WA Business News  Aug 24  Comment 
Australia's biggest power producer, AGL Energy, has eased out chief executive Andy Vesey and is seeking a new leader at a time when it faces government pressure to slash energy bills and shore up a shaky grid.
Upstream Online  Aug 24  Comment 
Search for replacement entering the final phase as interim chief is appointed
WA Business News  Aug 9  Comment 
Sydney-based energy supplier AGL Energy has continued its slow growth in to the WA market, with its annual results revealing it had secured 21,000 gas customers locally by the end of June.
guardian.co.uk  Apr 6  Comment 
Andy Vesey says plant remains an extremely valuable piece of AGL’s portfolio until its closure The AGL chief executive, Andy Vesey, says he plans to “fully execute” his vision of transforming the Liddell coal-fired power station into a...
WA Business News  Feb 8  Comment 
Sydney-based energy supplier AGL Energy has secured 7,000 customers in Western Australia since its July 2017 local launch, according to the company’s half-yearly report.
WA Business News  Nov 29  Comment 
AGL Energy has announced it will donate $600,000 across three years to Surf Life Saving Western Australia (SLWA) to provide new equipment and funding to 31 clubs across the state.
Insurance Journal  Oct 18  Comment 
Ascot Group Ltd. (AGL), a Bermuda-based holding company, announced the appointment of Joe Roberts as group chief financial officer, and the promotion of Rob Dimsey to group chief operating officer. Roberts has 30 years’ experience and has worked...
Financial Times  Sep 12  Comment 
Australian energy group embroiled in dispute highlighting concern over government meddling
The Hindu Business Line  Aug 22  Comment 
Private utility Tata Power today said it has synchronised its 186 MW Shuakhevi hydro project in Georgia. “Tata Power, through Adjaristsqali Georgia LLC (AGL), its joint venture with Norway’s Clean...
Cellular News  Aug 4  Comment 
CHARLOTTE, N.C. , Aug.andnbsp;SmartSky Networks, LLC, an aviation communications provider, has initiated deployment of the nation's firstandnbsp;airborne 4G LTE-based air-to-ground (ATG) network.andnbsp;Using 60andnbsp;MHzandnbsp;of spectrum and...


AGL Resources (NYSE: AGL) operates gas utilities in Georgia and five other states in the eastern United States. As a utilities operator, AGL's businesses are subject to government price regulations that vary from state to state; generally, these regulations put a ceiling on the price that utilities companies can charge customers, ensuring that utilities services are accessible but can still turn a profit. Such price regulations, however, do not allow utilities like AGL to pass costs on to consumers, so one of the company's main challenges is working with state regulators to obtain more favorable rates. It is essentially the regulators, not the company, who control AGL's margins.

Volatile natural gas costs can make AGL's margins unpredictable, since they allow the company's costs to change while regulations keep prices fixed. The weather also plays a large part in demand for natural gas, which is used for heating, so unseasonable weather patterns can lead to demand fluctuations as well. Fortunately for AGL, the majority of its business occurs in Georgia, a state with a regulatory system that allows the company to charge a monthly rate regardless of gas usage. This insulates the company against the effects of good weather and fluctuating gas use. On the flip side, AGL hasn't been able to negotiate a favorable rate change in the State for over 12 years. AGL Resources doesn't have any real competition in its service areas, thanks to the difficulty of installing infrastructure, but competes on a large scale with other utilities companies like Atmos Energy.

The Company also owns and operates a telecommunications business that constructs and operates conduit and fiber infrastructure within select metropolitan areas.[1]

In July 2010, AGL Resources Inc. sold its AGL Networks dark fiber telecommunications business to Zayo Group, LLC.[1]

Company Overview

AGL Resources is a regulated energy services holding company, which through its subsidiaries and partnerships, is engaged in natural gas distribution and wholesale natural gas asset management. With the acquisition of NUI Corporation, AGL Resources became a leading distributor of natural gas on the East Coast, serving more than 2.27 million customers in six states: Florida, Georgia, Maryland, New Jersey, Tennessee, and Virginia. The company also engages in various non-regulated operations such as telecommunications infrastructure, retail energy marketing and other energy-related services. For the past three years, however, 85% of its EBIT came from its businesses involved in natural gas.

