nicorincform10q063011.htm


 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

[X]
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
  For the quarterly period ended June 30, 2011
 
or

[   ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-7297

NICOR INC. LOGO
NICOR INC.
(Exact name of registrant as specified in its charter)

Illinois
36-2855175
(State of Incorporation)
(I.R.S. Employer
 
Identification No.)

1844 Ferry Road
 
Naperville, Illinois 60563-9600
(630) 305-9500
(Address of principal executive offices) (Zip Code)
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days.  Yes [X]   No [   ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months.  Yes [X]   No [   ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in rule 12b-2 of the Exchange Act.

 
Large accelerated filer    [X]
 
Accelerated filer                    [   ]
 
         
 
Non-accelerated filer      [   ]
 
Smaller reporting company   [   ]
 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes [  ] No [X]

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  Common stock, par value $2.50, outstanding at July 27, 2011, were 45,545,154 shares.
 


 
 
 

 
 
Table of Contents

 
ii
       
Part I - Financial Information
 
       
 
Item 1.
Financial Statements (Unaudited)
 
       
   
1
       
   
2
       
   
3
       
   
4
       
 
Item 2.
24
       
 
Item 3.
41
       
 
Item 4.
41
       
Part II - Other Information
 
       
 
Item 1.
42
       
   Item 1A.  Risk Factors
42
       
 
Item 2.
43
       
 
Item 6.
44
       
   
45


 
i


Glossary

AGL Resources.  AGL Resources, Inc., the company with whom Nicor entered into an Agreement and Plan of Merger on December 6, 2010.

ALJ.  Administrative Law Judge.

Base gas.  The gas required in a storage reservoir to provide the pressure to cycle the normal working storage volume.

Central Valley.  Central Valley Gas Storage, L.L.C., a wholly owned business that is developing a natural gas storage facility in the Sacramento River valley of north-central California.

Chicago Hub.  A venture of Nicor Gas, which provides natural gas storage and transmission-related services to marketers and other gas distribution companies.

CPUC.  California Public Utilities Commission, the agency that regulates utility services in California.

Degree day.  The extent to which the daily average temperature falls below 65 degrees Fahrenheit.  Normal weather for Nicor Gas’ service territory, for purposes of this report, is considered to be 5,600 degree days per year.
 
FERC.  Federal Energy Regulatory Commission, the agency that regulates the interstate transportation of natural gas, oil and electricity.

Financial Reform Legislation.  Dodd-Frank Wall Street Reform and Consumer Protection Act.

Health Care Act.  Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010.

ICC.  Illinois Commerce Commission, the agency that establishes the rules and regulations governing utility rates and services in Illinois.

IDR.  Illinois Department of Revenue.

IRS.  Internal Revenue Service.

Jobs Act.  American Jobs Creation Act of 2004.

LIBOR.  London Inter-bank Offered Rate.

LIFO.  Last-in, first-out.

Mcf, MMcf, Bcf.  Thousand cubic feet, million cubic feet, billion cubic feet.

Nicor.  Nicor Inc., or the registrant.

Nicor Advanced Energy.  Prairie Point Energy, L.L.C. (doing business as Nicor Advanced Energy), a wholly owned business that provides natural gas and related services on an unregulated basis to residential and small commercial customers.

Nicor Enerchange.  Nicor Enerchange, L.L.C., a wholly owned business that engages in wholesale marketing of natural gas supply services primarily in the Midwest, administers the Chicago Hub for Nicor

 
 
ii

 
Gas, serves commercial and industrial customers in the northern Illinois market area, and manages Nicor Solutions’ and Nicor Advanced Energy’s product risks, including the purchase of natural gas supplies.
 
Nicor Gas.  Northern Illinois Gas Company (doing business as Nicor Gas Company) is a regulated wholly owned public utility business and one of the nation’s largest distributors of natural gas.

Nicor Services.  Nicor Energy Services Company, a wholly owned business that, directly or through subsidiaries, provides customer move connection services for utilities and product warranty contracts, heating, ventilation and air conditioning repair, maintenance and installation services and equipment to retail markets, including residential and small commercial customers.

Nicor Solutions.  Nicor Solutions, L.L.C., a wholly owned business that offers residential and small commercial customers energy-related products that provide for natural gas cost stability and management of their utility bill.
 
NYMEX.  New York Mercantile Exchange.

PBR.  Performance-based rate, a regulatory plan which ended on January 1, 2003, that provided economic incentives based on natural gas cost performance.

PGA.  Purchased Gas Adjustment, a rate rider that passes natural gas costs directly through to customers without markup, subject to ICC review.

Rider.  A rate adjustment mechanism that is part of a utility’s tariff which authorizes it to provide specific services or assess specific charges.

Sawgrass Storage.  Sawgrass Storage, L.L.C., a 50-percent-owned natural gas storage development joint venture with Mill Creek Gas Storage, L.L.C., an affiliate of Samson Contour Energy E&P, L.L.C., involving the proposed development of a depleted natural gas reservoir located near Monroe, Louisiana.

SEC.  The United States Securities and Exchange Commission.

TEL.  Tropic Equipment Leasing, Inc., a wholly owned subsidiary of Nicor, holds the company’s interest in Triton.

TEU.  Twenty-foot equivalent unit, a measure of volume in containerized shipping equal to one 20-foot-long container.

Triton.  Triton Container Investments L.L.C., a cargo container leasing company in which Nicor Inc. has an investment.

Tropical Shipping.  A wholly owned business and a carrier of containerized freight in the Bahamas and the Caribbean region.
 

 
iii

 
 
Part I - FINANCIAL INFORMATION
                       
                         
                       
                         
Nicor Inc.
                       
