Attached files
file | filename |
---|---|
EXCEL - IDEA: XBRL DOCUMENT - TENNESSEE GAS PIPELINE COMPANY, L.L.C. | Financial_Report.xls |
EX-32.B - EX-32.B - TENNESSEE GAS PIPELINE COMPANY, L.L.C. | h83136exv32wb.htm |
EX-31.B - EX-31.B - TENNESSEE GAS PIPELINE COMPANY, L.L.C. | h83136exv31wb.htm |
EX-32.A - EX-32.A - TENNESSEE GAS PIPELINE COMPANY, L.L.C. | h83136exv32wa.htm |
EX-31.A - EX-31.A - TENNESSEE GAS PIPELINE COMPANY, L.L.C. | h83136exv31wa.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
þ | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended June 30, 2011
OR
o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission File Number 1-4101
Tennessee Gas Pipeline Company
(Exact Name of Registrant as Specified in Its Charter)
Delaware | 74-1056569 | |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
El Paso Building 1001 Louisiana Street |
||
Houston, Texas | 77002 | |
(Address of Principal Executive Offices) | (Zip Code) |
Telephone Number: (713) 420-2600
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated
filer, a non-accelerated filer, or a smaller reporting company. See the definitions of large
accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the
Exchange Act.
Large accelerated filer o | Accelerated filer o | Non-accelerated filer þ | Small reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule
12b-2 of the Exchange Act). Yes o No þ
Indicate the number of shares outstanding of each of the issuers classes of common stock, as
of the latest practicable date.
Common stock, par value $5 per share. Shares outstanding on August 4, 2011: 208
TENNESSEE GAS PIPELINE COMPANY MEETS THE CONDITIONS OF GENERAL INSTRUCTION H(1)(a) AND (b) TO
FORM 10-Q AND IS THEREFORE FILING THIS REPORT WITH A REDUCED DISCLOSURE FORMAT AS PERMITTED BY SUCH
INSTRUCTION.
TENNESSEE GAS PIPELINE COMPANY
TABLE OF CONTENTS
Caption | Page | |||||||
PART I Financial Information |
||||||||
1 | ||||||||
8 | ||||||||
* | ||||||||
12 | ||||||||
PART II Other Information |
||||||||
13 | ||||||||
13 | ||||||||
* | ||||||||
* | ||||||||
13 | ||||||||
13 | ||||||||
14 | ||||||||
15 | ||||||||
EX-31.A | ||||||||
EX-31.B | ||||||||
EX-32.A | ||||||||
EX-32.B | ||||||||
EX-101 INSTANCE DOCUMENT | ||||||||
EX-101 SCHEMA DOCUMENT | ||||||||
EX-101 CALCULATION LINKBASE DOCUMENT | ||||||||
EX-101 LABELS LINKBASE DOCUMENT | ||||||||
EX-101 PRESENTATION LINKBASE DOCUMENT |
* | We have not included a response to this item in this document since no response is required pursuant to the reduced disclosure format permitted by General Instruction H to Form 10-Q. |
Below is a list of terms that are common to our industry and used throughout this document:
/d = per day BBtu = billion British thermal units
TBtu = trillion British thermal units
When we refer to us, we, our, or ours, we are describing Tennessee Gas Pipeline
Company and/or our subsidiaries.
i
Table of Contents
PART I FINANCIAL INFORMATION
Item 1. | Financial Statements |
TENNESSEE GAS PIPELINE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In millions)
(Unaudited)
(In millions)
(Unaudited)
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
Operating revenues |
$ | 216 | $ | 200 | $ | 450 | $ | 424 | ||||||||
Operating expenses |
||||||||||||||||
Operation and maintenance |
83 | 81 | 158 | 154 | ||||||||||||
Depreciation and amortization |
49 | 47 | 97 | 95 | ||||||||||||
Taxes, other than income taxes |
19 | 13 | 35 | 27 | ||||||||||||
151 | 141 | 290 | 276 | |||||||||||||
Operating income |
65 | 59 | 160 | 148 | ||||||||||||
Earnings from unconsolidated affiliate |
3 | 3 | 7 | 7 | ||||||||||||
Other income, net |
9 | 4 | 17 | 9 | ||||||||||||
Interest and debt expense |
(35 | ) | (37 | ) | (72 | ) | (75 | ) | ||||||||
Affiliated interest income, net |
4 | 4 | 7 | 7 | ||||||||||||
Income before income taxes |
46 | 33 | 119 | 96 | ||||||||||||
Income tax expense |
16 | 13 | 44 | 37 | ||||||||||||
Net income |
$ | 30 | $ | 20 | $ | 75 | $ | 59 | ||||||||
See accompanying notes.
