Attached files
SouthStar Energy Services
Mike Braswell
Chief Executive Officer
SouthStar Energy Services
Chief Executive Officer
SouthStar Energy Services
2
2010 Analyst Meeting
Forward-Looking Statements
Certain expectations and projections regarding our future performance referenced in this presentation, in other reports or statements we file with the SEC or otherwise release to the public,
and on our website, are forward-looking statements. Senior officers and other employees may also make verbal statements to analysts, investors, regulators, the media and others that are
forward-looking. Forward-looking statements involve matters that are not historical facts, such as statements regarding our future operations, prospects, strategies, financial condition,
economic performance (including growth and earnings), industry conditions and demand for our products and services. Because these statements involve anticipated events or conditions,
forward-looking statements often include words such as "anticipate," "assume," "believe," "can," "could," "estimate," "expect," "forecast," "future," "goal," "indicate," "intend," "may,"
"outlook," "plan," "potential," "predict," "project," "seek," "should," "target," "would," or similar expressions. Our expectations are not guarantees and are based on currently available
competitive, financial and economic data along with our operating plans. While we believe our expectations are reasonable in view of the currently available information, our expectations
are subject to future events, risks and uncertainties, and there are several factors - many beyond our control - that could cause results to differ significantly from our expectations.
and on our website, are forward-looking statements. Senior officers and other employees may also make verbal statements to analysts, investors, regulators, the media and others that are
forward-looking. Forward-looking statements involve matters that are not historical facts, such as statements regarding our future operations, prospects, strategies, financial condition,
economic performance (including growth and earnings), industry conditions and demand for our products and services. Because these statements involve anticipated events or conditions,
forward-looking statements often include words such as "anticipate," "assume," "believe," "can," "could," "estimate," "expect," "forecast," "future," "goal," "indicate," "intend," "may,"
"outlook," "plan," "potential," "predict," "project," "seek," "should," "target," "would," or similar expressions. Our expectations are not guarantees and are based on currently available
competitive, financial and economic data along with our operating plans. While we believe our expectations are reasonable in view of the currently available information, our expectations
are subject to future events, risks and uncertainties, and there are several factors - many beyond our control - that could cause results to differ significantly from our expectations.
Such events, risks and uncertainties include, but are not limited to, changes in price, supply and demand for natural gas and related products; the impact of changes in state and federal
legislation and regulation including changes related to climate change; actions taken by government agencies on rates and other matters; concentration of credit risk; utility and energy
industry consolidation; the impact on cost and timeliness of construction projects by government and other approvals, development project delays, adequacy of supply of diversified
vendors, unexpected change in project costs, including the cost of funds to finance these projects; the impact of acquisitions and divestitures; direct or indirect effects on our business,
financial condition or liquidity resulting from a change in our credit ratings or the credit ratings of our counterparties or competitors; interest rate fluctuations; financial market conditions,
including recent disruptions in the capital markets and lending environment and the current economic downturn; general economic conditions; uncertainties about environmental issues and
the related impact of such issues; the impact of changes in weather, including climate change, on the temperature-sensitive portions of our business; the impact of natural disasters such
as hurricanes on the supply and price of natural gas; acts of war or terrorism; and other factors which are provided in detail in our filings with the Securities and Exchange Commission.
Forward-looking statements are only as of the date they are made, and we do not undertake to update these statements to reflect subsequent changes.
legislation and regulation including changes related to climate change; actions taken by government agencies on rates and other matters; concentration of credit risk; utility and energy
industry consolidation; the impact on cost and timeliness of construction projects by government and other approvals, development project delays, adequacy of supply of diversified
vendors, unexpected change in project costs, including the cost of funds to finance these projects; the impact of acquisitions and divestitures; direct or indirect effects on our business,
financial condition or liquidity resulting from a change in our credit ratings or the credit ratings of our counterparties or competitors; interest rate fluctuations; financial market conditions,
including recent disruptions in the capital markets and lending environment and the current economic downturn; general economic conditions; uncertainties about environmental issues and
the related impact of such issues; the impact of changes in weather, including climate change, on the temperature-sensitive portions of our business; the impact of natural disasters such
as hurricanes on the supply and price of natural gas; acts of war or terrorism; and other factors which are provided in detail in our filings with the Securities and Exchange Commission.
