SOUTHERN Co GAS - FORM 10-Q

Attached files

file	filename
EXCEL - IDEA: XBRL DOCUMENT - SOUTHERN Co GAS	Financial_Report.xls
EX-31.2 - CERTIFICATION OF ANDREW W. EVANS - SOUTHERN Co GAS	exhibit_31-2.htm
EX-32.2 - CERTIFICATION OF ANDREW W. EVANS - SOUTHERN Co GAS	exhibit_32-2.htm
EX-31.1 - CERTIFICATION OF JOHN W. SOMERHALDER II - SOUTHERN Co GAS	exhibit_31-1.htm
EX-32.1 - CERTIFICATION OF JOHN W. SOMERHALDER II - SOUTHERN Co GAS	exhibit_32-1.htm

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

QUARTERLY REPORT PURSUANT TO SECTION 13 OF
THE SECURITIES EXCHANGE ACT OF 1934

For the Quarterly Period Ended March 31, 2015



Commission File Number 1-14174

AGL RESOURCES INC.
Ten Peachtree Place NE, Atlanta, Georgia 30309
404-584-4000

Georgia	58-2210952
(State of incorporation)	(I.R.S. Employer Identification No.)


AGL Resources Inc. (1) has filed all reports required to be filed by Section 13 of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

AGL Resources Inc. has submitted electronically and posted on its corporate website every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.

AGL Resources Inc. is a large accelerated filer and is not a shell company.

The number of shares of AGL Resources Inc.’s common stock, $5.00 Par Value, outstanding as of April 23, 2015, was 119,934,611.

Glossary of Key Terms

Table of Contents

AGL RESOURCES INC.

Quarterly Report on Form 10-Q

For the Quarter Ended March 31, 2015

TABLE OF CONTENTS

			Page
Glossary of Key Terms				3

Item Number.
		PART I - FINANCIAL INFORMATION

	1	Condensed Consolidated Financial Statements (Unaudited)		4
		Condensed Consolidated Statements of Financial Position		4
		Condensed Consolidated Statements of Income		5
		Condensed Consolidated Statements of Comprehensive Income		6
		Condensed Consolidated Statements of Equity		7
		Condensed Consolidated Statements of Cash Flows		8
		Notes to Condensed Consolidated Financial Statements (Unaudited)		9
		Note 1 - Organization and Basis of Presentation		9
		Note 2 - Significant Accounting Policies and Methods of Application		9
		Note 3 - Regulated Operations		13
		Note 4 - Fair Value Measurements		14
		Note 5 - Derivative Instruments		15
		Note 6 - Employee Benefit Plans		17
		Note 7 - Debt and Credit Facilities		17
		Note 8 - Equity		18
		Note 9 - Non-Wholly Owned Entities		19
		Note 10 - Commitments, Guarantees and Contingencies		21
		Note 11 - Segment Information		22
		Note 12 - Discontinued Operations		24
	2	Management’s Discussion and Analysis of Financial Condition and Results of Operations		25
		Forward-Looking Statements		25
		Executive Summary		25
		Results of Operations		27
		Liquidity and Capital Resources		33
		Critical Accounting Policies and Estimates		36
		Accounting Developments		36
	3	Quantitative and Qualitative Disclosures About Market Risk		36
	4	Controls and Procedures		39
		PART II - OTHER INFORMATION

	1	Legal Proceedings		39
	1A	Risk Factors		39
	2	Unregistered Sales of Equity Securities and Use of Proceeds		39
	6	Exhibits		39

		SIGNATURE		40

Glossary of Key Terms

Table of Contents

GLOSSARY OF KEY TERMS

2014 Form 10-K	Our Annual Report on Form 10-K for the year ended December 31, 2014, filed with the SEC on February 12, 2015
2014 Form 10-Q/A	Our Quarterly Report on Form 10-Q/A for the period ended March 31, 2014, filed with the SEC on November 26, 2014
AGL Capital	AGL Capital Corporation
AGL Credit Facility	$1.3 billion credit agreement entered into by AGL Capital to support its commercial paper program
AGL Resources	AGL Resources Inc., together with its consolidated subsidiaries
Atlanta Gas Light	Atlanta Gas Light Company
Atlantic Coast Pipeline	Atlantic Coast Pipeline, LLC
Bcf	Billion cubic feet
Central Valley	Central Valley Gas Storage, LLC
CUB	Citizens Utility Board
EBIT	Earnings before interest and taxes, the primary measure of our reportable segments’ profit or loss, which includes operating income and other income and excludes financing costs, including interest on debt and income tax expense
ERC	Environmental remediation costs
FASB	Financial Accounting Standards Board
Fitch	Fitch Ratings
GAAP	Accounting principles generally accepted in the United States of America
Georgia Commission	Georgia Public Service Commission, the state regulatory agency for Atlanta Gas Light
Golden Triangle	Golden Triangle Storage, Inc.
Heating Degree Days	A measure of the effects of weather on our businesses, calculated when the average daily temperatures are less than 65 degrees Fahrenheit
Heating Season	The period from November through March when natural gas usage and operating revenues are generally higher
Horizon Pipeline	Horizon Pipeline Company, LLC
Illinois Commission	Illinois Commerce Commission, the state regulatory agency for Nicor Gas
Jefferson Island	Jefferson Island Storage & Hub, LLC
LIFO	Last-in, first-out
LNG	Liquefied natural gas
LOCOM	Lower of weighted average cost or current market price
Marketers	Marketers selling retail natural gas in Georgia and certificated by the Georgia Commission
MGP	Manufactured Gas Plant
Moody’s	Moody’s Investors Service
New Jersey BPU	New Jersey Board of Public Utilities, the state regulatory agency for Elizabethtown Gas
Nicor Gas	Northern Illinois Gas Company, doing business as Nicor Gas Company
Nicor Gas Credit Facility	$700 million credit facility entered into by Nicor Gas to support its commercial paper program
NYMEX	New York Mercantile Exchange, Inc.
OCI	Other comprehensive income
Operating margin	A non-GAAP measure of income, calculated as operating revenues minus cost of goods sold and revenue tax expense
OTC	Over-the-counter
PBR	Performance-based rate
PennEast Pipeline	PennEast Pipeline Company, LLC
PGA	Purchased gas adjustment
Piedmont	Piedmont Natural Gas Company, Inc.
PP&E	Property, plant and equipment
S&P	Standard & Poor’s Ratings Services
SEC	Securities and Exchange Commission
Sequent	Sequent Energy Management, L.P.
SouthStar	SouthStar Energy Services, LLC
STRIDE	Atlanta Gas Light’s Strategic Infrastructure Development and Enhancement program
Triton	Triton Container Investments, LLC
Tropical Shipping	Tropical Shipping and Construction Company Limited
U.S.	United States
VaR	Value-at-risk
Virginia Commission	Virginia State Corporation Commission, the state regulatory agency for Virginia Natural Gas
Virginia Natural Gas	Virginia Natural Gas, Inc.
WACOG	Weighted average cost of gas