1
Table of Contents
TENNESSEE GAS PIPELINE COMPANY
CONDENSED CONSOLIDATED BALANCE SHEETS
(In millions, except share amounts)
(Unaudited)
(In millions, except share amounts)
(Unaudited)
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
ASSETS |
||||||||
Current assets |
||||||||
Cash and cash equivalents |
$ | | $ | | ||||
Accounts and note receivable |
||||||||
Customer, net of allowance |
7 | 24 | ||||||
Affiliates |
346 | 378 | ||||||
Other |
57 | 51 | ||||||
Materials and supplies |
56 | 44 | ||||||
Deferred income taxes |
54 | 43 | ||||||
Other |
7 | 5 | ||||||
Total current assets |
527 | 545 | ||||||
Property, plant and equipment, at cost |
5,060 | 4,951 | ||||||
Less accumulated depreciation and amortization |
964 | 1,056 | ||||||
4,096 | 3,895 | |||||||
Additional acquisition cost assigned to utility plant, net |
1,903 | 1,923 | ||||||
Total property, plant and equipment, net |
5,999 | 5,818 | ||||||
Other non-current assets |
||||||||
Note receivable from affiliate |
545 | 617 | ||||||
Investment in unconsolidated affiliate |
58 | 56 | ||||||
Other |
80 | 76 | ||||||
683 | 749 | |||||||
Total assets |
$ | 7,209 | $ | 7,112 | ||||
LIABILITIES AND STOCKHOLDERS EQUITY |
||||||||
Current liabilities |
||||||||
Accounts payable |
||||||||
Trade |
$ | 64 | $ | 90 | ||||
Affiliates |
35 | 38 | ||||||
Other |
81 | 57 | ||||||
Current maturities of long-term debt |
86 | 86 | ||||||
Taxes payable |
44 | 23 | ||||||
Contractual deposits |
29 | 28 | ||||||
Asset retirement obligations |
28 | 28 | ||||||
Accrued interest |
33 | 33 | ||||||
Regulatory liabilities |
78 | 78 | ||||||
Other |
49 | 38 | ||||||
Total current liabilities |
527 | 499 | ||||||
Long-term debt, less current maturities |
1,767 | 1,765 | ||||||
Other non-current liabilities |
||||||||
Deferred income taxes |
1,452 | 1,422 | ||||||
Regulatory liabilities |
57 | 90 | ||||||
Other |
30 | 35 | ||||||
1,539 | 1,547 | |||||||
Commitments and contingencies (Note 3) |
||||||||
Stockholders equity |
||||||||
Common stock, par value $5 per share; 300 shares
authorized; 208 shares issued and outstanding |
| | ||||||
Additional paid-in capital |
2,209 | 2,209 | ||||||
Retained earnings |
1,167 | 1,092 | ||||||
Total stockholders equity |
3,376 | 3,301 | ||||||
Total liabilities and stockholders equity |
$ | 7,209 | $ | 7,112 | ||||
See accompanying notes.
2
Table of Contents
TENNESSEE GAS PIPELINE COMPANY
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In millions)
(Unaudited)
(In millions)
(Unaudited)
Six Months Ended | ||||||||
June 30, | ||||||||
2011 | 2010 | |||||||
Cash flows from operating activities |
||||||||
Net income |
$ | 75 | $ | 59 | ||||
Adjustments to reconcile net income to net cash from operating activities |
||||||||
Depreciation and amortization |
97 | 95 | ||||||
Deferred income tax expense |
19 | 34 | ||||||
Earnings from unconsolidated affiliate, adjusted for cash distributions |
(2 | ) | | |||||
Other non-cash income items |
(13 | ) | (3 | ) | ||||
Asset and liability changes |
(35 | ) | (70 | ) | ||||
Net cash provided by operating activities |
141 | 115 | ||||||
Cash flows from investing activities |
||||||||
Capital expenditures |
(245 | ) | (101 | ) | ||||
Net change in note receivable from affiliate |
102 | (19 | ) | |||||
Other |
2 | 5 | ||||||
Net cash used in investing activities |
(141 | ) | (115 | ) | ||||
Net change in cash and cash equivalents |
| | ||||||
Cash and cash equivalents |
||||||||
Beginning of period |
| | ||||||
End of period |
$ | | $ | | ||||
See accompanying notes.
