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Executives

Hugh Gallagher – Treasurer, Head, IR

Lon Greenberg – Chairman, CEO

Jerry Sheridan – President, CEO, AmeriGas

John Walsh – CFO

Analysts

Carl Kirst – BMO Capital Markets

Darren Horowitz – Raymond James

Mark Barnett – Morningstar

UGI and AmeriGas Partners LP’s (UGI) Q2 2012 Earnings Call April 26, 2012 4:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the UGI and AmeriGas Partners LP Second Quarter Fiscal Year 2012 Earnings Conference Call and Live Audio Webcast. At this time, all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions) As a reminder, today’s conference is being recorded.

I’d now like to turn the conference to your host, Mr. Hugh Gallagher.

Hugh Gallagher

Thanks, Amy and good afternoon, everyone, and thanks for joining us. As we begin, let me remind you that our comments today will include certain forward-looking statements, which management of UGI and AmeriGas believe to be reasonable as of today’s date only. Actual results may differ significantly because of risks and uncertainties that are difficult to predict and many of which are beyond management’s control.

You should read our annual reports on Form 10-K for a more extensive list of factors that could affect results, but among them are adverse weather conditions; cost volatility and availability of all energy products; increased customer conservation measures; the impact of pending and future legal proceedings; domestic and international political, regulatory and economic conditions; currency exchange rate fluctuations; the timing of development of Marcellus Shale gas production; the timing and success of our commercial initiatives and investments to grow our businesses; and our ability to successfully integrate acquired businesses including Heritage Propane and the Shell acquisition, and achieve anticipated synergies.

UGI and AmeriGas undertake no obligation to release revisions to their forward-looking statements to reflect events or circumstances occurring after today. In addition, our remarks today will reference certain non-GAAP financial measures that management believes provide useful information to investors to more effectively evaluate the year-over-year results of operations of the company. These non-GAAP financial measures are not comparable to measures used by other companies and should be considered in conjunction with performance measures such as cash flow from operating activity.

With me today are John Walsh, President and COO of UGI; Jerry Sheridan, President and CEO of AmeriGas, and your host, Chairman and CEO of UGI Corporation, Lon Greenberg. Lon?

Lon Greenberg

Thanks, Hugh. Let me also welcome you to our call and a special welcome to our recent retirees Bob Knauss and Margaret Calabrese. I hope you’re nice and relaxed, and don’t feel compelled to jump out of your chair during our comments.

I hope you’ve all had the opportunity to read our press releases for the second quarter. UGI reported earnings per share of $1.18 compared to $1.32 last year. This year’s results include a $0.02 charge related to the extinguishment of debt compared to $0.05 last year and a $0.02 charge related to transaction costs for international and domestic LPG acquisitions. So, the $1.18 with those two added back becomes $1.22. AmeriGas reported net income attributable to AmeriGas Partners of $133.9 million compared to $118 million last year, on adjusted EBITDA of $246 million compared to $176 million last year.

Now as we sit here today and preparing for the call, I remembered telling you last quarter how frustrating the first quarter was due to uniformly and unusually warmer winter weather in the first quarter. Well, on the whole weather didn’t get any better and as a result we remain frustrated with our results because of the weather. Incidentally weather records were broken in the United States for not only March of this year but also for the entire second quarter and for the last 12 months although those periods were the warmest and recorded history for the United States.

In our business as you know, being a record breaker for warm winter weather is not a good thing. Thus as you might expect our results reflect that weather, yet as I’ve said many times results don’t always tell you what’s going on in a business and there are a large number of silver linings in the clouds of those weather.

Our management teams did a fine job of mitigating the adverse effects of weather by controlling expenses in managing margins. We made significant progress on a number of important projects that we will discuss during this call. And that progress sets the stage for a significant rebound in earnings next year. However, before I jump ahead to next year I’d like to turn the call over to Hugh, John and Jerry to discuss this quarter’s results. So Hugh?

