AGL Resources Inc. Q1 2010 Earnings Call Transcript

AGL Resources Inc. Q1 2010 Earnings Call Transcript
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AGL Resources Inc. (AGL)

Q1 2010 Earnings Call

April 28, 2010 10:00 am ET

Executives

Steve Cave - VP of Finance

John Somerhalder - Chairman, President and CEO

Drew Evans - EVP and CFO

Analysts

Ryan Rosenthal - Sidoti & Company

Ted Durbin - Goldman Sachs

Barry Klein - Citi

Jeremy Watson - J.W.P. Capital Partners

Gordon Howald - East Shore Partners

Mike Hahn - Bryn Mawr Capital

Presentation

Operator

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Good day, ladies and gentlemen and welcome to the first quarter 2010 AGL Resources Earnings Conference Call. My name is Melanie and I will be your coordinator today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session at the end of this conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes.

I would now like to turn the call over to Mr. Steve Cave, Vice President of Finance. Please proceed sir.

Steve Cave

Okay thank you Melanie and good afternoon everyone. Thanks for joining us today to review our first quarter 2010 results. The speakers on the call today will be John Somerhalder, our Chairman, President, and CEO and Drew Evans our Executive Vice President and CFO.

We also have several other members of our management team here with us to answer questions following the prepared remarks. As you know, we issued our earnings release before the market opened this morning, we also filed our Form 10-Q. If you don't have copies of those already you can find those on our website. And before we move to the prepared remarks, let me just remind you that we will be making some forward looking statements and projections today. And that our actual results could differ materially from those projected in the statements.

The are number of factors that could cause such material difference are those are included in our press released and in our SEC filings. We also described our business using some non-GAAP measures and a reconciliation of those measures to the GAAP financials is available in our earnings release and on the website. So we'll begin today's call with some prepared remarks and then we'll open the lines to take your questions.

And with that I’ll turn it over to John.

John Somerhalder

Thank you Steve and good afternoon. Today, we reported earnings of $1.73 per diluted share for the third quarter of 2010 as compared to $1.55 per diluted share for the first quarter of 2009. Each of our business units performed well to help us achieve those results and Drew will describe the business unit variances more detail in a few minutes.

Our results in the first quarter put us on track to achieve our earnings target for this year in the range of $2.95 to $3.05 per share. Sequent’s results for the quarter helped put us ahead of where we expected to be at these points, at this point. Those results do however include gains on our storage and transportation hedges during the quarter in addition to good commercial activity.

As is the case in all years, with price movements and changes in basis spreads, we could report further gains or losses on the hedges in subsequent quarters. As an example, if gas prices move higher from their current relatively low levels, we would recognize hedge losses as a result but would recover those losses as the gas is physically withdrawn and delivered later in 2010 and 2011.

Our results also reflect contributions from our completed regulated capital projects. The Hampton Roads Crossing project in Virginia and the Magnolia pipeline project in Georgia. We place those projects in to commercial operation in the fourth quarter of 2009.

Our first quarter 2010 results also include the additional ownership interest we now have in the SouthStar joint venture. We have two significant milestones coming up and we’ll briefly discuss. The first is our Atlanta Gas Light rate case, which we expect to file with the Georgia Public Service Commission early next week. While we will not share the details of that case prior to when we filed, we do believe our request to be a very reasonable one. Given the significant amount of time that had had been [lapsed] and we had a rate increase in Georgia.

The last base rate increase for Atlanta Gas Light was at 1993. Since that time customers have benefited significantly from the stability in our base rates and the improved reliability of our distribution system. We have established a track record of taking aggressive steps during that time to control rising utility expenses and manage our cost well. However, we continue to see annual increases in pension post-retirement and other labor cost as well as generally higher operating expenses.

At the same time, we have seen a decline in our customer growth as a result for the economic pressures and the weakening housing market here in Georgia. All these factors have contributed to higher operating cost and it will be important for us to be able to recover those cost and to invest in programs to improve customer service and efficiency.

We will provide more detail on the case next week after we file and we will be able to discuss it with you in more detail at our analysts meeting on May 10. The second milestone is the initial commercial operation of our Golden Triangle Storage project in Texas. We anticipate putting the first salt dome storage cavern operation during the third quarter of this year. We have reached about 85% of the first cavern and have now completed close to 60% of the pipeline construction and the compressor station work.

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