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Exhibit 99.1

ALABAMA GAS CORPORATION

INDEX TO FINANCIAL STATEMENTS

AND FINANCIAL STATEMENT SCHEDULES

 

     Page  

Financial Statements

  

Statements of Income for the three months ended June 30, 2014 and 2013

     2   

Balance Sheets as of June 30, 2014 and December 31, 2013

     3   

Statements of Cash Flows for the six months ended June 30, 2014 and 2013

     5   

Notes to Financial Statements

     6   

Controls and Procedures

     12   

Schedules other than those listed above are omitted because they are not required, not applicable, or the required information is shown in the financial statements or notes thereto.

 

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ALABAMA GAS CORPORATION

STATEMENTS OF INCOME

(Unaudited)

 

     Three months ended     Six months ended  
     June 30,     June 30,  

(in thousands)

   2014     2013     2014     2013  

Operating Revenues

   $ 93,873      $ 104,514      $ 357,774      $ 342,199   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Expenses

        

Cost of gas

     38,468        47,571        166,582        143,013   

Operations and maintenance

     34,771        36,005        70,995        74,022   

Depreciation and amortization

     11,445        10,873        22,770        21,602   

Income taxes

        

Current

     (687     (1,778     24,530        24,143   

Deferred

     227        1,335        1,494        4,355   

Taxes, other than income taxes

     7,243        7,846        23,130        22,050   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total operating expenses

     91,467        101,852        309,501        289,185   
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating Income

     2,406        2,662        48,273        53,014   
  

 

 

   

 

 

   

 

 

   

 

 

 

Other Income (Expense)

        

Allowance for funds used during construction

     62        227        135        446   

Other income

     1,090        361        2,598        1,111   

Other expense

     (428     (121     (883     (190
  

 

 

   

 

 

   

 

 

   

 

 

 

Total other income

     724        467        1,850        1,367   
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest Expense

        

Interest on long-term debt

     3,375        3,377        6,752        6,755   

Other interest expense

     370        456        958        1,108   
  

 

 

   

 

 

   

 

 

   

 

 

 

Total interest expense

     3,745        3,833        7,710        7,863   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net Income (Loss)

   $ (615   $ (704   $ 42,413      $ 46,518   
  

 

 

   

 

 

   

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

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ALABAMA GAS CORPORATION

BALANCE SHEETS

(Unaudited)

 

(in thousands)

   June 30,
2014
    December 31,
2013
 

ASSETS

    

Property, Plant and Equipment

    

Utility plant

   $ 1,517,534      $ 1,491,433   

Less accumulated depreciation

     624,704        605,924   
  

 

 

   

 

 

 

Utility plant, net

     892,830        885,509   
  

 

 

   

 

 

 

Other property, net

     40        41   
  

 

 

   

 

 

 

Current Assets

    

Cash

     11,807        3,032   

Accounts receivable

    

Gas

     49,938        103,301   

Other

     5,347        5,447   

Affiliated companies

     13,172        4,662   

Allowance for doubtful accounts

     (5,000     (5,000

Inventories

    

Storage gas inventory

     31,975        32,095   

Materials and supplies

     5,098        5,471   

Liquified natural gas in storage

     2,877        3,634   

Regulatory assets

     2,316        2,756   

Income tax receivable

     —          3,644   

Deferred income taxes

     21,095        20,049   

Prepayments and other

     987        4,654   
  

 

 

   

 

 

 

Total current assets

     139,612        183,745   
  

 

 

   

 

 

 

Other Assets

    

Regulatory assets

     91,857        84,890   

Other postretirement assets

     28,985        26,457   

Deferred charges and other

     21,830        17,433   
  

 

 

   

 

 

 

Total other assets

     142,672        128,780   
  

 

 

   

 

 

 

TOTAL ASSETS

   $ 1,175,154      $ 1,198,075   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

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ALABAMA GAS CORPORATION

BALANCE SHEETS

(Unaudited)

 

(in thousands, except share data)