Hugh Gallagher

Thanks, Lon. As Lon just mentioned the highlight or low light of this quarter was a lack of demand for all energy products resulting from the record warm weather encountered domestically and the volatile warm called warm weather pattern experienced in Europe during the quarter. As outlined in our earnings release giving our results to-date and our current assessment of acquisition integration efforts and business prospects for the remainder of this year we expect to report GAAP earnings per share of between $1.65 and $1.75 per share for the full fiscal year ending September 30, 2012.

It is important to note that the full year guidance includes dilutive impact of about $0.15 associated with the acquisition transition costs at AmeriGas and at International Propane and the loss on extinguishment of debt at AmeriGas. Excluding these unusual items related to recent acquisitions, we would expect to report adjusted EPS in the range of $1.80 to $1.90 for the full fiscal year ended September 30, 2012.

Looking at year-to-date EPS, on an adjusted basis excluding the impact of the loss on extinguishment of debt and the transition expenses that have been incurred thus far, we would be at $2.02 per diluted share versus $1.92 GAAP EPS that was reported. This means that excluding the impact of the transition cost that we expect to incur during the second half, we would incur a seasonal net loss in the $0.10 to $0.20 per share range.

Now turning back to this quarter’s results for each business unit. Most notably AmeriGas completed the Heritage acquisition in mid-January but both businesses were significantly impacted by the warm weather during the quarter. Heritage contributed a 138 million gallons and a $194 million in total margin from its mid-January acquisition date through March 31. Heritage operating expenses during the period were approximately $78 million, which translates in total to roughly a $117 million of EBITDA from Heritage.

In the AmeriGas legacy business, we sold out 252 million gallons during the quarter compared to 316 million gallons during the prior year period. Total margin at the AmeriGas legacy business was $292 million this quarter compared to $342 million in the prior year. And operating expenses in the legacy business excluding transition costs associated with the acquisition were a $166 million.

Adjusted EBITDA from the AmeriGas legacy business was approximately $129 million versus adjusted EBITDA of $176 million in the prior year. Although we were able to disclose the Heritage and AmeriGas results separately for this quarter, out ability to do so will diminish as we integrate the businesses Jerry, AmeriGas has made significant progress on the integration and Jerry will be sharing some thoughts on that late during his part of the presentation.

Turning to international propane. Contribution to earnings before income taxes increased this year versus the prior year reflecting the beneficial impact of the Shell acquisition partially offset by transition expenses related to the transaction. The Shell acquisition added 52 million gallons and $39 million in total margin. The acquisition also adds about $25 million in total operating expenses including $1 million in transition cost. Total operating income contribution from the acquisition during the quarter was approximately $12 million.

Weather across Europe during the quarter was particularly volatile. Although weather in France on average was about normal for the quarter January was 10% warmer than normal followed by a February that was 32% colder than normal and a March that was 22% warmer than normal. Similarly in Flaga service territory temperatures for the quarter averaged about 3% warmer than normal but with a similar roller coaster. January was 11% warmer than normal, February was 19% colder than normal, March was then 18% warmer than normal. The abrupt end to the heating season in March had a negative impact on the volume performance of our businesses in Europe.

At the legacy Flaga and Antargaz businesses volumes were 131 million gallons, about 2% lower than the prior year period. Total margin was about $169 million or 5% below the prior year period. The lower total margin in the legacy business was largely attributable to much higher international wholesale propane product cost. According to plaques prices in Northwest Europe averaged $1.91 per gallon in the prior quarter and $1.56 per gallon in Q1 of 2012.

Put another way, our European businesses encountered a propane product cost environment that was 11% higher than the prior period and 22% higher than the previous quarter. Despite this our teams did an excellent job of managing margins given this rising cost environment.

Operating expenses at the legacy business were $93 million and operating income at the legacy business in Europe was about $58 million during the quarter. Cash utilities contributions to earnings decreased 12.1 million or nearly 21% on weather that was over 19% warmer than normal and over 23% warmer than last year.

