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Executives

Sarah Stashak – Director, IR

Andrew Evans – EVP and CFO

John Somerhalder – Chairman, President and CEO

Peter Tumminello – President, Sequent Energy Management

Bryan Batson – SVP, Government, Regulatory Affairs

Hank Linginfelter – EVP-Utility, Government, Regulatory Affairs

Analysts

Carl Kirst – BMO Capital Markets

Ted Durbin – Goldman Sachs

Craig Shere – Tuohy Brothers

Mark Barnett – Morningstar

Christine Cho – Barclays

AGL Resources Inc. (GAS) Q1 2012 Earnings Call May 1, 2012 4:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the First Quarter 2012 AGL Resources Earnings Conference Call. My name is Natoya and I will be your coordinator for today’s call. As a reminder this call is being recorded for replay purposes. At this time, all participants are in listen-only mode. We will be facilitating a question-and-answer session following the presentation.

I would now like to turn this presentation over to Miss Sarah Stashak, Director of Investor Relations. Please proceed.

Sarah Stashak

Thank you, and thanks to everyone for joining us this afternoon to review our first quarter 2012 results. With me on call today are John Somerhalder, our Chairman, President and CEO and Drew Evans, our Executive Vice President and CFO. We also have several members of our management team here to answer your questions following our prepared remarks. Our earnings release, earnings presentation, and our Form 10-Q for both AGL Resources and Nicor Gas are available on our website. To access these materials, please visit aglresources.com.

Let me remind you today that we will be making some forward-looking statements and projections and our actual results could differ materially from those forward-looking statements. The factors that could cause such material differences are included in our earnings release and in our 10-Q. We also describe our business using some non-GAAP measures, such as operating margin, EBIT, adjusted net income and adjusted EPS. A reconciliation of those measures to the GAAP financials is available in the Appendix of our presentation as well as on our website.

We’ll begin the call with some prepared remarks before taking your questions. Drew, I’ll turn it over to you to begin.

Andrew Evans

Thanks Sarah and good afternoon everyone. Starting on slide three of our presentation, we reported 2012 GAAP earnings per share of $1.11 per diluted share for the combined enterprises, which now includes a full quarter of contribution from the legacy Nicor businesses. On an adjusted basis which excludes $6 million of after tax costs incurred during the quarter related to the Nicor merger, earnings per share were $1.16 which compares to $1.63 for the first quarter of 2011.

The primary year-over-year driver of our first quarter earnings is the addition of the Nicor businesses, the results of which are not reflected in the first quarter of 2001 GAAP comparisons. As you update your models to include the addition of the Nicor business, you should keep in mind that historically more than 50% of the legacy AGL Resources EBIT came in the first quarter of the year. With the addition of Nicor, however, the first quarter percentage is likely to be lower as Illinois winters typically start earlier and end later resulting in two quarters of strong heating demand, the first and fourth quarters.

Further, our Illinois fixed price retail business – business results are not as heavily weighted toward first quarter as SouthStar’s preferred business in Georgia is. Finally, also keep in mind that cargo shipping has historically experienced its strongest results in the fourth quarter. It will take a full-year to get a better sense of actual quarterly contribution, but I did want to point out that out to you with Nicor now in the fold, our quarterly EBIT profile will be more evenly weighted than AGL’s on a stand-alone basis over the past few years.

On an operating basis, the key drivers of performance during the first quarter of 2012 was historically warm weather experienced across our service territories. Had we experienced normal 10-year average weather at our distribution and retail segments, we estimate our diluted EPS would have been higher by approximately $0.11.

There are also some temporal effects resulting from the warm weather that impact our business that will reverse themselves overtime, some in 2012 and some in 2013. Most of these effects can be seen in our lower of cost per market for LOCOM inventory adjustments, which are a function of declining natural gas prices during the period.

The LOCOM impacts were $3 million at the Retail segment, $18 million at the Wholesale segment and $1 million at the Midstream segment. I also want to remind you that year- over-year EPS dilution on a GAAP basis is affected by the increase in our weighted average shares outstanding due to the merger.

