Notes to Consolidated Financial Statements
Note 5 Variable Interest Entity
Noncontrolling Interests
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.


