2009
Strategy and Priorities
AGL Resources
2009 Analyst Meeting
John W. Somerhalder II
Chairman, President & CEO
April 14, 2009
New York, NY
2009 Analyst Meeting
John W. Somerhalder II
Chairman, President & CEO
April 14, 2009
New York, NY
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AGL Resources 2009 Analyst Meeting
2009
Forward-Looking Statements
Statements in this presentation that are not historical facts, including statements regarding our estimates, beliefs,
expectations, intentions, strategies or projections, may be “forward-looking statements” as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve matters that are not historical facts
and because these statements involve anticipated events or conditions, forward-looking statements often include
words such as "anticipate," "assume," “believe,” "can," "could," "estimate," "expect," "forecast," “future,” “goal,”
"indicate," "intend," "may," “outlook,” "plan," "predict," "project,” "seek," "should," "target," "will," "would," or similar
expressions. Our expectations are not guarantees and are based on currently available competitive, financial and
economic data along with our operating plans. While we believe that our expectations are reasonable in view of
the currently available information, our expectations are subject to future events, risks and uncertainties, and
there are several factors - many beyond our control - that could cause results to differ significantly from our
expectations. Such events, risks and uncertainties include, but are not limited to, changes in price, supply and
demand for natural gas and related products, impact of changes in state and federal legislation and regulation,
including any changes related to climate change, actions taken by government agencies on rates and other
matters, concentration of credit risk, utility and energy industry consolidation, impact of acquisitions and
divestitures, direct or indirect effects on AGL Resources' business, financial condition or liquidity resulting from a
change in our credit ratings, the credit ratings of our counterparties or competitors, or the continued disruption in
the credit markets, interest rate fluctuations, financial market conditions and general economic conditions,
uncertainties about environmental issues and the related impact of such issues, impacts of changes in weather
upon the temperature-sensitive portions of the business, impacts of natural disaster such as hurricanes upon the
supply or price of gas, acts of war or terrorism, and other factors which can be found in our filings with the
Securities and Exchange Commission. Forward-looking statements are only as of the date they are made, and
we do not undertake any obligation to update these statements to reflect subsequent changes.
expectations, intentions, strategies or projections, may be “forward-looking statements” as defined in the Private
Securities Litigation Reform Act of 1995. Forward-looking statements involve matters that are not historical facts
and because these statements involve anticipated events or conditions, forward-looking statements often include
words such as "anticipate," "assume," “believe,” "can," "could," "estimate," "expect," "forecast," “future,” “goal,”
"indicate," "intend," "may," “outlook,” "plan," "predict," "project,” "seek," "should," "target," "will," "would," or similar
expressions. Our expectations are not guarantees and are based on currently available competitive, financial and
economic data along with our operating plans. While we believe that our expectations are reasonable in view of
the currently available information, our expectations are subject to future events, risks and uncertainties, and
there are several factors - many beyond our control - that could cause results to differ significantly from our
expectations. Such events, risks and uncertainties include, but are not limited to, changes in price, supply and
demand for natural gas and related products, impact of changes in state and federal legislation and regulation,
including any changes related to climate change, actions taken by government agencies on rates and other
matters, concentration of credit risk, utility and energy industry consolidation, impact of acquisitions and
divestitures, direct or indirect effects on AGL Resources' business, financial condition or liquidity resulting from a
change in our credit ratings, the credit ratings of our counterparties or competitors, or the continued disruption in
the credit markets, interest rate fluctuations, financial market conditions and general economic conditions,
uncertainties about environmental issues and the related impact of such issues, impacts of changes in weather
upon the temperature-sensitive portions of the business, impacts of natural disaster such as hurricanes upon the
supply or price of gas, acts of war or terrorism, and other factors which can be found in our filings with the
Securities and Exchange Commission. Forward-looking statements are only as of the date they are made, and
we do not undertake any obligation to update these statements to reflect subsequent changes.