Our weighted average share count for the quarter was $117.3 million. Our interest expense was also higher, though in line with our expectations reflecting the additional debt we issued last year in connection with the merger.

From an operating segment contribution standpoint, our distribution segment continues to be the largest segment contributor to EBIT, representing approximately 70% of total operating EBIT in the first quarter of 2012. With the exception of 2011 when we had a much lower than normal contribution from our Wholesale segment, this percentage of regulated utility earnings contribution is consistent with prior years and consistent with our desire to derive approximately 70% EBIT from our regulated businesses.

Retail Operations accounted for 22% during the quarter, Wholesale Services 7% and Midstream Operations 1%. I will cover some of the major segment variances starting with our distribution business on slide four.

EBIT was up $53 million, compared to the first quarter of 2011. This includes an EBIT contribution of $51 million from Nicor Gas. As I mentioned, the warm weather had a negative effect on Nicor Gas’ EBIT, primarily because we do not have weather normalization mechanisms in Illinois. Weather in the state was 19% warmer than normal and 26% warmer than the first quarter of 2011. We believe that normal weather would have resulted in a $13 million improvement in EBIT.

You can see the month-by-month heating degree day variances for Illinois in the bottom left of the page and more detailed information for each of our service territories can be found in our 10-Q that we filed this morning. I would note that EBIT at the legacy AGL Resources utilities was up $2 million year-over-year despite the warm weather and largely due to our continued focus on effective expense management.

Turning to the Retail segment on slide five, we recorded EBIT for the first quarter of $60 million, an $8 million decline compared to the first quarter of last year. Results were down primarily due to weather in Georgia that was 32% warmer than normal, resulting in lower customer usage.

In addition, as gas prices continued their decline during the first quarter of 2012, we recorded a LOCOM adjustment that was $3 million higher than in the prior year. The addition of Nicor’s retail business reduced EBIT by $1 million during the first quarter, but we expect this loss to reverse in the summer period due to the revenue recognition accounting used for our fixed bill contracts.

While operating expenses for the segment were higher reflecting the addition of Nicor’s retail businesses, operating expenses for AGL R’s legacy retail business were flat year-over-year. For the first quarter, market share in our largest market, Georgia, was 32%, which equals our market share position at the end of last year’s first quarter and our customer count declined just slightly compared with the prior year.

You’ll find first quarter 2012 results for our Wholesale Services segment on slide six. As expected, Sequent continues to face headwinds due to challenging market fundamentals, though we are seeing some improvement versus market conditions at the end of 2011. Our EBIT contribution for the quarter was $19 million, a decline of $14 million from last year’s first quarter. The largest component of the EBIT decline came from a $21 million reduction in commercial activity versus the first quarter of 2011 due to ongoing low volatility and tight storage and transportation spreads, and John will talk about this further in his remarks.

As most of you know, due to the warmer than normal weather and continued robust supply, natural gas prices continued their decline in the first quarter and hovered around the $2 mark. This price reduction resulted in a LOCOM adjustment Sequent that was $18 million higher than the last year’s first quarter.

Offsetting the lower commercial activity and LOCOM adjustments were storage and transportation hedge gains that were $23 million higher than the prior year. And just to remind you, transportation and storage hedge gains or losses and LOCOM are non-cash items, but impact the timing of reported income.

At the end of the first quarter, the value of our storage rollout schedule was $19 million, which compares favorably to a rollout schedule of $11 million at the same time last year and $3 million at the end of 2011. The seasonal storage spread has widened over the past several months and we expect to realize about half of the benefit of our rollout schedule as we progress through the year, with the remainder expected to be realized in 2013.

Looking briefly at expenses for the first quarter in our wholesale business. They were down 12% compared to the prior year, even after adding Nicor’s Enerchange business. The decline is due mainly to staffing reductions, as well as lower incentive compensation accruals compared to the first quarter of 2011.