3
Table of Contents
TENNESSEE GAS PIPELINE COMPANY
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
Basis of Presentation
We prepared this Quarterly Report on Form 10-Q under the rules and regulations of the United
States Securities and Exchange Commission. As an interim period filing presented using a condensed
format, it does not include all of the disclosures required by U.S. generally accepted accounting
principles, and should be read along with our 2010 Annual Report on Form 10-K. The financial
statements as of June 30, 2011, and for the quarters and six months ended June 30, 2011 and 2010,
are unaudited. The condensed consolidated balance sheet as of December 31, 2010 was derived from
the audited balance sheet filed in our 2010 Annual Report on Form 10-K. In our opinion, we have
made adjustments, all of which are of a normal, recurring nature, to fairly present our interim
period results. Due to the seasonal nature of our business, information for interim periods may not
be indicative of our operating results for the entire year. Our disclosures in this Form 10-Q are
an update to those provided in our 2010 Annual Report on Form 10-K.
Significant Accounting Policies
There were no changes in the significant accounting policies described in our 2010 Annual
Report on Form 10-K and no significant accounting pronouncements issued but not yet adopted as of
June 30, 2011.
2. Financial Instruments
At June 30, 2011 and December 31, 2010, the carrying amounts of cash and cash equivalents and
trade receivables and payables represent fair value because of the short-term nature of these
instruments. At June 30, 2011 and December 31, 2010, we had an interest bearing note receivable
from El Paso Corporation (El Paso) of $874 million and $976 million due upon demand, with a
variable interest rate of 2.4% and 1.5%. While we are exposed to changes in interest income based
on changes to the variable interest rate, the fair value of this note receivable approximates its
carrying value due to the note being due on demand and the market-based nature of the interest
rate.
In addition, the carrying amounts of our long-term debt and their estimated fair values, which
are based on quoted market prices for the same or similar issues, are as follows:
June 30, 2011 | December 31, 2010 | |||||||||||||||
Carrying | Fair | Carrying | Fair | |||||||||||||
Amount | Value | Amount | Value | |||||||||||||
(In millions) | ||||||||||||||||
Long-term debt, including current maturities |
$ | 1,853 | $ | 2,238 | $ | 1,851 | $ | 2,071 |
3. Commitments and Contingencies
Legal Proceedings
We and our affiliates are named defendants in numerous legal proceedings and claims that arise
in the ordinary course of our business. For each of these matters, we evaluate the merits of the
case or claim, our exposure to the matter, possible legal or settlement strategies and the
likelihood of an unfavorable outcome. If we determine that an unfavorable outcome is probable and
can be estimated, we establish the necessary accruals. While the outcome of these matters cannot be
predicted with certainty, and there are still uncertainties related to the costs we may incur,
based upon our evaluation and experience to date, we had no accruals for our outstanding legal
proceedings at June 30, 2011. It is possible, however, that new information or future developments
could require us to reassess our potential exposure related to these matters and establish accruals
accordingly.
4
Table of Contents
Rates and Regulatory Matter
Rate Case. In November 2010, we filed a rate case with the Federal Energy Regulatory
Commission (FERC) proposing an increase in our base tariff
rates of approximately $200 million annually over previously
effective tariff rates. It is uncertain whether such an increase will
be achieved in the context of any settlement between us and our customers or
following the outcome of a hearing in the rate case. In December 2010, the FERC issued an order accepting and suspending the
effective date of the proposed rates to June 1, 2011, subject to refund, the outcome of a hearing
and other proceedings. Although the final outcome is not currently determinable, we believe our
accruals established for this matter are adequate.
Environmental Matters
We are subject to federal, state and local laws and regulations governing environmental
quality and pollution control. These laws and regulations require us to remove or remedy the effect
of the disposal or release of specified substances at current and former operating sites. At June
30, 2011, our accrual was approximately $4 million for expected remediation costs and associated
onsite, offsite and groundwater technical studies and for related environmental legal costs;
however, we estimate that our exposure could be as high as $9 million. Our accrual includes
approximately $1 million for environmental contingencies related to properties we previously owned.
Our environmental remediation projects are in various stages of completion. Our recorded
liabilities reflect our current estimates of amounts we will spend to remediate these sites.
However, depending on the stage of completion or assessment, the ultimate extent of contamination
or remediation required may not be known. As additional assessments occur or remediation efforts
continue, we may incur additional liabilities.
Polychlorinated Biphenyls (PCB) Cost Recoveries and Refund. Since 1994, we have been
conducting remediation activities at certain of our compressor stations associated with PCBs and
other hazardous materials. We have collected amounts, substantially in excess of remediation costs
to date, through a surcharge to our customers under a settlement approved by the FERC in November
of 1995. In November 2009, the FERC approved an amendment to the 1995 settlement that provides for
interim refunds over a three year period of approximately $157 million of our collected amounts
plus interest of 8%. Through June 30, 2011, we have refunded approximately $99 million, including
interest, to our customers. Our refund obligations are recorded as regulatory liabilities on our
balance sheet and as of June 30, 2011, we have classified approximately $78 million, including
interest, as current liabilities based on the timing of when these amounts are expected to be
refunded to our customers.
