SouthStar Proceeding with N.Y. Expansion, Looks to Maryland

SouthStar Energy Services contributed EBIT of $68 million to AGL Resources for the first quarter of 2011, compared to $74 million for the same period in 2010.

Operating margin from SouthStar declined by $7 million to $89 million, primarily driven by a $4 million negative impact resulting from lower average customer usage due to weather that was 25 percent warmer than last year's first quarter.

Additionally, SouthStar experienced a $2 million decrease in operating margin due to an increase in the number of customers switching to less profitable fixed price plans, reflecting the increased competitiveness of the retail pricing market for natural gas in Georgia. Operating expenses decreased $1 million, mainly due to lower bad debt expenses.

SouthStar's average Georgia customer count for the quarter ending March 31, 2011 was 498,000, versus 507,000 a year ago. A direct comparison to the quarter ending December 31, 2010 is not available, but SouthStar's average Georgia customer count for the 12 months ending December 31, 2010 was 496,000.

SouthStar's market share in Georgia was 32% as of March 31, 2011, versus 33% a year ago.

During an earnings call, executives said that the Georgia market has stabilized since the dynamic changed in 2008, at which time the market saw an increase in churn and migration to fixed price contracts. Both trends have slowed and flattened, executives said.

Regarding SouthStar's other markets, executives said that the Ohio auctions have provided comfortable margins, but believe that serving customers directly at retail is going to be the predominant contributor in that market over time. SouthStar has about 35,000 choice customers in Ohio.

In Florida, executives described the TECO Peoples Gas and Central Florida Gas markets as stable. At TECO, executives said that SouthStar grows its commercial and industrial business pretty predictably every year, and is looking at about $2 million in margin behind that market. Executives also said that there are some initiatives underway to improve those two markets.

Executives reported that SouthStar has entered New York and is preparing to begin service at two LDCs, and is also looking at Maryland and other markets (12/8).

SouthStar's customer count at Ohio and Florida, including customer equivalents, averaged 71,000 during the quarter ending March 31, 2011, versus 106,000 a year ago.