Management does not affirm or update earnings guidance during private and one-on-one meetings with
investors, but only updates or confirms earnings guidance through public disclosure and filing with the
commission. Earnings guidance is only effective as of the date it is given. The company further disclaims any
duty to update its guidance.
investors, but only updates or confirms earnings guidance through public disclosure and filing with the
commission. Earnings guidance is only effective as of the date it is given. The company further disclaims any
duty to update its guidance.
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AGL Resources 2009 Analyst Meeting
2009
Non-GAAP Measures
Company management evaluates segment financial performance based on earnings before interest and taxes (EBIT),
which includes the effects of corporate expense allocations. EBIT is a non-GAAP (accounting principles generally
accepted in the United States of America) financial measure. Items that are not included in EBIT are financing costs,
including debt and interest expense and income taxes. The company evaluates each of these items on a consolidated
level and believes EBIT is a useful measurement of our performance because it provides information that can be used
to evaluate the effectiveness of our businesses from an operational perspective, exclusive of the costs to finance those
activities and exclusive of income taxes, neither of which is directly relevant to the efficiency of those operations.
which includes the effects of corporate expense allocations. EBIT is a non-GAAP (accounting principles generally
accepted in the United States of America) financial measure. Items that are not included in EBIT are financing costs,
including debt and interest expense and income taxes. The company evaluates each of these items on a consolidated
level and believes EBIT is a useful measurement of our performance because it provides information that can be used
to evaluate the effectiveness of our businesses from an operational perspective, exclusive of the costs to finance those
activities and exclusive of income taxes, neither of which is directly relevant to the efficiency of those operations.
We also use EBIT internally to measure performance against budget and in reports for management and the Board of
Directors. Projections of forward-looking EBIT are used in our internal budgeting process, and those projections are
used in providing forward-looking business segment EBIT projections to investors. We are unable to reconcile our
forward-looking EBIT business segment guidance to GAAP earnings per share because we do not predict the future
impact of unusual items and mark-to-market gains or losses on energy contracts. The impact of these items could be
material to our operating results reported in accordance with GAAP.
Directors. Projections of forward-looking EBIT are used in our internal budgeting process, and those projections are
used in providing forward-looking business segment EBIT projections to investors. We are unable to reconcile our
forward-looking EBIT business segment guidance to GAAP earnings per share because we do not predict the future
impact of unusual items and mark-to-market gains or losses on energy contracts. The impact of these items could be
material to our operating results reported in accordance with GAAP.
Operating margin is a non-GAAP measure calculated as revenues minus cost of gas, excluding operation and
maintenance expense, depreciation and amortization, and taxes other than income taxes. These items are included in
the company's calculation of operating income. The company believes operating margin is a better indicator than
operating revenues of the contribution resulting from customer growth, since cost of gas is generally passed directly
through to customers.
maintenance expense, depreciation and amortization, and taxes other than income taxes. These items are included in
the company's calculation of operating income. The company believes operating margin is a better indicator than
operating revenues of the contribution resulting from customer growth, since cost of gas is generally passed directly
through to customers.
EBIT and operating margin should not be considered as alternatives to, or more meaningful indicators of, the
company's operating performance than operating income or net income as determined in accordance with GAAP. In
addition, the company's EBIT or operating margin may not be comparable to similarly titled measures of another
company.
company's operating performance than operating income or net income as determined in accordance with GAAP. In
addition, the company's EBIT or operating margin may not be comparable to similarly titled measures of another
company.
Reconciliation of non-GAAP financial measures referenced in this presentation are available on the company’s website
at www.aglresources.com under the Investor Relations section.
at www.aglresources.com under the Investor Relations section.