Superfund Matters. Included in our recorded environmental liabilities are projects where we
have received notice that we have been designated or could be designated as a Potentially
Responsible Party (PRP) under the Comprehensive Environmental Response, Compensation and Liability
Act (CERCLA), commonly known as Superfund, or state equivalents for four active sites. Liability
under the federal CERCLA statute may be joint and several, meaning that we could be required to pay
in excess of our pro rata share of remediation costs. We consider the financial strength of other
PRPs in estimating our liabilities. Accruals for these matters are included in the environmental
reserve discussed above.
For the remainder of 2011, we estimate that our total remediation expenditures will be
approximately $1 million, most of which will be expended under government directed clean-up plans.
In addition, we expect to make capital expenditures for environmental matters of approximately $11
million in the aggregate for the remainder of 2011 through 2015, including capital expenditures
associated with the impact of the Environmental Protection Agency rule on emissions of hazardous
air pollutants from reciprocating internal combustion engines which are subject to regulations with
which we have to be in compliance by October 2013.
It is possible that new information or future developments could require us to reassess our
potential exposure related to environmental matters. We may incur significant costs and liabilities
in order to comply with existing environmental laws and regulations. It is also possible that other
developments, such as increasingly strict environmental laws, regulations and orders of regulatory
agencies, as well as claims for damages to property and the environment or injuries to employees
and other persons resulting from our current or past operations, could result in substantial costs
and liabilities in the future. As this information becomes available, or other relevant
developments occur, we will adjust our accrual amounts accordingly. While there are still
uncertainties related to the ultimate costs we may incur, based upon our evaluation and experience
to date, we believe our reserves are adequate.
5
Table of Contents
Other Commitments
For a further discussion of our purchase obligations and other commercial commitments, see our
2010 Annual Report on Form 10-K.
4. Accounts Receivable Sales Program
We participate in an accounts receivable sales program where we sell receivables in their
entirety to a third party financial institution (through a wholly-owned special purpose entity).
The sale of these accounts receivable (which are short-term assets that generally settle within 60
days) qualify for sale accounting. The third party financial institution involved in our accounts
receivable sales program acquires interests in various financial assets and issues commercial paper
to fund those acquisitions. We do not consolidate the third party financial institution because we
do not have the power to control, direct, or exert significant influence over its overall
activities since our receivables do not comprise a significant portion of its operations.
In connection with our accounts receivable sales, we receive a portion of the sales proceeds
up front and receive an additional amount upon the collection of the underlying receivables (which
we refer to as a deferred purchase price). Our ability to recover the deferred purchase price is
based solely on the collection of the underlying receivables. The table below contains information
related to our accounts receivable sales program.
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Accounts receivable sold to the third-party financial institution(1) |
$ | 212 | $ | 202 | $ | 416 | $ | 429 | ||||||||
Cash received for accounts receivable sold under the program |
122 | 113 | 240 | 273 | ||||||||||||
Deferred purchase price related to accounts receivable sold |
90 | 89 | 176 | 156 | ||||||||||||
Cash received related to the deferred purchase price |
82 | 93 | 166 | 178 | ||||||||||||
Amount paid in conjunction with terminated program(2) |
| | | 40 |
(1) | During the quarters and six months ended June 30, 2011 and 2010, losses recognized on the sale of accounts receivable were immaterial. | |
(2) | In January 2010, we terminated our previous accounts receivable sales program and paid $40 million to acquire the related senior interests in certain receivables under that program. See our 2010 Annual Report on Form 10-K for further information. |
June 30, | December 31, | |||||||
2011 | 2010 | |||||||
(In millions) | ||||||||
Accounts receivable sold and held by third-party financial institution |
$ | 90 | $ | 75 | ||||
Uncollected deferred purchase price related to accounts receivable sold(1) |
45 | 35 |
(1) | Initially recorded at an amount which approximates its fair value using observable inputs other than quoted prices in active markets. |
The deferred purchase price related to the accounts receivable sold is reflected as other
accounts receivable on our balance sheet. Because the cash received up front and the deferred
purchase price relate to the sale or ultimate collection of the underlying receivables, and are not
subject to significant other risks given their short term nature, we reflect all cash flows under
the accounts receivable sales program as operating cash flows on our statement of cash flows. Under
the accounts receivable sales program, we service the underlying receivables for a fee. The fair
value of this servicing agreement, as well as the fees earned, were not material to our financial
statements for the quarters and six months ended June 30, 2011 and 2010.