The warmer weather resulted in a decrease and throughput to retail core market customers of 6.7 Bcf or about 20% from the prior year. Importantly, the weather related decrease in volume at AmeriGas and Heritage was consistent with this weather related decrease experienced in our utility business. Midstream and marketing earnings contribution also decreased significantly as the benefits of increased natural gas storage income were more than offset by lower earnings from natural gas marketing, capacity management activities and to a lesser extent electric generation.

And now I want to provide a little bit of color on cash and liquidity. UGI’s balance sheet is very strong despite the near term challenges related to the weather and we remain committed to maintaining a strong balance sheet as a means to support our business initiatives. Consolidated cash was approximately 402 million at March 31, 2012 compared to 298 million at March 31, 2011. The current year in cash balances were higher than last year primarily due to cash balances associated with the Heritage and Shell acquisitions.

In discussing financing activities this quarter, I want to spend most of my time on AmeriGas since there has been a significant amount of activity there since the last time we spoke. In January, AmeriGas completed the $1 billion senior note offering and the $550 million senior note offering in conjunction with the Heritage Propane acquisition.

In March, AmeriGas sold 7 million units in an underwritten public offering and the net proceeds from this offering were used to redeem $200 million of AmeriGas’s senior notes due 2021 and to reduce bank loan borrowings outstanding. Both the equity offering and the debt tender offer were part of our financing plan related to the Heritage acquisition and were intended to bring AmeriGas’s credit metrics back in line following the acquisition.

At March 31 AmeriGas had $140.3 million in cash-on-hand and as a result of the transactions I just described, AmeriGas capital structure was as follows. Revolving credit borrowings of $50.9 million, current maturities of long-term debt of $26 million, senior notes outstanding of $2.270 billion, other long-term debt of $67.9 million and total debt of $2.4148 billion, Total Partners capital including non-controlling interest was $1.8 billion meaning our debt-to-total capitalization was about 57% as of March 31.

In order to provide ample headroom under its debt covenants following the historic warm weather and the additional leverage resulting from the Heritage acquisition, AmeriGas recently entered into amendment to its credit agreement that increases the consolidated MLP total leverage ratio to 5.5 times through March 31st of 2013 and then to 5.25 times thereafter. Prior to the amendment, this ratio was 5.25 times through June 30, 2012 and five times thereafter. And a final note on the AmeriGas as we sit here today, there are no borrowings outstanding under AmeriGas’s 525 million credit facility. There are 39.2 million in letters of credit outstanding and capacity under the facility is 485.8 million.

Moving briefly, the UGI’s other business units, at March 31, UGI utilities had zero borrowed under it’s revolving credit facility and $47 million of cash on hand. Antargaz had no borrowings under its €40 million facility and had €78 million of cash on hand. Flaga had approximately €17 million of borrowings and €18 million of guarantees outstanding under its two primary revolving credit facilities but Flaga also had approximately €11 million of cash on hand at March 31.

AvantiGas, our propane operation in the UK at cash on hand of 11 million British pounds at the end of the quarter. Our Midstream and Marketing business had outstanding balances of 27 million under its accounts receivable facility and 85 million on its revolving credit facility at March 31.

And finally at the UGI Corporation level excluding on cash held by operating subsidiaries, we had 63 million of cash available at March 31, 2012 compared with 78 million at March 31, 2011.

And with that I will turn it over to John for his report on operations, John?

John Walsh

Thanks, Hugh. Although the short term financial impact of the record setting warm weather and the quarter was substantial. Our businesses have done a solid job responding to those challenges. Our teams have executed a broad range of actions to manage costs as we responded to reduce demand from our weather sensitive segments. We’ve also taken advantage of the opportunity provided by the weather to drive critical projects and activities that are typically curtailed during the winter months.

A comment on both the operational and strategic activities in the quarter since there were significant developments in both areas. Our core businesses, while managing cost effectively over the course of this challenging winter, moved forward with our growth programs and critical operational initiatives. Our Gas Utility team is converting customers to natural gas at a record pace. The natural gas versus fuel oil spread remains very wide and customers in both the residential and commercial segments are eager to take advantage of the savings while upgrading the quality of their energy solution.