   June 30,
2014
     December 31,
2013
 

LIABILITIES AND CAPITALIZATION

     

Capitalization

     

Preferred stock, cumulative, $0.01 par value, 120,000 shares authorized

   $ —         $ —     

Common shareholder’s equity

     

Common stock, $0.01 par value; 3,000,000 shares authorized, 1,972,052 shares issued at June 30, 2014 and December 31, 2013

     20         20   

Premium on capital stock

     31,682         31,682   

Capital surplus

     2,802         2,802   

Retained earnings

     370,899         350,076   
  

 

 

    

 

 

 

Total common shareholder’s equity

     405,403         384,580   

Long-term debt

     199,830         249,923   
  

 

 

    

 

 

 

Total capitalization

     605,233         634,503   
  

 

 

    

 

 

 

Current Liabilities

     

Long-term debt due within one year

     50,000         —     

Notes payable to banks

     —           50,000   

Accounts payable

     38,646         48,653   

Accrued taxes

     37,273         28,027   

Customer deposits

     20,102         21,692   

Amounts due customers

     9,556         16,990   

Accrued wages and benefits

     4,519         7,682   

Regulatory liabilities

     64,401         49,006   

Other

     10,055         10,113   
  

 

 

    

 

 

 

Total current liabilities

     234,552         232,163   
  

 

 

    

 

 

 

Deferred Credits and Other Liabilities

     

Deferred income taxes

     208,171         205,631   

Pension liabilities

     28,479         20,191   

Regulatory liabilities

     82,580         94,125   

Other

     16,139         11,462   
  

 

 

    

 

 

 

Total deferred credits and other liabilities

     335,369         331,409   
  

 

 

    

 

 

 

Commitments and Contingencies

     
  

 

 

    

 

 

 

TOTAL LIABILITIES AND CAPITALIZATION

   $ 1,175,154       $ 1,198,075   
  

 

 

    

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

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ALABAMA GAS CORPORATION

STATEMENTS OF CASH FLOWS

(Unaudited)

 

Six months ended June 30, (in thousands)

   2014     2013  

Operating Activities

    

Net income

   $ 42,413      $ 46,518   

Adjustments to reconcile net income to net cash provided by operating activities:

    

Depreciation and amortization

     22,770        21,602   

Deferred income taxes

     1,494        4,355   

Bad debt expense

     910        450   

Gain on sale of assets

     (703     —     

Other, net

     (141     7,083   

Net change in:

    

Accounts receivable

     15,172        8,179   

Inventories

     1,250        11,512   

Accounts payable

     (7,185     (6,828

Amounts due customers, including gas supply pass-through

     33,839        26,797   

Income tax receivable

     3,644        2,762   

Pension and other postretirement benefit contributions

     (1,590     (5,600

Other current assets and liabilities

     8,101        16,863   
  

 

 

   

 

 

 

Net cash provided by operating activities

     119,974        133,693   
  

 

 

   

 

 

 

Investing Activities

    

Additions to property, plant and equipment

     (31,703     (44,679

Net increases (decreases) in advances from affiliates

     (8,510     2,378   

Proceeds from sale of assets

     797        —     

Other, net

     (100     (500
  

 

 

   

 

 

 

Net cash used in investing activities

     (39,516     (42,801
  

 

 

   

 

 

 

Financing Activities

    

Payment of dividends on common stock

     (21,590     (18,876

Reduction of long-term debt

     (93     (10

Net change in short-term debt

     (50,000     (77,000
  

 

 

   

 

 

 

Net cash used in financing activities

     (71,683     (95,886
  

 

 

   

 

 

 

Net change in cash and cash equivalents

     8,775        (4,994

Cash and cash equivalents at beginning of period

     3,032        5,559   
  

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 11,807      $ 565   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these unaudited financial statements.