The company sells both to end-use customers and other distribution utilities. The company has relationships with 12 different natural gas marketing firms; these companies peddle the gas to end users, so all AGL is responsible for is delivering it to them. This allows AGL to sell a large amount of gas without the high overhead costs associated with marketing and delivery; it also decreases AGL's debt exposure, as regulations require utilities and marketing companies to exhibit their ability to pay before making the purchase. The only downside is that revenues from sales to marketing firms are lower than with sales to end users, because AGL must sell the gas at a better price if marketing customers are to eventually turn it around and sell it to consumers for a profit.

Business and Financial Metrics

Second Quarter 2010 Results (ended June 30, 2010)[2]

AGL Resources reported second quarter net income of $14 million, or $0.17 per basic (and diluted) share, compared with $20 million, or $0.26 per basic (and diluted) share, for the second quarter of 2009. The company's second quarter 2010 financials reflect lower results in the wholesale business related to natural gas prices and their effects on storage and transportation hedges and, to a lesser extent, weather impacts on the retail business during the quarter. Revenues for the quarter totaled $359 million, compared to $377 in the second quarter of 2009.

Important developments during the quarter included the approval of a rate increase and new rate design for the AGL's Chattanooga Gas franchise, significant progress in creating the first cavern at the Golden Triangle Storage project in Texas, and filing a permit application to expand its existing natural gas storage facility in Louisiana. In addition, on July 1, AGL completed the sale of AGL Networks, the company's telecommunications business, which was a non-core asset.

Modern Gas Utilities Pay Lower Dividends

In the past, utilities paid high dividends because stringent government regulation kept them from having much growth potential. This made them very sensitive to short-term interest rates, as higher interest rates made government bonds more attractive as investments; more people investing in government bonds meant less people buying utilities stock, causing shares to fall. Now, however, the combination of deregulation and the diversification of gas utilities into energy trading, generation, and other businesses mean that the companies have greater growth potential and less exposure to interest rate effects. Now, though utilities still pay dividends, these are lower than in the past - because utilities companies now have a chance for strong share growth, so high dividends are no longer necessary to serve shareholder interests.[3][4]

Business Segments

Distribution Operations[1]

The distribution operations segment includes six natural gas local distribution utilities. These utilities construct, manage and maintain intrastate natural gas pipelines and distribution facilities. It includes Atlanta Gas Light in Georgia, Chattanooga Gas in Tennessee, Elizabethtown Gas in New Jersey, Elkton Gas in Maryland, Florida City Gas in Florida and Virginia Natural Gas in Virginia. Atlanta Gas Light’s role includes distributing natural gas for marketers; constructing, operating and maintaining the gas system infrastructure, including responding to customer service calls and leaks; reading meters and maintaining underlying customer information for marketers, and planning and contracting for capacity on interstate transportation and storage systems.

Retail Energy Operations[1]

The retail energy operations segment consists of SouthStar Energy Services LLC (SouthStar), a joint venture owned 85% by the Company’s subsidiary, Georgia Natural Gas Company, and 15% by Piedmont Natural Gas (Piedmont). SouthStar markets natural gas and related services under Georgia Natural Gas to retail customers on an unregulated basis in Georgia, as well as Ohio and Florida. In addition, SouthStar markets gas to commercial and industrial customers in Alabama, Tennessee, North Carolina, South Carolina and Georgia.

Wholesale Services[1]

The wholesale services segment consists primarily of Sequent Energy Management, L.P. (Sequent), a subsidiary involved in asset management and optimization, storage, transportation, producer and peaking services and wholesale marketing. Sequent provides its customers with natural gas from the producing regions and market hubs in the United States and Canada. Sequent’s asset management customers include affiliated and non-affiliated utilities, municipal utilities, power generators and industrial customers. Sequent’s producer services business focuses on aggregating natural gas supply from various small and medium-sized producers located throughout the natural gas production areas of the United States.