Through the first six months of our fiscal year, conversions and upgrades are running over 50% ahead of prior year. We’ve taken full advantage of the warm weather to continue the conversion activity throughout the winter months. Our commercial additions are running about 25% ahead of prior year with customers being added across our entire service territory. While new residential and commercial construction activity remains weak, we’ve addressed this growth challenged by our targeted conversion program. We expect to add 13,000 to 15,000 new customers at Utilities by the end of the fiscal year.

Our Midstream & Marketing business continues to have good success growing our power marketing segment. We’ve ramped up our activities over the past 24 to 36 months and now serve over 8,000 commercial customers in the mid-Atlantic region. Total megawatt hours build year-to-date have increased about 25%. In many cases, we serve both the power and natural gas requirements for these customers. This puts us in a great position to develop long-term relationships as we serve as their primary energy supplier and advisor.

Much of our effort this year has been focused on the development and execution of a range of strategic investments across our businesses. Many of these opportunities, which include both capital projects and acquisitions, have moved into the execution phase. We’re excited about the progress made to-date and remained highly focused on the successful execution of each of this individual opportunity.

Our Midstream and marketing team continuous to make progress on our key Marcellus projects, which are at various stages of development, execution and operation. Early in Q2, we conducted an open season for our 15 Bcf natural gas storage facility in Central Pennsylvania. The storage capacity was 100% subscribed at average rates that were slightly above the prevailing rates. We also completed the file stage of our project to add compression on our existing Auburn Gathering System. That system is not operating at full capacity.

In addition to these assets now in operation in the Marcellus region, we have two significant pipeline projects under development. The Auburn 2 project, which will extend our existing system southward to connect with the Transco Pipeline is in the land acquisition of phase at present with a significant portion of that capacity subscribed. Field execution is scheduled for 2013. In early March, we announced our intention to jointly develop and market a new interstate pipeline known as the Commonwealth Pipeline. This proposed 200 mile project which is being developed along with Energy Midstream and a subsidiary of WGL Holdings would southward from Central Pennsylvania accessing major markets in Southeast Pennsylvania, Maryland and the district of Columbia. We’re currently in the marketing stage in preparation for an open season in Q3.

The integration programs for our major propane acquisitions in Europe and the U.S. are right on track. The European integration is well advanced and we will have achieved a majority of our synergy goals and incurred most of the transition expenses this fiscal year. AmeriGas has made great progress on the Heritage integration plan that we discussed on our last call. The team has used a lower level of delivery activity resulting from the warm weather as an opportunity to accelerate key elements of the plan. We’re very pleased with the progress made in the first three months post acquisition and remain highly confident that we’ll achieve the operational service and growth performance that underpin the business case for the investment. Jerry will provide additional details on the integration works during his comments.

We’re nearing completion of two projects that we’ve been discussion with you over the past two years. The $120 million expansion of our LNG picking facility in Temple, Pennsylvania is in the final stages of commissioning. We’re on schedule to be fully operational for the 2012, 2013 winter picking season. We’re also in the commission stage for the restart of the second gas fired turbinate at our Hunlock Power generation facility. The unit will be fully operational and the Hunlock plant will be back at full capacity by the end of this quarter.

Well I can’t say I’m sorry to see the second quarter come to a close the performance challenge presented by the weather was significant. I can say that the achievements in the quarter on our two major propane integration, our continued strong growth in utilities and the major development on our Marseilles activities position us well for a return to strong performance in 2013 and beyond.

I’d now like to turn it over to Jerry Sheridan who’ll take you through the AmeriGas performance in Q2. Jerry?

Jerry Sheridan

Thanks John. This was the milestone quarter for AmeriGas as we closed the largest acquisition in the history of the company. Our acquisition of Heritage Propane on January 12th was a primary focus of our activities in the quarter and will remain so for the next 15 months as we execute our integration plans.

Our reported EBITDA on this year’s second quarter grew by 40% versus the Legacy AmeriGas business last year. In order to provide you with insights on underlying performance my comments will include references to the separate volume performance of the legacy AmeriGas and Heritage businesses during this extraordinarily warm second quarter.