 

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CONDENSED NOTES TO UNAUDITED FINANCIAL STATEMENTS

ALABAMA GAS CORPORATION

1. BASIS OF PRESENTATION

The unaudited condensed financial statements and notes should be read in conjunction with the financial statements and notes thereto for the years ended December 31, 2013, 2012 and 2011, included in the 2013 Annual Report of Energen Corporation (Energen) and Alabama Gas Corporation (Alagasco or the Company) on Form 10-K. Alagasco, a wholly owned subsidiary of Energen, is the largest natural gas distribution utility in the State of Alabama, serving customers primarily in central and north Alabama. Alagasco has a September 30 fiscal year for rate-setting purposes (rate year) and reports on a calendar year for the Securities and Exchange Commission and all other financial accounting reporting purposes. The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, they do not include all of the disclosures required for complete financial statements. Alagasco’s business is seasonal in character and influenced by weather conditions. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the year. All adjustments to the unaudited condensed financial statements that are in the opinion of management, necessary for a fair statement of the results for the interim periods have been recorded. Such adjustments consist of normal recurring items. Certain reclassifications were made to conform prior years’ financial statements to the current-quarter presentation.

In April 2014, Energen signed a stock purchase agreement to sell Alagasco to The Laclede Group, Inc. (Laclede) for $1.6 billion, subject to closing adjustments, which includes an estimated $1.28 billion in cash and the assumption of $320 million in debt. This sale is expected to close during 2014.

2. REGULATORY MATTERS

Alagasco is subject to regulation by the Alabama Public Service Commission (APSC) which established the Rate Stabilization and Equalization (RSE) rate-setting process in 1983. Alagasco’s current RSE order has a term extending through September 30, 2018 and will continue beyond September 30, 2018, unless the APSC enters an order to the contrary in a manner consistent with law. In the event of unforeseen circumstances, whether physical or economic, of the nature of force majeure and including a change in control, the APSC and Alagasco will consult in good faith with respect to modifications, if any. Effective January 1, 2014, Alagasco’s allowed range of return on average common equity is 10.5 percent to 10.95 percent with an adjusting point of 10.8 percent. The previous allowed range of return on average common equity was 13.15 percent to 13.65 percent through December 31, 2013. Alagasco is eligible to receive a performance-based adjustment of 5 basis points to the return on equity adjusting point, based on meeting certain customer satisfaction criteria. Under RSE, the APSC conducts quarterly reviews to determine whether Alagasco’s return on average common equity at the end of the rate year will be within the allowed range of return. Reductions in rates can be made quarterly to bring the projected return within the allowed range; increases, however, are allowed only once each rate year, effective December 1, and cannot exceed 4 percent of prior-year revenues. During the three months and six months ended June 30, 2014, Alagasco had net pre-tax reductions in revenues of $4.0 million and $20.3 million, respectively, to bring the return on average common equity to midpoint within the allowed range of return. During the three months and six months ended June 30, 2013, Alagasco had pre-tax reductions in revenues of $3.8 million and $6.3 million, respectively, to bring the return on average common equity to midpoint within the allowed range of return. Under the provisions of RSE, an $8.5 million decrease, $10.3 million increase and $7.8 million increase in revenues became effective January 1, 2014, December 1, 2013 and 2012, respectively. The equity upon which a return will be permitted cannot exceed 56.5 percent of total capitalization, subject to certain adjustments. The APSC approved the sale of Alagasco to Laclede, and the order for approval to transfer one hundred percent ownership of common stock of Alagasco from Energen to Laclede was signed on July 24, 2014. This sale is expected to close during 2014.

The inflation-based Cost Control Mechanism (CCM), established by the APSC, allows for annual increases to operations and maintenance (O&M) expense. The CCM range is Alagasco’s 2007 actual rate year O&M expense (Base Year) inflation-adjusted using the June Consumer Price Index For All Urban Consumers each rate year plus or minus 1.75 percent (Index Range). If rate year O&M expense falls within the Index Range, no adjustment is required. If rate year O&M expense exceeds the Index Range, three-quarters of the difference is returned to customers through future rate adjustments. To the extent that rate year O&M is less than the Index Range, the utility benefits by one-half of the difference through future rate adjustments. Certain items that fluctuate based on situations demonstrated to be beyond Alagasco’s control may be excluded from the CCM calculation. During the second quarter of 2014, Alagasco recorded an increase to revenue of approximately $1.0 million pre-tax to reflect an estimated O&M expense benefit resulting from being below the Index Range. This estimate was based on actual O&M expense through June, 2014, and budgeted O&M expense through September, 2014.