                       
(millions, except per share data)
                       
                         
   
Three months ended
 
Six months ended
 
   
June 30
 
June 30
 
   
2011
   
2010
 
2011
   
2010
 
Operating revenues
                       
Gas distribution (includes revenue taxes of $31.4, $23.9, $106.3 and $97.8, respectively)
  $ 358.9     $ 299.5     $ 1,274.7     $ 1,368.3  
Shipping
    79.9       86.0       160.7       169.5  
Other energy ventures
    48.5       50.3       111.5       116.0  
Corporate and eliminations
    (10.3 )     (10.2 )     (32.9 )     (35.3 )
Total operating revenues
    477.0       425.6       1,514.0       1,618.5  
                                 
Operating expenses
                               
Gas distribution
                               
Cost of gas
    181.8       118.9       821.8       906.8  
Operating and maintenance
    66.4       79.1       150.0       142.9  
Depreciation
    47.1       45.9       94.2       91.9  
Taxes, other than income taxes
    35.7       28.2       114.9       106.1  
Shipping
    80.2       81.8       162.2       165.8  
Other energy ventures
    39.1       38.9       97.6       100.2  
Other corporate expenses and eliminations
    (8.5 )     (10.6 )     (27.7 )     (34.6 )
Total operating expenses
    441.8       382.2       1,413.0       1,479.1  
                                 
Operating income
    35.2       43.4       101.0       139.4  
Interest expense, net of amounts capitalized
    8.7       9.7       15.6       18.7  
Equity investment income, net
    3.3       2.1       7.7       3.6  
Other income, net
    .4       1.0       .8       1.4  
                                 
Income before income taxes
    30.2       36.8       93.9       125.7  
Income tax expense, net of benefits
    11.0       12.6       29.5       41.0  
                                 
Net income
  $ 19.2     $ 24.2     $ 64.4     $ 84.7  
                                 
Average shares of common stock outstanding
                               
Basic
    45.9       45.6       45.9       45.5  
Diluted
    45.9       45.8       45.9       45.7  
                                 
Earnings per average share of common stock
                               
Basic
  $ .42     $ .53     $ 1.40     $ 1.86  
Diluted
    .42       .53       1.40       1.85  
                                 
Dividends declared per share of common stock
  $ .465     $ .465     $ .930     $ .930  
                                 
The accompanying notes are an integral part of these statements.                                
 
 
 
1

 
Nicor Inc.
           
           
(millions)
           
   
Six months ended
 
   
June 30
 
   
2011
   
2010
 
             
Operating activities
           
Net income
  $ 64.4     $ 84.7  
Adjustments to reconcile net income to net cash flow provided from operating activities:
               
Depreciation
    103.6       101.2  
Deferred income tax expense (benefit)
    3.8       (15.8 )
Changes in assets and liabilities:
               
Receivables, less allowances
    183.4       224.0  
Gas in storage
    104.7       83.8  
Deferred/accrued gas costs
    9.5       37.0  
Derivative instruments
    (16.5 )     8.8  
Margin accounts - derivative instruments
    22.3       (1.2 )
Other assets
    (6.1 )     27.4  
Accounts payable
    (20.7 )     (60.0 )
Customer credit balances and deposits
    (26.9 )     (40.2 )
Temporary LIFO inventory liquidation
    88.6       87.7  
Other liabilities
    10.3       (12.3 )
Other items
    (1.2 )     .7  
Net cash flow provided from operating activities
    519.2       525.8  
                 
Investing activities
               
Additions to property, plant & equipment
    (117.9 )     (97.3 )
Purchases of held-to-maturity securities
    -       (8.0 )
Net decrease in other short-term investments
    20.0       11.0  
Other investing activities
    (2.9 )     (1.1 )
Net cash flow used for investing activities
    (100.8 )     (95.4 )
                 
Financing activities
               
Proceeds from issuing long-term debt
    75.0       -  
Disbursements to retire long-term debt
    (75.0 )     -  
Net repayments of commercial paper
    (359.0 )     (387.0 )
Debt issuance costs
    (1.5 )     (5.8 )
Dividends paid
    (42.7 )     (42.4 )
Repurchases of common stock
    (7.7 )     (.2 )
Proceeds from exercise of stock options
    3.8       8.5  
Other financing activities
    .1       .6  
Net cash flow used for financing activities
    (407.0 )     (426.3 )
                 
Net increase in cash and cash equivalents
    11.4       4.1  
                 
Cash and cash equivalents, beginning of period
    31.5       55.7  
                 
Cash and cash equivalents, end of period
  $ 42.9     $ 59.8  
                 
The accompanying notes are an integral part of these statements.
               
 
 
 
2

 
Nicor Inc.
                 
                 
(millions)
                 
   
June 30
   
December 31
   
June 30
 
   
2011
   
2010
   
2010
 
Assets
                 
Current assets
                 
Cash and cash equivalents
  $ 42.9     $ 31.5     $ 59.8  
Short-term investments
    52.7       70.6       66.6  
Receivables, less allowances of $41.7, $27.6 and $50.1, respectively
    289.4       472.4       268.1  
Gas in storage
    59.2       163.9       53.4  
Derivative instruments
    36.6       49.1       44.4  
Margin accounts - derivative instruments
    33.8       50.9       52.6  
Other
    111.9       115.2       111.9  
Total current assets
    626.5       953.6       656.8  
                         
Property, plant and equipment, at cost
                       
Gas distribution
    4,795.3       4,733.6       4,646.1  
Shipping
    325.6       333.6       338.4  
Other
    89.1       60.5       44.9  
Property, plant and equipment, at cost
    5,210.0       5,127.7       5,029.4  
Less accumulated depreciation
    2,150.1       2,104.9       2,069.4  
Total property, plant and equipment, net
    3,059.9       3,022.8       2,960.0  
                         
Long-term investments
    133.9       134.2       137.0  
Other assets
    387.8       385.9       373.7  
                         
Total assets
  $ 4,208.1     $ 4,496.5     $ 4,127.5  
                         
Liabilities and Capitalization
                       
Current liabilities
                       
Long-term debt due within one year
  $ -     $ -     $ 75.0  
Short-term debt
    66.0       425.0       107.0  
Accounts payable
    313.5       335.5       293.9  
Customer credit balances and deposits
    83.7       110.6       101.5  
Temporary LIFO inventory liquidation
    88.6       -       87.7  
Derivative instruments
    57.3       82.9       88.1  
Other
    111.5       120.3       107.8  
Total current liabilities
    720.6       1,074.3       861.0  
                         
Deferred credits and other liabilities
                       
Regulatory asset retirement liability
    866.9       843.9       825.7  
Deferred income taxes
    433.9       423.4       405.3  
Health care and other postretirement benefits
    231.5       229.7       201.0  
Asset retirement obligation
    195.2       190.9       186.5  
Other
    137.8       132.0       136.5  
Total deferred credits and other liabilities
    1,865.3       1,819.9       1,755.0  
                         
Commitments and contingencies
                       
                         
Capitalization
                       
Long-term obligations
    498.5       498.4       423.4  
Common equity
                       
Common stock
    113.9       113.9       113.8  
Paid-in capital
    67.8       69.1       65.6  
Retained earnings
    955.6       934.1       923.1  
Accumulated other comprehensive loss
    (13.6 )     (13.2 )     (14.4 )
Total common equity
    1,123.7       1,103.9       1,088.1  
                         
Total capitalization
    1,622.2       1,602.3       1,511.5  
                         
Total liabilities and capitalization
  $ 4,208.1     $ 4,496.5     $ 4,127.5  
                         
The accompanying notes are an integral part of these statements.
                       