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AGL Resources 2009 Analyst Meeting
2009
Today’s Agenda
8:30 - - 9:15 a.m. -- Long-Term Objectives
-- Business Overview and Strategies
John W. Somerhalder II
Chairman, President and CEO
9:15 - - 10 a.m. Financial Update
Andrew W. Evans
Executive Vice President and Chief Financial Officer
10 - - 10:15 a.m. Break
10:15 - - 11 a.m. Regulatory Strategy
Hank Linginfelter
Executive Vice President, Utility Operations
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AGL Resources 2009 Analyst Meeting
2009
2008 Achievements
• Execute our plan for long-term earnings and dividend growth
• Central to that plan is the execution of our regulatory strategy to
recover investments to enhance infrastructure and improve
customer service
recover investments to enhance infrastructure and improve
customer service
• Position our utility businesses to prosper in an economic
recovery
recovery
• Complete major capital projects on schedule and within budget
(Golden Triangle Storage, Hampton Roads Crossing, Magnolia)
(Golden Triangle Storage, Hampton Roads Crossing, Magnolia)
• Selectively expand unregulated businesses (Sequent and
SouthStar) into strategic growth areas
SouthStar) into strategic growth areas
• Maintain rigorous focus on capital discipline and cost control
2009 - - 2013 Focus
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AGL Resources 2009 Analyst Meeting
2009
2008 Achievements
• Direct use of natural gas is efficient and environmentally
responsible
responsible
• Increasing focus on renewable, sustainable energy and high-
efficiency usage
efficiency usage
• Regulatory agencies and companies working collaboratively to
promote and encourage conservation through innovative rate
design mechanisms
promote and encourage conservation through innovative rate
design mechanisms
• Current market fundamentals
– Natural gas inventory levels well above 5-year average
– Natural gas prices expected to remain low
• Industry is well-positioned over the next five years
Industry Fundamentals
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AGL Resources 2009 Analyst Meeting
2009
• Fundamentals of our business have not changed
• Major transition to a regulatory-focused model
• Continue to prudently invest in building infrastructure
• Continue to maintain rigorous discipline around controlling
costs
costs
• Customer growth has been challenged by the economic
downturn; we expect this trend to continue throughout 2009
downturn; we expect this trend to continue throughout 2009
• Bad debt trends are not out of line with our expectations
Distribution Operations - 2009 Focus
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AGL Resources 2009 Analyst Meeting
2009
• Despite significant economic challenges, SouthStar maintained
strong operating performance with earnings of $79 million
(earnings before tax)*
strong operating performance with earnings of $79 million
(earnings before tax)*
• Continued to expand business model into Ohio and Florida
markets
markets
– Entered Dominion East Ohio (DEO) Choice market and organically acquired
more than 20,000 customers
more than 20,000 customers
– Awarded two tranches in Vectren Energy Delivery of Ohio’s (VEDO) SSO
auction (approximately $10 million of additional gross margin in Ohio from 2008
-2010 by serving ~80,000 customer equivalents)
auction (approximately $10 million of additional gross margin in Ohio from 2008
-2010 by serving ~80,000 customer equivalents)
– Supplying 8,000 customers in Florida behind Central Florida Gas and 1,000
customers behind Peoples Gas
customers behind Peoples Gas
• Initiated transition to the Vertex meter-to-cash BPO contract -
expected savings of $30 million over 10 years
expected savings of $30 million over 10 years
* Represents 100% of SouthStar’s 2008 earnings, and
includes the impact of lower-of-cost-or-market adjustments.
includes the impact of lower-of-cost-or-market adjustments.
SouthStar Energy Services
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AGL Resources 2009 Analyst Meeting
2009
*Based on current forecast for 2009
Customers and Throughput Information | ||
Customer and Customer Equivalents (000s) | Sales Volumes* (Bcf) | |
Georgia (Mass) | 515 | 40 |
Ohio | 30 80 | 3 9 |
Florida | 1 8 | 1 0.3 |
SE Large C&I Markets (including Georgia) | 0.2 | 20 |
Total | 634 | 73 |
Customers
Customers
Cust. Equiv.