Now, through to slide 7. EBIT at our Midstream segment improved by $1 million in the first quarter compared to the same period in 2011. The improvement was due primarily to hedge gains, net of low comp adjustments at Central Valley Gas Storage for volumes of natural gas related to bringing the facility in to service later this year.

Briefly, the Cargo Shipping segment reported EBIT of $1 million during the first quarter of 2012. Cargo Shipping continues to face challenges due to a weak U. S. economy and little or no growth in tourism in the regions that we serve. While revenues per unit are down, TEU or 20-foot equivalent unit shipments and market share are up relative to the same period last year, reflecting tropical strong profile in the region and strong management of its business.

Some balance sheet highlights are noted on slide 8. Our long-term debt was at $3.6 billion, which reflects the additional debt issued to finance the Nicor transaction and the additional Nicor debt we assume when we close the transaction.

Interest expense was up $18 million for the quarter, compared to the same period in 2011, mainly driven by the increased debt associated with the merger. As noted on the slide, we anticipate spending regulated utility capital of about $725 million in 2012, but importantly nearly half of that is being invested in programs that have minimal or no regulatory lag associated with them. We’ll continue to look for opportunities to deploy capital in this manner across our utility franchises.

Finally, as a reminder, we provide earnings per share guidance estimates based on normal weather among other assumptions. So the historically warm weather experienced during the first quarter of 2012, may lead the EPS results for the full year that are below our previously indicated guidance range of $2.80 to $2.95 per diluted share.

Thanks for your time today. And now I’ll turn it over to John.

John Somerhalder

Thanks, Drew, and good afternoon. As Drew noted the real driver behind our first quarter performance was weather. As I mentioned at our Analyst Day in March, our Distribution, Retail and Wholesale operations can’t be affected by weather trends. And the record warmth during the first quarter certainly had an impact.

On slide 9, you can see the first quarter weather anomalies and with the exception of the Pacific Northwest, the entire country was well above the 30-year averages. In aggregate, weather was 21% warmer than normal across our jurisdictions and our Illinois service territory experienced some of the greatest anomalies. While, we have limited ability to influence the operating margin side of the equation in a single quarter, we did have the ability to control the cost side of the equation. Even though we’re still implementing some of our integration plans, we are tracking in line with our costs and synergy expectations for the year.

As you know, we do have a weather normalization mechanism at Nicor Gas, which is now our largest utility. The ten year norm, or PE degrees days in Illinois for the first quarter was actually 29.02 and the actual, that was for normal ten year and the actual was 23.58. That represented a 19% departure from normal and that impacted our EBIT – as Drew indicated earlier by $13 million.

Retail was also impacted by the warm weather, primarily in Georgia where we generate the bulk of our earnings in that segment. Mike and his team had weather hedges in place that helped to significantly offset the weather impact. But when we are seeing temperatures over 30% warmer than normal, it is difficult to mitigate the entire impact. In 117 years of recorded history, this was the warmest weather we’ve seen across the U.S. and the some impact to our earnings was $0.11 per share.

I want to take a few minutes to talk about performance of the Wholesale segment, which has actually improved sequentially over the past several quarters. Turning to slide 10. This chart really tells the story of why our Commercial activity has declined year-over-year. The bars show monthly transportation spreads between Henry Hub and Transco Zone 6 in New York, and between and Henry Hub and Texas Eastern’s M3 New York delivery point.

Sequent has historically been active in the transportation market along the east coast, due to various asset management and supply arrangements we have in place with our utilities and with third party customers. Dramatic collapse in basis resulted in far fewer commercial opportunities for Sequent. Though we did have hedges in place during the first quarter that inflated us from the full impact of the basis decline.

The warm weather and oversupply, partly from shale gas in the north-east region, were prime drivers of the year-to-year change. As we discussed in March however, we do have legacy higher cost demand charges related to transportation that will be rolling off over the next several years. So even if basis remains compressed, we should be able to improve our performance as we renegotiate certain agreements at lower rates.