Glossary of Key Terms

Table of Contents

PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements (Unaudited)

AGL RESOURCES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

(UNAUDITED)

	As of
	March 31,			December 31,			March 31,
In millions, except share amounts	2015				2014		2014
Current assets
Cash and cash equivalents	$	41		$	31		$	267
Short-term investments		8			8			49
Receivables
Natural gas, unbilled and other		834			797			1,075
Energy marketing		611			779			1,226
Less allowance for uncollectible accounts		48			35			49
Total receivables, net		1,397			1,541			2,252
Inventories, net		302			716			253
Derivative instruments		189			245			127
Regulatory assets		63			83			250
Assets held for sale		-			-			264
Other		79			266			127
Total current assets		2,079			2,890			3,589
Long-term assets and other deferred debits
Property, plant and equipment		11,689			11,552			11,054
Less accumulated depreciation		2,515			2,462			2,367
Property, plant and equipment, net		9,174			9,090			8,687
Goodwill		1,827			1,827			1,827
Regulatory assets		634			631			696
Intangible assets		116			125			140
Derivative instruments		24			42			11
Other		284			304			314
Total long-term assets and other deferred debits		12,059			12,019			11,675
Total assets	$	14,138		$	14,909		$	15,264
Current liabilities
Energy marketing trade payables	$	586		$	777		$	1,119
Short-term debt		526			1,175			741
Other accounts payable – trade		285			312			434
Accrued expenses		259			229			385
Regulatory liabilities		168			112			161
Customer deposits and credit balances		109			125			104
Accrued environmental remediation liabilities		93			87			82
Temporary LIFO liquidation		87			-			252
Current portion of long-term debt		75			200			200
Derivative instruments		48			88			63
Liabilities held for sale		-			-			36
Other		135			114			177
Total current liabilities		2,371			3,219			3,754
Long-term liabilities and other deferred credits
Long-term debt		3,524			3,602			3,610
Accumulated deferred income taxes		1,738			1,724			1,655
Regulatory liabilities		1,612			1,601			1,550
Accrued pension and retiree welfare benefits		526			525			405
Accrued environmental remediation liabilities		326			327			358
Derivative instruments		4			5			19
Other		73			78			70
Total long-term liabilities and other deferred credits		7,803			7,862			7,667
Total liabilities and other deferred credits		10,174			11,081			11,421
Commitments, guarantees and contingencies (see Note 10)
Equity
Common stock, $5 par value; 750,000,000 shares authorized: outstanding: 119,927,459 shares at March 31, 2015, 119,647,149 shares at December 31, 2014, and 119,247,421 shares at March 31, 2014		601			599			597
Additional paid-in capital		2,090			2,087			2,060
Retained earnings		1,444			1,312			1,289
Accumulated other comprehensive loss		(201	)		(206	)		(135	)
Treasury shares, at cost: 216,523 shares at March 31, 2015, December 31, 2014, and March 31, 2014		(8	)		(8	)		(8	)
Total common shareholders’ equity		3,926			3,784			3,803
Noncontrolling interest		38			44			40
Total equity		3,964			3,828			3,843
Total liabilities and equity	$	14,138		$	14,909		$	15,264
See Notes to condensed consolidated financial statements (unaudited).

Glossary of Key Terms

Table of Contents

AGL RESOURCES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(UNAUDITED)

	Three months ended
	March 31,
In millions, except per share amounts	2015			2014
Operating revenues (includes revenue taxes of $56 for the three months in 2015 and $68 for the three months in 2014)	$	1,721		$	2,462
Operating expenses
Cost of goods sold		935			1,400
Operation and maintenance		249			289
Depreciation and amortization		97			93
Taxes other than income taxes		76			88
Total operating expenses		1,357			1,870
Operating income		364			592
Other income		3			3
Interest expense, net		(44	)		(46	)
Income before income taxes		323			549
Income tax expense		118			203
Income from continuing operations		205			346
Loss from discontinued operations, net of tax		-			(50	)
Net income		205			296
Less net income attributable to the noncontrolling interest		12			12
Net income attributable to AGL Resources Inc.	$	193		$	284

Amounts attributable to AGL Resources Inc.
Income from continuing operations attributable to AGL Resources Inc.	$	193		$	334
Loss from discontinued operations, net of tax		-			(50	)
Net income attributable to AGL Resources Inc.	$	193		$	284

Per common share information
Basic earnings (loss) per common share
Continuing operations	$	1.62		$	2.82
Discontinued operations		-			(0.43	)
Basic earnings per common share attributable to AGL Resources Inc.	$	1.62		$	2.39
Diluted earnings (loss) per common share
Continuing operations	$	1.62		$	2.81
Discontinued operations		-			(0.43	)
Diluted earnings per common share attributable to AGL Resources Inc.	$	1.62		$	2.38
Cash dividends declared per common share	$	0.51		$	0.49
Weighted average number of common shares outstanding
Basic		119.3			118.5
Diluted		119.6			118.9

See Notes to condensed consolidated financial statements (unaudited).

Glossary of Key Terms

Table of Contents

AGL RESOURCES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(UNAUDITED)

	Three months ended
	March 31,
In millions	2015		2014
Net income	$	205	$	296
Other comprehensive income (loss), net of tax
Retirement benefit plans, net of tax
Reclassification of actuarial losses to net benefit cost (net of income tax of $2 and $1 for the three months ended March 31, 2015 and 2014, respectively)		3		1
Reclassification of prior service cost to net benefit cost		-		-
Retirement benefit plans, net		3		1
Cash flow hedges, net of tax
Net derivative instrument gain arising during the period (net of income tax of $1 for the three months ended March 31, 2015)		2		4
Reclassification of realized derivative instrument gain to net income		-		(4	)
Cash flow hedges, net		2		-
Other comprehensive income, net of tax		5		1
Comprehensive income		210		297
Less comprehensive income attributable to noncontrolling interest		12		12
Comprehensive income attributable to AGL Resources Inc.	$	198	$	285

See Notes to condensed consolidated financial statements (unaudited).