 

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Alagasco’s rate schedules for natural gas distribution charges contain a Gas Supply Adjustment (GSA) rider, established in 1993, which permits the pass-through to customers of changes in the cost of gas supply. Alagasco’s tariff provides a temperature adjustment mechanism, also included in the GSA, which is designed to moderate the impact of departures from normal temperatures on Alagasco’s earnings. The temperature adjustment applies primarily to residential, small commercial and small industrial customers. Other non-temperature weather related conditions that may affect customer usage are not included in the temperature adjustment.

The APSC approved an Enhanced Stability Reserve (ESR) in 1998, which was subsequently modified and expanded in 2010. As currently approved, the ESR provides deferred treatment and recovery for the following: (1) extraordinary O&M expenses related to environmental response costs; (2) extraordinary O&M expenses related to self-insurance costs that exceed $1 million per occurrence; (3) extraordinary O&M expenses, other than environmental response costs and self-insurance costs, resulting from a single force majeure event or multiple force majeure events greater than $275,000 and $412,500, respectively, during a rate year; and (4) negative individual large commercial and industrial customer budget revenue variances that exceed $350,000 during a rate year. Charges to the ESR are subject to certain limitations which may disallow deferred treatment and which prescribe the timing of recovery. Funding to the ESR is provided as a reduction to the refundable negative salvage balance over its nine year term beginning December 1, 2010. Subsequent to the nine year period and subject to APSC authorization, Alagasco expects to be able to recover underfunded ESR balances over a five year amortization period with an annual limitation of $660,000. Amounts in excess of this limitation are deferred for recovery in future years.

3. EMPLOYEE BENEFIT PLANS

Effective April 30, 2014, Energen Corporation separated one of its defined benefit non-contributory pension plans into an Energen and an Alagasco plan reflecting the separation of assets and obligations in accordance with ERISA provisions. Energen and Alagasco remeasured these plans using current assumptions.

The components of net periodic benefit cost for Alagasco’s two defined benefit non-contributory pension plans and allocated costs from the Energen nonqualified supplemental pension plans were as follows:

 

     Three months ended
June 30,
    Six months ended
June 30,
 

(in thousands)

   2014     2013     2014     2013  

Components of net periodic benefit cost:

        

Service cost

   $ 1,696      $ 2,176      $ 3,393      $ 4,352   

Interest cost

     1,439        1,612        2,878        3,225   

Expected long-term return on assets

     (1,679     (2,315     (3,359     (4,632

Actuarial loss

     1,110        1,937        2,220        3,878   

Prior service cost amortization

     71        72        143        144   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic expense

   $ 2,637      $ 3,482      $ 5,275      $ 6,967   
  

 

 

   

 

 

   

 

 

   

 

 

 

Alagasco anticipates required contributions of approximately $2.9 million during 2014 to the qualified pension plans. Alagasco expects sufficient funding credits, as established under Internal Revenue Code Section 430(f), exist to meet the required funding. Additionally, it is not anticipated that the funded status of the qualified pension plans will fall below statutory thresholds requiring accelerated funding or constraints on benefit levels or plan administration. Alagasco made a discretionary contribution of $1.4 million to the qualified pension plans in January 2014. During 2014, Alagasco may make discretionary contributions to the qualified pension plans depending on the amount and timing of employee retirements and market conditions. In the first quarter of 2014, Alagasco incurred a settlement charge of $10.2 million for the payment of lump sums from the qualified defined benefit pension plans, which was recognized as a pension asset in regulatory assets at Alagasco.