 
 
 
3

 
Nicor Inc.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

1.
PROPOSED MERGER WITH AGL RESOURCES

In December 2010, Nicor entered into an Agreement and Plan of Merger (the “Merger Agreement”) with AGL Resources, which Nicor expects will be complete in the second half of 2011.  In accordance with the Merger Agreement, each share of Nicor common stock outstanding at the Effective Time (as defined in the Merger Agreement), other than shares to be cancelled and Dissenting Shares (as defined in the Merger Agreement), will be converted into the right to receive consideration consisting of (i) $21.20 in cash and (ii) 0.8382 shares of AGL Resources common stock, subject to adjustments in certain circumstances.

Completion of the proposed merger is conditioned upon, among other things, shareholder approval by both companies and the receipt of various regulatory approvals.  AGL Resources filed a registration statement with the SEC to register the AGL Resources common stock to be issued in the merger, and the SEC permitted that registration to become effective on April 29, 2011.  AGL Resources and Nicor also filed their pre-merger notifications under the Hart-Scott-Rodino Antitrust Improvements Act and were granted early termination of the waiting period on April 18, 2011.  The approvals from Nicor shareholders and AGL Resources shareholders required in connection with the merger were received on June 14, 2011.

In January 2011, Nicor, Nicor Gas and AGL Resources filed a joint application with the ICC for approval of the proposed merger.  The approval by the ICC is a condition to completion of the merger.  The application did not request a rate increase and included a commitment to maintain the number of full-time equivalent employees involved in the operation of Nicor Gas at a level comparable to current staffing for a period of three years following merger completion.  The Staff of the ICC and several intervenors who are participating in the proceeding have submitted testimony, which is available on the ICC’s website, recommending that the ICC deny the joint application or that it impose various requirements on the joint applicants as conditions of approval.  The ICC has eleven months to act upon the application.

The merger may also be subject to review by the governmental authorities of various other federal, state or local jurisdictions under the antitrust and utility regulation or other applicable laws of those jurisdictions.  For example, AGL Resources provided a voluntary notice of the merger to the New Jersey Board of Public Utilities (“NJBPU”), which included a description of the transaction, described the benefits of the transaction and explained why AGL Resources does not believe that the approval of the NJBPU is required to complete the merger.  AGL Resources provided a similar notice to the Maryland Public Service Commission, which then issued a letter stating that it had reviewed the notification of proposed merger filed by AGL Resources and after considering the matter, noted the transaction.  It is possible that one or more state commissions will open proceedings to determine whether they have jurisdiction over the merger.  In the event that any reviewing authorities are determined to have jurisdiction over the merger transaction, there can be no assurance that the reviewing authorities will permit the applicable statutory waiting periods to expire or that the reviewing authorities will terminate the applicable statutory waiting periods at all, or otherwise approve the merger without restrictions or conditions (which are difficult to predict or quantify) that would have a material adverse effect on the combined company if the merger were completed.

The Merger Agreement contains certain termination rights for both Nicor and AGL Resources, and further provides for the payment of fees and expenses upon termination under specified circumstances.  For additional information relating to the proposed merger, please see the joint proxy statement / prospectus contained in the registration statement on Form S-4 that was filed with the SEC by AGL Resources on April 29, 2011.

For the three and six months ended June 30, 2011, the company has incurred and expensed approximately $0.9 million and $2.4 million, respectively, of merger transaction costs.  These amounts do not include
 
 
 
the cost of company personnel participating in efforts to develop integration plans for the combined entity.  No other adjustments have been made to the financial statements as a result of the proposed merger.

2.
BASIS OF PRESENTATION

The unaudited Condensed Consolidated Financial Statements of Nicor have been prepared by the company pursuant to the rules and regulations of the SEC.  Certain information and note disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States have been condensed or omitted pursuant to SEC rules and regulations.  The unaudited Condensed Consolidated Financial Statements and Notes should be read in conjunction with the financial statements and the notes thereto included in the company’s 2010 Annual Report on Form 10-K.

The information furnished reflects, in the opinion of the company, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results for the interim periods presented.  Results for the interim periods presented are not necessarily indicative of the results to be expected for the full fiscal year due to seasonal and other factors.

The company’s management evaluated subsequent events for potential recognition and disclosure through the date the financial statements were issued.

3.
ACCOUNTING POLICIES

Gas in storage.  Nicor Gas’ inventory is carried at cost on a LIFO basis.  Inventory decrements occurring during interim periods that are expected to be restored prior to year-end are charged to cost of gas at the estimated annual replacement cost, and the difference between this cost and the actual LIFO layer cost is recorded on the balance sheet as a temporary LIFO inventory liquidation.  Interim inventory decrements not expected to be restored prior to year-end are charged to cost of gas at the actual LIFO cost of the layers liquidated.  The inventory decrement as of June 30, 2011 is expected to be restored prior to year-end.

Nicor Enerchange’s inventory is carried at the lower of weighted-average cost or market (market is represented by the cash price per the close of business on the last trading day of the period).  In the second quarter of 2011 and first quarter of 2010, Nicor Enerchange recorded a charge of $0.8 million and $5.0 million, respectively, resulting from lower of cost or market valuations.

Regulatory assets and liabilities.  Nicor Gas is regulated by the ICC, which establishes the rules and regulations governing utility rates and services in Illinois.  As a rate-regulated company, Nicor Gas is required to recognize the economic effects of rate regulation and, accordingly, has recorded regulatory assets and liabilities.  Regulatory assets represent probable future revenue associated with certain costs that are expected to be recovered from customers through rate riders or base rates, upon approval by the ICC.  Regulatory liabilities represent probable future reductions in revenues collected from ratepayers through a rate rider or base rates, or probable future expenditures.  If Nicor Gas’ operations become no longer subject to rate regulation, a write-off of net regulatory liabilities would be required.
 
