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Georgia PSC Allows Sequent Asset Management Deal with AGL to Continue

The Georgia Public Service Commission last week reversed an earlier decision and extended Atlanta Gas Light's asset management agreement with its subsidiary Sequent Energy Management for another two years with some modifications, including an increase in the net income share that Sequent gives to the state Universal Service Fund (USF), which provides energy assistance to low-income customers.

In December the Commission denied the extension and planned to set up a competitive request-for-proposals process to manage the assets. However, because Sequent's agreement runs out on March 31, there was a concern that there would be inadequate time to conduct the RFP and get the new asset manager in place in time to take advantage of favorable market conditions. A decision to increase the USF's share of the income from the Sequent arrangement also provided a reason to extend the existing relationship.

"Atlanta Gas Light commends the majority of the commission for acting on the staff's recommendation to reconsider its Dec. 21, 2005 order and extend the company's asset management agreement with Sequent for an additional two years," said AGL President Suzanne Sitherwood. "Current market conditions provide Sequent with the opportunity to generate additional value for Georgia customers via the Universal Service Fund that would not have been realized had the current agreement expired on March 31 and we had to go out to bid.

"The commission's decision locks in this additional value for consumers," added Sitherwood. "Atlanta Gas Light will not be required to take the risk that could otherwise have resulted from a request for proposal process that may have missed current market opportunities and produced lower contributions to the USF."

The commission uses the USF to, among other things, provide energy assistance funds to low income consumers and to provide funds to extend Atlanta Gas Light's system to new customers in the public interest.

Sequent has managed Atlanta Gas Light's storage, gas supply and transportation agreements, and certain inventories and other assets associated with those agreements since 2003 under the existing asset optimization and agency agreement. Sequent previously contributed 50% of the net margin from these asset management activities to the USF, but based on Tuesday's order, it will increase its aggregate net sharing percentage to the USF from 50 to 60% on the majority of transactions the asset manager initiates. Capacity release and off-system sales transactions will continue to be governed by statute with a 90-10 sharing arrangement for the USF and Sequent, respectively. Atlanta Gas Light retains operational control of system-critical assets, including the ability to recall them at any time if needed for firm customers.

From 2003 to date, Sequent's contributions to the USF have totaled more than $11 million ($3.2 million in 2003, $4.3 million in 2004 and $3.6 million to date in 2005).

"With recent market conditions, we expect that Sequent will contribute more value to the USF this winter than ever before," said Doug Schantz, president of Sequent. Schantz predicted that Sequent's contributions to the USF in 2006 would be greater than the USF would have received under an RFP process.

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