First the actual EBITDA results for the quarter for the new AmeriGas were $246 million after adjusting for $13 million of debt extinguishment cost and $8 million of acquisition integration expense. The $246 million result is almost $70 million above the legacy AmeriGas performance in the prior year.

It’s worth noting that the quarter included an improvement into the margin that resulted from settling the fair market value of inventory for the opening balance sheet for Heritage as of January 12. The benefit of this lower cost inventory, much of which liquidated during the quarter, was the largest contributor to an adjusted EBITDA performance that exceeded the top end of our previously issued guidance for the quarter of $235 million. As a result of this adjustment and the positive impact of the declining product cost during the quarter, units margins were stronger than normal during the quarter.

Weather for the quarter nationally was 22% warmer than last year and the warmest January to March period ever recorded since record keeping began a 118 years ago. In order to better understand the impact of the weather on the business, the legacy AmeriGas volume was down 20% during the quarter and the legacy Heritage volume was down 19% for the fourth quarter January to March. The volume decrease for both businesses, therefore, was in line with the weather impact.

Our teams performed well in this most challenging weather environments. We closely managed our operating expenses while simultaneously executing the early phases of the integration plan. Operating expenses increased by roughly $82 million in the quarter due to the acquisition but the operating expenses declined in the AmeriGas propane legacy operations.

The warm weather has afforded us the opportunity to accelerate our selection of field locations where there are consolidations as well as the individual selection of our senior management and field management teams. In addition, we’re moving forward with the consolidation of headquarters operations and will be closing the legacy Heritage headquarters in July.

As I noted earlier, the integration activities will be our primary focus over the next 15 months. We have 15 internal teams focused on everything from back office consolidations to real estate selections, to systems conversions and implementing distribution best practices. Our integration is on track to consolidate over 200 field locations. Our attention now is focused on completing a successful integration and looking forward at our growth strategies around national accounts, AmeriGas seller exchange and acquisitions. We’ve acquired six small propane operations this year and have blended them into our existing operations.

Based on a year-to-date EBITDA of $335.5 million we’re reiterating our guidance for fiscal 2012 to be an adjusted EBITDA of between $375 million and $395 million including $15 million of synergies to be realized this year. Further, based on the progress of the Heritage integration and the assumption of a return to normal weather, our adjusted EBITDA guidance for fiscal 2013 remains $610 million to $660 million including the impact of over $50 million in net energy expected to be realized in 2013. We always take a long-term view of the business.

We’re pleased to increase our distribution 3% upon the close of the acquisition as we recommended to and again increased our distribution 5% in April, our sixth consecutive annual increase of 5%. We got a strong business, that an endure gross cycles and still deliver consistent returns to unit holders. The acquisition of Heritage solidifies our strength in an industry that clearly needs consolidation.

I thank our new management team and the over 9,000 AmeriGas employees who’ve shown outstanding commitment and a great deal of flexibility through the acquisition and the ongoing integration process.

So now I’ll turn it back over to Lon.

Lon Greenberg

Thanks Jerry. My concluding comments are on the brief side just given that we’ve had a longer presentation than usual. We’ve given you guidance already. Hugh has done it is in the press release, Jerry has done it, and that guidance obviously reflects our view of the remainder of this year as well as our results to-date.

I want to comment on the results to-date a little bit more to give you some color. We conducted an internal exercise to ascertain and quantify the effects of this record setting warm weather on us. And as you know, this isn’t an exact science to weather adjust our results. However, we believe that we would have been very comfortable in advising you today that the guidance we gave you in November of $2.35 to $2.45 a share was achievable this year with had weather been more normal.

Said differently, we gave you guidance in November of $2.35 to $2.45. If we had experienced relatively normal weather we’re comfortable that we’d be at least reiterating guidance today. Said differently, the weather effect on our earnings based on our calculations, which again is not an exact science, is in the $55 million to $65 million range. However, as I said, this is a hypothetical exercise and we’ll wait till next year to demonstrate our earnings capacity in more normal winter weather environment. Yet as John and Jerry and Hugh indicated, we don’t have to wait very long to talk about our progress.

