Notes to Consolidated Financial Statements

Note 7 Commitments and Contingencies


We have incurred various contractual obligations and financial commitments in the normal course of our operating and financing activities that are reasonably likely to have a material affect on liquidity or the availability of capital resources. These obligations may result from both general financing activities and from commercial arrangements that are directly supported by related revenue-producing activities. The following table illustrates our expected future contractual payments such as debt and lease agreements, and commitment and contingencies as of December 31, 2009.

In millions
Total
2010
2011 & 2012
2013 & 2014
2015 & thereafter
Recorded contractual obligations:
Long-term debt
$1,974
$ —
$318
$225
$1,431
Short-term debt
602
602
Pipeline replacement program costs (1)
210
55
111
44
Environmental remediation liabilities(1)
144
25
54
38
27
Total
$2,930
$682
$483
$307
$1,458
 
Unrecorded contractual obligations and commitments:(2)
Pipeline charges, storage capacity and gas supply(3)
$2,049
$510
$712
$354
$ 473
Interest charges(4)
1,014
109
176
156
573
Operating leases(5)
115
28
40
14
33
Asset management agreements (6)
37
23
14
Pension contributions(7)
21
21
Standby letters of credit, performance / surety bonds
19
18
1
Total
$3,255
$709
$943
$524
$1,079

(1) Includes charges recoverable through rate rider mechanisms.
(2) In accordance with GAAP, these items are not reflected in our consolidated statements of financial position.
(3) Includes charges recoverable through a natural gas cost recovery mechanism or alternatively billed to Marketers and demand charges associated with Sequent. The gas supply amount includes SouthStar gas commodity purchase commitments of 16 Bcf at floating gas prices calculated using forward natural gas prices as of December 31, 2009, and is valued at $97 million. As we do for other subsidiaries, we provide guarantees to certain gas suppliers for SouthStar in support of payment obligations.
(4) Floating rate debt is based on the interest rate as of December 31, 2009 and the maturity of the underlying debt instrument. As of December 31, 2009, we have $41 million of accrued interest on our consolidated statements of financial position that will be paid in 2010.
(5) We have certain operating leases with provisions for step rent or escalation payments and certain lease concessions. We account for these leases by recognizing the future minimum lease payments on a straight-line basis over the respective minimum lease terms, in accordance with authoritative guidance related to leases. However, this lease accounting treatment does not affect the future annual operating lease cash obligations as shown herein.
(6) Represent fixed-fee minimum payments for Sequent’s asset management agreements.
(7) Based on the current funding status of the plans, we would be required to make a minimum contribution to our pension plans of approximately $21 million in 2010. We may make additional contributions in 2010.


Environmental Remediation Costs

We are subject to federal, state and local laws and regulations governing environmental quality and pollution control. These laws and regulations require us to remove or remedy the effect on the environment of the disposal or release of specified substances at current and former operating sites. The following table provides more information on our former operating sites.

In millions
Cost estimate range
Amount recorded
Expected costs over next twelve months
Georgia and Florida
$ 64 – $113
$ 64
$13
New Jersey
69 – 134
69
11
North Carolina
11 – 16
11
1
Total
$144 – $263
$144
$25



We have confirmed 13 former operating sites in Georgia and Florida where Atlanta Gas Light owned or operated all or part of these sites. One new former MGP site has been recently identified adjacent to an existing MGP remediation site. Precise engineering soil and groundwater clean up estimates are not available and considerable variability exists with this potential new site. As of December 31, 2009, the soil and sediment remediation program was substantially complete for all Georgia sites, except for a few remaining areas of recently discovered impact, although groundwater cleanup continues. Investigation is concluded for one phase of the Orlando, Florida site; however, the Environmental Protection Agency has not approved the clean up plans. For elements of the Georgia and Florida sites where we still cannot provide engineering cost estimates, considerable variability remains in future cost estimates.

Additionally, we have identified 6 former operating sites in New Jersey where Elizabethtown Gas owned or operated all or part of these sites. Material cleanups of these sites have not been completed nor are precise estimates available for future cleanup costs and therefore considerable variability remains in future cost estimates. We have also identified a site in North Carolina, which is subject to a remediation order by the North Carolina Department of Energy and Natural Resources, and there are no cost recovery mechanisms for the environmental remediation.

Our ERC liabilities are customarily reported estimates of future remediation costs for these former sites based on probabilistic models of potential costs and on an undiscounted basis. As cleanup options and plans mature and cleanup contracts are entered into, we are able to provide conventional engineering estimates of the likely costs of remediation at our former sites. These estimates contain various engineering uncertainties, but we continuously attempt to refine and update these engineering estimates. These liabilities do not include other potential expenses, such as unasserted property damage claims, personal injury or natural resource damage claims, unbudgeted legal expenses or other costs for which we may be held liable but for which we cannot reasonably estimate an amount.

Our ERC liabilities are included as a corresponding regulatory asset. These unrecovered ERC assets are a combination of accrued ERC liabilities and unrecovered cash expenditures for investigation and cleanup costs. We primarily recover these costs through rate riders and expect to collect $11 million in revenues over the next 12 months which is reflected as a current asset. We recovered $20 million in 2009, $23 million in 2008 and $28 million in 2007 from our ERC rate riders.

Rental Expense

We incurred rental expense in the amounts of $20 million in 2009, $21 million in 2008 and $21 million in 2007.

Litigation

We are involved in litigation arising in the normal course of business. We believe the ultimate resolution of such litigation will not have a material adverse effect on our consolidated financial position, results of operations or cash flows.

In February 2008, a class action lawsuit was filed in the Superior Court of Fulton County in the State of Georgia against GNG alleging that it charged its customers of variable rate plans prices for natural gas that were in excess of the published price, failed to give proper notice regarding the availability of potentially lower price plans and that it changed its methodology for computing variable rates. GNG asserts that no violation of law or Georgia Commission rules has occurred. This lawsuit was dismissed in September 2008. The plaintiffs appealed the dismissal of the lawsuit and, in May 2009, the Georgia Court of Appeals reversed the lower court’s order. In June 2009, GNG filed a petition for reconsideration with the Georgia Supreme Court. In October 2009 the Georgia Supreme Court agreed to review the Court of Appeals’ decision. Accordingly, the Georgia Supreme Court held oral arguments in January 2010, and we are awaiting the court’s decision. If the Court of Appeals’ decision is not reversed, the parties will proceed with the litigation at the trial court.

In March 2008, a second class action suit was filed against GNG in the State Court of Fulton County in the State of Georgia, regarding monthly service charges. This lawsuit alleged that GNG arbitrarily assigned customer service charges rather than basing each customer service charge on a specific credit score. GNG asserted that no violation of law or Georgia Commission rules occurred and that this lawsuit was without merit. Thus, GNG filed motions to dismiss this class action suit on various grounds. This lawsuit was dismissed with prejudice in March 2009. In April 2009, the plaintiffs appealed the decision but in June 2009, the plaintiffs withdrew their appeal of the court’s dismissal order in exchange for GNG withdrawing and dropping all claims for attorney’s fees and costs in connection with the trial and appellate proceedings.