5. Investment in Unconsolidated Affiliate and Transactions with Affiliates
Investment in Unconsolidated Affiliate
We have a 50 percent ownership interest in Bear Creek Storage Company, L.L.C. (Bear Creek), a
joint venture with Southern Natural Gas Company, L.L.C., our affiliate. For the six months ended June 30,
2011 and 2010, we received $5 million and $7 million in
cash distributions from Bear Creek.
6
Table of Contents
Summarized financial information for our proportionate share of Bear Creek is presented as
follows:
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Operating results data: |
||||||||||||||||
Operating revenues |
$ | 5 | $ | 5 | $ | 10 | $ | 10 | ||||||||
Operating expenses |
2 | 2 | 3 | 3 | ||||||||||||
Income from continuing operations and net income |
3 | 3 | 7 | 7 |
Transactions with Affiliates
Cash Management Program. We participate in El Pasos cash management program which matches
short-term cash surpluses and needs of participating affiliates, thus minimizing total borrowings
from outside sources. El Paso uses the cash management program to settle intercompany transactions
between participating affiliates. We have historically advanced cash to El Paso in exchange for an
affiliated note receivable that is due upon demand. At June 30, 2011 and December 31, 2010, we had
a note receivable from El Paso of $874 million and $976 million. We classified $329 million of this
receivable as current on our balance sheet at June 30, 2011, based on the net amount we anticipate
using in the next twelve months considering available cash sources and needs. The interest rate on
this note is variable and was 2.4% and 1.5% at June 30, 2011 and December 31, 2010.
Income Taxes. El Paso files consolidated U.S. federal and certain state tax returns which
include our taxable income. In certain states, we file and pay taxes directly to the state taxing
authorities. At June 30, 2011, we had federal and state income taxes payable of $17 million and a
net federal and state income taxes receivable of $4 million at December 31, 2010. The majority of
these balances, as well as deferred income taxes and amounts associated with the resolution of
unrecognized tax benefits, will become payable to or receivable from El Paso.
Other Affiliate Balances. At June 30, 2011 and December 31, 2010, we had contractual deposits
from our affiliates of $10 million.
Affiliate Revenues and Expenses. We enter into transactions with our affiliates within the
ordinary course of business. For a further discussion of our affiliated transactions, see our 2010
Annual Report on Form 10-K. The following table shows revenues and charges from our affiliates:
Quarter Ended | Six Months Ended | |||||||||||||||
June 30, | June 30, | |||||||||||||||
2011 | 2010 | 2011 | 2010 | |||||||||||||
(In millions) | ||||||||||||||||
Revenues(1) |
$ | 30 | $ | 5 | $ | 73 | $ | 10 | ||||||||
Operation and maintenance expenses |
18 | 20 | 35 | 41 | ||||||||||||
Reimbursement of operating expenses |
17 | 15 | 34 | 30 |
(1) | During the quarter and six months ended June 30, 2011, we sold 3.7 TBtu and 9.5 TBtu of natural gas not used in operations to our affiliate, El Paso Marketing, L.P. In June 2011, we terminated our contract to sell gas to El Paso Marketing, L.P. in connection with the implementation of a volume tracker for fuel as part of our rate case filed with the FERC. |
7
Table of Contents
Item 2. | Managements Discussion and Analysis of Financial Condition and Results of Operations |
The information required by this Item is presented in a reduced disclosure format pursuant to
General Instruction H to Form 10-Q. In addition, this Item updates, and should be read in
conjunction with, the information disclosed in our 2010 Annual Report on Form 10-K, and the
financial statements and notes presented in Item 1 of this Quarterly Report on Form 10-Q.
Results of Operations
Beginning January 1, 2011, our management uses segment earnings before interest expense and
income taxes (Segment EBIT) as a measure to assess the operating results and effectiveness of our
business, which consists of consolidated operations as well as an investment in an unconsolidated
affiliate. We believe Segment EBIT is useful to investors to provide them with the same measure
used by our management to evaluate our performance and so that investors may evaluate our operating
results without regard to our financing methods. Segment EBIT is defined as net income adjusted for
items such as (i) interest and debt expense, (ii) affiliated interest income, and (iii) income
taxes. Segment EBIT may not be comparable to measures used by other companies. Additionally,
Segment EBIT should be considered in conjunction with net income, income before income taxes and
other performance measures such as operating income or operating cash flows. Below is a
reconciliation of our Segment EBIT to net income, our throughput volumes and an analysis and
discussion of our results for the six months ended June 30, 2011 compared with the same period in
2010.