 

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Also effective April 30, 2014, Energen Corporation separated its postretirement health care and life insurance benefit plans into separate plans established for Energen and Alagasco employees in accordance with ERISA provisions. Energen and Alagasco remeasured these plans using current assumptions.

The components of net periodic postretirement benefit expense for Alagasco’s postretirement benefit plans were as follows:

 

     Three months ended
June 30,
    Six months ended
June 30,
 

(in thousands)

   2014     2013     2014     2013  

Components of net periodic benefit cost:

        

Service cost

   $ 132      $ 314      $ 265      $ 629   

Interest cost

     614        664        1,227        1,328   

Expected long-term return on assets

     (1,172     (994     (2,343     (1,989

Actuarial loss

     (388     —          (777     —     

Transition amortization

     17        251        34        502   
  

 

 

   

 

 

   

 

 

   

 

 

 

Net periodic expense

   $ (797   $ 235      $ (1,594   $ 470   
  

 

 

   

 

 

   

 

 

   

 

 

 

There are no required contributions to the postretirement benefit plans during 2014.

4. COMMITMENTS AND CONTINGENCIES

Commitments and Agreements: Certain of Alagasco’s long-term contracts associated with the delivery and storage of natural gas include fixed charges of approximately $140 million through September 2024. During both the six months ending June 30, 2014 and 2013, Alagasco recognized approximately $23.5 million and $26.0 million, respectively, of long-term commitments through expense and its regulatory accounts in the accompanying financial statements. Alagasco also is committed to purchase minimum quantities of gas at market-related prices or to pay certain costs in the event the minimum quantities are not taken. These purchase commitments are approximately 115 Bcf through August 2020.

Alagasco purchases gas as an agent for certain of its large commercial and industrial customers. Alagasco has, in certain instances, provided commodity-related guarantees to the counterparties in order to facilitate these agency purchases. Liabilities existing for gas delivered to customers subject to these guarantees are included in the balance sheets. In the event the customer for whom the guarantee was entered fails to take delivery of the gas, Alagasco can sell such gas for the customer, with the customer liable for any resulting loss. Although the substantial majority of purchases under these guarantees are for the customers’ current monthly consumption and are at current market prices, in some instances, the purchases are for an extended term at a fixed price. At June 30, 2014, the fixed price purchases under these guarantees had a maximum term outstanding through December 2014 with an aggregate purchase price of $0.3 million with a market value of $0.3 million.

Legal Matters: Alagasco is, from time to time, a party to various pending or threatened legal proceedings and has accrued a provision for its estimated liability. Certain of these lawsuits include claims for punitive damages in addition to other specified relief. Alagasco recognizes its liability for contingencies when information available indicates both a loss is probable and the amount of the loss can be reasonably estimated. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities arising from threatened and pending litigation are not considered material in relation to the financial position of Alagasco. It should be noted, however, that there is uncertainty in the valuation of pending claims and prediction of litigation results.

On December 17, 2013, an incident occurred at a Housing Authority apartment complex in Birmingham, Alabama which resulted in one fatality, personal injuries and property damage. Alagasco is cooperating with the National Transportation Safety Board which is investigating the incident. Alagasco has been named as a defendant in several lawsuits arising from the incident and additional lawsuits and claims may be filed against Alagasco.

Environmental Matters: Various environmental laws and regulations apply to the operations of Alagasco. Historically, the cost of environmental compliance has not materially affected Alagasco’s financial position, results of operations or cash flows. New regulations, enforcement policies, claims for damages or other events could result in significant unanticipated costs.

Alagasco is in the chain of title of nine former manufactured gas plant sites, four of which it still owns, and five former manufactured gas distribution sites, one of which it still owns. Management expects that, should future remediation of the sites be required,

 

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Alagasco’s share of the remediation costs will not materially affect the financial position of Alagasco. During 2011, a removal action was completed at the Huntsville, Alabama manufactured gas plant site pursuant to an Administrative Settlement Agreement and Order on Consent among the EPA, Alagasco and the current site owner.

