Distribution Operations
Hank Linginfelter - EVP, Utility Operations
Distribution Operations Overview
Key Statistics
• 2.3 million customers
• 46,000 miles of pipeline
• Aggregate rate base of $2.5 billion
• Annual capex ~$360 million
50% of capex under rider or other
accelerated recovery programs
accelerated recovery programs
• 2,184 employees
• Top quartile safety ratings (on-the-job injury)
Track Record of Growth
EBIT Growth Despite Limited Customer Growth
• Invested in infrastructure to improve deliverability and safety in a manner
that allows for reduced lag between investment and recovery
that allows for reduced lag between investment and recovery
• Continued focus on cost containment
• 5-year EBIT CAGR of 3.5% (2005-2010)
(1) Customer count for 2011 based on full year estimates.
Key 2010 Results - Distribution
• Achieved solid outcomes in Atlanta Gas
Light and Chattanooga Gas rate cases with
combined favorable impact of $28.7 million
in revenue requirement and depreciation
rates
Light and Chattanooga Gas rate cases with
combined favorable impact of $28.7 million
in revenue requirement and depreciation
rates
• Hampton Roads Crossing in VA contributed
to earnings; multi-year infrastructure
replacement projects ongoing in GA and NJ
to earnings; multi-year infrastructure
replacement projects ongoing in GA and NJ
• Contained O&M cost increases to 2% and
below inflation for 2010
below inflation for 2010
• Ranked #3 in lowest on-the-job injuries and
#2 in lowest at-fault motor vehicle collisions
amongst peer utilities
#2 in lowest at-fault motor vehicle collisions
amongst peer utilities
• Automated meter reading installation
ongoing in GA provided more accurate and
timely meter reads, resulting in fewer
exceptions
ongoing in GA provided more accurate and
timely meter reads, resulting in fewer
exceptions
Infrastructure Replacement
Atlanta Gas Light
• Most recent rate case concluded October
2010
2010
o $26.7 million rate increase approved
o Included ~$10 million in new customer service
and safety oriented programs which will result
in technology investment and employee hiring
and safety oriented programs which will result
in technology investment and employee hiring
o Adopted new acquisition synergy sharing
policy for a 10-year period, including
allocation of $4.4 million in annual revenue
related to 2004 acquisition of NUI
policy for a 10-year period, including
allocation of $4.4 million in annual revenue
related to 2004 acquisition of NUI
• Strategic Infrastructure Development and
Enhancement (STRIDE) program
Enhancement (STRIDE) program
o Provides system upgrades to meet customer
deliveries on the coldest days of the year
deliveries on the coldest days of the year
o Includes the pipeline replacement program
which is replacing aging infrastructure
which is replacing aging infrastructure
o Expenditure recovery provided by program
riders
riders
• 100% of operating margin decoupled
(AGL does not directly serve retail
customers in Georgia)
(AGL does not directly serve retail
customers in Georgia)
Virginia Natural Gas
• Rate case currently underway, final
Commission order expected first half of 2012
Commission order expected first half of 2012
o Seeking $25 million increase
o Mitigation plan proposes rates to be phased in over
three years
three years
o ~$15 million related to Hampton Roads Crossing
pipeline construction, which has been recovered via
AFUDC to date
pipeline construction, which has been recovered via
AFUDC to date
o ~$10 million related to base operating expenses
• Hampton Roads Crossing (HRX)
o Gas now flowing across Hampton Roads channel
and James River
and James River
o Provides 0.1Bcf of additional daily capacity to the
region
region
• Steps to Advance Virginia’s Energy (SAVE) Act
o Legislation allows utility to petition regulators to
implement recovery riders for approved infrastructure
replacement programs
implement recovery riders for approved infrastructure
replacement programs
• 78% of operating margin decoupled with
weather normalization/rate normalization
program
weather normalization/rate normalization
program
Elizabethtown Gas
• Most recent rate case concluded
December 2009
December 2009
o Agreed to a 2-year stay-out
• Utility Infrastructure Enhancement
o Rider that allows acceleration of infrastructure
projects which stimulate the local economy and
improves the natural gas distribution system
projects which stimulate the local economy and
improves the natural gas distribution system
o Program ends this year with expected total spend
of ~$69 million
of ~$69 million
o Filed a request for second phase of this program
of ~$40 million with expected ruling around mid-
year
of ~$40 million with expected ruling around mid-
year
• Asset management agreement with
Sequent
Sequent
o Renewed effective April 2011 for three years
• Operating margin weather normalization
program in effect
program in effect
Florida City Gas
• Most recent rate case concluded
February 2004
February 2004
o Allowed to file next rate case as early as 2012
o Stay-out provision negotiated as part of
treatment of amortization of goodwill
treatment of amortization of goodwill
• Energy conservation program
o Provides customer energy conservation
incentives for residential and commercial
appliance conversions and for service line
reactivation
incentives for residential and commercial
appliance conversions and for service line
reactivation
o Allows utility to use program funds to develop
new technologies around commercial uses for
natural gas
new technologies around commercial uses for
natural gas
o Program is funded by customers through a