The Heritage transaction integration effort as everyone has told you is progressing very well. I know there is a lot of discomfort with the domestic propane industry. However, we believe the current level of discomfort is extreme and it’s unwanted. By way of illustration in comparison to our Gas Utility volumes, the significant weather-related volume declines in our propane business that Jerry commented on were very consistent with the experience in our retail core market throughput in our Gas Utility with similar weather.

Said very plainly, our Gas Utility experienced weather similar to AmeriGas and Heritage during the quarter and both of their volumes were down a comparable amount and there is nobody out there who suggests that the Gas Utility industry is not a good industry generally nor is our Gas Utility a sound growing company. So, we are not prone to exaggeration as you know and I assure you we are very comfortable with our 2013 projection of EBITDA in the range of $610 million to $660 million or we would not be telling you it on a consistent basis.

Our International Propane business also is doing very well and progressing nicely with its integration. The transactions made last year were very sound transactions based on strong fundamentals and were excellent values, and we are very comfortable that they will contribute nicely to next year’s earnings. John mentioned how much growth we’re seeing in our Gas Utility. Our Gas Utility continues to grow at near record levels. We’re seeing an overall pickup in demand if you look at the underlying fundamentals of demand, and this all bodes well for next year if we have any kind of return to relatively normal winter weather.

Midstream & Marketing business, John described the activities there. We continue to invest and grow. We described during this meeting our activities in the whole, what’s coming on stream and later this year and in 2012 and ‘13. You will see a good contribution to earnings next year from our investments and progress we made in our Marketing & Midstream business.

So, in summary, we’ve created a strong foundation for a significant rebound in earnings next year and, as John said, for earnings growth in the future. Our financial condition is strong, he went over that thoroughly. And as importantly as anything, our management teams are eager to demonstrate that our efforts are bearing fruits and we’ll bear fruit for you in the future. There may be some who have been disheartened with our results this year, but we offer no excuses for it, just facts about weather and our progress. We’re as optimistic as ever about our future and frankly can’t wait to prove it to you as the rest of this year unfolds and next year begins.

So, with that, we’ll take whatever questions you have. So, Amy, you can open it for questions.

Question-and-Answer-Session

Operator

(Operator Instructions) Our first question comes from Carl Kirst of BMO Capital Markets. Your line is open.

Carl Kirst – BMO Capital Markets

Thanks. Good afternoon, everybody, and very much appreciate all the detail, and Lon, certainly your comments at the end. And in fact, just if I can ask a clarification since we’re on the call here the original $2.35 to $2.45 guidance from last November I guess it was. Was that in and of itself an adjusted number i.e. it excluded the debt retirement and the transition cost or did that number even include that I just couldn’t remember off the top of my head.

Lon Greenberg

The only thing that would have included Carl would have been the impact of transition expenses for the European acquisition.

Carl Kirst – BMO Capital Markets

Just for European.

Lon Greenberg

Just for...

Carl Kirst – BMO Capital Markets

Okay, that was pre Heritage.

Lon Greenberg

Pre heritage and pre extinguishment of debt.

Carl Kirst – BMO Capital Markets

Thank you, I appreciate that. Actually a question on Heritage if I could and a lot of the numbers thrown out there so I may have missed this but just looking at the Heritage and thank you for splitting it out for this quarter. But wondering about the legacy heritage from this time last year just a sort of see what the weather impact was and I believe I caught that volumes were down 19% year-over-year just the Heritage I didn’t catch what the margin was for the decline of the margin?

Lon Greenberg

I will take margin Carl and then Jerry or Paul Grady who is here or someone else can jump and if I overstate it are understate it. Margins as a whole are up year-over-year and they’re up in the Heritage business and they’re up in the AmeriGas business as well. This quarter there were two factors that affected that. One was a declining cost environment.