There are other positive signs as well. If you turn to slide 11, you’ll see that the storage spreads have been widening over the past few months. This is due in part to the fact that the market needs an outlet for the natural gas over supply. Storage in the U.S. is now around 59% full and is running about 50% above the five year average. Given that we are seeing these levels at the very beginning of the injection season, even strong natural gas demand from power plants over the summer will have a hard time putting a dent in the storage overhang.

Sequent has been systematically entering into new storage contracts and renewed contracts are being signed at costs that are in many cases 50% of where they were just one to three years ago. As Drew mentioned our storage roll-out schedule has significantly improved since the end of the year and we are optimistic that we will be able to lock-in additional value as we move ahead in 2012.

We continue to maintain and build strong working relationships with regulatory commissions and their staff members across our service territories. These relationships, built upon consistent track records of efficient execution, have resulted in fair rate case outcomes for the company over the past several years. We are working with the Nicor team to extend these positive relationships to the Illinois Commission and we are off to a very good start including the stipulated resolution that we signed with the ICC staff earlier this year in the long-running PBR case.

As a reminder, we have reached an agreement with ICC staff to credit $64 million to customers and this amount is already reflected on our balance sheet. The Illinois Attorney General and Citizens Utility Board, CUB remain parties to the case but have not signed the stipulation agreement. Hearings were held during April and the parties restated their cases. We continue to expect a ruling from the ICC on this case later this year.

Turning to slide 12, you will find our priorities and objectives for 2012. These have not changed from our prior discussions and we continue to make solid progress in all areas. While we had just one quarter under our belt with the exception of weather, our businesses are performing well and are in-line with our expectations year to date. On behalf of the employees of AGL Resources we would like to thank each of you for your continued interest and support of our company.

Operator, I’ll turn the call back over to you to begin the Q&A session.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question comes from the line of Carl Kirst of BMO Capital Markets. Please proceed.

Carl Kirst – BMO Capital Markets

Thanks, good afternoon everybody. And I very much appreciate all the color with respect to weather as well as the quarterly distribution through the year. My question is really on the improving storage spreads, and recognizing that the April to January spread is more of a single cycle, seasonal spread versus sort of a high cycle kind of salt dome. Is that something where that improving spread you think is going to be captured more in wholesale rather than it’s something like the open season of Golden Triangle? Or as that seasonal spread widens, is there an opportunity to see demand for the salt dome increase as well?

John Somerhalder

Carl, I will take a first cut and then I’ll turn it over to Pete. But you are correct that the single cycle spread improvement does benefit all storage, even the lower return storage. But because our facilities can be used for that cycle it does add value. But you are correct, additional value for salt dome is inherent in the fact that you can turn those facilities, as an example at Jefferson Island, close to nine times GTS in the range of six times, and with the low volatility that part of the value we have not seen come back as strong for those facilities. So this does help our ability to recontract, but it’s only part of the value for the salt dome facilities.

However, with Central Valley, because we have seen, in California we’ve seen lower hydro availability this year, we’ve seen additional outages on nuclear units there and we’ve seen increased plans for pipeline maintenance. There, we’re seeing higher prices and a little higher volatility that could result in opportunities for the higher turns of service. So you’re right. We’ve seen fundamentals that have helped us with our salt dome storage, just related to the simple cycle spread, we’ve seen fundamentals in California, that are heading in a positive direction, but we do need to see longer-term, a more balanced market to drive the additional value that we should be able to achieve out of the salt dome and I’ll add – I’ll look to Pete to add any additional.

Peter Tumminello

Yeah. I think John covered it well. I’ll just add that Central Valley is a low cycle facility. So it should see a direct correlation on at least the shorter term contracting periods of one to two year benefit due to the simple cycle spreads improving. And I think we’ll some benefit, we’re seeing some benefit of Sequent in what we’re capturing is our storage expected rollout value going in to this year and first quarter of next year, being significantly larger than at this point in time last year based on that value. So I think we’ll see benefits to both businesses, but more so to Central Valley and to Sequent probably to a lesser extent certainly around Golden Triangle and Jefferson Island.