Operating Results:
2011 | 2010 | |||||||
(In millions, | ||||||||
except for volumes) | ||||||||
Operating revenues |
$ | 450 | $ | 424 | ||||
Operating expenses |
(290 | ) | (276 | ) | ||||
Operating income |
160 | 148 | ||||||
Earnings from unconsolidated affiliate |
7 | 7 | ||||||
Other income, net |
17 | 9 | ||||||
Segment EBIT |
184 | 164 | ||||||
Interest and debt expense |
(72 | ) | (75 | ) | ||||
Affiliated interest income, net |
7 | 7 | ||||||
Income tax expense |
(44 | ) | (37 | ) | ||||
Net income |
$ | 75 | $ | 59 | ||||
Throughput volumes (BBtu/d) |
6,071 | 5,023 | ||||||
Segment EBIT Analysis:
Variance | ||||||||||||||||
Operating | Operating | |||||||||||||||
Revenue | Expense | Other | Total | |||||||||||||
Favorable/(Unfavorable) | ||||||||||||||||
(In millions) | ||||||||||||||||
Reservation and usage revenues |
$ | 21 | $ | | $ | | $ | 21 | ||||||||
Gas not used in operations and other natural gas sales |
2 | 1 | | 3 | ||||||||||||
Expansions |
| | 8 | 8 | ||||||||||||
Operating and general and administrative expenses |
| (12 | ) | | (12 | ) | ||||||||||
Other(1) |
3 | (3 | ) | | | |||||||||||
Total impact on Segment EBIT |
$ | 26 | $ | (14 | ) | $ | 8 | $ | 20 | |||||||
(1) | Consists of individually insignificant items. |
Reservation and Usage Revenues. During the six months ended June 30, 2011, our
reservation and usage revenues increased by $16 million primarily due to higher tariff rates which became
effective June 1, 2011 as a result of our rate case that is further discussed below. Additionally, our throughput volumes increased for the six months ended
June 30, 2011 compared to the same period in 2010 which favorably
impacted our Segment EBIT by $2 million. This was due, in part, to colder weather in our
market area during January and March 2011 and increased supply in our Marcellus shale basin.
8
Table of Contents
Gas
Not Used in Operations and Other Natural Gas Sales. Gas not used in operations results in revenues
to us, which we recognize when the volumes are retained, valued at
market price specified in our tariff.
During the six months ended June 30, 2011, our Segment EBIT was favorably impacted by $20 million due to
higher sales prices realized on operational gas sales, offset by the impact of lower retained fuel volumes in excess
of fuel used in operations of $21 million. The decrease in volumes not used in operations was primarily due to
the implementation of a fuel volume tracker effective June 1, 2011 as part of our rate case filed with the FERC. We
also experienced an increase in our Segment EBIT of $2 million due to favorable revaluations of retained fuel volumes.
The financial impacts to our Segment EBIT associated
with these operational activities will be largely eliminated as a result of the tracker, including the termination of a contract with our affiliate,
El Paso Marketing, L.P.
Expansions. We capitalize a carrying cost (an allowance for funds used during construction or
AFUDC) on funds related to our construction of long-lived assets that
is recorded as other income on our income statements. During the six months ended June
30, 2011, we benefited from an increase in other income of approximately $8 million associated with
the equity portion of AFUDC, primarily related to our 300 Line Project.
Listed below are significant updates to our backlog of projects discussed further in our 2010
Annual Report on Form 10-K.
| 300 Line Project. In March 2011, we began construction on the pipeline and the remaining compressor facilities and we expect to place the project in service in November 2011. |
| Northeast Upgrade Project. In March 2011, we filed an application with the FERC for certificate authorization to construct this project and we anticipate receiving approval in the fourth quarter of 2011. The project is anticipated to be placed in service in November 2013. |
Operating and General and Administrative Expenses. During the six months ended June 30, 2011,
our operating and general and administrative expenses were overall $5 million higher compared to
the same period in 2010 primarily due to higher benefits and payroll costs and higher professional fees, partially offset by lower
allocated costs from El Paso.
Additionally, our Segment EBIT was unfavorably impacted by $7 million of higher non-income taxes,
primarily due to increased property tax assessments during 2011.
Regulatory Matter
In November 2010, we filed a rate case with the FERC proposing an increase in base tariff
rates of approximately $200 million annually over previously
effective tariff rates. It is uncertain whether such an increase will be achieved in the context
of any settlement between us and our customers or following the outcome of a hearing in the rate case. In December
2010, the FERC issued an order accepting and suspending the effective date of the proposed rates to
June 1, 2011, subject to refund, the outcome of a hearing and other proceedings. Although the
final outcome is not currently determinable, we believe our accruals established for this matter
are adequate.
