The Evolving Roles and Responsibilities of Gas Utilities In Today’s Markets

Presented by:Hank LinginfelterExecutive Vice President, Utility Operations

How Georgia Is Giving Customers More Choices, Options and Opportunities

2

Virginia Joint-Use Pipeline

AGL Resources

MARYLAND

*Jefferson Island Storage & Hub current total capacity; working gas capacity is 7.2 Bcf.

**FERC does not regulate rates for AGL Resources’ six utility jurisdictions.

NEW JERSEY

Company ProfileAssets $5.7 billionCustomers 2.3 millionMarket Capitalization $2.8 billionEmployees 2,400Distribution Pipeline 45,000 milesSalt-Dome Storage 10 Billion cubic feet (Bcf)*Liquefied Natural Gas 5 facilitiesRegulatory Jurisdictions 6 States and FERC**

3

Why deregulate?

Anticipated electric

deregulation

The sale of natural gas was

characterized by asymmetric

regulatory risk

Proposed legislation in 1996 led to formation of a legislative study

committee

Historic natural gas price advantage

was at risk of being eroded

4

Goals of Deregulation Legislation• Promote Competition• Protect the Consumer• Maintain and encourage safe and reliable natural gas service• Deregulate those components of the natural gas industry

where competition exists• Continue to regulate those natural gas services subject to

monopoly power• Promote an orderly and expeditious transition toward fully

developed competition• Provide for various rate-making methods (Straight Fixed

Variable rate design) and depart from cost of service based rates

• Allow gas companies the opportunity to compete effectively in a competitive marketplace

5

Key Phases of Deregulation provided for by SB 215*

*Completed independently for each of Georgia’s 9 delivery groups, but all 9 were on the same schedule.

Phase 0: LDC election and marketer certification

Phase 1: Competition began

Phase 2: Forced Assignment

Phase 3: Full-scale competition

Description

Dates &Duration

AGLC filed an election rate case and marketers (unregulated providers) filed petitions for certification to compete

Rate case began 11/26/97 (7 month duration)Initial Certificationsbegan 7/15/98(3.5 month duration)

Customers had the option of choosing an unregulated gas provider; customers who did not select a marketer remained with AGLC

Began 10/6/98until conditions of a competitive market were satisfied

Customers were notified that they must choose a marketer within 100 days or they would be randomly assigned one

5/3/99 - 8/11/99

Customers currently are free to switch suppliers, constrained only by the terms and conditions of their agreements with new unregulated providers

After 10/1/99

Forced assignment: customers who had not chosen

a marketer were assigned to marketers according to each

marketer’s share of customers who had chosen; AGLC exited the merchant function entirely

100% of customers

served by a natural gas marketer

6

Role of the Utility, Marketers, and Commission

Utility• Unbundled Services• Performance Based

Rates• Subject to Service

Standards• Subject to Traditional

LDC Regulation– Safety Monitoring– Rate Cases

Utility• Unbundled Services• Performance Based

Rates• Subject to Service

Standards• Subject to Traditional

LDC Regulation– Safety Monitoring– Rate Cases

Marketers• All customer service

functions– Billing– Call center– Gas purchasing

Marketers• All customer service

functions– Billing– Call center– Gas purchasing

Commission• Responsible for

traditional regulatory oversight of AGLC

– Rate Cases– Service Standards– Operational Safety

• Responsible for regulatory oversight of marketers

– Service Standards– Billing practices

Commission• Responsible for

traditional regulatory oversight of AGLC

– Rate Cases– Service Standards– Operational Safety

• Responsible for regulatory oversight of marketers

– Service Standards– Billing practices

7

Georgia’s Unbundling Model Compared to Other Models

"Pipes" Transportation Service

Gas Sales – Interruptible

Marketing

Gas Sales - Firm

Meter Reading

Billing, Collections, Remittance

Regulated

Unbundled

Unbundled

Unbundled

Unbundled

Unbundled

Regulated

Bundled

Unbundled

Bundled

Bundled

Bundled

Georgia ModelMost

Other Models

Traditional Local

Distribution Company Bundle of Services

8

Interstate Capacity• Commission requires that a Capacity Supply

Plan be filed every 3 years• AGLC contracts for all interstate capacity on

behalf of marketers– Marketers are responsible for all gas purchases– Capacity allocation based on market share– 70% of capacity release is 36 month; 30% is month-

to-month to allow for changes in customer base

• Marketers and PSC staff participate in creation of the Plan

9

Marketer Choice• 11 active marketers currently• Marketers offer both fixed and variable rate

plans• Senior Citizen rates available through most

marketers• Low-Income (including low-income senior)

plans available through Regulated Provider• Customers are allowed 1 free marketer switch

per year• Customers often make non-priced marketer

choices

10

Southeastern Rate ComparisonAnnual Bill

Ten

nes

see,

$96

0

Geo

rgia

Mu

nic

ipal

itie

s,

$975

No

rth

Car

olin

a, $

1,04

2

Flo

rid

a, $

1,15

0

So

uth

Car

olin

a, $

1,21

0

Ala

bam

a, $

1,23

9

Geo

rgia

Mar

kete

r (a

vera

ge

low

est

3 fi

xed

p

lan

s), $

1,02

0

Geo

rgia

Mar

kete

r (a

vera

ge

low

est

3 va

riab

le

pla

ns)

, $1,

055

Geo

rgia

Mar

kete

r (a

vera

ge

all p

lan

s), $

1,13

6

Geo

rgia

Hig

hes

t M

arke

ter

(hig

hes

t va

riab

le p

lan

),

$1,1

89

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

Annual bill for residential consumer based on usage of 717 therms annually; 12 months ending Jan. 2007

11

Default Provider

Solution: Regulated Provider

• Established in Natural Gas Consumers’ Relief Act of 2002

• Designed to serve LIHEAP qualified (Group 1) and high-risk (Group 2) customers

Solution: Regulated Provider

• Established in Natural Gas Consumers’ Relief Act of 2002

• Designed to serve LIHEAP qualified (Group 1) and high-risk (Group 2) customers

Under other deregulation models, some customers are allowed to receive utility service

Under other deregulation models, some customers are allowed to receive utility service

Problem: • Under the Georgia

model, the utility serves no end-use customers

Problem: • Under the Georgia

model, the utility serves no end-use customers

12

Regulated Provider• RP is not a traditional provider of last resort• Group 1 Customers in arrears are automatically

transferred the Group 2 (service is not lost) until the customer becomes current

• The regulated provider is chosen through an RFP process conducted by the Georgia Public Service Commission

• Regulated provider offers fixed and variable rate plans for each group

13

Deregulation Success?10 years after deregulation began….• All Georgia natural gas consumers have the

opportunity to realize lower prices through customer choice of marketers

• Customers choose marketers on more than price alone

• Low-income and high-risk customers have choice

The Evolving Roles and Responsibilities of Gas Utilities In Today’s Markets

Presented by:Hank LinginfelterExecutive Vice President, Utility Operations

How Georgia Is Giving Customers More Choices, Options and Opportunities