AGL Earnings Hit By Customer Exodus
AGL Resources Inc. said it expects operating earnings for its
fourth quarter of fiscal 1999 to be lower than analysts' estimates,
although the company expects a modest profit from operations for
the quarter. Current estimates have the company earning $0.17/share
during the quarter ending Sept. 30 compared to $0.12/share last
AGL cited the continued accelerated pace of customer migration
to gas marketers from regulated gas sales service as the main cause
for the lower fourth quarter operating earnings. The migration of
1.4 million customers to unregulated sales service was expected to
take up to two years but in fact was completed in less than 12
The quick migration has created a disparity between successful
cost-cutting and remaining costs associated with the departed
customers who took with them utility revenue. Competition
regulation assumes that Atlanta Gas Light Co.'s costs associated
with providing customer service decrease each time a customer
switches to a marketer and that those costs are eliminated at the
time the switch is made. Based on those assumptions, each time a
customer migrated to a marketer the regulatory framework reduced
the amount of revenue Atlanta Gas Light was entitled to collect.
The utility, however, has not been able to immediately eliminate a
significant portion of the costs associated with customer service
and, in fact, customer demand for certain services from the utility
increased rather than decreased during the transition period, the
For instance, customer service expenses remained high as
switching customers continued to call the utility with questions
about the changes in their service. Responding to significantly
heavier-than-normal volumes in telephone inquiries was among the
company's many customer service activities leading up to the Aug.
11 deadline for random assignment of customers to marketers. The
company continues to experience heavier-than-normal customer
service activities as it approaches a fully competitive environment
on Oct. 1.
"We expected that the transition to competition would pose
challenges for us. However, the extremely rapid pace of customer
migration, coupled with unanticipated and unpredictable increases
in customer service and marketer needs, continues to have
consequences that are challenging to our financial results," said
Walter M. Higgins, CEO. He said cost-cutting efforts are underway.
AGL Resources fourth quarter earnings are expected to be
released Nov. 1. "Given the continued uncertainty regarding the
recovery of the transition costs and the effects of a deregulated
retail market, we continue to rate AGL Neutral," PaineWebber said
in a research note last week.
Also, AGL Resources completed the sale of its interest in gas
marketer Sonat Marketing Co. for $40 million. In a separate
transaction, the company currently expects the sale of its interest
in wholesale power marketer Sonat Power Marketing for $25 million
to close within the next several weeks. According to terms of the
agreement with Sonat, the company will not be allocated any gain or
loss from either joint venture for any period after June 30.
In the fourth quarter, AGL Resources will recognize a one-time
pre-tax gain of about $15 million from the sale of the interest in
Joe Fisher, Houston
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