In 2012, Alagasco responded to an EPA Request for Information Pursuant to Section 104 of CERCLA relating to the 35th Avenue Superfund Site located in North Birmingham, Jefferson County, Alabama. The Request related to a former site of a manufactured gas distribution facility owned by Alagasco and located in the vicinity of the 35th Avenue Superfund Site. In September 2013, Alagasco received from the EPA a General Notice Letter and Invitation to Conduct a Removal Action at the 35th Avenue Superfund Site. The letter identifies Alagasco as a PRP under CERCLA for the cleanup of the Site or costs the EPA incurs in cleaning up the Site. The EPA also offered the PRP group the opportunity to conduct Phase I of the proposed removal action which involved removal activities at approximately 50 residences that purportedly exceed certain risk levels for contamination. Alagasco has discussed its designation as a PRP further with the EPA, and Alagasco has requested additional information from the EPA regarding its designation as a PRP. Alagasco has also been approached by a law firm regarding entry into an agreement to toll the statute of limitations with potential plaintiffs related to purported damages allegedly incurred by such potential plaintiffs in connection with the 35th Avenue Superfund Site, and is considering whether to enter into such a tolling arrangement. Alagasco has not been provided information at this time that would allow it to determine the extent, if any, of its potential liability with respect to the 35th Avenue Superfund Site and the proposed removal action, and therefore Alagasco has not agreed to undertake the proposed removal activities and no amount has been accrued as of June 30, 2014.

5. LONG-TERM DEBT AND NOTES PAYABLE

Long-term debt consisted of the following:

 

(in thousands)

   June 30, 2014      December 31, 2013  

5.368% Notes, due December 1, 2015

   $ 80,000       $ 80,000   

5.20% Notes, due January 15, 2020

     40,000         40,000   

3.86% Notes, due December 21, 2021

     50,000         50,000   

5.70% Notes, due January 15, 2035

     34,830         34,923   

5.90% Notes, due January 15, 2037

     45,000         45,000   
  

 

 

    

 

 

 
     249,830         249,923   

Less amounts due within one year

     50,000         —     
  

 

 

    

 

 

 

Total

   $ 199,830       $ 249,923   
  

 

 

    

 

 

 

The aggregate maturities of Alagasco’s long-term debt outstanding at June 30, 2014 are as follows:

 

(in thousands)

 

Remaining 2014

   2015      2016      2017      2018      2019 and thereafter  
$50,000    $ 80,000         —           —           —         $ 119,830   

Alagasco’s 3.86 percent Notes due December 21, 2021 may be required to be repaid upon the sale of Alagasco as specified under certain covenants.

The long-term debt and short-term debt agreements of Alagasco contain financial and nonfinancial covenants including routine matters such as timely payment of principal and interest, maintenance of corporate existence and restrictions on liens. Although none of the agreements have covenants or events of default based on credit ratings, the interest rates applicable to the Alagasco syndicated credit facility discussed below may adjust based on credit rating changes. All of Alagasco’s debt is unsecured.

Under Alagasco’s Indenture dated November 1, 1993 with The Bank of New York as Trustee, a cross default provision provides that any debt default by Alagasco of more than $10 million will constitute an event of default by Alagasco. The Indenture does not include a restriction on the payment of dividends.

Alagasco Credit Facility: On October 30, 2012, Alagasco entered into a $100 million five-year syndicated unsecured credit facility (syndicated credit facility) with domestic and foreign lenders. Borrowings under the credit facility are subject to the execution of

 

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individual note agreements each with maturity dates of less than one year. Accordingly, outstanding amounts due under the credit facility are classified as short term obligations in the accompanying financial statements. Alagasco has been authorized by the APSC to borrow up to $200 million at any one time under the short-term credit facility.

The financial covenants of the Alagasco credit facility limit Alagasco to a maximum consolidated debt to capitalization ratio of no more than 65 percent as of the end of any fiscal quarter. Alagasco may not pay dividends during an event of default or if the payment would result in an event of default. Also under the credit facility, a cross default provision provides that any debt default by Alagasco of more than $50 million will constitute an event of default by Alagasco.