Energy Investments[1]

The energy investments segment includes businesses that are related and complementary to the primary business. It includes natural gas storage business, which develops, acquires and operates salt-dome and other storage assets in the Gulf Coast region of the United States. Jefferson Island Storage & Hub, LLC (Jefferson Island), the Company’s wholly owned subsidiary operates a salt dome storage and hub facility in Louisiana, approximately eight miles from the Henry Hub and consists of two salt dome storage caverns.

AGL Networks, LLC (AGL Networks), the Company’s wholly owned subsidiary provides telecommunications conduit and available for use or dark fiber optic cable. AGL Networks leases and sells its fiber to a range of customers in the Atlanta, Georgia, Phoenix, Arizona and Charlotte, North Carolina metropolitan areas in the United States. Its customers include local, regional and national telecommunications companies, Internet service providers, educational institutions and other commercial entities. AGL Networks provides underground conduit and dark fiber to its customers under leasing arrangements with terms that vary from one to twenty years. In addition, AGL Networks offers telecommunications construction services to its customers.


The corporate segment includes the nonoperating business units. AGL Services Company is a service company established to provide certain centralized shared services to the operating segments. AGL Capital Corporation (AGL Capital), the wholly owned finance subsidiary provides for ongoing financing needs through a commercial paper program, the issuance of various debt and hybrid securities, and other financing arrangements. The corporate segment also includes intercompany eliminations for transactions between the operating business segments.

Trends and Forces

Government Regulation of Gas Distribution Gives the Company Little Control over its Margins

Utilities tend to be highly regulated business in the U.S., with the national government setting transmissions rates and state governments setting electric and gas distribution rates. These rules are designed to ensure both profitability for the company and accessibility for the consumer, but often hold back utilities companies, like AGL, from achieving potential revenues and profitability by preventing them from charging delivery rates that the level of demand would really allow. Regulation can also cause the company's margins to be very volatile, as lobbying the government is the only way the company can control its prices. Unfortunately, natural gas costs fluctuate very rapidly, but it takes a long time for AGL's lobbyists to convince state and regional regulators to raise the price ceiling. For the most part, regulators will only raise rates if the company can show that something, whether rising costs or inflationary pressure, is causing their margins to shrink to unfair levels.

Regulation Varies Geographically; AGL's Business is Concentrated in Georgia

Utilities regulations vary from state to state and, sometimes, region to region. AGL Resources operates in Florida, Georgia, Maryland, New Jersey, Tennessee, and Virginia. Most regulatory schemes limit the amount a gas company can charge for a unit of gas (such as a cubic foot). In Georgia, however, the regulatory scheme allows AGL Resources to charge a set monthly rate independent of a customer's usage. This means that the company's revenues stay stable in the region no matter what the weather. Of AGL's 2.27 million gas customers, 68.6% percent live in Georgia[5], meaning that the majority of the company's sales are hedged against the weather and gas-use fluctuations that are the bane of other gas utilities.

Despite the Company's Georgia Operations, AGL's Revenues Follow Seasonal Patterns; Unusual Seasons Mean Unusual Sales

Natural gas is used most commonly in home heating systems, making its demand partially dependent on the temperature outside. First- and fourth-quarter revenues for AGL Resources tend to be higher than second- and third-quarter revenues because late fall through early spring are much colder than late spring through early fall. AGL Resources' distribution segment saw 2007 revenues of $123 million (1Q)[6], $64 million (2Q)[7], $55 million (3Q)[8], and $96 million (4Q)[9], effectively illustrating how cold temperatures lead to higher gas revenues. This temperature dependence also means that unusual seasonality has a real effect on the company's operations; warmer winters, a predicted outcome of global climate change, will damage the company's revenues by decreasing demand at a key part of the year.

Incidentally, the gas utilities demand cycle is exactly opposite that of electric utilities, who see higher demand in warmer months because air conditioning units are electrically powered.