I am going to do a guess and somebody correct me, but now Belvieu is down $0.30 during this quarter peak to trough down $0.30ish and obviously in a falling cost environment that helps as you try to maintain your margins and in particularly in a tough weather environment where earnings are somewhat pressed. Secondly, as Jerry mentioned, we’ve got some purchase accounting preliminary results in Heritage and there was an inventory adjustment that also lowered our cost of gas if you will and gets past through margin. So, that also helped the Heritage margins. We don’t have exact numbers on both but unit margins were nicely higher than last year’s unit margins and again the explanation is the falling cost environment in the inventory.

Hugh Gallagher

And Carl, this is Hugh. A couple of pitfalls I just want to point everyone to avoid, if you look at Heritage’s results last year and the ETP report, that’s going to include the cylinder exchange business that we didn’t acquired, number one. So, that’s different that. And the second one is we had what 10 weeks of operations this year versus a full quarter that would have been in their report last year.

Carl Kirst – BMO Capital Markets

No, thank you for the clarification, Hugh. That’s great. And then just last question if I could and this was really on the, going back to the Midstream and we’re going to have I understand a lot of moving parts and of course as projects go from execution and service, this is going to change.

But as we look at either this current quarter just reported or six months to-date, can you breakout sort of the different buckets that we’re seeing right now as far as how much from gas marketing, power marketing other services? And within that partly, I just want to make sure I understand what the difference is between gas marketing and capacity management because I think here to fore I was probably thinking of those as quite frankly the same thing using gas marketing to manage your capacity?

John Walsh

Hey Carl, this is John, one of the things we’re planning on doing is holding an Analysts Day in the fall. I think that’s probably the best venue for us to go into a sort of a detailed review of the Midstream and Marketing business at which point we could – you’re right. It’s clearly, a completely separate activity around gas marketing and then the capacity management activities for the Midstream business.

So not in a position to break it out on this call. The other thing, I would say about gas marketing is the experience we saw although the volume impact of warm weather in our gas marketing business within midstream kind of mirrored what we saw in the gas utility, very similar. Some of the service territories over lapse. So we saw that impact. Certainly margins held up but volumes were impacted by weather. But in terms of a much more detailed review of performance by segment, I think we target that Analysts Day in the early fall as the best time to do that.

Carl Kirst – BMO Capital Markets

Okay.

Lon Greenberg

And we will try Carl to get more color as the year goes on to. We got shot at AGA. We got a shot and we’ll webcast stuff when we do that. So one thing I’ll point out is the – oh, in addition to what John said, in the press release there is reference to year-over-year margin decreasing from gas marketing of about 6 million bucks lower capacity management margin of 6 million bucks as well. So that will give you some framework of decline that you see and that – that should be helpful to you a little bit, to try to understand year-over-year results.

Jerry Sheridan

And just at a high level to comment on the factors that might impact capacity management. It’s certainly impacted by volatility than in many cases caused by demands put on systems by colder weather and then subsequent disruption. So, we see some of that capacity management decline as being directly related to lower demand and less system stress throughout the mid-Atlantic and Northeast U.S. this year. It’s a very uneventful year in terms of volatility within the market.

Carl Kirst – BMO Capital Markets

Great. I appreciate all the color, guys.

Lon Greenberg

Yep.

Operator

Thank you. Our next question comes from Darren Horowitz of Raymond James. Your line is open.

Darren Horowitz – Raymond James

Hey, Lon, just one question from me regarding AmeriGas. Can you give us a sense for the fiscal 2012 and fiscal 2013 adjusted EBITDA sensitivity due to propane prices because based on what you were just talking about it would seem that substantially higher than normal propane inventories are driving and will continue to drive a rather material decrease in wholesale propane prices basis Mont Belvieu. Clearly, until LPG export capacity comes online later this year, but that could potentially set the stage for some retail margin expansion certainly heading into September and October I would imagine but I would love your thoughts there?

Lon Greenberg

Yeah, let me give you I mean one of the things that we see in the industry that we particularly like is what you referenced to, Darren, which is the tremendous growth domestically in natural gas liquids. It has separated domestic propane prices from crude oil’s traditional relationship and we’re probably trading at 48%, 47% somewhere 47%, 48% accrued whereas the old low in the industry was closer to 80% accrued.