Glossary of Key Terms

Table of Contents

AGL RESOURCES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF EQUITY

(UNAUDITED)

	AGL Resources Inc. Shareholders
	Common stock				Additional paid-in			Retained			Accumulated other comprehensive				Treasury			Noncontrolling
In millions, except per share amounts	Shares		Amount		capital			earnings				loss			shares				interest			Total
Balance as of December 31, 2013		118.9	$	595	$	2,054		$	1,063			$	(136	)	$	(8	)		$	45		$	3,613
Net income		-		-		-			284				-			-				12			296
Other comprehensive income		-		-		-			-				1			-				-			1
Dividends on common stock ($0.49 per share)		-		-		-			(58	)			-			-				-			(58	)
Distributions to noncontrolling interests		-		-		-			-				-			-				(17	)		(17	)
Stock granted, share-based compensation, net of forfeitures		-		-		(11	)		-				-			-				-			(11	)
Stock issued, dividend reinvestment plan		-		-		2			-				-			-				-			2
Stock issued, share-based compensation, net of forfeitures		0.3		2		12			-				-			-				-			14
Stock-based compensation expense, net of tax		-		-		3			-				-			-				-			3
Balance as of March 31, 2014		119.2	$	597	$	2,060		$	1,289			$	(135	)	$	(8	)		$	40		$	3,843

	AGL Resources Inc. Shareholders
	Common stock				Additional paid-in			Retained			Accumulated other comprehensive				Treasury			Noncontrolling
In millions, except per share amounts	Shares		Amount		capital			earnings				loss			shares				interest			Total
Balance as of December 31, 2014		119.6	$	599	$	2,087		$	1,312			$	(206	)	$	(8	)		$	44		$	3,828
Net income		-		-		-			193				-			-				12			205
Other comprehensive income		-		-		-			-				5			-				-			5
Dividends on common stock ($0.51 per share)		-		-		-			(61	)			-			-				-			(61	)
Distributions to noncontrolling interests		-		-		-			-				-			-				(18	)		(18	)
Stock granted, share-based compensation, net of forfeitures		-		-		(12	)		-				-			-				-			(12	)
Stock issued, dividend reinvestment plan		0.1		-		3			-				-			-				-			3
Stock issued, share-based compensation, net of forfeitures		0.2		2		10			-				-			-				-			12
Stock-based compensation expense, net of tax		-		-		2			-				-			-				-			2
Balance as of March 31, 2015		119.9	$	601	$	2,090		$	1,444			$	(201	)	$	(8	)		$	38		$	3,964

See Notes to condensed consolidated financial statements (unaudited).

Glossary of Key Terms

Table of Contents

AGL RESOURCES INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	Three months ended
	March 31,
In millions	2015			2014
Cash flows from operating activities
Net income	$	205		$	296
Adjustments to reconcile net income to net cash flow provided by operating activities
Depreciation and amortization		97			93
Change in derivative instrument assets and liabilities		33			(17	)
Deferred income taxes		5			8
Loss from discontinued operations, net of tax		-			50
Changes in certain assets and liabilities
Inventories, net of temporary LIFO liquidation		501			656
Prepaid and miscellaneous taxes		267			199
Accrued/deferred natural gas costs		22			(228	)
Accrued expenses		(54	)		(15	)
Receivables, other than energy marketing		(24	)		(319	)
Energy marketing receivables and trade payables, net		(23	)		8
Trade payables, other than energy marketing		(13	)		52
Other, net		104			63
Net cash flow provided by operating activities of discontinued operations		-			7
Net cash flow provided by operating activities		1,120			853
Cash flows from investing activities
Expenditures for property, plant and equipment		(188	)		(161	)
Other, net		4			2
Net cash flow used in investing activities of discontinued operations		-			(5	)
Net cash flow used in investing activities		(184	)		(164	)
Cash flows from financing activities
Net repayments of commercial paper		(649	)		(430	)
Payment of senior notes		(200	)		-
Dividends paid on common shares		(61	)		(58	)
Distribution to noncontrolling interest		(18	)		(17	)
Other, net		2			4
Net cash flow used in financing activities		(926	)		(501	)
Net increase in cash and cash equivalents – continuing operations		10			186
Net increase in cash and cash equivalents – discontinued operations		-			2
Cash and cash equivalents (including held for sale) at beginning of period		31			105
Cash and cash equivalents (including held for sale) at end of period		41			293
Less cash and cash equivalents held for sale at end of period		-			26
Cash and cash equivalents (excluding held for sale) at end of period	$	41		$	267
Cash paid (received) during the period for
Interest	$	57		$	58
Income taxes		(140	)		14

See Notes to condensed consolidated financial statements (unaudited).

Glossary of Key Terms

Table of Contents

AGL RESOURCES INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Note 1 - Organization and Basis of Presentation

General

AGL Resources Inc. is an energy services holding company that conducts substantially all of its operations through its subsidiaries. Unless the context requires otherwise, references to “we,” “us,” “our,” the “company,” or “AGL Resources” mean consolidated AGL Resources Inc. and its subsidiaries.

Our Condensed Consolidated Statements of Financial Position as of December 31, 2014 were derived from our audited consolidated financial statements, but do not include all disclosures required by GAAP. We have prepared the accompanying unaudited condensed consolidated financial statements under the rules and regulations of the SEC. In accordance with such rules and regulations, we have condensed or omitted certain information and notes normally included in financial statements prepared in conformity with GAAP. Our unaudited condensed consolidated financial statements reflect all adjustments of a normal recurring nature that are, in the opinion of management, necessary for a fair statement of our financial results for the interim periods and should be read in conjunction with our consolidated financial statements and related notes included in Item 8 of our 2014 Form 10-K.

Due to the seasonal nature of our business and other factors, our results of operations and our financial condition for the periods presented are not necessarily indicative of the results of operations or financial condition to be expected for or as of any other period.

Basis of Presentation

Our unaudited condensed consolidated financial statements include our accounts, the accounts of our wholly owned subsidiaries, the accounts of our majority owned or otherwise controlled subsidiaries and the accounts of our variable interest entity, SouthStar, for which we are the primary beneficiary. For unconsolidated entities that we do not control, we use the equity method of accounting and our proportionate share of income or loss is recorded on the unaudited Condensed Consolidated Statements of Income. See Note 9 for additional information. We have eliminated intercompany profits and transactions in consolidation except for intercompany profits where recovery of such amounts is probable under the affiliates’ rate regulation process.

In November 2014, we filed a Form 10-Q/A to revise our March 31, 2014 financial statements and other affected disclosures for items related to the recognition of revenues for certain of our regulatory infrastructure programs and the amortization of our intangible assets as originally filed in our Form 10-Q for the period ended March 31, 2014. Our financial statements for the period ended March 31, 2014, reflect the revised amounts reported in our 2014 Form 10-Q/A.

In September 2014, we closed on the sale of Tropical Shipping, which operated within our former cargo shipping segment. The assets and liabilities of these businesses as of March 31, 2014 are classified as held for sale on the unaudited Condensed Consolidated Statements of Financial Position, and the financial results of these businesses for the three months ended March 31, 2014 are reflected as discontinued operations on the unaudited Condensed Consolidated Statements of Income. Amounts shown in the following notes, unless otherwise indicated, exclude assets held for sale and discontinued operations. Cargo shipping also included our investment in Triton, which was not part of the sale and has been reclassified into our “other” non-reportable segments. See Note 12 for additional information on the sale of Tropical Shipping.

Note 2 - Significant Accounting Policies and Methods of Application

Our accounting policies are described in Note 2 to our consolidated financial statements and related notes included in Item 8 of our 2014 Form 10-K. There were no significant changes to our accounting policies during the three months ended March 31, 2015.