Forward-looking statements are only as of the date they are made, and we do not undertake to update these statements to reflect subsequent changes.
Supplemental Information
Company management evaluates segment financial performance based on earnings before interest and taxes (EBIT), which includes the effects of corporate expense allocations and on
operating margin. EBIT is a non-GAAP (accounting principles generally accepted in the United States of America) financial measure that includes operating income, other income and
expenses. Items that are not included in EBIT are financing costs, including debt and interest expense and income taxes. The company evaluates each of these items on a consolidated
level and believes EBIT is a useful measurement of our performance because it provides information that can be used to evaluate the effectiveness of our businesses from an operational
perspective, exclusive of the costs to finance those activities and exclusive of income taxes, neither of which is directly relevant to the efficiency of those operations.
operating margin. EBIT is a non-GAAP (accounting principles generally accepted in the United States of America) financial measure that includes operating income, other income and
expenses. Items that are not included in EBIT are financing costs, including debt and interest expense and income taxes. The company evaluates each of these items on a consolidated
level and believes EBIT is a useful measurement of our performance because it provides information that can be used to evaluate the effectiveness of our businesses from an operational
perspective, exclusive of the costs to finance those activities and exclusive of income taxes, neither of which is directly relevant to the efficiency of those operations.
Operating margin is a non-GAAP measure calculated as operating revenues minus cost of gas, excluding operation and maintenance expense, depreciation and amortization, and taxes
other than income taxes. These items are included in the company's calculation of operating income. The company believes operating margin is a better indicator than operating revenues
of the contribution resulting from customer growth, since cost of gas is generally passed directly through to customers.
other than income taxes. These items are included in the company's calculation of operating income. The company believes operating margin is a better indicator than operating revenues
of the contribution resulting from customer growth, since cost of gas is generally passed directly through to customers.
EBIT and operating margin should not be considered as alternatives to, or more meaningful indicators of, the company's operating performance than operating income or net income
attributable to AGL Resources Inc. as determined in accordance with GAAP. In addition, the company's EBIT and operating margin may not be comparable to similarly titled measures of
another company.
attributable to AGL Resources Inc. as determined in accordance with GAAP. In addition, the company's EBIT and operating margin may not be comparable to similarly titled measures of
another company.
Reconciliations of non-GAAP financial measures referenced in this presentation are available on the company’s Web site at www.aglresources.com.
Cautionary Statements and Supplemental Information
3
2010 Analyst Meeting
2009 Key Achievements
• Achieved full year 2009 earnings (EBT) of $108 million*
• Launched successful integrated marketing campaign in GA
resulting in customer growth and market share gains in 1Q
2010
resulting in customer growth and market share gains in 1Q
2010
– Leveraged exclusive landfill
gas deal to create “recycled
gas” ad campaign
gas deal to create “recycled
gas” ad campaign
– Developed new billing
functionality to broaden
price offerings
functionality to broaden
price offerings
– Continued to leverage new sales
team at call center
team at call center
• Completed meter-to-cash BPO vendor transition reducing
year-over-year operating expenses by $3 million
year-over-year operating expenses by $3 million
* Results represent 100% of SouthStar earnings. See slide 4 for further detail.
4
2010 Analyst Meeting
2009 Key Achievements
• Capitalized on commercial opportunities in 2009
– Leveraged storage and transportation assets in Georgia and Ohio
to capture incremental earnings
to capture incremental earnings
• Generated strong margin contribution from Southeastern large
commercial and industrial (C&I) markets
commercial and industrial (C&I) markets
• Continued successful growth in expanded markets (Ohio and
Florida), resulting in a $4 million increase in 2009 margin
contribution as compared to 2008
Florida), resulting in a $4 million increase in 2009 margin
contribution as compared to 2008
5
2010 Analyst Meeting
• Earnings before tax. SouthStar’s EBT is equal to net income as it does not record income taxes because of its partnership
structure. Results represent 100% of SouthStar earnings, which effective January 1, 2010 are split 85% to AGL Resources and
15% to Piedmont Natural Gas. Lower-of-cost-or-market (LCM) inventory adjustments are +$6MM in 2006; -$6MM in 2007;
+$17MM in 2008; and -$11MM in 2009. No LCM adjustment is included in the 2010P.
structure. Results represent 100% of SouthStar earnings, which effective January 1, 2010 are split 85% to AGL Resources and
15% to Piedmont Natural Gas. Lower-of-cost-or-market (LCM) inventory adjustments are +$6MM in 2006; -$6MM in 2007;
+$17MM in 2008; and -$11MM in 2009. No LCM adjustment is included in the 2010P.