But you benefit most from that in a falling cost environment and if it levelizes somewhat then, I think everybody over time and the market adjust and so you return to a more normal environment, but lower prices to our customers is also are very healthy for this industry, it makes it more competitive compared to other fuels. It makes our customers happier, it provides growth opportunities that don’t exist in a higher cost environment. So yes, you’re observation is correct that falling cost like it does in all industries helps margins.

Eventually that catches up to itself and margins levelize at more normal levels but the extra benefit that you didn’t mention that I would emphasize is lower prices to customers is very good for an industry. We see in the natural gas side that as natural gas prices have declined, the level of conservation that we expected in the industry doesn’t exist. And so we’re seeing improvements in volumes in natural gas both retail customers, home owners, residential as well as commercial businesses and so there’s the added benefit of better volume performances as prices get lower.

Darren Horowitz – Raymond James

Thanks Lon.

Operator

Thank you. (Operator Instructions) Our next question comes from Mark Barnett of Morningstar.

Mark Barnett – Morningstar

Hi, there. Good evening gentlemen.

Lon Greenberg

Hi Mark.

Mark Barnett – Morningstar

Just a quick details question. If I heard you correctly the O&M for the quarter at legacy AmeriGas looks down about 2%. Should we assume that you’re going to be able to hit trajectory kind of through the second half of the year?

John Walsh

OpEx. We didn’t say 2%, we just said I was lower. But yes, certainly this is warm weather time so we got to take control and flexibility around particularly over time in our vehicle repair and maintenance and our plant repair and maintenance cost were things that we can flex and we’re going to have to. This doesn’t, wouldn’t any more near.

Mark Barnett – Morningstar

Okay. And I guess maybe this is a difficult question but I’ll go ahead and ask anyway, big picture given kind of the consolidation obviously with your Heritage deal and then Suburban’s deal announced today. Could you share kind of your general thoughts on how this might impact kind of growth through acquisition model that served you so well?

Lon Greenberg

Yeah, the couple of comments. One is I’ll congratulate John Sherman and Mike Dunn on the transaction. I know Mike and his team at Suburban well they are good operators and they will do a good job of blending those two businesses together. And I also know John and his team on the energy side and they are quality business and I wish them both lots of luck with it, although not as much luck as I wish ourselves, but I do wish them luck because they are two quality companies coming together.

The consolidation is good for the industry as a whole. It’s good for most industries and in particularly this industry because costs need to come down. Here we need to get more efficient and scale brings the efficiency which allows us to become more competitive across the industry, and not only across the industry but with other fuels. We’ve just got to, we’ve got to get more efficient, we’ve got to modernize the industry.

That having been said, the top 10 players of this industry have had about 40% of the market for a very long period of time. We’ve had the consolidation of two of those players into others, so now it might be 43% of the market or 44% of the market. So, the growth through acquisition story is intact. We completed a number of smaller transactions over the course of this year.

We intend to make sure we digest what we have but we haven’t gotten out of the market itself. And so in terms of our expectations for the future we still will build in growth through roll up. continued roll up as this industry and when the largest market share player has 15% as we do there is lots of room for growth in the future.

Mark Barnett – Morningstar

Thanks a lot.

Lon Greenberg

Yeah.

Operator

And I’m showing no additional questions at this time sir.

Lon Greenberg

Okay, thank you very much, Amy. Well we appreciate everybody’s attention to the call. Again we are committed to demonstrate the earnings capacity of this business in a more normal winter environment. I remind you this was an extreme, the reason they have records is every once in a while they’re broken. This one lasted 114, 118 years, 118 years.

We trust that we won’t see it at least a longetivity of the people in this room and that will return to a more normal environment next year and you will see the earnings capacity of this business when you get anything close to more normal weather. So we look forward to making continued progress during the next quarter not a big weather quarter but we are making good progress and before look forward to report that to you sometime in July. Those of you who will see at AGA and along the way look forward to seeing you then. So thanks a lot and everybody take care.

Operator

Ladies and gentlemen this does conclude today’s conference thank you for your participation and have a wonderful day. You may all disconnect.

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