Fluctuating Natural Gas Prices Make AGL's Margins Much Less Predictable

AGL Resources is not a natural gas exploration and production company, so it must purchase the natural gas it sells from other companies. Natural gas prices are extremely volatile, fluctuating between $5/cf and $10/cf several times in the past three years; though AGL tries to hedge against these fluctuations by purchasing long-term supply contracts, most E&P companies are loath to sell at fixed prices natural gas prices are trending upwards. Furthermore, utilities regulations mean that AGL Resources cannot pass rising costs onto consumers, giving the company less control of its margins.


AGL Resources operates its gas delivery services in Florida, Georgia, Maryland, New Jersey, Tennessee, and Virginia. In the markets it serves, the company has little real competition thanks to the high cost of infrastructure installation; government regulation, however, keeps the company from charging the rates and turning the profits that would otherwise be expected of a monopolist that sells products with inelastic demand. On a larger scale, AGL competes with other gas utilities like:

  • Atmos Energy - Atmos operates in Texas, Kentucky, Louisiana, Mississippi, Colorado, Kansas, Tennessee, Georgia, Illinois, Iowa, Missouri, and Virginia. It is not only a gas utility but also a natural gas marketing, pipeline, and storage company.
  • Energen - Energen is an energy holding company that operates in a variety of businesses, from oil exploration and production to natural gas marketing and distribution. Its utilities business is the largest gas distributor in Alabama.
  • Equitable Resources - Equitable Resources is a vertically integrated natural gas company that operates from the upstream to natural gas distribution. Its gas utilities operate in Pennsylvania, West Virginia, and Kentucky.
  • National Fuel Gas Company - NFG is a diversified natural gas company that does exploration, production, transportation, marketing, and distribution of gas; its utilities segment operates in New York and Pennsylvania.
  • ONEOK - ONEOK is a transport and distribution company that acts as a utility in Oklahoma, Kansas, and Texas.
  • Sempra Energy - Sempra is a gas and electric utilities company in California.
  • Southern Union Company - Southern Union is engaged in the storage, transport, production, and refining of [[natural gas; its utilities business operates in Missouri and Massachusetts.
  • National Grid Transco - National Grid is a gas and [[utilities company that operates in the United Kingdom and the United State; in the U.S., it operates in Rhode Island and New York.
Gas Utilities Metrics
AGL Resources[10] Atmos Energy[11] Energen[12] Equitable Resources[13] National Fuel Gas Company[14] ONEOK[15] Sempra Energy Southern Union Company[16] National Grid Transco
Total Revenue (Millions) $2,494 $5,898 $1,435 $1,361 $2,039 $13,488 $11,438[17] $2,617 £8,778
Gas Delivered (Bcf) 319 297.3 82.7 49.5 38.98 176.55 N/A 56.2 N/A
Number of Utilities Customers (thousands) 2,271 3,187 451 274[18] 725[19] 2,050 N/A 552 11,571[20]


  1. 1.0 1.1 1.2 1.3 1.4 1.5 1.6 Reuters: AGL Resources Company Profile
  2. AGL Resources Investor Relations: "AGL Resources Reports Second Quarter 2010 Results; Reaffirms Fiscal 2010 Earnings Guidance" July 29, 2010
  3. Business Week: "Utility Stocks With Plenty of Spark"
  4. USA Today: "Utilities funds turn into power players"
  5. ATG 2007 10-K, Page 31
  6. AGL 1Q07 Earnings Release
  7. AGL 2Q07 Earnings Release
  8. AGL 3Q07 Earnings Release
  9. AGL 4Q07 Earnings Release
  10. ATG 2007 10-K
  11. ATO 2007 10-K
  12. EGN 2007 1-K
  13. EQT 2007 10-K
  14. NFG 2007 10-K
  15. OKE 2007 10-K
  16. SUG 2007 10-K
  17. SRE 2007 10-K
  18. Equitable Resources: Equitable Utilities: Equitable Gas
  19. Reuters Full Description: National Fuel Gas Co
  20. Reuters: Full Description: National Grid Transco

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