Interest and Debt Expense
Interest and debt expense for the six months ended June 30, 2011, was $3 million lower than
the same period in 2010 primarily due to an increase in capitalized AFUDC related to debt on our
300 Line Project.
9
Table of Contents
Affiliated Interest Income, Net
The following table shows the average advances due from El Paso and the average short-term
interest rates for the six months ended June 30:
2011 | 2010 | |||||||
(In millions, except for rates) | ||||||||
Average advance due from El Paso |
$ | 961 | $ | 953 | ||||
Average short-term interest rate |
1.5 | % | 1.5 | % |
Income Tax Expense
Our effective tax rates of 37 percent and 39 percent for the six months ended June 30, 2011
and 2010 were higher than the statutory rate of 35 percent primarily due to the effect of state
income taxes.
10
Table of Contents
Liquidity and Capital Resources
Our primary sources of liquidity are cash flows from operating activities and amounts
available to us under El Pasos cash management program while our primary uses of cash are for
working capital, capital expenditures and debt service requirements. At June 30, 2011, we had a
note receivable from El Paso of $874 million of which $329 million was classified as current based
on the net amount we anticipate using in the next twelve months considering available cash sources
and needs. See Item 1, Financial Statements, Note 5 for a further discussion of El Pasos cash
management program.
For the six months ended June 30, 2011 compared to the same period in 2010, our operating cash
flows increased by $26 million primarily due to an increase in our reservation revenues as a result
of higher tariff rates, subject to refund, effective June 1, 2011. Partially offsetting this cash
inflow were settlements of refund obligations associated with our PCB liability.
Our cash capital expenditures for the six months ended June 30, 2011 and our estimated capital
expenditures for the remainder of this year to expand and maintain our system are listed below:
Six Months Ended | 2011 | |||||||||||
June 30, 2011 | Remaining | Total | ||||||||||
(In millions) | ||||||||||||
Expansion |
$ | 146 | $ | 408 | $ | 554 | ||||||
Maintenance |
65 | 76 | 141 | |||||||||
Other(1) |
34 | 66 | 100 | |||||||||
$ | 245 | $ | 550 | $ | 795 | |||||||
(1) | Relates to building renovations at our corporate facilities. |
We believe we have adequate liquidity available to us to meet our capital requirements and our
existing operating needs through cash flows from operating activities and amounts available to us
under El Pasos cash management program. In addition, we are eligible to borrow amounts available
under an El Paso revolving credit facility and are only liable for amounts we directly borrow.
During the first half of 2011, El Paso refinanced this credit facility and reduced its overall
borrowing capacity from $1.5 billion to $1.25 billion. Certain collateral restrictions under the
facility have been modified providing El Pasos master limited partnership the ability to acquire
up to 100 percent ownership interests in us or another El Paso subsidiary, or some combination
thereof. This credit facility provides for an elimination of collateral support upon El Paso
achieving investment grade status by one of the rating agencies. There were no other significant changes to our restrictive
covenants from those reported in our 2010 Annual Report on Form 10-K, other than a change in pricing.
Our cost to borrow under the El Paso credit facility has increased to LIBOR plus 2.25. As of June 30, 2011, El Paso
had $1.0 billion of capacity remaining and available to us and our affiliates under this credit
agreement, and none of the amount outstanding under the facility was issued or borrowed by us. For
a further discussion of this credit agreement, see our 2010 Annual Report on Form 10-K. While we
do not anticipate a need to directly access the financial markets in the remainder of 2011 for any
of our operating activities or expansion capital needs based on liquidity available to us, market
conditions may impact our ability to act opportunistically.
11
Table of Contents
Commitments and Contingencies
For a further discussion of our commitments and contingencies, see Item 1, Financial
Statements, Note 3 which is incorporated herein by reference and our 2010 Annual Report on Form
10-K.
Item 3. | Quantitative and Qualitative Disclosures About Market Risk |
Omitted from this report pursuant to the reduced disclosure format permitted by General
Instruction H to Form 10-Q.
Item 4. | Controls and Procedures |
Evaluation of Disclosure Controls and Procedures
As of June 30, 2011, we carried out an evaluation under the supervision and with the
participation of our management, including our President and Chief Financial Officer (CFO), as to
the effectiveness, design and operation of our disclosure controls and procedures. This evaluation
considered the various processes carried out under the direction of our disclosure committee in an
effort to ensure that information required to be disclosed in the U.S. Securities and Exchange
Commission reports we file or submit under the Securities Exchange Act of 1934, as amended
(Exchange Act) is accurate, complete and timely. Our management, including our President and CFO,
does not expect that our disclosure controls and procedures or our internal controls will prevent
and/or detect all errors and all fraud. A control system, no matter how well conceived and
operated, can provide only reasonable, not absolute, assurance that the objectives of the control
system are met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no evaluation of controls can provide
absolute assurance that all control issues and instances of fraud, if any, within our company have
been detected. Our disclosure controls and procedures are designed to provide reasonable assurance
of achieving their objectives and our President and CFO concluded that our disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) were effective as of June 30,
2011.