Upon an uncured event of default under the credit facility, all amounts owing under the defaulted credit facility, if any, depending on the nature of the event of default will automatically, or may upon notice by the administrative agent or the requisite lenders thereunder, become immediately due and payable and the lenders may terminate their commitments under the defaulted facility. Alagasco was in compliance with the terms of its credit facility as of June 30, 2014.

The following is a summary of information relating to the credit facility:

 

(in thousands)

   June 30, 2014     December 31, 2013  

Notes payable to banks

   $ —        $ 50,000   

Available for borrowings

     100,000        50,000   
  

 

 

   

 

 

 

Total

   $ 100,000      $ 100,000   
  

 

 

   

 

 

 

Alagasco maximum amount outstanding at any month-end

   $ 55,000      $ 75,000   

Alagasco average daily amount outstanding

   $ 17,956      $ 35,027   

Alagasco weighted average interest rates based on:

    

Average daily amount outstanding

     1.28     1.12

Amount outstanding at period-end

     —       1.26
  

 

 

   

 

 

 

Total interest expense for Alagasco was $3.7 million and $7.7 million for the three months and six months ended June 30, 2014, respectively. Alagasco’s total interest expense was $3.8 million and $7.9 million for the three months and six months ended June 30, 2013, respectively. At June 30, 2014, Alagasco paid commitment fees on the unused portion of available credit facilities of 15 basis points per annum.

6. FINANCIAL INSTRUMENTS

The stated value of cash, accounts receivable (net of allowance), and short-term debt approximates fair value due to the short maturity of the instruments. The fair value of Alagasco’s fixed-rate long-term debt, including the current portion, was approximately $266.6 million and $258.8 million and had a carrying value of $249.8 million and $249.9 million at June 30, 2014 and December 31, 2013, respectively. The fair values are based on market prices of similar debt issues having the same remaining maturities, redemption terms and credit rating. Short-term debt is classified as Level 1 fair value and long-term debt is classified as Level 2 fair value.

Finance Receivables: Alagasco finances third-party contractor sales of merchandise including gas furnaces and appliances. At June 30, 2014 and December 31, 2013, Alagasco’s finance receivable totaled $10.6 million and $10.8 million, respectively. These finance receivables currently have an average balance of approximately $3,000 with terms of up to 84 months. Financing is available only to qualified customers who meet creditworthiness thresholds for customer payment history and external agency credit reports. Alagasco relies upon ongoing payments as the primary indicator of credit quality during the term of each contract. The allowance for credit losses is recognized using an estimate of write-off percentages based on historical experience applied to an aging of the finance receivable balance. Delinquent accounts are evaluated on a case-by-case basis and, absent evidence of debt repayment after 90 days, are due in full and assigned to a third-party collection agency. The remaining finance receivable is written off approximately 12 months after being assigned to a third-party collection agency. Alagasco had finance receivables past due 90 days or more of $0.3 million and $0.4 million as of June 30, 2014 and December 31, 2013, respectively.

 

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The following table sets forth a summary of changes in the allowance for credit losses as follows:

 

(in thousands)

      

Allowance for credit losses as of December 31, 2013

   $ 423   
  

 

 

 

Provision

     (118
  

 

 

 

Allowance for credit losses as of June 30, 2014

   $ 305   
  

 

 

 

7. REGULATORY ASSETS AND LIABILITIES

The following table details regulatory assets and liabilities on the balance sheets:

 

(in thousands)

   June 30, 2014      December 31, 2013  
     Current      Noncurrent      Current      Noncurrent  

Regulatory assets:

           

Pension assets

   $ 1,284       $ 65,627       $ 325       $ 58,243   

Accretion and depreciation of asset retirement obligations

     —           18,825         —           18,046   

Rate recovery of asset removal costs, net

     —           3,405         —           4,601   

Enhanced stability reserve

     —           4,000         —           4,000   

Gas supply adjustment

     —           —           2,406         —     

RSE adjustment

     1,032         —           25         —     
  

 

