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LDCs Must Evolve with Today's Energy Market, AGL's Madden Says

March 21, 2005
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In the everchanging and evolving energy industry, more local distribution companies, including Atlanta Gas Light, are "realigning" their asset portfolios in order to keep up, said Kevin Madden, executive vice president of distribution and pipeline operations for AGL Resources, Atlanta Gas Light's parent company.

Speaking at the 19th annual GasMart in New Orleans, Madden said the plan is to "dampen volatility and bring prices down." AGL also is using new technology to become more efficient, and Madden said the company is both building infrastructure and keeping an eye on acquisitions to take advantage of changes in the market.

He noted that it is essential for distribution companies to realign their portfolios, adding that complete dependence on major pipelines and annual capacity plans no longer meet needs. "Distribution companies must have delivery options that meet peaking needs -- and may need to find and operate those assets," Madden said.

AGL maintains gas pipelines in seven states along the East Coast that serve more than 2 million customers. In the past 10-15 years, Madden said, the company's strategic plans have evolved. Residential gas use per customer has fallen because homes are more efficient, and there are more people working outside the home than in the 1970s. However, "as the temperature narrows, people need to use gas." The declining use per customer masks the challenge of infrastructure development, he said.

Today, AGL is "looking more at a seasonal approach" for its 14 pipelines, and is considering new assets that would provide value to both the customers and the shareholders, Madden said, noting that paying reservation charges on pipelines 365 days a year doesn't make sense anymore. He added that AGL is reconfiguring its pipeline service and is developing annual capacity plans to stay ahead of infrastructure needs. "What we need to do is meet peak day needs" but have more flexibility in capacity plans.

"Volatility clearly remains a concern for LDCs," he said. "We question what the effect is on the consumer and how do you lessen that volatility." Madden said AGL is relying on what more it can do to allay prices. AGL's strategic view is to identify what assets are out there.

"We are in the market and there is some premium," Madden noted. "When we bought NUI last year, we did not pay a premium, and we are looking at assets that hold the most value, no premium and those that will be accretive within a year."

Madden said that going forward, small LDCs will find it difficult to meet customer needs because the larger LDCs are able to do more for less. While AGL wants to keep its core assets along the Florida-Northeast corridor, he said that the company would consider buying assets outside the Southeast. "If it makes sense, we're not going to ignore it."

Commenting on the lagging supply situation in the U.S., Madden said the industry has been looking into other regions to explore as it witnesses "the last fling for the Gulf of Mexico." He pointed out that Gulf shelf production began declining by 7% per year in 1997. As of 2002, production additions from the deepwater areas have been unable to stop declines in total Gulf production.

As a step in the right direction, Madden highlighted the coastal Virginia drilling plan, which has received approval in the Virginia House and Senate and is currently awaiting Governor Mark Warner's signature. Madden said probable reserves off the coast of Virginia could be 30-50 Tcf.

Madden said that LNG will also play roles in both relieving the future supply crunch as well as bolstering AGL's growth. However, he cautioned that it will take time before new regasification terminals are built.

"Some say it will be four to six years to get new LNG terminals," said Madden. "I think it's going to be more like eight to 10 years. Look at the approval process...jurisdictional siting issues. I think the approval process is going to take a little longer. There's transport issues, regasification issues, pipelines, storage. It's going to be a very, very difficult process."

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