American Gas Association 2017 Financial Forums2.q4cdn.com/471677839/files/GAS-AGA-Handout-May-2017-v7.pdf · American Gas Association ... in addition to those discussed in the Company’s

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American Gas Association

2017 Financial Forum

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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.

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Southern Company Gas (GAS) Overview

• GAS operates seven state-regulated

natural gas local distribution companies

(LDCs), serving 4.6 million customers

• 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

GAS Operations

Pipelines in Development

Operational Pipelines

Southern Company Gas LDCs

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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

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Southern Company Gas Projected Capital Investments (billions of dollars)

Distribution

Operations

Midstream /

Operations*

Other Midstream /

Operations*

Rate Base

LDC Rider /

Infrastructure

(Approved)

LDC New Business

Other

LDC Rider (To be

approved)

*Note: Includes incremental capital at pipeline partnerships Totals may not foot due to rounding

By Segment By Type

$1.5 $1.4 $1.4

$0.3 $0.3 $0.3

$1.7 $1.7 $1.7

2017 2018 2019

$0.7 $0.7 $0.8

$0.6 $0.5 $0.5

$0.1 $0.1

$0.1 $0.1 $0.1

$0.3 $0.3 $0.3

$1.7 $1.7 $1.7

2017 2018 2019

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Business Seasonality: Percent of Estimated 2017 Net Income by Quarter

40%

15%12%

33%

38%

16%13%

33% 26%

16%25%

32%

54%

11%

3%

32%

Q1

Q2 Q3

Q4

Q1

Q2

Q4 Q1

Q2

Q4

Q3

Q1

Q2

Q4

Q3

GAS Consolidated (Excluding Wholesale Gas Services)

GAS Distribution Operations GAS Midstream Operations GAS Marketing Services

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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% (2017-2019) driven by customer growth,

infrastructure investment and base rate cases

2016

Customers (thousands)

2016 Rate

Base ($millions)

Allowed

ROE

2016

Actual

ROE

Miles of

Pipe

Nicor Gas 2,220 $1,797 10.17% 9.00% 34,300

Atlanta Gas Light 1,603 $2,402 10.75% 8.49% 33,200

Virginia Natural

Gas

296 $634 10.00% 7.19%

5,600

Elizabethtown

Gas

287 $611 10.30% 9.50%

3,200

Florida City Gas 108 $210 11.25% 6.76% 3,700

Chattanooga Gas 65 $117 10.05% 7.59% 1,600

Elkton Gas 7 N/A N/A1 N/A 100

– 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

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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

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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)

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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 in-service 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

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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 1,500,000 448,000 1,000,000 380,000 82,000 3,900,000 7,310,000

Pipeline Miles 594 115 118 70 200 7,000 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

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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

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Wholesale Gas Services (Sequent)

• Provides Asset Management Agreement (AMA)

services to affiliate LDCs and multiple third party

utilities across the U.S.

• Exclusive fuel manager for over 24,000 megawatts

of gas-fired power generation

• Utility-appropriate risk control environment

• Not included in EPS Guidance, primarily due to

mark-to-market accounting variability

$32M

$15M $18M

$47M

$60M

$35M

$13M $12M $12M $11M $11M $11M

2011 2012 2013 2014 2015 2016

Actual amounts shared

Contractual Minimums

Historical Benefit of AMAs

to Affiliate LDCs

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

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