Carl Kirst – BMO Capital Markets

Great. That’s very helpful. Thank you. And then one just question on the integration of Nicor, and John you sort of mentioned that everything from a cost standpoint was kind of squarely in line with expectations, so just sort of a general question with the integration, is there anything that up to this point with respect to either cost synergies or otherwise that isn’t going as smooth, just so we’re aware of it?

John Somerhalder

It has been a tremendous amount of hard work for the people involved with, closing last year with 22 days of earnings, all the other work we’ve had to do. However, with that hard work, things have gone very smoothly and I will ask Drew to further comment on this. But as we talked about or originally thought about where those synergies would be achieved, we have seen a slight change in where we have been able to accomplish those, but in total very much in line with what we expected. So it’s been smooth and in line with expectations and Drew can add to that.

Andrew Evans

Yeah, I don’t know that it’d be overly additive. The composition has been a little bit different, but the total is – meets our expectation. I think just as we expected, we see a lot of the shared services in concert for all of the business units having just really good reduction in total expense and we’re operating a lot more efficiently like we should.

John Somerhalder

Yeah. And Drew and I have a hard time saying that things have gone smoothly. We have a harder time – we know how hard people had to work to make that happen. So we always have to stop and recognize that. And Carl, I hate to interject, this is not responsive to your question at all, but I do need to make one correction. I think there is a reason when – in a sentence sometimes people underline the word not, because that way people say I understand, I did not say related to Illinois, or I should have said, we do not have a weather normalization, and Steve Cave helped me by double underlining (inaudible) and by letting me know. I apologize Carl for taking your time to add – (inaudible).

Carl Kirst – BMO Capital Markets

Well, I appreciate it. I actually – I thought I misheard it. So I was just going to go back in to the transcript, so that I appreciate the clarification.

John Somerhalder

It was correctly written, I misspoke. So thanks for let me interject that Carl.

Carl Kirst – BMO Capital Markets

Thanks for all the color guys.

John Somerhalder

Thanks.

Operator

Our next question comes from the line of Ted Durbin of Goldman Sachs. Please proceed.

Ted Durbin – Goldman Sachs

Thanks. Just on the phone out there you were contracted at $0.08 there for storage. Would you say that’s kind of where the market is for recontracting? I’m just trying to get a sense when that was struck as we just talked about the seasonal spread has gotten a little better over the last three months. Was that done, say before we saw this pick up here in the last – from January to March and the spread – or maybe just give us a little more sense of that?

John Somerhalder

Yeah. And I – we’ve seen several indications of ability to contract in that range of $0.08 to $0.10. I don’t know – Pete’s looking at the exact number. And that has been over the last probably four or five months, we’ve seen those type of rates.

Peter Tumminello

And that was related to the Jefferson Island recontracting and interestingly enough those were done before this new kind of expansion in spreads occurred. So there is some benefit to seek when we entered into some of those agreements in advance of that occurring. But our Midstream business had entered into those, as well when they sold out that incremental capacity. But they’ll be I think, a greater benefit to that rate when we go to open seasons this summer for Cavern 2 on Golden Triangle and for Central Valley.

John Somerhalder

But Ted, I think the point that Karl made is appropriate here. Even though we’ve seen spreads increase, especially that simple cycle spread, we have not really seen the volatility side increase as much, even though in California, good news is we’re seeing some. So we have seen a positive trend. But at least at this point, it has not yet translated into rates that are materially different than that $0.08 range that you quote.

Ted Durbin – Goldman Sachs

Okay. That’s helpful. And then you mentioned a little bit on the PDR proceeding, I guess I’m trying to get a little bit better sense kind of, is there some more give and take you need to do with the AG and the CUB to get them to sign on, shoot to give the $64 million is a good number, or kind of what’s the – how do we see this play out through the process?