cost recovery mechanism via a per therm
surcharge
cost recovery mechanism via a per therm
surcharge
Chattanooga Gas
• Most recent rate case concluded May
2010
2010
o Instituted new rate design that encourages
customer conservation while allowing the
ability to earn authorized rate of return
customer conservation while allowing the
ability to earn authorized rate of return
o First decoupled rate design for TN utility
o Updated depreciation rates decreased
expense of $2 million annually
expense of $2 million annually
• 72% of operating margin decoupled
with weather normalization program
in effect
with weather normalization program
in effect
2011 Priorities and Objectives
• Continue safe and efficient operations at our distribution businesses
o Top quartile performance for motor vehicle accidents and on the job injuries
o Maintain leadership role in pipeline safety and infrastructure replacement
• Successfully execute our regulatory strategy to achieve constructive regulatory
outcomes and recover prudently incurred expenses and capital investments
outcomes and recover prudently incurred expenses and capital investments
o Successfully prosecute rate case at Virginia Natural Gas
o Execute on customer service initiatives and infrastructure programs approved by Georgia Public
Service Commission
Service Commission
• Effectively control expenses and maintain focus on capital discipline
• Merger with Nicor
o Achieve successful outcome on merger agreement with the Illinois Commerce Commission to
close within second half of 2011
close within second half of 2011
o Complete integration work to enable Day One and path forward to support vision to be an industry
leader in natural gas distribution
leader in natural gas distribution
Cautionary Statements and Supplemental Information
Forward-Looking Statements
Certain expectations and projections regarding our future performance referenced in this presentation, in other reports or statements we file with the SEC or otherwise release to the public, and on our
website, are forward-looking statements. Senior officers and other employees may also make verbal statements to analysts, investors, regulators, the media and others that are forward-looking.
Forward-looking statements involve matters that are not historical facts, such as statements regarding our future operations, prospects, strategies, financial condition, economic performance (including
growth and earnings), industry conditions and demand for our products and services. 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," "potential," "predict," "project," "seek,"
"should," "target," "would," or similar expressions. Forward-looking statements contained in this presentation include, without limitation, statements regarding future earnings per share, dividend growth
and EBIT contribution, our priorities for 2011 and the proposed merger with Nicor Inc. Our expectations are not guarantees and are based on currently available competitive, financial and economic
data along with our operating plans. While we believe 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.
website, are forward-looking statements. Senior officers and other employees may also make verbal statements to analysts, investors, regulators, the media and others that are forward-looking.
Forward-looking statements involve matters that are not historical facts, such as statements regarding our future operations, prospects, strategies, financial condition, economic performance (including
growth and earnings), industry conditions and demand for our products and services. 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," "potential," "predict," "project," "seek,"
"should," "target," "would," or similar expressions. Forward-looking statements contained in this presentation include, without limitation, statements regarding future earnings per share, dividend growth
and EBIT contribution, our priorities for 2011 and the proposed merger with Nicor Inc. Our expectations are not guarantees and are based on currently available competitive, financial and economic
data along with our operating plans. While we believe 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; the impact of changes in state and federal legislation and
regulation including changes related to climate change; actions taken by government agencies on rates and other matters; concentration of credit risk; utility and energy industry consolidation; the
impact on cost and timeliness of construction projects by government and other approvals, development project delays, adequacy of supply of diversified vendors, unexpected change in project costs,
including the cost of funds to finance these projects; the impact of acquisitions and divestitures; direct or indirect effects on our business, financial condition or liquidity resulting from a change in our
credit ratings or the credit ratings of our counterparties or competitors; interest rate fluctuations; financial market conditions, including recent disruptions in the capital markets and lending environment
and the current economic downturn; general economic conditions; uncertainties about environmental issues and the related impact of such issues; the impact of changes in weather, including climate
change, on the temperature-sensitive portions of our business; the impact of natural disasters such as hurricanes on the supply and price of natural gas; acts of war or terrorism; and other factors
which are provided in detail 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 to update these
statements to reflect subsequent changes.
