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AGL Earnings Hit By Customer Exodus

September 27, 1999
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AGL Earnings Hit By Customer Exodus

AGL Resources Inc. said it expects operating earnings for its fourth quarter of fiscal 1999 to be lower than analysts' estimates, although the company expects a modest profit from operations for the quarter. Current estimates have the company earning $0.17/share during the quarter ending Sept. 30 compared to $0.12/share last quarter.

AGL cited the continued accelerated pace of customer migration to gas marketers from regulated gas sales service as the main cause for the lower fourth quarter operating earnings. The migration of 1.4 million customers to unregulated sales service was expected to take up to two years but in fact was completed in less than 12 months.

The quick migration has created a disparity between successful cost-cutting and remaining costs associated with the departed customers who took with them utility revenue. Competition regulation assumes that Atlanta Gas Light Co.'s costs associated with providing customer service decrease each time a customer switches to a marketer and that those costs are eliminated at the time the switch is made. Based on those assumptions, each time a customer migrated to a marketer the regulatory framework reduced the amount of revenue Atlanta Gas Light was entitled to collect. The utility, however, has not been able to immediately eliminate a significant portion of the costs associated with customer service and, in fact, customer demand for certain services from the utility increased rather than decreased during the transition period, the company said.

For instance, customer service expenses remained high as switching customers continued to call the utility with questions about the changes in their service. Responding to significantly heavier-than-normal volumes in telephone inquiries was among the company's many customer service activities leading up to the Aug. 11 deadline for random assignment of customers to marketers. The company continues to experience heavier-than-normal customer service activities as it approaches a fully competitive environment on Oct. 1.

"We expected that the transition to competition would pose challenges for us. However, the extremely rapid pace of customer migration, coupled with unanticipated and unpredictable increases in customer service and marketer needs, continues to have consequences that are challenging to our financial results," said Walter M. Higgins, CEO. He said cost-cutting efforts are underway.

AGL Resources fourth quarter earnings are expected to be released Nov. 1. "Given the continued uncertainty regarding the recovery of the transition costs and the effects of a deregulated retail market, we continue to rate AGL Neutral," PaineWebber said in a research note last week.

Also, AGL Resources completed the sale of its interest in gas marketer Sonat Marketing Co. for $40 million. In a separate transaction, the company currently expects the sale of its interest in wholesale power marketer Sonat Power Marketing for $25 million to close within the next several weeks. According to terms of the agreement with Sonat, the company will not be allocated any gain or loss from either joint venture for any period after June 30.

In the fourth quarter, AGL Resources will recognize a one-time pre-tax gain of about $15 million from the sale of the interest in Sonat Marketing.

Joe Fisher, Houston

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