 
 
The company had regulatory assets and liabilities as follows (in millions):

   
June 30
   
December 31
   
June 30
 
   
2011
   
2010
   
2010
 
Regulatory assets - current
                 
Regulatory postretirement asset
  $ 21.1     $ 21.1     $ 20.6  
Deferred gas costs
    -       6.5       -  
Bad debt rider
    -       -       18.7  
Other
    10.5       7.4       7.2  
Regulatory assets - noncurrent
                       
Regulatory postretirement asset
    185.6       193.3       187.6  
Deferred gas costs
    -       1.4       7.8  
Deferred environmental costs
    45.5       25.0       23.1  
Unamortized losses on reacquired debt
    12.6       13.1       13.7  
Other
    8.5       9.6       12.4  
    $ 283.8     $ 277.4     $ 291.1  

Regulatory liabilities - current
                 
Regulatory asset retirement liability
  $ 17.2     $ 17.2     $ 14.5  
Accrued gas costs
    1.3       -       15.5  
Bad debt rider
    26.6       16.4       -  
Other
    2.4       7.7       12.8  
Regulatory liabilities - noncurrent
                       
Regulatory asset retirement liability
    866.9       843.9       825.7  
Regulatory income tax liability
    13.8       18.2       20.2  
Bad debt rider
    10.7       11.7       3.1  
Other
    1.2       .9       .8  
    $ 940.1     $ 916.0     $ 892.6  

All items listed above are classified in Other on the Condensed Consolidated Balance Sheets, with the exception of the noncurrent portion of the Regulatory asset retirement liability, which is stated separately.

The ICC does not presently allow Nicor Gas the opportunity to earn a return on its regulatory postretirement asset.  This regulatory postretirement asset is expected to be recovered from ratepayers over a period of approximately 9 to 12 years.  The regulatory assets related to debt are not included in rate base, but are recovered over the term of the debt through the rate of return authorized by the ICC.  Nicor Gas is allowed to recover and is required to pay, using short-term interest rates, the carrying costs related to temporary under or overcollections of natural gas costs, certain environmental costs and energy efficiency program costs charged to its customers.  However, there is no interest associated with the under or overcollections of bad debt expense.

Revenue recognition. Nicor Gas accrues revenues for estimated deliveries to customers from the date of their last bill until the balance sheet date.  Receivables include accrued unbilled revenues of $29.3 million, $144.8 million and $32.0 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively, related primarily to gas distribution operations.

Nicor Gas classifies revenue taxes billed to customers as operating revenues and related taxes incurred as operating expenses.  Revenue taxes included in operating expense for the three and six months ended June 30, 2011 were $31.0 million and $104.7 million, respectively, and $23.5 million and $96.4 million, respectively, for the same periods in 2010.


 
Derivative instruments. Cash flows from derivative instruments are recognized in the Condensed Consolidated Statements of Cash Flows, and gains and losses are recognized in the Condensed Consolidated Statements of Income, in the same categories as the underlying transactions.

Cash flow hedge accounting may be elected only for highly effective hedges, based upon an assessment, performed at least quarterly, of the historical and probable future correlation of cash flows from the derivative instrument to changes in the expected future cash flows of the hedged item.  To the extent cash flow hedge accounting is applied, the effective portion of any changes in the fair value of the derivative instruments is reported as a component of accumulated other comprehensive income.  Ineffectiveness, if any, is immediately recognized in operating income.  The amount in accumulated other comprehensive income is reclassified to earnings when the forecasted transaction is recognized in the Condensed Consolidated Statements of Income, even if the derivative instrument is sold, extinguished or terminated prior to the transaction occurring.  If the forecasted transaction is no longer expected to occur, the amount in accumulated other comprehensive income is immediately reclassified to operating income.

Nicor Gas.  Derivative instruments, such as futures contracts, options and swap agreements, are utilized primarily in the purchase of natural gas for customers.  These derivative instruments are reflected at fair value and are not designated as hedges.  Realized gains or losses on such instruments are included in the cost of gas delivered and are passed directly through to customers, subject to ICC review, and therefore have no direct impact on earnings.  Unrealized changes in the fair value of these derivative instruments are deferred as regulatory assets or liabilities.

Nicor Gas enters into swap agreements to reduce the earnings volatility of certain forecasted operating costs arising from fluctuations in natural gas prices, such as the purchase of natural gas for use in company operations.  These derivative instruments are carried at fair value.  To the extent hedge accounting is not elected, changes in such fair values are immediately recorded in the current period as operating and maintenance expense.

Nicor Enerchange.  Derivative instruments, such as futures contracts, options, forward contracts, swap agreements and other energy-related contracts are held by Nicor’s wholesale natural gas marketing business, Nicor Enerchange, for trading purposes.  Certain of these derivative instruments are used to economically hedge price risk associated with inventories of natural gas, fixed-price purchase and sale agreements and other future natural gas commitments.  Nicor Enerchange records such derivative instruments at fair value and generally does not elect hedge accounting.  As a result, changes in derivative fair values may have a material impact on Nicor’s financial statements.

Other derivative instruments are used by Nicor Enerchange to hedge price risks related to the activities of affiliates.  Derivatives are held related to certain utility-bill management products sold to retail customers.  These derivative instruments are carried at fair value and cash flow hedge accounting may or may not be elected.  Other derivative instruments are held for the purpose of hedging the commodity price risk associated with the forecasted purchase of base gas that will be injected as part of the development of the natural gas storage facility by Central Valley.  Such derivative instruments are carried at fair value and cash flow hedge accounting has been elected on a consolidated basis.  The base gas is a component of the storage facility’s construction costs.  Therefore, amounts recorded in accumulated other comprehensive income related to these derivative instruments will not be reclassified to earnings until the storage facility is retired and the base gas is sold.

Nicor. Forward-starting interest rate swaps are utilized to hedge the interest payments associated with long-term debt.  These derivative instruments are carried at fair value and cash flow hedge accounting is elected.  The effective portion of any changes in the fair value of the derivatives is deferred in accumulated other comprehensive income.  Upon settlement, the deferred amount is amortized to interest expense over the life of the debt.
 
