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AGL Income Hit by Sales Customer Exodus

AGL Income Hit by Sales Customer Exodus

While AGL Resources reported markedly improved results for its third fiscal quarter ended June 30, the company said returns were hurt by costs due to the rapid pace at which Atlanta Gas Light customers have chosen alternate suppliers.

The company posted 3Q net income of $7.2 million compared with a net loss of $1.2 million for the year-ago quarter. The boost came mainly from an expected increase in operating margin for utility operations due to the July 1, 1998 change in rate design for delivery service for Georgia utility operations. Instead of collecting revenues predominantly in the winter months, the new rate design spreads utility delivery service revenues and margins more evenly throughout the year.

Earnings also were affected by a $6.3 million increase in utility operating expenses for the quarter compared with last year's third quarter. Customer service activity associated with the rapid pace at which customers are switching from the utility to marketers for their gas sales service and increased depreciation expense were the main factors for the increase.

A final factor affecting earnings was the start-up costs of about $5 million from the company's retail energy marketing joint venture associated with establishing market share in Georgia's deregulated gas market. Operating revenues for the third quarter were $185.9 million compared with $246.4 million 3Q98, a decrease of $60.5 million. The decrease is mainly from customers switching from the utility to marketers for gas sales service. As utility sales service revenues decline there is a comparable decline in purchased gas costs, so the revenue decline does not affect earnings.

The company also announced an agreement with Sonat Inc. for the sale of AGL Resources' interests in two joint ventures-Sonat Marketing Co. LP, a gas marketer, and Sonat Power Marketing LP, a power marketer. Both deals are subject to, among other things, termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act. Additionally, sale of the company's interest in Sonat Power Marketing is subject to approval of the Federal Energy Regulatory Commission under Section 203 of the Federal Power Act. The Sonat Marketing Co. interest sale is expected to close some time during the company's fourth quarter. The sale of the Sonat Power Marketing interest is expected to close by the end of 1999.

AGL Resources acquired a 35% interest in Sonat Marketing Co. in August 1995 for about $32 million and acquired a 35% interest in Sonat Power Marketing in June 1996 for about $1 million. The agreement would give AGL Resources $40 million for its interest in Sonat Marketing Co. and $25 million for its interest in Sonat Power Marketing. AGL will not be allocated any gain or loss from either joint venture for any period after June 30.

"We are pleased with the terms of our agreement with Sonat but are disappointed with our results for third quarter despite the posted increases in AGL Resources' net income and earnings per share," said Walter M. Higgins, CEO. "The costs associated with the extremely rapid pace of customer migration are putting downward pressure on the earnings of the utility. The utility is pursuing solutions aggressively, including cost management and regulatory alternatives."

Joe Fisher, Houston

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