John Somerhalder

Ted. I’ll start out and then Hank Linginfelter and Bryan Batson are here. But the $64 million stipulation agreement amount, we believe is a very fair and very good settlement with all parties involved. And we feel very strong about the positions that let us arrive at that number. So we think that that is the appropriate way to move forward and let the process play out at the ICC and I’ll let Hank and Bryan add to that additional color.

Andrew Evans

I agree John. I think the hearings validated the basis of the settlement, those have been completed, each party sort of maintained their position where they were on it. But the facts were I think highly supportive to settling this thing out and it is a process that we go through with the Commission, and the Commission is responsible for resolving it ultimately, but we think that the case was made in hearings and our case all along and the settlement have been, and the stipulation have been very good so far.

John Somerhalder

I guess the only thing I’d add is that through the hearing process and of course staff defended the stipulation as well as we did. Actually if you go down under the CUB’s into AG’s position, in many cases the positions we settled with staff matched up on current AG’s position. Predominantly the largest difference between us staff and then where AG and CUB were is on the storage cycling. And frankly, the facts don’t support their contentions, and that’s what we felt like we proved in the hearing itself but that still has to come to fruition.

So the largest piece of that differential, staff didn’t take that position at all and as well we took the position that didn’t had that bearing, so that’s the main difference I think will go – the ALJ will come out in July with a proposed order, so you can see what the ALJ is going to recommend to the Commission and then it probably will be September before they actually vote on the proposed order.

Ted Durbin – Goldman Sachs

Okay. That’s very helpful. Thank you. And then my last one is just on the synergy capture, realizing that probably most of the cost is hopefully done or we are well on track, I think there were some revenue capture as well. I’m just wondering if that is showing up in sort of the quarterly results, I realize there is a lot of noise with the weather but should we think about still there upside on the revenue side for synergies?

John Somerhalder

Yeah, I’ll again start out Ted on that. And when Drew talked about this being in slightly different buckets than anticipated, we have seen more on the cost side and certainly in this very short-term, less on the revenue side. We do think over time we’ll have opportunities to have revenue synergies, but that will take more time – so there is some potential upside on the revenue side, but most of what we have been able to accomplish and most of what we see now is on the cost side.

Andrew Evans

I don’t have anything that’s additive to that.

Ted Durbin – Goldman Sachs

Okay. Thanks guys.

John Somerhalder

Thanks Ted.

Operator

Our next question comes from the line of Craig Shere of Tuohy Brothers. Please proceed.

Craig Shere – Tuohy Brothers

Hi, a couple of quick follow-ups on the prior questions. First on, Carl’s first question about widening seasonal storage spreads. Is this – do you see this as just kind of – because gas got so distressed, just a one-time opportunistic event of 2012 or does this have implications on decisions to maybe develop out the depleted reservoir storage opportunities that Nicor have in the pipeline?

John Somerhalder

Craig, it is not so much a one-time event. Even though this is an extreme event where we see so much gas in storage here, almost 60% full just after we finish the withdrawal season. And that has obviously depressed current prices more than future prices. But that’s not the first time we’ve seen that and had opportunities related to that. We’ve seen that several years in the past, I think as for example in 2006 we saw some similar results and I think it was either 2008 or 2009. So that is an opportunity we’ve seen in the past and potentially could be an opportunity in the future.

However, what we see is we have a large amount of gas in storage, we see a large number of power plants using natural gas, running the coal plants at lower load factors, the gas plants at higher load factors. And we see the rig count materially reduced as we’ve started this year, because of the price environment. So we see that overtime, the more probable scenario is the market more back in balance where we don’t have this storage overhang. And then we get back to more normal conditions around storage.

Peter Tumminello

The only thing I’d add to that Craig, is that it’s definitely going to be where we’re going to see more this benefit here this year than a 12-month period, because that’s where the extreme benefit of that spread will likely occur. You can just look at the forward markets and they’re not indicating that you’re seeing as certainly as much of that. But if you go into next winter and you have something that is similarly warm, there will be a significant premium on storage capacity coming out if we had a second warm winter in a row. So I do think that there is, it’s just one to two year type of horizon. I don’t think there is a structural change to the storage market though based on this event, this year.