Cust. Equiv.
SouthStar Energy Services
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AGL Resources 2009 Analyst Meeting
2009
• Continue to grow Ohio business behind Dominion East Ohio
and Vectren Energy Delivery of Ohio; anticipating net
customer additions of approximately 30,000 customers by year
end
and Vectren Energy Delivery of Ohio; anticipating net
customer additions of approximately 30,000 customers by year
end
• Position the business to capture improving seasonal spreads
while continuing to effectively manage risk
while continuing to effectively manage risk
• Maintain high quality of the Georgia business, which is very
well-positioned to sustain the economic downturn
well-positioned to sustain the economic downturn
• Complete transition to the Vertex 10-year meter-to-cash BPO
contract
contract
• Projected earnings of $95-105 million (EBT)*
* Represents 100% of SouthStar’s 2008 earnings.
SouthStar - - 2009 Objectives
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AGL Resources 2009 Analyst Meeting
2009
EBT* ($ millions)
* Earnings before tax. SouthStar’s EBT is equal to net income as it does not record income taxes because of its partnership structure. Results
represent 100% of SouthStar earnings, which are split 75% to AGL Resources and 25% to Piedmont Natural Gas, except Ohio and Florida earnings,
which are shared 70% to AGL Resources and 30% to Piedmont.
represent 100% of SouthStar earnings, which are split 75% to AGL Resources and 25% to Piedmont Natural Gas, except Ohio and Florida earnings,
which are shared 70% to AGL Resources and 30% to Piedmont.
SouthStar Earnings Contribution
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AGL Resources 2009 Analyst Meeting
2009
• Strong year for Sequent Energy Management from
improved commercial activity - assisted by hedge gains
on a diverse portfolio of transportation, storage and park
and loans
improved commercial activity - assisted by hedge gains
on a diverse portfolio of transportation, storage and park
and loans
• Generated $148 million of economic value
• Deal generation was excellent as Sequent significantly
grew its transportation portfolio and customer business
grew its transportation portfolio and customer business
• Renewed most affiliated asset management
transactions for multiple years
transactions for multiple years
• No credit losses
Sequent - - 2008 Results
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AGL Resources 2009 Analyst Meeting
2009
Initiative from Last Year | Status Update |
Continue to add and retain key customers and assets across North America | Retained customers and renewed affiliated asset management agreements |
Add transportation capacity that directly accesses premium market areas | Selectively added transportation in key markets |
Build the commercial and industrial marketing business to critical mass and materiality | Continued to evolve focus and structure of business to align with long term opportunities |
Assist more producers in optimizing optionality of their production and pipeline agreements | Added to supply in key markets such as Appalachia |
Value shop for additional storage capacity | Opportunistically added storage at reasonable price levels |
Focus on containing costs and increasing process efficiencies | Strong and continuing focus on holding the line on controllable costs |
Sequent - - 2008 Results
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AGL Resources 2009 Analyst Meeting
2009
EBIT Contribution
$ millions
Note: EBIT equals operating income except for
other expense amounts of $1 million in 2005.
other expense amounts of $1 million in 2005.
