American Gas Association 2017 Financial Forum

Transcription

1 American Gas Association 2017 Financial Forum 0

2 Cautionary Note Regarding Forward-Looking Statements NOTE: Certain information contained in this presentation is forward-looking information based on current expectations and plans that involve risks and uncertainties. Forward-looking information includes, among other things, statements concerning earnings drivers, regulatory matters, capital expenditures, business seasonality, net income growth and pipeline investments of Southern Company Gas (the Company). The Company cautions that there are certain factors that could cause actual results to differ materially from the forward-looking information that has been provided. The reader is cautioned not to put undue reliance on this forward-looking information, which is not a guarantee of future performance and is subject to a number of uncertainties and other factors, many of which are outside the control of the Company; accordingly, there can be no assurance that such suggested results will be realized. The following factors, in addition to those discussed in the Company s Annual Report on Form 10-K for the year ended December 31, 2016, and subsequent securities filings, could cause actual results to differ materially from management expectations as suggested by such forward-looking information: the impact of recent and future federal and state regulatory changes, including environmental laws, and also changes in tax and other laws and regulations to which the Company is subject, including potential tax reform legislation, as well as changes in application of existing laws and regulations; current and future litigation, regulatory investigations, proceedings, or inquiries; the effects, extent, and timing of the entry of additional competition in the markets in which the Company operates; variations in demand for natural gas, including those relating to weather, the general economy and recovery from the last recession, population and business growth (and declines), the effects of energy conservation and efficiency measures, including from the development and deployment of alternative energy sources, and any potential economic impacts resulting from federal fiscal decisions; available sources and costs of natural gas; effects of inflation; the ability to control costs and avoid cost overruns during the development and construction of facilities; investment performance of the Company's employee and retiree benefit plans; advances in technology; state and federal rate regulations and the impact of pending and future rate cases and negotiations, including rate actions relating to natural gas and other cost recovery mechanisms; the inherent risks involved in transporting and storing natural gas; the ability to successfully operate the natural gas distribution and storage facilities and the successful performance of necessary corporate functions; internal restructuring or other restructuring options that may be pursued; potential business strategies, including acquisitions or dispositions of assets or businesses, which cannot be assured to be completed or beneficial to the Company; the ability of counterparties of the Company to make payments as and when due and to perform as required; the direct or indirect effect on the Company's business resulting from cyber intrusion or terrorist incidents and the threat of terrorist incidents; interest rate fluctuations and financial market conditions and the results of financing efforts; changes in the Company's credit ratings, including impacts on interest rates, access to capital markets, and collateral requirements; the impacts of any sovereign financial issues, including impacts on interest rates, access to capital markets, impacts on foreign currency exchange rates, counterparty performance, and the economy in general; catastrophic events such as fires, earthquakes, explosions, floods, tornadoes, hurricanes and other storms, droughts, pandemic health events such as influenzas, or other similar occurrences; the direct or indirect effects on the Company's business resulting from incidents affecting the U.S. natural gas pipeline infrastructure or operation of storage resources; the effect of accounting pronouncements issued periodically by standard-setting bodies; and other factors discussed in other reports (including the Form 10-K) filed by the Company from time to time with the Securities and Exchange Commission. The Company expressly disclaims any obligation to update any forward-looking statements. 1

3 Southern Company Gas (GAS) Overview GAS operates seven state-regulated natural gas local distribution companies (LDCs), serving 4.6 million customers GAS Operations Investments in six midstream pipelines Wholesale gas operations (Sequent) and gas marketing services (SouthStar and Pivotal Home Solutions) complement core LDCs and growing midstream investments Pipelines in Development Operational Pipelines Southern Company Gas LDCs 2

4 Southern Company Gas Earnings Drivers Expect net income from state-regulated LDCs and FERC-regulated pipelines to grow as LDC infrastructure investment programs continue and additional pipeline investments become operational Constructive relationships with regulators in all seven LDC jurisdictions LDC cost recovery supported by mechanisms which minimize regulatory lag and pass through fuel costs Customer growth Growing contracted midstream operations consistent with low-risk business objectives Current and future midstream investments are expected to be highly contracted with creditworthy counterparties, be FERC-regulated and ensure reliable access to gas supplies for the SO system 3

5 Southern Company Gas Projected Capital Investments (billions of dollars) By Segment By Type Other Midstream / Operations* Distribution Operations $1.7 $1.7 $1.7 $0.3 $0.3 $0.3 $1.5 $1.4 $1.4 $1.7 $1.7 $1.7 $0.3 $0.3 $0.3 $0.1 $0.1 $0.1 $0.1 $0.1 $0.6 $0.5 $0.5 Other Midstream / Operations* LDC New Business LDC Rider (To be approved) LDC Rider / Infrastructure (Approved) $0.7 $0.7 $0.8 Rate Base *Note: Includes incremental capital at pipeline partnerships Totals may not foot due to rounding 4

6 Business Seasonality: Percent of Estimated 2017 Net Income by Quarter GAS Consolidated (Excluding Wholesale Gas Services) Q4 33% Q1 40% 12% Q3 15% Q2 Q4 33% 13% Q3 16% Q2 Q1 38% Q4 32% 25% Q3 Q1 26% 16% Q2 Q4 32% 3% 11% Q2 GAS Distribution Operations GAS Midstream Operations GAS Marketing Services Q1 54% 5