Use of Accounting Estimates

The preparation of our financial statements in conformity with GAAP requires us to use judgment and make estimates that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures. Our estimates are based on historical experience and various other assumptions that we believe to be reasonable under the circumstances. Our estimates may involve complex situations requiring a high degree of judgment either in the application and interpretation of existing accounting literature or in the development of estimates that impact our financial statements. The most significant estimates relate to the accounting for our rate-regulated subsidiaries, goodwill and other intangible assets, derivative and hedging activities, uncollectible accounts and other allowances for contingent losses, retirement plan benefit obligations and provisions for income taxes. We evaluate our estimates on an ongoing basis, and our actual results could differ from our estimates.

Cash and Cash Equivalents

Our cash and cash equivalents primarily consist of cash on deposit, money market accounts and certificates of deposit held by domestic subsidiaries with original maturities of three months or less. As of March 31, 2014, there was $26 million of cash and cash equivalents held by Tropical Shipping that was excluded from cash and cash equivalents within our unaudited Condensed Consolidated Statements of Financial Position and included in assets held for sale. For more information on the sale of Tropical Shipping, see Note 12.

Glossary of Key Terms

Table of Contents

Energy Marketing Receivables and Payables

Our wholesale services segment provides services to retail and wholesale marketers and utility and industrial customers. These customers, also known as counterparties, utilize netting agreements that enable our wholesale services segment to net receivables and payables by counterparty upon settlement. Wholesale services also nets across product lines and against cash collateral, provided the master netting and cash collateral agreements include such provisions. While the amounts due from, or owed to, wholesale services’ counterparties are settled net, they are recorded on a gross basis in our unaudited Condensed Consolidated Statements of Financial Position as energy marketing receivables and energy marketing trade payables.

Our wholesale services segment has trade and credit contracts that contain minimum credit rating requirements. These credit rating requirements typically give counterparties the right to suspend or terminate credit if our credit ratings are downgraded to non-investment grade status. Under such circumstances, wholesale services would need to post collateral to continue transacting business with some of its counterparties. To date, our credit ratings have exceeded the minimum requirements. As of March 31, 2015 and 2014, and December 31, 2014, the collateral that wholesale services would have been required to post if our credit ratings had been downgraded to non-investment grade status would not have had a material impact to our consolidated results of operations, cash flows or financial condition. If such collateral were not posted, wholesale services’ ability to continue transacting business with these counterparties would be negatively impacted.

Inventories

For our regulated utilities, except Nicor Gas, our natural gas inventories and the inventories we hold for Marketers in Georgia are carried at cost on a WACOG basis. In Georgia’s competitive environment, Marketers sell natural gas to firm end-use customers at market-based prices. Part of the unbundling process, which resulted from deregulation and provides this competitive environment, is the assignment to Marketers of certain pipeline services that Atlanta Gas Light has under contract. On a monthly basis, Atlanta Gas Light assigns the majority of the pipeline storage services that it has under contract to Marketers, along with a corresponding amount of inventory. Atlanta Gas Light also retains and manages a portion of its pipeline storage assets and related natural gas inventories for system balancing and to serve system demand. See Note 10 for information regarding a regulatory filing by Atlanta Gas Light related to natural gas inventory.

Nicor Gas’ inventory is carried at cost on a LIFO basis. Inventory decrements occurring during the year that are expected to be restored prior to year-end are charged to cost of goods sold at the estimated annual replacement cost, and the difference between this cost and the actual liquidated LIFO layer cost is recorded as a temporary LIFO inventory liquidation. Any temporary LIFO liquidation is included as a current liability in our unaudited Condensed Consolidated Statements of Financial Position. Interim inventory decrements that are not expected to be restored prior to year end are charged to cost of goods sold at the actual LIFO cost of the layers liquidated. The inventory decrement as of March 31, 2015 is expected to be restored prior to year-end. The inventory decrement as of March 31, 2014 was restored prior to December 31, 2014.

Our retail operations, wholesale services and midstream operations segments carry inventory at LOCOM, where cost is determined on a WACOG basis. For these segments, we evaluate the weighted average cost of their natural gas inventories against market prices to determine whether any declines in market prices below the WACOG are other than temporary. For any declines considered to be other than temporary, we record pre-tax adjustments to our unaudited Condensed Consolidated Statements of Income to reduce the weighted average cost of the natural gas inventory to market value. For the three months ended March 31, 2015 and 2014, we had LOCOM adjustments primarily at wholesale services of $10 million and $2 million, respectively.

Additionally, we have $12 million of inventory at wholesale services that is currently inaccessible due to operational issues at a third party storage facility. The owner of the storage facility is working to resolve these issues. While we expect this inventory to be fully recovered, the timing of withdrawal of this gas may be impacted by the operational issues.

Regulated Operations

We account for the financial effects of regulation in accordance with authoritative guidance related to regulated entities whose rates are designed to recover the costs of providing service. In accordance with this guidance, incurred costs that would otherwise be charged to expense in the current period are capitalized as regulatory assets when it is probable that such costs will be recovered in rates in the future. Similarly, we recognize regulatory liabilities when it is probable that regulators will require customer refunds through future rates or when revenue is collected from customers for estimated expenditures that have not yet been incurred. Generally, regulatory assets and regulatory liabilities are amortized into our unaudited Condensed Consolidated Statements of Income over the period authorized by the regulatory commissions.

Glossary of Key Terms

Table of Contents

Fair Value Measurements

We have financial and nonfinancial assets and liabilities subject to fair value measurement. The financial assets and liabilities measured and carried at fair value include cash and cash equivalents, and derivative assets and liabilities. The carrying values of receivables, short- and long-term investments, accounts payable, short-term debt, other current assets and liabilities, and accrued interest approximate fair value. Our nonfinancial assets and liabilities include pension and other retirement benefits, which are presented in Note 4 to our consolidated financial statements and in related notes included in Item 8 of our 2014 Form 10-K.

Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We utilize market data or assumptions that market participants would use in valuing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated or generally unobservable. We primarily apply the market approach for recurring fair value measurements to utilize the best available information. Accordingly, we use valuation techniques that maximize the use of observable inputs and minimize the use of unobservable inputs. We classify fair value balances based on the observance of those inputs in accordance with the fair value hierarchy.

Derivative Instruments

The fair values of the natural gas and weather derivative instruments that we use to manage exposures arising from changing natural gas prices and weather risk reflect the estimated amounts that we would receive or pay to terminate or close the contracts at the reporting date, taking into account the current unrealized gains or losses on open contracts. We also use forward-starting interest rate swaps and interest rate lock agreements to lock in fixed interest rates on our forecasted issuances of debt. The objective of these hedges is to offset the variability of future payments associated with the interest rate on debt instruments we expect to issue. The gain or loss on the interest rate swaps designated as cash flow hedges is generally deferred in accumulated OCI until settlement, at which point it is amortized to interest expense over the life of the related debt. We use external market quotes and indices to value substantially all of our derivative instruments. See Note 4 and Note 5 for additional derivative disclosures.