Andrew Evans

And I think it’s fair to say that we would wait on the contracting of our existing capacity before we would contemplate additional capital additions and certainly expansions are far more economic than Greenfield construction.

John Somerhalder

And the good news is around some of the opportunities you talked about. When you knew talk about lower turn service, more reservoir type service, usually those type of facilities, it’s a situation where they are lower cost – lower rates are necessary to support those facilities and you have the potential for longer term contracts. And as Drew said, we would expect high percentage of those facilities contracted out at rates that would support the expansion before we move forward. But Craig, as you point out, if these fundamentals they are strong this year, if they do continue into the future that would be support for some of those opportunities in the future.

Craig Shere – Tuohy Brothers

But you wouldn’t do anything with the depleted reservoir opportunities until all your salt dome is leased up?

John Somerhalder

I don’t know. If we – if there was a depleted reservoir where a party was willing to contract at that facility, preferential to the higher turn services at salt dome that would be something we’d look to do. We would not look to expand our – even though we have very inexpensive expansions of our salt facilities, we would not look to expand those until market fundamentals improve and we’re in a position to have longer term contracts.

Craig Shere – Tuohy Brothers

Understood. And last question. The comment was made about the revenue synergies being further down the road, I don’t know if Pete wants to address this, but is the dearth of weather simply delaying the expectation of those types of synergies for Sequent or was it always expected to come down the road, maybe when you get some management agreement with the utility in Illinois?

Peter Tumminello

Craig, what I think, I’ll respond to that by saying that’s really not weather dependent, I think that’s really in concert with working closely with the regulatory environment there in Illinois and taking our time to educate and inform and partner with the Commission there for them to understand that the six utility deals we have and have had over the last 10 years, and the $200 million of savings that we brought to our utilities and their customers over the 10-year period. So we’re just going to – we’re going to do it at the right time with the Illinois Commission and believe that there is certainly an opportunity there and we’ll be able to talk about that maybe a little bit more, a little bit down the road.

Craig Shere – Tuohy Brothers

I guess the question was were you – before you got something like that, were you anticipating much in the way of revenue synergies with the existing albeit smaller wholesale operations at Nicor?

Peter Tumminello

Oh, the synergies we were really expecting from the wholesale combination were as Drew and John mentioned, really were from the cost side. We were consolidating systems which have already done. We streamlined those businesses, which has already been done. So we’re seeing those benefits already. I think there will be some margin synergies as we had capped some commercial skill up there to go after power plans and things like that little bit down the road as well, but the short-term has been more cost synergies.

John Somerhalder

Yeah. And I should put this in perspective. A high percentage of our synergies were always anticipated to be on the cost side. It was a relatively small percentage on the revenue side and some, as Pete mentioned, related to bringing in the two wholesale businesses together, and some revenue synergies related to what we could do at the retail level with our commodity business and with our warranty businesses as we brought those together. And those revenues synergies although not a big part of our total number are ones that we realize would take a time period to realize and that’s what we are seeing. They won’t occur immediately, it will not be a significant impact on this year we don’t believe, but it’s something over time, we’ll start to see some of those benefits.

Craig Shere – Tuohy Brothers

Understood. Thanks.

Operator

Our next question comes from the line of Mark Barnett of Morningstar. Please proceed.

Mark Barnett – Morningstar

Hey, good afternoon guys.

John Somerhalder

Hi, Mark.

Mark Barnett – Morningstar

A quick question on the JISH permit. I know, this is obviously still kind of out of your hands but any idea of what it is going to take to move that a long and then when you’d start thinking about development. I know you talked a little bit about your – your thinking along those lines a little bit earlier. But I guess, specific to the project?

