While AGL Resources reported markedly improved results for itsthird fiscal quarter ended June 30, the company said returns werehurt by costs due to the rapid pace at which Atlanta Gas Lightcustomers have chosen alternate suppliers.
The company posted 3Q net income of $7.2 million compared with anet loss of $1.2 million for the year-ago quarter. The boost camemainly from an expected increase in operating margin for utilityoperations due to the July 1, 1998 change in rate design fordelivery service for Georgia utility operations. Instead ofcollecting revenues predominantly in the winter months, the newrate design spreads utility delivery service revenues and marginsmore evenly throughout the year.
Earnings also were affected by a $6.3 million increase inutility operating expenses for the quarter compared with lastyear’s third quarter. Customer service activity associated with therapid pace at which customers are switching from the utility tomarketers for their gas sales service and increased depreciationexpense were the main factors for the increase.
A final factor affecting earnings was the start-up costs ofabout $5 million from the company’s retail energy marketing jointventure associated with establishing market share in Georgia’sderegulated gas market. Operating revenues for the third quarterwere $185.9 million compared with $246.4 million 3Q98, a decreaseof $60.5 million. The decrease is mainly from customers switchingfrom the utility to marketers for gas sales service. As utilitysales service revenues decline there is a comparable decline inpurchased gas costs, so the revenue decline does not affectearnings.
The company also announced an agreement with Sonat Inc. for thesale of AGL Resources’ interests in two joint ventures-SonatMarketing Co. LP, a gas marketer, and Sonat Power Marketing LP, apower marketer. Both deals are subject to, among other things,termination of applicable waiting periods under theHart-Scott-Rodino Antitrust Improvements Act. Additionally, sale ofthe company’s interest in Sonat Power Marketing is subject toapproval of the Federal Energy Regulatory Commission under Section203 of the Federal Power Act. The Sonat Marketing Co. interest saleis expected to close some time during the company’s fourth quarter.The sale of the Sonat Power Marketing interest is expected to closeby the end of 1999.
AGL Resources acquired a 35% interest in Sonat Marketing Co. inAugust 1995 for about $32 million and acquired a 35% interest inSonat Power Marketing in June 1996 for about $1 million. Theagreement would give AGL Resources $40 million for its interest inSonat Marketing Co. and $25 million for its interest in Sonat PowerMarketing. AGL will not be allocated any gain or loss from eitherjoint venture for any period after June 30.
“We are pleased with the terms of our agreement with Sonat butare disappointed with our results for third quarter despite theposted increases in AGL Resources’ net income and earnings pershare,” said Walter M. Higgins, CEO. “The costs associated with theextremely rapid pace of customer migration are putting downwardpressure on the earnings of the utility. The utility is pursuingsolutions aggressively, including cost management and regulatoryalternatives.”
Joe Fisher, Houston
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