regulation including changes related to climate change; actions taken by government agencies on rates and other matters; concentration of credit risk; utility and energy industry consolidation; the
impact on cost and timeliness of construction projects by government and other approvals, development project delays, adequacy of supply of diversified vendors, unexpected change in project costs,
including the cost of funds to finance these projects; the impact of acquisitions and divestitures; direct or indirect effects on our business, financial condition or liquidity resulting from a change in our
credit ratings or the credit ratings of our counterparties or competitors; interest rate fluctuations; financial market conditions, including recent disruptions in the capital markets and lending environment
and the current economic downturn; general economic conditions; uncertainties about environmental issues and the related impact of such issues; the impact of changes in weather, including climate
change, on the temperature-sensitive portions of our business; the impact of natural disasters such as hurricanes on the supply and price of natural gas; acts of war or terrorism; and other factors
which are provided in detail 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 to update these
statements to reflect subsequent changes.
Supplemental Information
Company management evaluates segment financial performance based on earnings before interest and taxes (EBIT), which includes the effects of corporate expense allocations and on operating
margin. EBIT is a non-GAAP (accounting principles generally accepted in the United States of America) financial measure that includes operating income, other income and expenses. 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. Operating margin is a non-GAAP measure calculated as operating 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. In addition, in this presentation, the company has presented its earnings per share excluding expenses incurred with respect to the proposed Nicor merger. As the
company does not routinely engage in transactions of the magnitude of the proposed Nicor merger, and consequently does not regularly incur transaction related expenses with correlative size, the
company believes presenting EPS excluding Nicor merger expenses provides investors with an additional measure of the company’s core operating performance. EBIT, operating margin and EPS
excluding merger expenses should not be considered as alternatives to, or more meaningful indicators of, the company's operating performance than operating income, net income attributable to AGL
Resources Inc. or EPS as determined in accordance with GAAP. In addition, the company's EBIT, operating margin and non-GAAP EPS may not be comparable to similarly titled measures of another
company. We also present certain non-GAAP financial measures excluding the effects of our proposed merger with Nicor. Because we complete material mergers and acquisitions only occasionally,
we believe excluding these effects from certain measures is useful because they allow investors to more easily evaluate and compare the performance of the Company's core businesses from period
to period. Reconciliations of non-GAAP financial measures referenced in this presentation are available on the company’s Web site at www.aglresources.com
margin. EBIT is a non-GAAP (accounting principles generally accepted in the United States of America) financial measure that includes operating income, other income and expenses. 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. Operating margin is a non-GAAP measure calculated as operating 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. In addition, in this presentation, the company has presented its earnings per share excluding expenses incurred with respect to the proposed Nicor merger. As the
company does not routinely engage in transactions of the magnitude of the proposed Nicor merger, and consequently does not regularly incur transaction related expenses with correlative size, the
company believes presenting EPS excluding Nicor merger expenses provides investors with an additional measure of the company’s core operating performance. EBIT, operating margin and EPS
excluding merger expenses should not be considered as alternatives to, or more meaningful indicators of, the company's operating performance than operating income, net income attributable to AGL
Resources Inc. or EPS as determined in accordance with GAAP. In addition, the company's EBIT, operating margin and non-GAAP EPS may not be comparable to similarly titled measures of another
company. We also present certain non-GAAP financial measures excluding the effects of our proposed merger with Nicor. Because we complete material mergers and acquisitions only occasionally,
we believe excluding these effects from certain measures is useful because they allow investors to more easily evaluate and compare the performance of the Company's core businesses from period