Peter Tumminello

Yeah, this is Pete. I will respond to that. The market conditions certainly are challenging around multi-cycle storage, which we’ve talked about. So independent that, we are still pursuing our permit there, we are working with the Department of Natural Resources in Louisiana to get that done. There is been some local opposition we’ve had to work through regarding some of their concerns in the area. We are continuing to work through those and we believe once we get through potentially this summer in the legislative session in Louisiana that there will be a little bit more clarity around that permit. But our application has been filed, if there would be an R and we are waiting their action. Once we get that action then we will continue on the course of moving forward again, but based on market conditions supporting it also at that time.

Mark Barnett – Morningstar

Okay. And in Illinois, I think, I maybe asked you this before but can you remind me, is there any possibility of maybe looking at a pipeline replacement rider or some sort of infrastructure program prior to 2014 when you have to stay out?

Bryan Batson

Mark, this is Bryan Batson. I will try respond to that. For now, we are required to stay-out. I guess what I would say is, Nicor’s utility is a little bit different than many other utilities in Illinois, in that it is a newer system and they have a program in place where they do actually replace. So I don’t see anything in the immediate horizon that, whether there is a need or where there will be a mechanism in which to do that. But if that were to arise at the end of this agreement that’s something we could revisit.

John Somerhalder

And Mark let me add that for the industry it is – these type of programs are important, I think a number of utilities are benefited by this, and certainly we’ve had good results as an example in Georgia and other states, New Jersey, soon to be in Virginia. So we do think those are important rate mechanisms that help drive pipeline replacement and help drive safety, so we are very supportive of that. In Illinois, because of the age of that system where we sit and the other issues we’re dealing with it’s not as high a priority for us at this time, but it’s something we’d look at favorably over time.

Mark Barnett – Morningstar

Okay. Thanks for the commentary.

Operator

Our next question comes from the line of Christine Cho of Barclays. Please proceed.

Christine Cho – Barclays

Most of my questions have been answered but I just had one question. I know you guys don’t have weather norm at Nicor Gas but the utility was – it didn’t seem like it was as badly hit by the warmer weathers as I would have thought, and in your Analyst Day book it also says that Nicor Gas has a customer charge that significantly reduces margin subject to weather risk. So I was just wondering if you could provide a little more color on how this charge works? I mean, is it just that a larger portion of the bill is collected through a fixed charge versus a variable charge?

Hank Linginfelter

Christine, this is Hank. And that is pretty much it – the customer charge is a larger share of the total bill. The fixed charges of the company are designed to achieve about a 70% level of the rates that were set in the last rate case, I think it was in 2009. So about 30% remains volumetric and that’s why you can see the impact of weather was very modest considering how warm it was. And so it’s a 70-30% split roughly out of the design rates collection that the number was approved in the rate case.

Christine Cho – Barclays

Okay. And then at the distribution segment your also had $57 million for taxes other than income, which kind of seems large. So I was wondering if you could give a little more color on that and if any of it was non-recurring.

Bryan Batson

Those are – the revenue taxes are pass-through.

Andrew Evans

That was Bryan Seas, the Chief Accounting Officer answering. This is Drew. These are largely revenue based taxes and they’re all pass-through if you couldn’t hear his answer.

Christine Cho – Barclays

Okay. And then also if you could break out the hedge gain in the LOCOM adjustment at Midstream?

Sarah Stashak

Christine, that’s in our – it’s in our 10-Q that we filed this morning, we can follow-up.

Andrew Evans

Christine, LOCOM at Midstream was $1 million and the hedge gains administering was roughly about $3 million.

Andrew Evans

$3 million. Correct.

Christine Cho – Barclays

Okay perfect thank you.

John Somerhalder

Thanks, Christine.

Operator

At this time we have no more question. I would now like to turn the call this back over to Ms. Sarah Stashak for closing remarks.

Sarah Stashak

Thanks everyone for joining us this afternoon. We’ll be available this afternoon and tomorrow if you have any follow-up questions.

Operator

Ladies and gentlemen that concludes today’s conference. Thank you for your participation. You may now disconnect and have a wonderful day.

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