6
2010 Analyst Meeting
Markets, Customers and Volumes
* Customer counts known as of May 2010
** Projected FY10 throughput
|
Customer and Throughput Information
|
||
|
|
Customers & Customer
Equivalents* (000s) |
Annual
Throughput** (Bcf) |
|
Georgia (Mass)
|
506
|
45
|
|
Ohio
|
30
40 |
4
6 |
|
Florida
|
1
8 |
1
0.3 |
|
SE Large C&I
Markets (including Georgia) |
0.3
|
18
|
|
Total
|
585
|
74
|
Customers
Cust. Equiv.
TECO Cust.
CFG Cust.
Mississippi
Alabama
Georgia
Tennessee
Kentucky
Virginia
West
Virginia
Ohio
Pennsylvania
New York
Maine
Connecticut
Rhode Island
Massachusetts
New Hampshire
North Carolina
South
Carolina
Florida
New Jersey
Maryland
Delaware
District of Columbia
Michigan
Core Retail Market
Expanded Retail
Markets
C&I Markets
Emerging Markets
7
2010 Analyst Meeting
|
Current Environment
|
Business Impact
|
|
Moderate wholesale prices:
• Generally robust supply outlook and dampened
demand • Many analysts expect natural gas prices to stay in a
range around $4-6/DT, which is consistent with the current NYMEX curve |
Low to moderate prices generally improve customer
usage and lower bad debt. Lower prices could offset some of the effects of colder weather and poor economic conditions on consumer interest |
|
Relatively tight seasonal spreads:
• Reasonable ending season inventory levels (1.65
Tcf). Incremental 100+ Bcf of storage capacity 2010 vs. 2009. Risk of “storage box” less in 2010 vs. 2009 partly due to increased storage • Demand reductions are forecast due to reduced fuel
switching from coal slightly offset by higher industrial demand and reduced availability of hydro power in the west • Mixed views on the strength of domestic production
are influencing price and seasonal spreads (forecasts of beginning inventory levels range from 3.65 Tcf to 4.1 Tcf) |
Currently, seasonal spreads are tighter than those
experienced in 2009 and there is a moderate likelihood of a “storage box”. These factors reduce the expected value of SouthStar’s storage contribution in 2010 versus 2009 |
|
Reduced transportation / basis values:
• Increased infrastructure development
• Shale gas development in the East
|
Basis differentials are contracting, reducing
SouthStar’s value from transportation in 2010 as compared to 2009 |
Macroeconomic / Market Update
8
2010 Analyst Meeting
|
Current Environment
|
Business Impact
|
|
Impact of 2008 NYMEX volatility persists on select
Georgia (Atlanta Gas Light) assets: • Dramatic run-up in gas prices during storage
injection season in 2008, followed by subsequent collapse in 2009, resulting in higher-priced Atlanta Gas Light-owned storage assets
|
Atlanta Gas Light Company-managed inventory: A
significant overhang persists for SouthStar and other marketers Atlanta Gas Light Company and marketers have
begun discussions to address this issue in the 2010 Capacity Supply Plan |
|
Retail competition and customer shopping remain
high: • Retail markets of all industries are being impacted
by unprecedented value-seeking shoppers • This behavior has been exacerbated by a poor
economy and an extremely cold winter in Georgia |
There is increased pressure on retail prices and
price plan mix creating greater required investment in marketing necessary for customer acquisition and retention |
|
Economic Challenges Continue:
• Struggling economy and high unemployment persist,
but some signs of moderation exist
|
There are more credit-challenged customers in the
marketplace. Utility systems have experienced slower growth or, in some cases, contraction |
|
Focus on Environmental Responsibility:
• Increased interest in individual and societal impacts
on the environment |
Favorably positions natural gas as an energy source.
