Higher rates and new pipeline projects helped AGL Resources Inc.'s 3Q2010 earnings to increase 83% compared with 3Q2009 earnings, the Atlanta-based company said.

AGL reported 3Q2010 net income of $22 million (29 cents/share), compared with $12 million (16 cents) for 3Q2009. At the same time AGL reaffirmed its 2010 earnings guidance range of $2.95-3.05/share. The earnings guidance is based on strong results in the company's operating segments through the first three quarters of 2010, coupled with the dampening effects of lower market volatility associated with storage-related economic value created in wholesale services, AGL said.

"While our results are substantially ahead of last year for the first nine months, wholesale opportunities for the fourth quarter appear smaller than in recent years, so a greater content of our earnings is coming from our utilities investment," CEO John W. Somerhalder II said during a conference call with analysts Tuesday.

AGL Houston-based subsidiary Sequent Energy Management recorded earnings before interest and taxes (EBIT) of $15 million for 3Q2010, compared with an EBIT loss of $2 million loss in 3Q2009. Operating margin in the wholesale services unit was up $16 million compared to the prior-year period, primarily due to $30 million in gains recorded during 3Q2010 on the instruments used to hedge storage and transportation positions, resulting from declining New York Mercantile Exchange natural gas prices and the narrowing of transportation basis spreads.

AGL is operating in a "new normal," where gas prices are lower and more range-bound, according to Sequent President Peter Tumminello.

"There is a lower level of volatility both impacting the storage and transportation markets. However, we are still entering new transportation, storage and asset management agreements in the normal course of business -- we're just seeing sometimes the value of those transactions being lower than in the past, and we reflect that in the way we approach the market going forward," Tumminello said.

Reduced market volatility, coupled with higher gains on hedges of Sequent's storage positions in 2010 compared with last year, has resulted in a decrease in the expected operating revenues to be recognized in future periods as compared with last year, AGL said.

AGL's distribution operations segment contributed EBIT of $55 million in 3Q2010 compared with $48 million in 3Q2009.

AGL's retail energy operations segment, consisting of SouthStar Energy Services, reported a 3Q2010 EBIT loss of $9 million, compared with a loss of $2 million in 3Q2009. The segment's results were primarily due to changes in the Georgia market related to SouthStar's customer portfolio and retail pricing plan mix and a decrease in its average number of customers as compared to last year.

The recent opening of the first cavern at the Golden Triangle Storage facility near Beaumont, TX, for initial commercial operations (see Daily GPI, Sept. 17) was "an important milestone" during the quarter in terms of future growth and earnings, Somerhalder said.

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