Goodwill

We perform an annual goodwill impairment test on our reporting units that contain goodwill during the fourth quarter of each year, or more frequently if impairment indicators arise. These indicators include, but are not limited to, a significant change in operating performance, the business climate, legal or regulatory factors, or a planned sale or disposition of a significant portion of the business. To estimate the fair value of our reporting units, we use two generally accepted valuation approaches, the income approach and the market approach, using assumptions consistent with a market participant’s perspective. The results of the two valuation approaches are weighted to estimate the fair value of each reporting unit. There were no triggering events during the current period that would require us to perform an interim impairment test. The amounts of goodwill as of March 31, 2015 and 2014, and December 31, 2014 are provided below.

In millions		Distribution operations				Retail operations				Midstream operations				Consolidated
Goodwill		$	1,640			$	173			$	14			$	1,827

Earnings Per Common Share

We compute basic earnings per common share attributable to AGL Resources Inc. by dividing our net income attributable to the common shareholders of AGL Resources Inc. by the daily weighted average number of common shares outstanding. Diluted earnings per common share attributable to AGL Resources Inc. reflect the potential reduction in earnings per common share attributable to AGL Resources Inc. that occurs when the exercise and/or conversion of all potentially dilutive common shares is added to the common shares outstanding.

We derive our potentially dilutive common shares by calculating the number of shares issuable under restricted stock, restricted stock units and stock options award programs. The vesting of certain shares of the restricted stock and restricted stock units depends on the satisfaction of defined performance and/or time-based criteria. The future issuance of shares underlying the outstanding stock options depends on whether the market price of the common shares underlying the options exceeds the respective exercise prices of the stock options. The following table shows the calculation of our diluted shares attributable to AGL Resources Inc. for the periods presented as if performance units currently earned under the plan ultimately vest and as if stock options currently exercisable at prices below the average market prices are exercised.

Glossary of Key Terms

Table of Contents

	Three months ended March 31,
In millions (except per share amounts)	2015		2014
Income from continuing operations attributable to AGL Resources Inc.	$	193	$	334
Loss from discontinued operations, net of tax		-		(50	)
Net income attributable to AGL Resources Inc.	$	193	$	284
Denominator:
Basic weighted average number of common shares outstanding (1)		119.3		118.5
Effect of dilutive securities		0.3		0.4
Diluted weighted average number of common shares outstanding (2)		119.6		118.9

Basic earnings per common share
Continuing operations	$	1.62	$	2.82
Discontinued operations		-		(0.43	)
Basic earnings per common share attributable to AGL Resources Inc.	$	1.62	$	2.39
Diluted earnings per common share (2)
Continuing operations	$	1.62	$	2.81
Discontinued operations		-		(0.43	)
Diluted earnings per common share attributable to AGL Resources Inc.	$	1.62	$	2.38

(1)	Daily weighted average shares outstanding.

(2)	There were no outstanding stock options excluded from the computation of diluted earnings per common share attributable to AGL Resources Inc. for any of the periods presented because their effect would have been anti-dilutive as the exercise prices were greater than the average market price.

Accounting Developments

In February 2015, the FASB issued updated authoritative guidance related to the consolidation of other legal entities into our financial statements. The amendments modify aspects of the consolidation determination that could potentially impact us, including the analysis of limited partnerships and similar legal entities, fee arrangements, and related party relationships. The guidance will be effective for us beginning January 1, 2016. Early adoption is permitted. We may elect to apply the new guidance either retrospectively to each prior period presented or via a cumulative effect adjustment upon the date of initial application. We have not yet determined the impact of this new guidance, nor have we selected a transition method.

In April 2015, the FASB issued updated authoritative guidance related to debt issuance costs. The amendment modifies the presentation of unamortized debt issuance costs on our consolidated statements of financial position. Under the new guidance, we will present such amounts as a direct deduction from the face amount of the debt, similar to unamortized debt discounts and premiums, rather than as an asset. Amortization of the debt issuance costs will continue to be reported as interest expense. The guidance will be effective for us beginning January 1, 2016. Early adoption is permitted. The new guidance must be applied retrospectively to each prior period presented. We have determined that the impact of this new guidance will not be material.

In April 2015, the FASB issued authoritative guidance related to the accounting for fees paid in connection with arrangements with cloud-based software providers. Under the new guidance, unless a software arrangement includes specific elements enabling customers to possess and operate software on platforms other than that offered by the cloud-based provider, the cost of such arrangements is to be accounted for as an operating expense of the period incurred. The new guidance may be applied either prospectively or retrospectively, is effective for us beginning January 1, 2016, and early adoption is permitted. We are currently evaluating our software arrangements in light of the new guidance.

Glossary of Key Terms

Table of Contents

Note 3 - Regulated Operations

Our regulatory assets and liabilities reflected within our unaudited Condensed Consolidated Statements of Financial Position as of the dates presented are summarized in the following table.

In millions	March 31, 2015		December 31, 2014		March 31, 2014
Regulatory assets
Recoverable ERC	$	37	$	49	$	38
Recoverable pension and retiree welfare benefit costs		11		12		9
Deferred natural gas costs		7		3		161
Recoverable seasonal rates		-		10		-
Other		8		9		42
Total regulatory assets - current		63		83		250
Recoverable ERC		331		326		419
Recoverable pension and retiree welfare benefit costs		108		110		97
Recoverable regulatory infrastructure program costs		73		69		57
Long-term debt fair value adjustment		72		74		80
Other		50		52		43
Total regulatory assets - long-term		634		631		696
Total regulatory assets	$	697	$	714	$	946
Regulatory liabilities
Accrued natural gas costs	$	53	$	27	$	24
Bad debt over collection		30		33		41
Accumulated removal costs		25		25		27
Deferred seasonal rates		20		-		20
Other		40		27		49
Total regulatory liabilities - current		168		112		161
Accumulated removal costs		1,524		1,520		1,456
Regulatory income tax liability		27		34		27
Unamortized investment tax credit		22		22		25
Bad debt over collection		19		12		14
Other		20		13		28
Total regulatory liabilities - long-term		1,612		1,601		1,550
Total regulatory liabilities	$	1,780	$	1,713	$	1,711

Base rates are designed to provide the opportunity to recover cost and earn a return on investment during the period rates are in effect. As such, all of our regulatory assets recoverable through base rates are subject to review by the respective state regulatory commission during future rate proceedings. We are not aware of evidence that these costs will not be recoverable through either rate riders or base rates, and we believe that we will be able to recover such costs consistent with our historical recoveries.

