Katy Trunkline - South - Corpus Christi Trunkline - Louisiana - Onshore South APPENDIX E- Commodity Purchases - Other Variable Costs The other variable costs applicable to Nominated Daily Quantities and Balancing Quantities shall be determined based upon the rates and charges applicable under each transporter's tariff, including the sheets identified below, as well as other applicable sheets, as all of those sheets may be in effect from time to time, and costs arising under applicable agreements, including the agreements identified below, as well as this Agreement. North/East PEPL Contract No. Contract Rate 11713 Sheet No. 11 11714 Sheet No. 5 11715 Sheet No. 5 11716 Sheet No. 5 11717 Sheet No. 5 11719 Tariff Letter 11720 Tariff Letter 11721 Sheet No. 5 12044 Sheet No. 11 12045 Sheet No. 5 APPENDIX E - Commodity Purchases - Other Variable Costs North/East ANR Contract No. Contract Rate X-22 Sheet No. 16 Sheet No. 14 Sheet No. 15 Sheet No. 19 19100 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 19 20250 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 19 20300 Sheet No. 7 Sheet No. 17 Sheet No. 17A Sheet No. 19 32300 Sheet No. 10 Sheet No. 19 33050 Sheet No. 10 Sheet No. 19 70300 Sheet No. 68G APPENDIX E - Commodity Purchases - Other Variable Costs Central/Terre Haute System Texas Gas G-3 Contract No. Contract Rate N0325 Sheet No. 10 Sheet No. 10 Sheet No. 14 T3780 Sheet No. 11 Sheet No. 11 Sheet No. 14 South System Texas Gas G-4 Contract No. Contract Rate N0420 Sheet No. 10 Sheet No. 10 T3739 Sheet No. 11 Sheet No. 11 APPENDIX E - Commodity Purchases - Other Variable Costs Greensburg System Texas Eastern Contract No. Contract Rate 800171 Sheet No. 36 Sheet No. 126 Sheet No. 127 Sheet No. 128 Sheet No. 129 400109 Sheet No. 43 Sheet No. 126 Sheet No. 127 Sheet No. 128 Sheet No. 129 While Seller and Buyer agree that the identified tariff sheets and agreements are intended to be a complete listing of the applicable tariff sheets and applicable agreements, they further agree that the omission of the reference of one or more sheets or agreements from that list will not affect Buyer's obligation to Seller for rates, charges and costs incurred thereunder. Amendment Seller and Buyer agree that this Appendix E may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix E. PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX F - Portfolio Administration Service Fees Portfolio Administration Service Fee In each month of year one of the initial term of this Agreement, Buyer shall pay to Seller a fee equal to one- twelfth of Buyer's annual costs, to otherwise perform the gas supply function (the "Base Year Amount"). The Base Year Amount shall be $1,354,739. For purposes of this Appendix F, year one shall be the twelve month period beginning April 1, 1996. In year two, the Base Year Amount shall be adjusted to reflect the annual effect of the application of the Consumer Price Index for the preceding year, minus a productivity factor of one percent, provided that, in no event shall the adjustment be a negative number. The Base Year Amount shall be similarly adjusted each year during the initial term of the Agreement, each annual adjustment being cumulative of all prior adjustments. The Parties agree that in the event there occurs a material change in the circumstances which resulted in the execution of this Agreement, e.g., fundamental change in the natural gas market place or a significant change in the nature or extent of the services to be provided or received hereunder, and which materially impacts the portfolio administration service costs, the Parties will negotiate in good faith to account for that material change in the circumstances and to adjust the portfolio administration service fee accordingly. Amendment Seller and Buyer agree that this Appendix F may be amended from time to time by mutual agreement of the Parties, which ultimately will be memorialized in a revised Appendix F. PROLIANCE ENERGY LLC INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX G- Notices Invoice Information: Buyer: Seller: Indiana Gas Company, Inc. J. Groth Corporate Accounting Proliance Energy, LLC Attn.: Judy Shular 1630 North Meridian Street 1630 North Meridian Street Indianapolis, IN 46202 Indianapolis, IN 46202 (317) 321-0353 (317) 321-0461 Payments: Buyer: Seller: National City Bank Bank One For the Account of: For the Account of: Indiana Gas Company, Inc. Proliance Energy, LLC Supply Plans/Operational/Force Majeure: Buyer: Seller: Supply Plans Supply Plans Chris Kershner Brian Azman (317) 321-0583 (317) 321-0422 Operational Operational Randy Gary Curt Hribernik (317) 321-0507 (317) 321-0610 Force Majeure Force Majeure Randy Gary (317) 321-0507 Brian Azman - (317) 321-0422 Frank Lindsey (317) 321-0334 Curt Hribernik - (317) 321-0610 Gas Controller on Duty (317) 321-0535 John Talley - (317) 321-0479 Indiana Gas Company, Inc. Proliance Energy, LLC 1630 North Meridian Street 1630 North Meridian Street Indianapolis, IN 46202 Indianapolis, IN 46202 (317) 321-0787 (Telecopy) (317) 921-2760 (Telecopy) All Other Notices: Buyer: Seller: Gas Control Department Proliance Energy , LLC Attn.: Randy Gary Attn: John R. Talley 1630 North Meridian Street 1630 