AGL Resources Inc. said it expects operating earnings for itsfourth quarter of fiscal 1999 to be lower than analysts’ estimates,although the company expects a modest profit from operations forthe quarter. Current estimates have the company earning $0.17/shareduring the quarter ending Sept. 30 compared to $0.12/share lastquarter.

AGL cited the continued accelerated pace of customer migrationto gas marketers from regulated gas sales service as the main causefor the lower fourth quarter operating earnings. The migration of1.4 million customers to unregulated sales service was expected totake up to two years but in fact was completed in less than 12months.

The quick migration has created a disparity between successfulcost-cutting and remaining costs associated with the departedcustomers who took with them utility revenue. Competitionregulation assumes that Atlanta Gas Light Co.’s costs associatedwith providing customer service decrease each time a customerswitches to a marketer and that those costs are eliminated at thetime the switch is made. Based on those assumptions, each time acustomer migrated to a marketer the regulatory framework reducedthe amount of revenue Atlanta Gas Light was entitled to collect.The utility, however, has not been able to immediately eliminate asignificant portion of the costs associated with customer serviceand, in fact, customer demand for certain services from the utilityincreased rather than decreased during the transition period, thecompany said.

For instance, customer service expenses remained high asswitching customers continued to call the utility with questionsabout the changes in their service. Responding to significantlyheavier-than-normal volumes in telephone inquiries was among thecompany’s many customer service activities leading up to the Aug.11 deadline for random assignment of customers to marketers. Thecompany continues to experience heavier-than-normal customerservice activities as it approaches a fully competitive environmenton Oct. 1.

“We expected that the transition to competition would posechallenges for us. However, the extremely rapid pace of customermigration, coupled with unanticipated and unpredictable increasesin customer service and marketer needs, continues to haveconsequences that are challenging to our financial results,” saidWalter M. Higgins, CEO. He said cost-cutting efforts are underway.

AGL Resources fourth quarter earnings are expected to bereleased Nov. 1. “Given the continued uncertainty regarding therecovery of the transition costs and the effects of a deregulatedretail market, we continue to rate AGL Neutral,” PaineWebber saidin a research note last week.

Also, AGL Resources completed the sale of its interest in gasmarketer Sonat Marketing Co. for $40 million. In a separatetransaction, the company currently expects the sale of its interestin wholesale power marketer Sonat Power Marketing for $25 millionto close within the next several weeks. According to terms of theagreement with Sonat, the company will not be allocated any gain orloss from either joint venture for any period after June 30.

In the fourth quarter, AGL Resources will recognize a one-timepre-tax gain of about $15 million from the sale of the interest inSonat Marketing.

Joe Fisher, Houston

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