Unrecognized Ratemaking Amounts The following table illustrates our authorized ratemaking amounts that are not recognized in our unaudited Condensed Consolidated Statements of Financial Position. These amounts are primarily composed of an allowed equity rate of return on assets associated with certain of our regulatory infrastructure programs. These amounts will be recognized as revenues in our financial statements in the periods they are billable to our customers.

In millions	Atlanta Gas Light		Virginia Natural Gas		Elizabethtown Gas		Total
March 31, 2015	$	119	$	12	$	2	$	133
December 31, 2014		113		12		2		127
March 31, 2014		88		12		2		102

Natural Gas Costs We charge our utility customers for natural gas consumed using natural gas cost recovery mechanisms established by the state regulatory agencies. Under these mechanisms, all prudently incurred natural gas costs are passed through to customers without markup, subject to regulatory review. We defer or accrue the difference between the actual cost of natural gas and the amount of commodity revenue earned in a given period, such that no operating margin is recognized related to these costs. The deferred or accrued amount is either billed or refunded to our customers prospectively through adjustments to the commodity rate. Deferred natural gas costs are reflected as regulatory assets and accrued natural gas costs are reflected as regulatory liabilities.

Environmental Remediation Costs We are subject to federal, state and local laws and regulations governing environmental quality and pollution control that require us to remove or remedy the effect on the environment of the disposal or release of specified substances at our current and former operating sites, substantially all of which is related to our former MGP sites. The ERC assets and liabilities are associated with our distribution operations segment and remediation costs are generally recoverable from customers through rate mechanisms approved by regulators. Accordingly, both costs incurred to remediate the former MGP sites, plus the future estimated cost recorded as liabilities, net of amounts previously collected, are recognized as a regulatory asset until recovered from customers.

Glossary of Key Terms

Table of Contents

Our accrued environmental remediation liabilities are estimates of future remediation costs for investigation and cleanup of our current and former operating sites that are contaminated. These estimates are based on conventional engineering estimates and the use of probabilistic models of potential costs when such estimates cannot be made, on an undiscounted basis. These estimates contain various assumptions, which we refine and update on an ongoing basis. These liabilities do not include other potential expenses, such as unasserted property damage claims, personal injury or natural resource damage claims, legal expenses or other costs for which we may be held liable but for which we cannot reasonably estimate an amount.

Our accrued environmental remediation liabilities are not regulatory liabilities; however, the associated expenses are deferred as a corresponding regulatory asset until the costs are recovered from customers. We primarily recover these deferred costs through three rate riders that authorize dollar-for-dollar recovery. We expect to collect $37 million in revenues over the next 12 months, which is reflected as a current regulatory asset. The following table provides more information on the estimated costs to remediate our current and former operating sites as of March 31, 2015.

In millions	# of sites		Probabilistic model cost estimates		Engineering estimates		Amount recorded		Expected costs over next 12 months		Cost recovery period
Illinois (1)		26	$	208 - $466	$	43	$	242	$	45	As incurred
New Jersey		6		105 - 177		14		112		14	7 years
Georgia and Florida		13		40 - 81		15		55		26	5 years
North Carolina (2)		1		n/a		10		10		8	No recovery
Total		46	$	353 - $724	$	82	$	419	$	93

(1)

Nicor Gas is responsible in whole or in part for 26 MGP sites, of which two sites have been remediated and their use is no longer restricted by the environmental condition of the property. Nicor Gas and Commonwealth Edison Company are parties to an agreement to cooperate in cleaning up residue at 23 of the sites. Nicor Gas’ allocated share of cleanup costs for these sites is 52%.

(2)	We have no regulatory recovery mechanism for the site in North Carolina. Therefore, there is no amount included within our regulatory assets and changes in estimated costs are recognized in income in the period of change.

In July 2014, we reached a $77 million insurance settlement for environmental claims relating to potential contamination at our MGP sites in New Jersey and North Carolina. The terms of the settlement required the $77 million to be paid in two installments. We received $45 million in the third quarter of 2014 and this payment was primarily recorded as a reduction to our recoverable ERC regulatory asset. The remaining $32 million is due in the third quarter of 2015. We will file for approval with the New Jersey BPU to utilize the insurance proceeds related to the New Jersey sites to reduce the ERC expenditures that otherwise would have been recovered from our customers in future periods. Once approved, the settlement is expected to reduce our recoverable ERC regulatory asset and have a favorable impact on the rates for our Elizabethtown Gas customers.

Note 4 - Fair Value Measurements

The methods used to determine the fair values of our assets and liabilities are described within Note 2.

Derivative Instruments

The following table summarizes, by level within the fair value hierarchy, our derivative assets and liabilities that were carried at fair value on a recurring basis in our unaudited Condensed Consolidated Statements of Financial Position as of the dates presented. See Note 5 for additional derivative instrument information.

	March 31, 2015					December 31, 2014					March 31, 2014
In millions	Assets (1)		Liabilities			Assets (1)		Liabilities			Assets (1)		Liabilities
Quoted prices in active markets (Level 1)	$	-	$	(106	)	$	58	$	(80	)	$	18	$	(38	)
Significant other observable inputs (Level 2)		108		(52	)		174		(94	)		50		(75	)
Netting of cash collateral		104		106			52		81			69		31
Total carrying value (2)	$	212	$	(52	)	$	284	$	(93	)	$	137	$	(82	)

(1)	Balances of $1 million at March 31, 2015, $3 million at December 31, 2014 and $1 million at March 31, 2014, associated with certain weather derivatives have been excluded, as they are accounted for based on intrinsic value rather than fair value.

(2)	There were no significant unobservable inputs (Level 3) or significant transfers between Level 1, Level 2 or Level 3 for any of the dates presented.

Debt

Our long-term debt is recorded at amortized cost, with the exception of Nicor Gas’ first mortgage bonds, which are recorded at their acquisition-date fair value. We amortize the fair value adjustment of Nicor Gas’ first mortgage bonds over the lives of the bonds. The following table lists the carrying amount and fair value of our long-term debt as of the dates presented.

In millions	March 31, 2015		December 31, 2014		March 31, 2014
Long-term debt carrying amount	$	3,599	$	3,802	$	3,810
Long-term debt fair value (1)		4,102		4,231		4,095

(1)	Fair value determined using Level 2 inputs.

Glossary of Key Terms

Table of Contents

Note 5 - Derivative Instruments

Our objectives and strategies for using derivative instruments, related accounting policies and methods used to determine their fair values are described in Note 2 to our consolidated financial statements and related notes included in Item 8 of our 2014 Form 10-K. See Note 4 for additional fair value disclosures.