North Meridian Street Indianapolis, IN 46202 Indianapolis, IN 46202 APPENDIX G- Notices (Continued) Amendment Seller and Buyer agree that this Appendix G may be amended from time to time as provided in this Agreement, which amendment ultimately will be memorialized in a revised Appendix G. PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX H - Invoice/Payment Data Invoice Date - On or before the tenth (10th) day after the Contract Month. Due Date - Ten (10) days after receipt of invoice. Payment Method - By wire transfer to account specified on invoice. Amendment Seller and Buyer agree that this Appendix H may be amended from time to time by mutual agreement of the Parties, which amendment ultimately will be memorialized in a revised Appendix H. PROLIANCE ENERGY, LLC INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President-Gas Supply & Rates APPENDIX I- Diversion of Entitlements I. Diversion of Delivered Gas Sales Entitlements From Buyer Seller shall have the right to schedule entitlements of Buyer to Citizens Gas & Coke Utility, provided that: A. Seller shall reimburse Buyer for applicable variable costs Buyer incurs in replacing diverted supply with its own on system gas sources. B. If such diversion causes Buyer to incur gas costs related to on system gas sources, Seller shall reimburse Buyer or otherwise assure Buyer suffers no economic detriment from such incurrence of gas costs. C. The "Shoulder Month Season" shall be the consecutive months of October, November, December, January, February, March and April during the term of this Agreement. Unless otherwise agreed, the maximum diversion quantity shall not exceed 70,000 Dth on any day, nor 1,500,000 Dth for any Shoulder Month Season. D. Seller shall administer Buyer's gas supply portfolio such that any diversion will not endanger Buyer's ability to meet system demands. II. Diversion of Entitlements to Buyer Buyer shall have the right to entitlements from Seller, as follows: A. Delivered Peaking Sales Service ("PSS") 1. Seller shall provide Buyer PSS with the following entitlements: Contract Month Maximum Daily PSS Maximum Annual PSS December 50,000 Dth/day 500,000 Dth during any January 50,000 Dth/day December, January, February 50,000 Dth/day February period 2. Buyer shall pay Seller a demand cost of $2.88 per Dth multiplied by the Maximum Annual PSS and a variable cost of $0.60 for each Dth of PSS nominated for Buyer. Demand costs shall be divided equally among December, January and February invoices. Variable costs shall be invoiced for the month nominated. 3. For PSS nominated for Buyer, Buyer shall pay Seller the Gas Daily index average for Texas Gas Zone SL for the applicable day. APPENDIX I- Diversion of Entitlements B. Delivered Winter Sales Services ("WSS") 1. Seller shall provide Buyer with WSS with the following entitlements: Contract Month Maximum Daily WSS Maximum Annual WSS November 75,000 Dth/day 2,250,000 Dth during December 75,000 Dth/day any winter period. January 75,000 Dth/day February 75,000 Dth/day March 75,000 Dth/day 2. Buyer shall pay Seller as follows: a. For WSS Commodity: The applicable PEPL Gas Daily index average commodity price under this Agreement b. For WSS Variable Costs: $0.30 per Dth utilized. c. For WSS Demand Costs: $3.45 per Dth per year for each Dth of Maximum Annual WSS, billed in equal monthly amounts commencing for April, 1996, and ending for March, 2000. Amendment Seller and Buyer agree that this Appendix I may be amended from time to time by mutual agreement of the Parties, which amendment ultimately will be memorialized in a revised Appendix I. PROLIANCE ENERGY, LLC. INDIANA GAS COMPANY, INC. By: /s/Carl L. Chapman By: /s/Jerrold L. Ulrey Carl L. Chapman Jerrold L. Ulrey Its: President Its: Vice President EX-12 4 COMPUTATION OF RATIO - EXHIBIT 12 FOR INDIANA GAS EXHIBIT 12 INDIANA GAS COMPANY, INC. AND SUBSIDIARY COMPANIES COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES (In Thousands, Except Ratios) Twelve Mos. Ended Fiscal Year Ended September 30 3/31/96 1995 1994 1993 1992 1991 Earnings: Net income $42,927 $32,109 $34,596 $28,534 $25,743 $23,286 Adjustments: Income taxes 25,696 18,630 17,977 16,030 12,800 11,665 Fixed charges (see below) 16,724 16,395 16,986 17,556 15,642 15,482 Total adjusted earnings $85,347 $67,134 $69,559 $62,120 $54,185 $50,433 Fixed charges: Total interest expense $15,787 $15,530 $16,037 $16,640 $14,556 $14,411 Interest component of rents 937 865 949 916 1,086 1,071 Total fixed charges $16,724 $16,395 $16,986 $17,556 $15,642 $15,482 Ratio of earnings to fixed charges 5.1 4.1 4.1 3.5 3.5 3.3
EX-27 5 FINANCIAL DATA SCHEDULE - INDIANA GAS
UT This schedule contains summary financial information extracted from Indiana Gas Company, Inc.'s consolidated financial statements as of March 31, 1996, and for the six months then ended and is qualified in its entirety by reference to such financial statements. 1,000 6-MOS SEP-30-1996 MAR-31-1996 PER-BOOK 561,727 184 147,099 16,537 0 725,547 142,995 0 155,417 298,412 0 0 193,693 0 0 0 0 0 0 0 233,442 725,547 376,862 25,998 300,930 326,928 49,934 904 50,838 8,080 42,758 0 42,758 12,500 7,468 55,009 0 0
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