 

Credit risk and concentrations.  Nicor’s major subsidiaries have diversified customer bases and the company believes that it maintains prudent credit policies which mitigate customer receivable, supplier performance and derivative counterparty credit risk.  The company is exposed to credit risk in the event a customer or supplier defaults on a contract to pay for or deliver product at agreed-upon terms and conditions, or a counterparty to a derivative instrument defaults on a settlement or otherwise fails to perform under contractual terms.  To manage this risk, the company has established procedures to determine and monitor the creditworthiness of counterparties, to seek guarantees or collateral back-up in the form of cash or letters of credit, to acquire credit insurance in certain instances, and to limit its exposure to any one counterparty.  Nicor also, in some instances, enters into netting arrangements to mitigate counterparty credit risk.  Fair value measurements consider credit risk.  For assets and liabilities not carried at fair value, credit losses are accrued when probable and reasonably estimable.

On February 2, 2010, the ICC approved a bad debt rider that was filed in 2009 by Nicor Gas.  The bad debt rider provides for the recovery from (or refund to) customers of the difference between Nicor Gas’ actual bad debt experience on an annual basis and the benchmark bad debt expense included in its rates for the respective year.

4.
INVESTMENTS

The company’s investments in debt and equity securities are as follows (in millions):

   
June 30
   
December 31
   
June 30
 
   
2011
   
2010
   
2010
 
                   
Money market funds
  $ 59.0     $ 82.9     $ 112.8  
Corporate bonds
    6.5       6.8       6.8  
Other investments
    9.4       8.5       8.2  
    $ 74.9     $ 98.2     $ 127.8  

Investments in debt and equity securities are classified on the Condensed Consolidated Balance Sheets as follows (in millions):

   
June 30
   
December 31
   
June 30
 
   
2011
   
2010
   
2010
 
                   
Cash equivalents
  $ 8.8     $ 12.6     $ 46.5  
Short-term investments
    52.7       70.6       66.6  
Long-term investments
    13.4       15.0       14.7  
    $ 74.9     $ 98.2     $ 127.8  

Investments categorized as trading (including money market funds) totaled $61.6 million, $85.0 million and $114.7 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively.  Corporate bonds and certain other investments are categorized as held-to-maturity.  The contractual maturities of the held-to-maturity investments at June 30, 2011 are as follows (in millions):

Years to maturity
Less
than 1 year
   
1-5
Years
   
5-10
Years
   
 
Total
 
                     
$ 2.0     $ 5.6     $ .9     $ 8.5  

 
 
Nicor’s investments also include certain restricted investments, including certificates of deposit and bank accounts, maintained to fulfill statutory or contractual requirements.  These investments totaled $2.4 million, $2.0 million and $4.3 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively.  In addition, at June 30, 2011 and December 31, 2010, the company held a $2.4 million investment in a port facility development venture carried at cost.

There were no significant gains or losses included in earnings resulting from the sale of investments for the three and six months ended June 30, 2011 and 2010.

5.
SHORT-TERM AND LONG-TERM DEBT

In February 2011, Nicor Gas issued $75 million First Mortgage Bonds at 2.86 percent, due in 2016 through a private placement and utilized the proceeds to retire the $75 million 6.625 percent First Mortgage Bond series which matured in February 2011.  In determining that these bonds qualified for exemption from registration under Section 4(2) of the Securities Act of 1933, Nicor Gas relied on the facts that the bonds were offered only to a limited number of large institutional investors and each institutional investor that purchased the bonds represented that it was purchasing the bonds for its own account and not with a view to distribute them. 

In April 2011, Nicor Gas established a $400 million, 364-day revolving credit facility, expiring April 2012 to replace the $400 million, 364-day revolving credit facility, which was set to expire in April 2011.  In April 2010, Nicor and Nicor Gas established a $600 million, three-year revolving credit facility, expiring April 2013 to replace the $600 million, five-year revolving credit facility, which was set to expire in September 2010.  These facilities were established with major domestic and foreign banks and serve as backup for the issuance of commercial paper.  The company had $66 million, $425 million and $107 million of commercial paper borrowings outstanding at June 30, 2011, December 31, 2010 and June 30, 2010, respectively.

Nicor held forward-starting interest rate swaps with a notional totaling $90 million at June 30, 2011 and December 31, 2010 and $50 million at June 30, 2010.  The swaps hedge the risk associated with the interest payments attributable to the probable issuance of long-term fixed-rate debt in 2012 intended to finance the development of a natural gas storage facility.  Under the terms of the swaps, Nicor agrees to pay a fixed swap rate and receive a floating rate based on LIBOR.

The company believes it is in compliance with all debt covenants.

6.
INCOME TAXES

The effective income tax rate for the three months ended June 30, 2011 increased to 36.5 percent from 34.2 percent in the prior year.  The higher effective income tax rate for the three months ended June 30, 2011 is due primarily to lower forecasted annual untaxed foreign shipping earnings and an increase to the Illinois state income tax rate, partially offset by lower forecasted annual pretax income (which causes a lower effective income tax rate since permanent differences and tax credits are a larger share of pretax income).  The effective income tax rate for the six months ended June 30, 2011 decreased to 31.4 percent from 32.6 percent in the prior year.  The lower effective income tax rate for the six months ended June 30, 2011 is due to an adjustment to reduce certain state income tax liabilities in the first quarter of 2011 and lower forecasted annual pretax income, partially offset by lower forecasted annual untaxed foreign shipping earnings and an increase to the Illinois state income tax rate.  Effective January 1, 2011, the State of Illinois raised the corporate income tax rate from 7.3 percent to 9.5 percent.

In 2006, the company reorganized certain shipping and related operations.  The reorganization allows the company to take advantage of certain provisions of the Jobs Act that provide the opportunity for tax
 
 
 
savings subsequent to the date of the reorganization.  Generally, to the extent foreign shipping earnings are not repatriated to the United States, such earnings are not expected to be subject to current taxation.  In addition, to the extent such earnings are determined to be indefinitely reinvested offshore, no deferred income tax expense would be recorded by the company.  For the three months ended June 30, 2011 and 2010, an income tax benefit (expense) has not been recognized (provided) on approximately $4 million and $(2) million, respectively, of foreign company shipping losses (earnings).  For the six months ended June 30, 2011 and 2010, an income tax benefit has not been recognized on approximately $8 million and $1 million, respectively, of foreign company shipping losses.  As of June 30, 2011, Nicor has not recorded deferred income taxes of approximately $57 million on approximately $162 million of cumulative undistributed foreign earnings.