Certain of our derivative instruments contain credit-risk-related or other contingent features that could require us to post collateral in the normal course of business when our financial instruments are in net liability positions. As of March 31, 2015, December 31, 2014 and March 31, 2014, for agreements with such features, derivative instruments with liability fair values totaled $52 million, $93 million and $82 million, respectively, for which we had posted no collateral to our counterparties. The maximum collateral that could be required with these features is $7 million. For more information, see “Energy Marketing Receivables and Payables” in Note 2, which also have credit-risk-related contingent features. Our derivative instrument activities are included within operating cash flows as an increase (decrease) to net income of $33 million and $(17) million for the three months ended March 31, 2015 and 2014, respectively. See Note 4 for additional derivative instrument information. The following table summarizes the ways in which we account for our derivative instruments and the impact on our unaudited condensed consolidated financial statements.

	Recognition and Measurement
Accounting Treatment	Statements of Financial Position	Statements of Income
Cash flow hedge	Derivative carried at fair value	Ineffective portion of the gain or loss on the derivative instrument is recognized in earnings
	Effective portion of the gain or loss on the derivative instrument is reported initially as a component of accumulated OCI (loss)	Effective portion of the gain or loss realized and unrealized on the derivative instrument is reclassified out of accumulated OCI (loss) and into earnings when the hedged transaction affects earnings
Fair value hedge	Derivative carried at fair value	Gains or losses realized and unrealized on the derivative instrument and the hedged item are recognized in earnings. As a result, to the extent the hedge is effective, the gains or losses will offset and there is no impact on earnings. Any hedge ineffectiveness will impact earnings
	Changes in fair value of the hedged item are recorded as adjustments to the carrying amount of the hedged item
Not designated	Derivative carried at fair value	Gains or losses realized and unrealized on the derivative instrument are recognized in earnings
as hedges	Distribution operations’ gains and losses on derivative instruments are deferred as regulatory assets or liabilities until included in cost of goods sold	Gains or losses realized and unrealized on these derivative instruments are ultimately included in billings to customers and are recognized in cost of goods sold in the same period as the related revenues

Quantitative Disclosures Related to Derivative Instruments

As of the dates presented, our derivative instruments were comprised of both long and short natural gas positions. A long position is a contract to purchase natural gas, and a short position is a contract to sell natural gas. As of the dates presented, we had a net long natural gas contracts position outstanding in the following quantities:

In Bcf (1)	March 31, 2015 (2)			December 31, 2014			March 31, 2014
Cash flow hedges		9			9			6
Not designated as hedges		231			75			277
Total volumes		240			84			283
Short position – cash flow hedges		(6	)		(7	)		(2	)
Short position – not designated as hedges		(2,735	)		(2,825	)		(2,489	)
Long position – cash flow hedges		15			16			8
Long position – not designated as hedges		2,966			2,900			2,766
Net long position		240			84			283

(1)	Volumes related to Nicor Gas exclude variable-priced contracts, which are carried at fair value, but whose fair values are not directly impacted by changes in commodity prices.

(2)	Approximately 96% of these contracts have durations of two years or less and the remaining 4% expire between two and five years.

Derivative Instruments in our Unaudited Condensed Consolidated Statements of Financial Position

In accordance with regulatory requirements, gains and losses on derivative instruments used to hedge natural gas purchases for customer use at distribution operations are reflected in accrued natural gas costs within our unaudited Condensed Consolidated Statements of Financial Position until billed to customers. The following amounts deferred as a regulatory asset or liability in our unaudited Condensed Consolidated Statements of Financial Position represent the net realized gains (losses) related to these natural gas cost hedges as of the periods presented.

	Three months ended March 31,
In millions	2015			2014
Nicor Gas	$	(3	)	$	2
Elizabethtown Gas		(4	)		3

Glossary of Key Terms

Table of Contents

The following table presents the fair values and unaudited Condensed Consolidated Statements of Financial Position classifications of our derivative instruments as of the dates presented.

		March 31, 2015						December 31, 2014						March 31, 2014
In millions	Classification	Assets			Liabilities			Assets			Liabilities			Assets			Liabilities
Designated as cash flow or fair value hedges
Natural gas contracts	Current	$	-		$	(6	)	$	6		$	(11	)	$	2		$	-
Natural gas contracts	Long-term		-			(1	)		-			(1	)		-			-
Interest rate swap agreements	Current		1			-			-			-			-			-
Interest rate swap agreements	Long-term		3			-			-			-			-			-
Total designated as cash flow or fair value hedges		$	4		$	(7	)	$	6		$	(12	)	$	2		$	-

Not designated as hedges
Natural gas contracts	Current	$	557		$	(592	)	$	1,061		$	(1,020	)	$	675		$	(703	)
Natural gas contracts	Long-term		98			(109	)		145			(119	)		80			(98	)
Total not designated as hedges		$	655		$	(701	)	$	1,206		$	(1,139	)	$	755		$	(801	)
Gross amount of recognized assets and liabilities (1) (2)			659			(708	)		1,212			(1,151	)		757			(801	)
Gross amounts offset in our unaudited Condensed Consolidated Statements of Financial Position (2)			(446	)		656			(925	)		1,058			(619	)		719
Net amounts of assets and liabilities presented in our unaudited Condensed Consolidated Statements of Financial Position (3)		$	213		$	(52	)	$	287		$	(93	)	$	138		$	(82	)

(1)	The gross amounts of recognized assets and liabilities are netted within our unaudited Condensed Consolidated Statements of Financial Position to the extent that we have netting arrangements with the counterparties.

(2)

As required by the authoritative guidance related to derivatives and hedging, the gross amounts of recognized assets and liabilities do not include cash collateral held on deposit in broker margin accounts of $210 million as of March 31, 2015, $133 million as of December 31, 2014, and $100 million as of March 31, 2014. Cash collateral is included in the “Gross amounts offset in our unaudited Condensed Consolidated Statements of Financial Position” line of this table.

(3)	As of March 31, 2015, December 31, 2014, and March 31, 2014, we held letters of credit from counterparties that under master netting arrangements would offset an insignificant portion of these assets.

Derivative Instruments in the Unaudited Condensed Consolidated Statements of Income

The following table presents the impacts of our derivative instruments in our unaudited Condensed Consolidated Statements of Income for the periods presented.

	Three months ended March 31,
In millions	2015			2014
Designated as cash flow or fair value hedges
Natural gas contracts - net (loss) gain reclassified from OCI into cost of goods sold	$	(1	)	$	3
Natural gas contracts - net gain reclassified from OCI into operation and maintenance expense		-			1
Interest rate swaps - net gain reclassified from OCI into interest expense		1			-
Income tax benefit		-			-
Total designated as cash flow or fair value hedges, net of tax		-			4
Not designated as hedges (1)
Natural gas contracts - net (loss) recorded in operating revenues		(24	)		(30	)
Natural gas contracts - net (loss) gain recorded in cost of goods sold (2)		(2	)		2
Income tax benefit		10			11
Total not designated as hedges, net of tax		(16	)		(17	)
Total gains (losses) on derivative instruments, net of tax	$	(16	)	$	(13	)

(1)	Associated with the fair value of derivative instruments held at March 31, 2015 and 2014.

