SouthStar Energy Services Developing New Products to Retain Margin

SouthStar Energy Services contributed EBIT of $1 million to parent AGL Resources for the second quarter of 2011, which is even with the year-ago contribution.

SouthStar operating margin declined by $1 million as a result of continued high levels of competition and more customers choosing lower margin plans in Georgia, and a decline in revenues from the optimization of storage and transportation assets. These declines offset increased margin resulting from favorable weather and increased usage.

These lower margins were offset by a $1 million decrease in operating expenses, mainly due to lower bad debt and compensation expenses.

SouthStar experienced continued margin compression due to the previously reported movement of Georgia customers to fixed price contracts, though executives continue to see a slowing in this trend.

Additionally, Michael Braswell, President of SouthStar Energy Services, said that SouthStar is developing new products to combat margin compression. Recently, SouthStar launched a price protection guarantee plan which caps the customer's rate, offering the protection of a fixed plan, but that also allows the customer to see price reductions as market prices drop. The new product has a little better margin than a pure fixed plan, Braswell said.

Additionally, asked what segments will see investment dollars if investment in storage does not remain attractive, AGL Resources executives cited, among other things, investment in Nicor's retail business, particularly its warranty products, once the merger is complete.

SouthStar's market share in Georgia as of June 30, 2011 was 32%, flat versus March 31, 2011, and down marginally from 33% as of a year ago.

SouthStar's average customer count in Georgia for the quarter was 492,000, versus 498,000 for the quarter ending March 31, 2011, and 503,000 a year ago.

Average customer count in Ohio and Florida was 95,000 for the quarter, versus 71,000 for the quarter ending March 31, 2011 and 71,000 a year ago. A portion of the Ohio total represents customer equivalents.

Georgia volumes for SouthStar were flat at 4 Bcf for the current and year-ago quarter. Quarterly volumes for Ohio and Florida were 1 Bcf, also flat versus the year-ago.