The company's major tax jurisdictions include the United States and Illinois, with tax returns examined by the IRS and IDR, respectively.  At June 30, 2011, the years that remain subject to examination include years beginning after 2006 for the IRS and the IDR.  The company had no liability for unrecognized tax benefits at June 30, 2011.  The decrease in the liability for unrecognized tax benefits from $2.9 million at December 31, 2010 was due to a reduction in state tax reserves.  The company does not believe that it is reasonably possible that a significant change in the liability for unrecognized tax benefits could occur within 12 months.

The balance of unamortized investment tax credits at June 30, 2011, December 31, 2010 and June 30, 2010 was $23.4 million, $24.3 million and $24.2 million, respectively.

7.
FAIR VALUE MEASUREMENTS

The fair value of assets and liabilities that are measured on a recurring basis are categorized in the table below (in millions) into three broad levels (with Level 1 considered the most reliable) based upon the valuation inputs.
   
Quoted prices in active markets
   
Significant observable inputs
   
Significant unobservable inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
June 30, 2011
 
Assets
 
Money market funds
  $ 59.0     $ -     $ -     $ 59.0  
Commodity derivatives
    11.4       27.4       9.2       48.0  
    $ 70.4     $ 27.4     $ 9.2     $ 107.0  
   
Liabilities
 
Commodity derivatives
  $ 36.5     $ 23.2     $ 1.7     $ 61.4  
Interest rate derivatives
    -       5.0       -       5.0  
    $ 36.5     $ 28.2     $ 1.7     $ 66.4  

December 31, 2010
     
Assets
 
Money market funds
  $ 82.9     $ -     $ -     $ 82.9  
Commodity derivatives
    21.3       35.7       9.3       66.3  
Interest rate derivative
    -       1.0       -       1.0  
    $ 104.2     $ 36.7     $ 9.3     $ 150.2  
   
Liabilities
 
Commodity derivatives
  $ 55.4     $ 31.3     $ 12.3     $ 99.0  
Interest rate derivative
    -       3.2       -       3.2  
    $ 55.4     $ 34.5     $ 12.3     $ 102.2  
 
 
 
   
Quoted prices in active markets
   
Significant observable inputs
   
Significant unobservable inputs
       
   
(Level 1)
   
(Level 2)
   
(Level 3)
   
Total
 
June 30, 2010
                       
Assets
                       
Money market funds
  $ 112.8     $ -     $ -     $ 112.8  
Commodity derivatives
    20.7       27.5       10.2       58.4  
    $ 133.5     $ 27.5     $ 10.2     $ 171.2  
                                 
Liabilities
                               
Commodity derivatives
  $ 56.4     $ 50.4     $ 3.1     $ 109.9  
Interest rate derivative
    -       4.5       -       4.5  
    $ 56.4     $ 54.9     $ 3.1     $ 114.4  

When available and appropriate, the company uses quoted market prices in active markets to determine fair value and classifies such items within Level 1.  For derivatives, Level 1 values include only those derivative instruments traded on the NYMEX.  The company enters into over-the-counter instruments with values that are similar to, and correlate with, quoted prices for exchange-traded instruments in active markets; the fair values of these over-the-counter items consider credit risk and are classified within Level 2.  In certain instances, the company may be required to determine a fair value using significant unobservable inputs such as indicative broker prices; the resulting valuation is classified as Level 3.

A description of the company’s objectives and strategies for using derivative instruments, and related accounting policies, is included in Note 3 – Accounting Policies – Derivative instruments and Credit risk and concentrations.

The following table presents a reconciliation of the Level 3 beginning and ending net derivative asset (liability) balances (in millions):

   
Three months ended
June 30
   
Six months ended
June 30
 
   
2011
   
2010
   
2011
   
2010
 
                         
Beginning of period
  $ (3.8 )   $ (7.6 )   $ (3.0 )   $ 5.0  
Net realized/unrealized gains (losses)
                               
Included in regulatory assets and liabilities
    2.2       .5       5.1       (.8 )
Included in net income
    (.1 )     (.5 )     (.5 )     (6.8 )
Settlements, net of purchases**
    2.0       3.1       .5       3.9  
Transfers into Level 3
    -       2.8       1.5       2.8  
Transfers out of Level 3
    7.2       8.8       3.9       3.0  
End of period
  $ 7.5     $ 7.1     $ 7.5     $ 7.1  
                                 
Net unrealized gains (losses) included in net income above relating to derivatives still held at June 30
  $ .6     $ (.2 )   $ .5     $ .9  
                                 
** There were no purchases for the three and six months ended June 30, 2011.
 

Net realized/unrealized gains (losses) included in net income are attributable to Nicor Enerchange and are classified as operating revenues.
 
 
 
Transfers into and out of Level 3 reflect the liquidity at the relevant natural gas trading locations and dates which affects the significance of unobservable inputs used in the valuation.  Transfers into and out of Level 3 are determined using values at the end of the interim period in which the transfer occurred.

Nicor maintains margin accounts related to financial derivative transactions.  The company’s policy is not to offset the fair value of assets and liabilities recognized for derivative instruments or any related margin account.  The following table represents the balance sheet classification of margin accounts related to derivative instruments (in millions):

   
June 30
   
December 31
   
June 30
 
   
2011
   
2010
   
2010
 
Assets
                 
Margin accounts - derivative instruments
  $ 33.8     $ 50.9     $ 52.6  
Other - noncurrent
    3.8       8.1       13.5  
                         
Liabilities
                       
Other - current
  $ .3     $ -     $ 1.9  
Other - noncurrent
    .6       -       3.1  

In addition, the recorded amount of restricted short and long-term investments and short-term borrowings approximates fair value.  Long-term debt outstanding, including current maturities, is recorded at the principal balance outstanding, net of unamortized discounts.  The principal balance of Nicor Gas’ First Mortgage Bonds outstanding at June 30, 2011, December 31, 2010 and June 30, 2010 was $500 million.  Based on quoted prices or market interest rates, the fair value of the company’s First Mortgage Bonds outstanding was approximately $566 million, $554 million and $561 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively.

8.
DERIVATIVE INSTRUMENTS

A description of the company’s objectives and strategies for using derivative instruments, and related accounting policies, is included in Note 3 – Accounting Policies – Derivative instruments and Credit risk and concentrations.  All derivatives recognized on the Condensed Consolidated Balance Sheets are measured at fair value, as described in Note 7 – Fair Value Measurements.