EBIT Compound Annual
Growth Rates (CAGR)
Growth Rates (CAGR)
2002 - - 2009F: 26%
2004 - - 2009F: 13%
Wholesale Services Earnings
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AGL Resources 2009 Analyst Meeting
2009
Natural Gas Prices and Spreads
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AGL Resources 2009 Analyst Meeting
2009
A spike in spreads, volatility, and weather in late 2005 & 2006 led to
enhanced value generation opportunities ... but recently the market has
been trending back to more traditional levels
enhanced value generation opportunities ... but recently the market has
been trending back to more traditional levels
Natural Gas Prices and Spreads
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AGL Resources 2009 Analyst Meeting
2009
Industry
• Year to be dominated by oversupply
• High likelihood of a “storage box” in the 3rd quarter
• Changes in the marketing and trading landscape
– Lower prices will reduce working capital pressure
– Fallout of some of the financial-related players
– Lower liquidity of forward derivatives
• Lower NYMEX prices will translate into tighter basis
Sequent
• EBIT forecast of $45 million in 2009
• Continued focus on cost control
• VNG asset management agreement extension (completed)
• Aggressively grow customer and transportation business,
especially in power sector
especially in power sector
• Continued focus on control enhancement and building bench
strength
strength
Sequent - - 2009 Expectations
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AGL Resources 2009 Analyst Meeting
2009
• Hampton Roads Crossing project expected to be
complete and placed in-service in November 2009
complete and placed in-service in November 2009
• Magnolia project (gas supply from Elba Island to
Atlanta market) on track to be in-service by year-end
Atlanta market) on track to be in-service by year-end
• Golden Triangle Storage (GTS) construction is on
schedule and within previously provided budget
range
schedule and within previously provided budget
range
– First cavern in-service in 2Q/3Q 2010
– Second cavern in-service in 1Q/2Q 2012
Progress Update on Major Capital Projects
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AGL Resources 2009 Analyst Meeting
2009
GTS Yesterday
Cavern 1
Leaching
Facility
Cavern 2
Drill Rig
Operations
Fresh Water
Intake
Intake
Future
Compression
Compression
To Brine
Disposal Wells
Disposal Wells
Electric
Substation
Golden Triangle Storage - Today
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AGL Resources 2009 Analyst Meeting
2009
Leach Plant
Facilities
Facilities
Cavern 1
Wellhead
Wellhead
Water Intake
Pumps
Pumps
Brine
Disposal Well
Disposal Well
Golden Triangle - First Well and Leach Plant
Completed
Completed
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AGL Resources 2009 Analyst Meeting
2009
GTS Project on Track
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AGL Resources 2009 Analyst Meeting
2009
Energy Independence
- Abundant supplies
- Diversity of imported
energy sources
energy sources
Climate Change
- Lower Carbon emissions
• 45%
• 30% < oil
- 40% lower household carbon
footprint with natural gas
appliances
footprint with natural gas
appliances
Renewable Energy
- Biogas proven and
commercial
commercial
- Lower carbon intensity
Economic Growth
- Cost competitive &
sustainable
sustainable
- 27% of nation’s energy
demand
demand
Energy Efficiency
- 90+% delivered in form of
useful energy
useful energy
- Historical performance:
20% less gas use per
capita than 20 years ago
20% less gas use per
capita than 20 years ago
Logo: Courtesy of Council for Responsible Energy
Natural Gas - A Compelling Value Proposition
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AGL Resources 2009 Analyst Meeting
2009
AGL Resources … Thought Leadership & Actions
• Acknowledged Thought Leadership
– Founding Member of the Council for Responsible Energy
– AGA Leadership Positions
– Other Leadership Positions
• Leadership Actions
– Executive office devoted to Sustainability & Technology
• Business Risk
• Supply Side
• Demand Side
• Leading industry presence in helping to shape effective
policy programs
policy programs
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AGL Resources 2009 Analyst Meeting
2009
Business Risk
Mitigation
Mitigation
Business
Innovation
Innovation
Stakeholder
Relationships
Relationships
• Regulatory Risk
Management
Management
• Customer
Retention &
Expansion
Retention &
Expansion
• New Technology
Deployment
Deployment
• New Business
Models
Models
• New Regulatory
Compacts
Compacts
• Proactively
building
stronger
relationships
building
stronger
relationships
Shareholder
Value
Value
Direct Use of
Natural Gas
Natural Gas
Federal
Stimulus
Funds
Translating Leadership into Shareholder Value
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AGL Resources 2009 Analyst Meeting
2009
Target
2.05
1.95
1.81
Best in
Class
Safety is THE Top Priority
On-the-job injuries (OJI)