7 Gas Distribution Operations Summary One of the largest LDC operators in the U.S., serving 4.6 million customers Expected net income CAGR of ~5% ( ) driven by customer growth, infrastructure investment and base rate cases Expected annual customer growth of ~1% based on strong economic outlook in most jurisdictions Infrastructure investment averages ~$565 million annually (pipeline replacement and improvements) Base rate cases filed/expected in all major jurisdictions 2016 Customers (thousands) 2016 Rate Base ($millions) Allowed ROE 2016 Actual ROE Miles of Pipe Nicor Gas 2,220 $1, % 9.00% 34,300 Atlanta Gas Light 1,603 $2, % 8.49% 33,200 Virginia Natural Gas Elizabethtown Gas 296 $ % 7.19% 287 $ % 9.50% 5,600 3,200 Florida City Gas 108 $ % 6.76% 3,700 Chattanooga Gas 65 $ % 7.59% 1,600 Elkton Gas 7 N/A N/A 1 N/A 100 6

8 Distribution Operations Rate Case Update Nicor Gas (Illinois) Filed a general base rate case on 3/10/17 Expect ruling within the 11-month statutory time limit.virginia Natural Gas Filed a general base rate case on 3/31/17 with the Virginia State Corporate Commission Rates will go into effect 9/1/17, subject to refund; the VSCC is expected to issue a ruling within 12 months of the filing date Elizabethtown Gas (New Jersey) Filed a general base rate case with the New Jersey Board of Public Utilities in 3Q16 Expect the New Jersey BPU to issue an order on the filing in 3Q17 Atlanta Gas Light (Georgia) In February, the Georgia Public Service Commission approved a joint settlement with its staff and Atlanta Gas Light that adjusts future rates through the Georgia Rate Adjustment Mechanism 7

9 Distribution Operations: Key Regulatory Mechanisms Utility Rate Decoupling Weather Normalization Bad Debt Recovery Conservation Program Recovery Infrastructure Programs Nicor Gas (~70% Fixed) Weather Risk Hedged Atlanta Gas Light (Straight Fixed -Variable) N/A N/A Virginia Natural Gas (Revenue Normalization) Elizabethtown Gas Florida City Gas Chattanooga Gas (Revenue Normalization) 8

10 Midstream Operations: Pipeline Investments Committed investments totalling ~$2.9B in six major pipelines, including over $2B invested in operational pipelines Southern Natural Gas Company (SNG) (In-Service) Dalton Expansion (Under Development expected inservice summer 2017) Atlantic Coast Pipeline (Under Development) PennEast Pipeline (Under Development) Magnolia Pipeline (In-Service) Horizon Pipeline (In-Service) Pipeline Net Income was $31 million in 2016; Expected to grow to $87 million in 2020 when all investments are operational Pipelines are highly contracted with ROEs averaging 11%-12% Demand pull rather than producer push Greater than 90% of capacity under contract with investment-grade counterparties 9

11 Pipeline Investments Project Overview Pipelines in Construction/Permitting In Service Pipelines Dalton Horizon Magnolia Total Ownership % 5% 50% 20% 50% 100% 50% GAS Investment Exp. when all projects In-Service /1 $256 $254 $270 $14 $40 $2,195 /2 $3,029 Pipeline Capacity Mcf/D 1,500, ,000 1,000, ,000 82,000 3,900,000 7,310,000 Pipeline Miles ,000 8,097 Total Spend Thru March 17 /1 $38 $205 $27 n/a n/a n/a In Service (or Expected) (4Q19) (3Q17) (4Q18) In Service In Service In Service Percent Contracted 99% 100% 90% 100% 100% 99% Average Contract Term 20 Years 25 years 14 years 9 years 15 years 5.6 years Average Customer Credit Rating Investment Grade+ Investment Grade+ Investment Grade+ Investment Grade+ Investment Grade+ Investment Grade+ /3 /1 $ in millions /2 Reflects $120 million contribution related to McDonough Lateral expansion, which remains subject to regulatory approvals /3 Approximately 50% of 2017 demand revenue related to Southern Company Gas and Southern Company 10

12 Gas Marketing Services Summary Gas Marketing Services Net Income is primarily driven by SouthStar Energy Services, which markets natural gas to over 600,000 customers in select deregulated markets SouthStar has maintained a market leading position in Georgia since deregulation occurred in 1998 Commodity hedges reduce gas price exposure, and weather hedges mitigate volumetric risk Pivotal Home Solutions provides home warranties, appliance leasing and maintenance services to 1.2 million residential customer contracts 11

13 Wholesale Gas Services (Sequent) Manages physical natural gas assets for affiliate LDCs and third party customers including natural gas utilities, gas-fired power generators, natural gas producers and large commercial and industrial customers Provides Asset Management Agreement (AMA) services to affiliate LDCs and multiple third party utilities across the U.S. Historical Benefit of AMAs to Affiliate LDCs Actual amounts shared $60M Exclusive fuel manager for over 24,000 megawatts of gas-fired power generation Utility-appropriate risk control environment $32M $47M $35M Not included in EPS Guidance, primarily due to mark-to-market accounting variability $15M $18M $13M $12M $12M $11M $11M $11M Contractual Minimums