 

    

 

 

    

 

 

    

 

 

 

Total regulatory assets

   $ 2,316       $ 91,857       $ 2,756       $ 84,890   
  

 

 

    

 

 

    

 

 

    

 

 

 

Regulatory liabilities:

           

RSE adjustment

   $ 18,578       $ —         $ 4,690       $ —     

Unbilled service margin

     6,445         —           28,504         —     

Postretirement liabilities

     —           26,948         —           26,197   

Gas supply adjustment

     25,985         —           —           —     

Refundable negative salvage

     13,360         26,760         15,779         39,663   

Asset retirement obligation

     —           28,152         —           27,528   

Other

     33         720         33         737   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total regulatory liabilities

   $ 64,401       $ 82,580       $ 49,006       $ 94,125   
  

 

 

    

 

 

    

 

 

    

 

 

 

8. ASSET RETIREMENT OBLIGATIONS

Alagasco recognizes a liability for the fair value of asset retirement obligations (ARO) in the periods incurred. Subsequent to initial measurement, liabilities are accreted to their present value and capitalized costs are depreciated over the estimated useful lives of the related assets. The ARO fair value liability is recognized on a discounted basis incorporating an estimate of performance risk specific to Alagasco.

Alagasco recognizes conditional obligations if such obligations can be reasonably estimated and a legal requirement to perform an asset retirement activity exists. Alagasco accrues removal costs on certain gas distribution assets over the useful lives of its property, plant and equipment through depreciation expense in accordance with rates approved by the APSC. Alagasco recorded a conditional asset retirement obligation, on a discounted basis, of $28.2 million and $27.5 million to purge and cap its gas pipelines upon abandonment and to remediate other related obligations, as a regulatory liability as of June 30, 2014 and December 31, 2013, respectively. Regulatory assets for rate recovery of accumulated asset removal costs of $3.4 million and $4.6 million as of June 30, 2014 and December 31, 2013, are included as regulatory assets in noncurrent assets on the balance sheets. The costs associated with asset retirement obligations are either currently being recovered in rates or are probable of recovery in future rates.

 

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9. DISPOSITION OF PROPERTIES

In August 2013, Alagasco recorded a pre-tax gain of $10.9 million related to the sale of its Metro Operations Center which is located in Birmingham, Alabama, and has been in service since the 1940’s. Alagasco received approximately $13.8 million pre-tax in cash from the sale of this property. During the third quarter of 2013, the gain on the sale was recognized in other income and a related reduction in revenues was recognized to defer the gain as a regulatory liability pending review by the APSC. In conjunction with the receipt of the rate order from the APSC on December 20, 2013, Alagasco recognized the deferred revenues from this sale in the fourth quarter of 2013. Effective upon the sale of the Metro Operations Center, Alagasco leased the facility from the purchaser for a period of approximately 20 months.

In the second quarter of 2014, Alagasco sold property in Tuscaloosa resulting in a gain of approximately $0.7 million pre-tax, which was recorded in other income.

10. RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2014, the Financial Accounting Standards Board issued Accounting Standards Update (ASU) No. 2014-08, Reporting Discontinued Operations and Disclosures of Disposals of Components of an Entity. This update defines a discontinued operation as a disposal of a component or a group of components that is disposed of or is classified as held-for-sale and represents a strategic shift that has (or will have) a major effect on an entity’s operations and financial results. The amendment is effective for all annual periods beginning on or after December 15, 2014, and interim periods within those annual periods. The Company has adopted and is prospectively evaluating the impact of this ASU.

ITEM 4. CONTROLS AND PROCEDURES

Alabama Gas Corporation

 

(a) Our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934) are designed to provide reasonable assurance of achieving their objectives and, as of the end of the period covered by this report, our chief executive officer and chief financial officer concluded that our disclosure controls and procedures are effective at that reasonable assurance level.

 

(b) During the most recent fiscal quarter covered by this report there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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