Notes to Consolidated Financial Statements
Note 5 Variable Interest Entity
As of December 31, 2009, we owned a noncontrolling 70%financial
interest in SouthStar, a joint venture with Piedmont who owns the
remaining 30%. SouthStar markets natural gas and related services
under the trade name Georgia Natural Gas to retail customers
primarily in Georgia as well as to commercial and industrial
customers, principally in Florida, Ohio, Tennessee, North Carolina,
South Carolina and Alabama. Our 70% interest is noncontrolling
because all significant management decisions require approval by
both owners. Although our ownership interest in the SouthStar
partnership is 70%, under an amended and restated joint venture
agreement executed in March 2004, SouthStar's earnings are
currently allocated 75% to us and 25% to Piedmont except for
earnings related to customers in Ohio and Florida, which are
currently allocated 70% to us and 30% to Piedmont.
In July 2009, we entered into an amended joint venture agreement with Piedmont pursuant to which we purchased an additional 15% ownership interest for $58 million, effective January 1, 2010, thus increasing our interest to 85%. Piedmont will retain the remaining 15% share. Earnings are now allocated entirely in accordance with the ownership interests. As part of the agreement, our interest will remain a noncontrolling interest and we will have no further option rights to Piedmont’s remaining 15% ownership interest. The agreement was approved by the Georgia Commission in October 2009.
We are the primary beneficiary of SouthStar’s activities and have determined that SouthStar is a VIE as defined by the authoritative guidance related to consolidations, which requires us to consolidate the VIE. We determined that SouthStar was a VIE because our equal voting rights with Piedmont are not proportional to our economic obligation to absorb 75% of any losses or residual returns from SouthStar, except those losses and returns related to customers in Ohio and Florida. In addition, SouthStar obtains substantially all its transportation capacity for delivery of natural gas through our wholly-owned subsidiary, Atlanta Gas Light.
The nature of restrictions on SouthStar’s assets are immaterial. The primary risks associated with SouthStar include weather, government regulation, competition, market risk, natural gas prices, economic conditions, inflation and bad debt. See Note 9 for statements of income, statements of financial position and capital expenditure information related to the retail energy operations segment.
On January 1, 2009, we adopted additional authoritative guidance relating to consolidations, and applied the presentation and disclosure requirements retrospectively for all periods presented. The additional guidance required that the noncontrolling interest be reported as a separate component of equity on our consolidated statements of financial position.
Additionally, prior to adoption of the guidance, we recorded our earnings allocated to Piedmont as a component of earnings before income taxes in our consolidated statements of income. The additional guidance requires that any net income attributable to the noncontrolling interest be presented separately in our consolidated statements of income. As a result, net income from noncontrolling interest is reported after net income in order to report net income attributable to the parent and the noncontrolling interest. The adoption of this guidance had no effect on our calculation of basic or diluted earnings per common share amounts, which will continue to be based upon amounts attributable to AGL Resources Inc.