to period. Reconciliations of non-GAAP financial measures referenced in this presentation are available on the company’s Web site at www.aglresources.com
Additional Information
Additional Information
In connection with the proposed merger, AGL Resources has filed with the SEC a Registration Statement on Form S-4 (Registration No. 333-
172084), as amended, which is publicly available, that includes a joint proxy statement of AGL Resources and Nicor that also constitutes a
prospectus of AGL Resources. AGL Resources and Nicor will mail the definitive joint proxy statement/prospectus to their respective stockholders of
record as of April 18, 2011. WE URGE INVESTORS TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY, AS
WELL AS OTHER DOCUMENTS FILED WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AGL
RESOURCES, NICOR AND THE PROPOSED TRANSACTION. The joint proxy statement/prospectus, as well as other filings containing information
about AGL Resources and Nicor, can be obtained free of charge at the website maintained by the SEC at www.sec.gov. You may also obtain these
documents, free of charge, from AGL Resources’ website (www.aglresources.com) under the tab Investor Relations/SEC Filings or by directing a
request to AGL Resources, P.O. Box 4569, Atlanta, GA, 30302-4569. You may also obtain these documents, free of charge, from Nicor’s website
(www.nicor.com) under the tab Investor Information/SEC Filings or by directing a request to Nicor, P.O. Box 3014, Naperville, IL 60566-7014.
172084), as amended, which is publicly available, that includes a joint proxy statement of AGL Resources and Nicor that also constitutes a
prospectus of AGL Resources. AGL Resources and Nicor will mail the definitive joint proxy statement/prospectus to their respective stockholders of
record as of April 18, 2011. WE URGE INVESTORS TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS CAREFULLY, AS
WELL AS OTHER DOCUMENTS FILED WITH THE SEC, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT AGL
RESOURCES, NICOR AND THE PROPOSED TRANSACTION. The joint proxy statement/prospectus, as well as other filings containing information
about AGL Resources and Nicor, can be obtained free of charge at the website maintained by the SEC at www.sec.gov. You may also obtain these
documents, free of charge, from AGL Resources’ website (www.aglresources.com) under the tab Investor Relations/SEC Filings or by directing a
request to AGL Resources, P.O. Box 4569, Atlanta, GA, 30302-4569. You may also obtain these documents, free of charge, from Nicor’s website
(www.nicor.com) under the tab Investor Information/SEC Filings or by directing a request to Nicor, P.O. Box 3014, Naperville, IL 60566-7014.
The respective directors and executive officers of AGL Resources and Nicor, and other persons, may be deemed to be participants in the solicitation
of proxies in respect of the proposed transaction. Information regarding AGL Resources’ directors and executive officers is available in the joint
proxy statement/prospectus contained in the above referenced Registration Statement and its definitive proxy statement filed with the SEC by AGL
Resources on March 14, 2011, and information regarding Nicor directors and executive officers is available in the joint proxy statement/prospectus
contained in the above referenced Registration Statement and its definitive proxy statement filed with the SEC by Nicor on April 19, 2011. These
documents can be obtained free of charge from the sources indicated above. Other information regarding the interests of the participants in the
proxy solicitation are included in the definitive joint proxy statement/prospectus and other relevant materials filed with the SEC. This communication
shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote
or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.
of proxies in respect of the proposed transaction. Information regarding AGL Resources’ directors and executive officers is available in the joint
proxy statement/prospectus contained in the above referenced Registration Statement and its definitive proxy statement filed with the SEC by AGL
Resources on March 14, 2011, and information regarding Nicor directors and executive officers is available in the joint proxy statement/prospectus
contained in the above referenced Registration Statement and its definitive proxy statement filed with the SEC by Nicor on April 19, 2011. These
documents can be obtained free of charge from the sources indicated above. Other information regarding the interests of the participants in the
proxy solicitation are included in the definitive joint proxy statement/prospectus and other relevant materials filed with the SEC. This communication
shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, or a solicitation of any vote
or approval, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration
or qualification under the securities laws of any such jurisdiction. No offer of securities shall be made except by means of a prospectus meeting the
requirements of Section 10 of the Securities Act of 1933, as amended.