Increases consumer interest in corporate environmental responsibility. As a result, SouthStar has created a strong environmental attribute associated with its Georgia Natural Gas brand |
Macroeconomic / Market Update
9
2010 Analyst Meeting
|
Business Opportunity / Risk
|
Description
|
Actions / Mitigations
|
|
Increase Georgia addressable market and
deepen GNG’s brand appeal |
Introduce Pre-pay plan and continue marketing
campaign to emphasize GNG’s corporate responsibility |
Pre-pay plan rollout scheduled for summer
2010 Marketing initiatives underway
|
|
Increase retail customer base in Ohio
|
Build brand and leverage market presence with
consumers in Ohio |
Execute direct marketing campaign to grow
customer count in Ohio |
|
Capture earnings from emerging market
opportunities |
Several state gas choice programs may represent
potential future markets and earnings sources for SouthStar |
Analyze market structure and earnings
potential to assess viability and timing of adding new markets |
|
Continue to develop SouthStar’s operating
model to enable new market growth in scalable and cost effective manner |
Develop processes and improve technology to
reduce costs and improve service delivery while maintaining flexibility to add new markets |
Continue to improve, integrate and
standardize processes and technology to capture cost efficiencies and create a scalable operating model for expansion |
|
Georgia Retail Environment
• Increased competitor activity
• Increased consumer shopping
|
Increased competition and high consumer interest
with heavy promotion of fixed price |
Execute integrated plan that leverages
marketing, customer service, billing and new product offerings |
|
Higher-priced Georgia assets (storage
inventory) owned by Atlanta Gas Light |
Increased storage costs and limited value capture
from storage spreads |
Active participation in 2010 Atlanta Gas Light
Company Capacity Supply Plan |
|
Weather
|
• Mild summer reduces commercial opportunities
• Warmer than normal weather in 4Q2010
|
• Increasing emphasis on term deals
• Weather hedge for 4Q2010
|
|
Commodity / Basis Risk
|
Price effectuation, swing, high wholesale prices,
fixed price offerings, etc. |
Commodity and basis hedging
|
|
Bad Debt
|
Uncollectible revenue
|
Robust credit policies, procedures and
controls |
Key Opportunities and Risks
10
2010 Analyst Meeting
Business
Area
Area
Objective
Business Plan
Continue integrated marketing campaign including advertising.
Introduce a variable price pre-pay plan to increase addressable
market and bolster mix
Introduce a variable price pre-pay plan to increase addressable
market and bolster mix
Core
Retail
Market
Retail
Market
Maintain GA market share and
mitigate degradation of portfolio
mix in a mature market and
difficult economy
mitigate degradation of portfolio
mix in a mature market and
difficult economy
Execute marketing campaign including direct mail and telemarketing.
Develop formal retention programs for customers behind each LDC.
Plan to continue participating in auctions behind the major Ohio
LDCs.
Develop formal retention programs for customers behind each LDC.
Plan to continue participating in auctions behind the major Ohio
LDCs.
Expanded
Retail
Markets
Retail
Markets
Grow retail customer base in
Ohio and Florida while continuing
participation in LDC auctions and
open enrollments
Ohio and Florida while continuing
participation in LDC auctions and
open enrollments
Develop a prioritization of market opportunities to begin market
entry and business planning
entry and business planning
Emerging
Markets
Markets
Assess opportunities available to
SouthStar in emerging markets
SouthStar in emerging markets
Actively work with Atlanta Gas Light and other marketers to achieve
a favorable outcome in 2010 Atlanta Gas Light Company Capacity
Supply Plan to improve ability to optimize Georgia assets. Continue
commercial focus on aggressively managing assets and risks in the
business
a favorable outcome in 2010 Atlanta Gas Light Company Capacity
Supply Plan to improve ability to optimize Georgia assets. Continue
commercial focus on aggressively managing assets and risks in the
business
Commercial
Operations
Operations
Position commercial business to
create incremental value from
asset management and manage
risks inherent in retail business
create incremental value from
asset management and manage
risks inherent in retail business
Leverage retail market position to strategically grow large customer
portfolio
portfolio
Large C&I
Markets
Markets
Continue to increase contribution
from large customer segment
from large customer segment
Distributed 100% of 2009 earnings (EBT) to member companies
Projected 2010 earnings (EBT) of $95 - 105 million
Financial
Achieve short term earnings
targets while maintaining
investment in business to create
long-term value
targets while maintaining
investment in business to create
long-term value
2010 Areas of Focus