(2)	Excludes losses recorded in cost of goods sold associated with weather derivatives of $2 million and $5 million for the three months ended March 31, 2015 and 2014, respectively.

Any amounts recognized in operating income related to ineffectiveness or due to a forecasted transaction that is no longer expected to occur were immaterial for the three months ended March 31, 2015 and 2014. Our expected gains to be reclassified from OCI into cost of goods sold, operation and maintenance expense, interest expense and operating revenues and recognized in our unaudited Condensed Consolidated Statements of Income over the next 12 months are $9 million. These deferred gains and losses are related to natural gas derivative contracts associated with retail operations’ and Nicor Gas’ system use. The expected gains are based upon the fair values of these financial instruments at March 31, 2015. The effective portions of gains and losses on derivative instruments qualifying as cash flow hedges that were recognized in OCI during the periods are presented in our unaudited Condensed Consolidated Statements of Income. See Note 8 for these amounts.

There have been no other significant changes to our derivative instruments, as described in Note 2, Note 4 and Note 5 to our consolidated financial statements and related notes included in Item 8 of our 2014 Form 10-K.

Glossary of Key Terms

Table of Contents

Note 6 - Employee Benefit Plans

Pension Benefits

We sponsor the AGL Resources Inc. Retirement Plan, a tax-qualified defined benefit retirement plan for our eligible employees, which is described in Note 6 to our consolidated financial statements and related notes included in Item 8 of our 2014 Form 10-K. Following are the components of our pension costs for the periods indicated.

	Three months ended March 31,
In millions	2015			2014
Service cost	$	7		$	6
Interest cost		11			12
Expected return on plan assets		(16	)		(16	)
Net amortization of prior service cost		(1	)		-
Recognized actuarial loss		8			5
Net periodic pension benefit cost	$	9		$	7

Welfare Benefits

The benefits of our Health and Welfare Plan for Retirees and Inactive Employees of AGL Resources Inc. are described in Note 6 to our consolidated financial statements and related notes included in Item 8 of our 2014 Form 10-K. Following are the components of our welfare costs for the periods indicated.

	Three months ended March 31,
In millions	2015			2014
Service cost	$	1		$	1
Interest cost		3			4
Expected return on plan assets		(2	)		(2	)
Net amortization of prior service cost		-			(1	)
Recognized actuarial loss		1			1
Net periodic welfare benefit cost	$	3		$	3

Note 7 - Debt and Credit Facilities

The following table provides maturity dates, year-to-date weighted average interest rates and amounts outstanding for our various debt securities and facilities for the periods presented. We fully and unconditionally guarantee all debt issued by AGL Capital. For additional information on our debt, see Note 8 in our consolidated financial statements and related notes in Item 8 of our 2014 Form 10-K.

		March 31, 2015							March 31, 2014
Dollars in millions	Year(s) due	Weighted average interest rate (1)			Outstanding		Outstanding at December 31, 2014		Weighted average interest rate (1)			Outstanding
Short-term debt
Commercial paper - AGL Capital (2)	2015		0.5	%	$	176	$	590		0.3	%	$	440
Commercial paper - Nicor Gas (2)	2015		0.4			350		585		0.2			301
Total short-term debt			0.4	%	$	526	$	1,175		0.3	%	$	741
Current portion of long-term debt	2016		2.9	%	$	75	$	200		5.0	%	$	200
Long-term debt - excluding current portion
Senior notes	2016-2043		5.0	%	$	2,625	$	2,625		5.0	%	$	2,625
First mortgage bonds	2016-2038		6.0			425		500		5.6			500
Gas facility revenue bonds	2022-2033		0.8			200		200		0.9			200
Medium-term notes	2017-2027		7.8			181		181		7.8			181
Total principal long-term debt			4.9			3,431		3,506		4.9			3,506
Fair value adjustment of long-term debt (3)	n/a		n/a			77		80		n/a			88
Unamortized debt premium, net	n/a		n/a			16		16		n/a			16
Total non-principal long-term debt			n/a			93		96		n/a			104
Total long-term debt – excluding current portion					$	3,524	$	3,602				$	3,610
Total debt					$	4,125	$	4,977				$	4,551

(1)	Interest rates are calculated based on the daily weighted average balance outstanding for the three months ended March 31.

(2)	As of March 31, 2015, the effective interest rates on our commercial paper borrowings were 0.5% for AGL Capital and 0.4% for Nicor Gas.

(3)	See Note 4 for additional information on our fair value measurements.

Commercial Paper Programs

We maintain commercial paper programs at AGL Capital and at Nicor Gas that consist of short-term, unsecured promissory notes used in conjunction with cash from operations to fund our seasonal working capital requirements. Working capital needs fluctuate during the year and are highest during the injection period in advance of the Heating Season. Nicor Gas’ commercial paper program supports working capital needs at Nicor Gas, while all of our other subsidiaries and SouthStar participate in AGL Capital’s commercial paper program. During the first three months of 2015, our commercial paper maturities ranged from 1 to 58 days, and at March 31, 2015, remaining terms to maturity ranged from 1 to 20 days. Total borrowings and repayments netted to a payment of $649 million during the first three months of 2015. During the first three months of 2015, we had no commercial paper issuances with original maturities over three months.

Glossary of Key Terms

Table of Contents

Senior Notes

On January 15, 2015, $200 million of senior notes matured and were repaid using the proceeds from commercial paper borrowings.

Interest Rate Swaps

On January 23, 2015, we executed $800 million in notional value of 10 year and 30 year fixed-rate, forward-starting interest rate swaps to hedge potential interest rate volatility prior to anticipated issuances of senior notes during 2015 and 2016. These debt issuances will be used to reduce our commercial paper for the amount that was borrowed to repay our senior notes that matured in January 2015 and to fund upcoming debt maturities as well as increased capital expenditures associated with utility investment and construction of our new pipeline projects. We have designated the forward-starting interest rate swaps, which will be settled on the debt issuance dates, as cash flow hedges. We performed a qualitative assessment of effectiveness as of March 31, 2015 and concluded that the hedges remain highly effective.

Financial and Non-Financial Covenants

The AGL Credit Facility and the Nicor Gas Credit Facility each include a financial covenant that requires us to maintain a ratio of total debt to total capitalization of no more than 70% at the end of any fiscal month; however, our goal is to maintain these ratios at levels between 50% and 60%. These ratios, as calculated in accordance with the debt covenants, include standby letters of credit and surety bonds and exclude accumulated OCI items related to non-cash pension adjustments, welfare benefits liability adjustments and accounting adjustments for cash flow hedges. Adjusting for these items, the following table contains our debt-to-capitalization ratios for the dates presented, which are below the maximum allowed.

	March 31, 2015			December 31, 2014			March 31, 2014
AGL Credit Facility		50	%		55	%		54	%
Nicor Gas Credit Facility		54			62

SOUTHERN Co GAS - FORM 10-Q - April 28, 2015

Attached files