Changes in Internal Control Over Financial Reporting
There were no changes in our internal control over financial reporting during the second
quarter of 2011 that have materially affected or are reasonably likely to materially affect our
internal control over financial reporting.
12
Table of Contents
PART II OTHER INFORMATION
Item 1. | Legal Proceedings |
See Part I, Item 1, Financial Statements, Note 3, which is incorporated herein by reference.
Item 1A. | Risk Factors |
CAUTIONARY STATEMENTS FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995
This report contains forward-looking statements within the meaning of the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are based on assumptions or beliefs
that we believe to be reasonable; however, assumed facts almost always vary from actual results,
and differences between assumed facts and actual results can be material, depending upon the
circumstances. Where, based on assumptions, we or our management express an expectation or belief
as to future results, that expectation or belief is expressed in good faith and is believed to have
a reasonable basis. We cannot assure you, however, that the stated expectation or belief will
occur, be achieved or accomplished. The words believe, expect, estimate, anticipate, and
similar expressions will generally identify forward-looking statements. All of our forward-looking
statements, whether written or oral, are expressly qualified by these cautionary statements and any
other cautionary statements that may accompany such forward-looking statements. In addition, we
disclaim any obligation to update any forward-looking statements to reflect events or circumstances
after the date of this report.
Important factors that could cause actual results to differ materially from estimates or
projections contained in forward-looking statements are described in our 2010 Annual Report on Form
10-K under Part I, Item 1A, Risk Factors. There have been no material changes in these risk factors
since that report.
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds |
Omitted from this report pursuant to the reduced disclosure format permitted by General
Instruction H to Form 10-Q.
Item 3. | Defaults Upon Senior Securities |
Omitted from this report pursuant to the reduced disclosure format permitted by General
Instruction H to Form 10-Q.
Item 4. | (Removed and Reserved) |
Item 5. | Other Information |
None.
13
Table of Contents
Item 6. | Exhibits |
The Exhibit Index is incorporated herein by reference.
The agreements included as exhibits to this report are intended to provide information
regarding their terms and not to provide any other factual or disclosure information about us or
the other parties to the agreements. The agreements may contain representations and warranties by
the parties to the agreements, including us, solely for the benefit of the other parties to the
applicable agreement and:
| should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate; |
| may have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement; |
| may apply standards of materiality in a way that is different from what may be viewed as material to certain investors; and |
| were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments. |
Accordingly, these representations and warranties may not describe the actual state of affairs
as of the date they were made or at any other time.
14
Table of Contents
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, Tennessee Gas Pipeline
Company has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
TENNESSEE GAS PIPELINE COMPANY |
||||
Date: August 5, 2011 | /s/ Norman G. Holmes | |||
Norman G. Holmes President |
||||
(Principal Executive Officer) | ||||
Date: August 5, 2011 | /s/ John R. Sult | |||
John R. Sult | ||||
Executive Vice President and Chief Financial Officer (Principal Financial Officer) |
15
Table of Contents
TENNESSEE GAS PIPELINE COMPANY
EXHIBIT INDEX
Each exhibit identified below is filed as a part of this Report. Exhibits filed with this
Report are designated by *. All exhibits not so designated are incorporated herein by reference
to a prior filing as indicated.
Exhibit | ||
Number | Description | |
10.A
|
Fourth Amended and Restated Credit Agreement, dated as of May 27, 2011, among El Paso Corporation, El Paso Natural Gas Company and Tennessee Gas Pipeline Company, as Borrowers, the Lenders party thereto and JPMorgan Chase Bank, N.A., as Administrative Agent and Collateral Agent for the Lenders (incorporated by reference to Exhibit 10.1 to our Current Report on Form 8-K filed with the SEC on June 3, 2011). | |
10.B
|
Fourth Amended and Restated Security Agreement, dated as of May 27, 2011, among El Paso Corporation, the persons referred to therein as Pipeline Company Borrowers, the persons referred to therein as Subsidiary Grantors, and JPMorgan Chase Bank, N.A., as Collateral Agent and Depository Bank (incorporated by reference to Exhibit 10.2 to our Current Report on Form 8-K filed with the SEC on June 3, 2011). | |
*31.A
|
Certification of Principal Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*31.B
|
Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. | |
*32.A
|
Certification of Principal Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
*32.B
|
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. | |
*101.INS
|
XBRL Instance Document. | |
*101.SCH
|
XBRL Schema Document. | |
*101.CAL
|
XBRL Calculation Linkbase Document. | |
*101.LAB
|
XBRL Labels Linkbase Document. | |
*101.PRE
|
XBRL Presentation Linkbase Document. |
16