Condensed Consolidated Balance Sheets.  Derivative assets and liabilities are classified as shown in the table below (in millions):

   
June 30
   
December 31
   
June 30
 
   
2011
   
2010
   
2010
 
Derivatives designated as hedging instruments
                 
Assets
                 
Derivative instruments
  $ .3     $ .4     $ .1  
Other - noncurrent
    -       1.0       -  
    $ .3     $ 1.4     $ .1  
                         
Liabilities
                       
Derivative instruments
  $ .8     $ 2.2     $ 1.6  
Other - noncurrent
    -       3.2       4.7  
    $ .8     $ 5.4     $ 6.3  


 
   
June 30
   
December 31
   
June 30
 
   
2011
   
2010
   
2010
 
Derivatives not designated as hedging instruments
                 
Assets
                 
Derivative instruments
  $ 36.3     $ 48.7     $ 44.3  
Other - noncurrent
    11.4       17.2       14.0  
    $ 47.7     $ 65.9     $ 58.3  
                         
Liabilities
                       
Derivative instruments
  $ 56.5     $ 80.7     $ 86.5  
Other - noncurrent
    9.1       16.1       21.6  
    $ 65.6     $ 96.8     $ 108.1  

Volumes.  As of June 30, 2011, December 31, 2010 and June 30, 2010, Nicor Gas held outstanding derivative contracts of approximately 43 Bcf, 49 Bcf and 53 Bcf, respectively, to hedge natural gas purchases for customer use, with hedges spanning as long as three years.  Commodity price-risk exposure arising from Nicor Enerchange’s activities and Nicor Gas’ natural gas purchases for company use is mitigated with derivative instruments that total to a net short position of 3.9 Bcf as of June 30, 2011 and December 31, 2010 and 2.6 Bcf as of June 30, 2010.  The above volumes exclude contracts such as variable-priced contracts and basis swaps, which are accounted for as derivatives but whose fair values are not directly impacted by changes in commodity prices.

Nicor held forward-starting interest rate swaps with a notional totaling $90 million at June 30, 2011 and December 31, 2010 and $50 million at June 30, 2010. The swaps hedge the risk associated with the interest payments attributable to the probable issuance of long-term fixed-rate debt in 2012.

Condensed Consolidated Statements of Income cash flow hedges.  Changes in the fair value of derivatives designated as a cash flow hedge are recognized in other comprehensive income until the hedged transaction is recognized in the Condensed Consolidated Statements of Income.  Cash flow hedges used by the company’s other energy ventures, to hedge utility-bill management products, are eventually recognized within operating revenues.  Cash flow hedges used by Nicor Gas, to hedge purchases of natural gas for company use, are eventually recorded within operating and maintenance expense.  Cash flow hedges used by Nicor, to hedge the interest payments attributable to long-term fixed-rate debt, will eventually be recorded within interest expense.

Cash flow hedges affected accumulated other comprehensive income (effective portion) as shown in the following table (in millions):

   
Three months ended
June 30
   
Six months ended
June 30
 
   
2011
   
2010
   
2011
   
2010
 
Pretax loss recognized in other comprehensive income
  $ 3.5     $ 4.3     $ 3.3     $ 7.3  
                                 


 
The pretax loss reclassified from accumulated other comprehensive income into income (effective portion) is shown in the following table (in millions):

   
Three months ended
June 30
   
Six months ended
June 30
 
Location
 
2011
   
2010
   
2011
   
2010
 
Operating revenues
  $ .1     $ .6     $ 1.4     $ 1.0  
Operating and maintenance
    .2       .3       .5       .6  
    $ .3     $ .9     $ 1.9     $ 1.6  

Any amounts recognized in operating income, related to ineffectiveness or due to a forecasted transaction that is no longer expected to occur, were immaterial for the three and six months ended June 30, 2011 and 2010.

As of June 30, 2011, December 31, 2010 and June 30, 2010, the time horizon of cash flow hedges of natural gas purchases for Nicor Gas company use and for utility-bill management products sold by Nicor’s other energy ventures span as long as two years.  For these hedges, the total pretax loss deferred in accumulated other comprehensive income at June 30, 2011, December 31, 2010 and June 30, 2010 was $0.8 million ($0.4 million after taxes), $2.0 million ($1.2 million after taxes) and $2.1 million ($1.3 million after taxes), respectively.  At the respective reporting dates, substantially all of these amounts were expected to be reclassified to earnings within the next 12 months.

The amounts deferred in accumulated other comprehensive income for the forward-starting interest rate swaps will be amortized to interest expense upon the issuance of long-term fixed-rate debt.  The total pretax loss deferred in accumulated other comprehensive income relating to the interest rate swaps at June 30, 2011, December 31, 2010 and June 30, 2010 was $5.0 million ($3.0 million after taxes), $2.2 million ($1.3 million after taxes) and $4.5 million ($2.7 million after taxes), respectively.

Condensed Consolidated Statements of Income – derivatives not designated as hedges.  The earnings of the company are subject to volatility for those derivatives not designated as hedges.  Non-designated derivatives used by the company’s other energy ventures, to hedge energy trading activities and utility-bill management products, are recorded in operating revenues.  Non-designated derivatives used by Nicor Gas, to hedge purchases of natural gas for company use, are recorded within operating and maintenance expense.  Pretax net gains (losses) recognized in income are summarized in the table below (in millions):

   
Three months ended
June 30
   
Six months ended
June 30
 
Location
 
2011
   
2010
   
2011
   
2010
 
Operating revenues
  $ (4.0 )   $ (.4 )   $ (4.2 )   $ (1.4 )
Operating and maintenance
    -       .2       (.1 )     (.7 )
    $ (4.0 )   $ (.2 )   $ (4.3 )   $ (2.1 )

Nicor Gas’ derivatives used to hedge the purchase of natural gas for its customers are also not designated as hedging instruments.  Gains or losses on these derivatives are not recognized in pretax earnings, but are deferred as regulatory assets or liabilities until the related revenue is recognized.  Net gains (losses) deferred for the three and six months ended June 30, 2011 were $(7.2) million and $(3.6) million, respectively, and $16.2 million and $(74.1) million, respectively, for the same periods in 2010.

Credit-risk-related contingent features.  Provisions within certain derivative agreements require the company to post collateral if the company’s net liability position exceeds a specified threshold.  Also, certain derivative agreements contain credit-risk-related contingent features, whereby the company would be required to provide additional collateral or pay the amount due to the counterparty when a credit event occurs, such as if the company’s credit rating was to be lowered.  As of June 30, 2011, December 31,
 
 
 
 2010 and June 30, 2010 for agreements with such features, derivative contracts with liability fair values totaled approximately $5 million, $12 million and $22 million, respectively, for which the company had posted no collateral to its counterparties.  If it was assumed that the company had to post the maximum contractually specified collateral or settle the liability, the company would have been required to pay approximately $4 million, $11 million and $21 million at June 30, 2011, December 31, 2010 and June 30, 2010, respectively.

9.
POSTRETIREMENT BENEFITS

Nicor Gas maintains a noncontributory defined benefit pension plan covering substantially all employees hired prior to 1998.  Pension benefits are based on years of service and the highest average salary for management employees and job level for collectively bargained employees (referred to as pension bands).  The benefit obligation related to collectively bargained benefits considers the company’s past practice of regular benefit increases.  Nicor Gas also provides health care and life insurance benefits to eligible retired employees under a plan that includes a limit on the company’s share of cost for employees hired after 1982.

The company’s postretirement benefit costs have historically been considered in rate proceedings in the period they are accrued.  As a regulated utility, Nicor Gas expects continued rate recovery of the eligible costs of its defined benefit postretirement plans and, accordingly, associated changes in the plan’s funded status have been deferred as a regulatory asset or liability until recognized in net income, instead of being recorded in accumulated other comprehensive income.  However, to the extent Nicor Gas employees perform services for non-regulated affiliates and to the extent such employees are eligible to participate in these plans, the affiliates are charged for the cost of these benefits and the changes in the funded status relating to these employees are recorded in accumulated other comprehensive income.

About one-fourth of the net benefit cost related to these plans has been capitalized as a cost of constructing gas distribution facilities and the remainder is included in gas distribution operating and maintenance expense, net of amounts charged to affiliates.  Net benefit cost included the following components (in millions):

   
Pension benefits
   
Health care and
other benefits
 
   
2011
   
2010
   
2011
   
2010
 
Three months ended June 30
                       
Service cost
  $ 2.5     $ 2.5     $ .6     $ .5  
Interest cost
    4.1       4.0       3.0       2.9  
Expected return on plan assets
    (7.8 )     (7.3 )     -       -  
Recognized net actuarial loss
    2.4       2.9       1.5       1.1  
Amortization of prior service cost
    .1       .1       .1       .1  
Net benefit cost
  $ 1.3     $ 2.2     $ 5.2     $ 4.6  
                                 

Six months ended June 30
                       
Service cost
  $ 5.0     $ 4.9     $ 1.2     $ 1.1  
Interest cost
    8.2       8.0       6.1       5.9  
Expected return on plan assets
    (15.6 )     (14.5 )     -       -  
Recognized net actuarial loss
    4.8       5.9       3.0       2.1  
Amortization of prior service cost
    .2       .2       .1       .1  
Net benefit cost
  $ 2.6     $ 4.5     $ 10.4     $ 9.2  
                                 
The Health Care Act contains provisions that may impact Nicor Gas’ obligation for retiree health care benefits.  The company does not currently believe these provisions will materially increase its
 
 
 
postretirement benefit obligation, but will continue to evaluate the impact of future regulations and interpretations.

10.
EQUITY INVESTMENT INCOME, NET

Equity investment income includes investment income from Triton of $3.2 million and $7.4 million for the three and six months ended June 30, 2011, respectively, and $1.8 million and $3.2 million, respectively, for the same periods in 2010.  Nicor received cash distributions from equity investees for the three and six months ended June 30, 2011 of $4.1 million and $8.2 million, respectively, and $5.4 million and $7.9 million, respectively, for the same periods in 2010.

11.
COMPREHENSIVE INCOME

Total comprehensive income is as follows (in millions):

   
Three months ended
   
Six months ended
 
   
June 30
   
June 30
 
   
2011
   
2010
   
2011
   
2010
 
                         
Net income
  $ 19.2     $ 24.2     $ 64.4     $ 84.7  
Other comprehensive loss, after tax
    (1.8 )     (2.0 )     (.4 )     (3.4 )
Total comprehensive income
  $ 17.4     $ 22.2     $ 64.0     $ 81.3  

Other comprehensive loss consists primarily of net gains and losses from derivative financial instruments accounted for as cash flow hedges and gains and losses from postretirement benefits.

12.
BUSINESS SEGMENT INFORMATION

Financial data by reportable segment is as follows (in millions):
 
 
 
16

 
Nicor Inc.
                       
Business Segments - Financial Data
                       
   
Three months ended
   
Six months ended
 
   
June 30
   
June 30
 
   
2011
   
2010
   
2011
   
2010
 
Gas distribution
                       
Operating revenues
                       
External customers
  $ 350.5     $ 292.3     $ 1,250.3     $ 1,342.3  
Intersegment
    8.4       7.2       24.4       26.0  
    $ 358.9     $ 299.5     $ 1,274.7     $ 1,368.3  
                                 
Operating income
  $ 27.9     $ 27.4     $ 93.8     $ 120.6  
                                 
Shipping
                               
Operating revenues
                               
External customers
  $ 79.9     $ 86.0     $ 160.7     $ 169.5  
Intersegment
    -       -       -       -  
    $ 79.9     $ 86.0     $ 160.7     $ 169.5  
                                 
Operating income (loss)
  $ (.3 )   $ 4.2     $ (1.5 )   $ 3.7  
                                 
Other Energy Ventures
                               
Wholesale marketing
                               
Operating revenues
                               
External customers
  $ 7.1     $ 7.8     $ 11.2     $ 13.4  
Intersegment
    1.5       2.5       7.7       8.2  
    $ 8.6     $ 10.3     $ 18.9     $ 21.6  
                                 
Operating income
  $ 1.5     $ 2.7     $ 4.6     $ 7.4  
                                 
Other
                               
Operating revenues
                               
External customers
  $ 39.5     $ 39.5     $ 91.8     $ 93.3  
Intersegment
    .4       .5       .8       1.1  
    $ 39.9     $ 40.0     $ 92.6     $ 94.4  
                                 
Operating income
  $ 7.9     $ 8.7     $ 9.3     $ 8.4