Natural gas is vital to the development and economic well-being of the state of Georgia. Over 1,500,000 customers use natural gas supplied by the state’s two investor-owned natural gas systems, the Atlanta Gas Light Company ("AGL" and "Atlanta Gas Light") and United Cities Gas Company ("United Cities"). In early 1997, the Georgia Legislature passed the "Natural Gas Competition and Deregulation Act" ("the Act"), O.C.G.A. § 46-5-150 et seq., which gave each of these companies the option of electing to be governed under a new regulatory framework. Under this legislation, the Commission was charged with overseeing the transition of the natural gas market from a regulated monopoly to a competitive marketplace that benefits the consumer, improves economic efficiency, promotes fairness, and maintains safety and reliability.

Although United Cities has not elected to be governed under the Act, AGL filed notification of its intent to be subject to the new regulatory model in late 1997. In managing the transition to competition in AGL’s service area, the Commission’s objectives have been to implement the provisions of the Act in the manner prescribed by law while attempting to see that the benefits of competition—including lower prices, greater choices and better service—are available to a majority of end users. The success of opening the natural gas market to competition ultimately will be judged on whether consumers benefit, economic efficiency is improved, fair competition is promoted, and safety and reliability are maintained or enhanced.

Despite the move away from monopoly regulation in the sale of natural gas as a commodity, the Commission remains responsible for ensuring that federal safety requirements are met by all natural gas operators, both private and municipally owned, involved in distribution as well as by operators of transmission systems and the liquefied natural gas systems. In addition, the Commission performs safety inspections on 114 Master Meter Operators, 13 Direct Sales Customers, 2 Georgia Power High-Pressure Lines, and 5 Liquefied Natural Gas (LNG) Plants. Further, the Pipeline Safety Office oversees more than 700 miles of transmission pipelines and over 38,000 miles of distribution lines, which transport natural gas to over 2,000,000 Georgia customers.

In 1997 and 1998, the Pipeline Safety Division allocated a great deal of time to monitoring those natural gas systems for which continuing violations of the Pipeline Safety regulations have been observed. Since 1996, four pipeline operators of natural gas systems have entered into stipulations with the Commission to correct safety violations. These and other operators with numerous violations are subjected to more inspections as they attempt to make progress toward compliance. In 1998 alone, the Public Service Commission's five inspectors and one supervisor performed 40 standard inspections, 243 specialized inspections, and 102 follow-up inspections to monitor probable violations. In addition, there were 12 inspections reviewing drug and alcohol programs, 5 LNG facilities were inspected, and with expansions throughout the state, there were 41 inspections made to monitor the design and testing of new pipeline installations. The Pipeline Safety Office also monitored 81 violations continuing from calendar year 1997, cleared 5 violations, and found 43 new violations of the Pipeline Safety regulations during calendar year 1998.

In March 1997, the PSC issued an order initiating proceedings against the City of Cochran for failing to bring its municipal gas system into compliance with corrosion control standards. This action was taken by the Commission after representatives of the City repeatedly failed to take necessary corrective action that was identified by the PSC’s Pipeline Safety Division.

In lieu of appearing at a hearing, the City of Cochran entered into a stipulation with the Pipeline Safety Office in which the City agreed to take necessary corrective action to bring its gas system into compliance. This stipulation was subsequently accepted by the PSC

on May 17, 1997.

On November 26, 1997, the Atlanta Gas Light Company filed with the PSC a notice of election requesting to be governed under the statutory framework established by the Legislature to bring competition to the natural gas industry. In addition to making this election, AGL requested an $18.6 million annual rate increase and sought to have its rates, charges and services placed under an alternative form of regulation.

After suspending the filing and declaring it to be complex litigation, the Commission scheduled hearings over a six-month period, during which time it considered the merits of AGL’s application.

On December 30, 1997, the Commission adopted two sets of rules required by the Natural Gas Competition and Deregulation Act. The first set, found in Chapter 515-7-3 of the Commission’s rules, details the manner in which gas marketers may apply to be certified

to sell natural gas in this state and specifies technical and financial criteria that will be examined before certification will be granted. The second set of rules is contained in Chapter 515-7-4 of the Commission’s utility regulations and prescribes a methodology for the random assignment of customers that will be used once a competitive natural gas market is fully developed. The Commission will monitor each delivery group in preparation for determining when adequate market conditions exist and customer assignments should be made.

On June 30, 1998, the PSC issued an Order establishing the rates AGL can charge consumers and marketers during the transition to a competitive natural gas market in Georgia. Although AGL had requested an $18.6 million annual increase in rates, the PSC voted to decrease the utility's revenue by $7.4 Million. In arriving at these rates, state law required the Commission to use straight fixed variable rate design and placed other restrictions on the determination of delivery charges.

The Commission also ruled that AGL did not meet the requirements for alternative regulation and denied its request to be governed under this type of regulation.

In this same Order, parameters for the deregulation of the natural gas market were set. Once the gas commodity market is fully deregulated, AGL will no longer sell gas directly to consumers but will become a distribution company responsible only for transporting gas to homes and businesses. Marketing companies will be responsible for selling gas directly to the 1.4 million customers currently served by AGL.

Distribution of natural gas to homes and businesses will not change. The prices charged by AGL to marketers will continue to be regulated because the distribution system itself remains a monopoly. Marketers will set their own competitive prices to supply customers with natural gas.

In July of 1998, the PSC adopted interim rules for the creation and administration of a Universal Service Fund ("Fund") required by the Act. Petitions for disbursements from the Fund may be filed by marketers seeking to recover a portion of uncollectible accounts and by electing distribution company to expand its gas distribution system in a manner found by the Commission to be in the public interest. Final rules governing fund contributions and disbursements are expected to be adopted by the Commission in early 1999.

On July 10, 1998, the PSC unanimously ruled the marketing company could not use "Atlanta Gas Light" in its name, as use of the name and familiar blue logo would provide an unfair advantage over other marketers and stifle competition. Dissatisfied with this ruling, Atlanta Gas Light Services requested and was granted a stay of the Commission’s decision by Fulton County Superior Judge Philip Etheridge pending a court appeal.

On August 20, 1998, a settlement was reached by the parties under the terms of which AGL’s affiliate agreed to market itself as "Georgia Natural Gas Services." In addition, AGL’s affiliate agreed to use a disclaimer in advertisements in which it would identify itself as an affiliate of Atlanta Gas Light Company and state that the existence of this relationship with AGL would not result in customers receiving any preferential treatment if they elected to business with its affiliate.

On July 21, 1998, the Commission accepted a stipulation entered into by the Atlanta Gas Light Company and PSC to replace and adequately protect several hundred miles of the Company’s corroding natural gas pipeline. This action was deemed necessary by the Commission after learning that nearly 20,000 leaks, many considered hazardous, had occurred in the Atlanta area over a three-year period starting in 1996. Nearly fifty percent

(50%) of these leaks were the result of aging cast iron and corroding bare steel pipe, some of which has been in the ground since the late 1800's.

During the Summer of 1998, the PSC received applications from twenty-eight prospective marketers seeking to become certified to sell natural gas in the state of Georgia. In September 1998, hearings were scheduled by the Commission’s Staff to determine whether these applicants met certain technical and financial criteria. During this process, nine of the original twenty-eight applicants withdrew their requests to become certificated. On October 6, 1998, the remaining nineteen applicants were granted interim certificates of authority. Having received the necessary certification, these marketers were authorized to begin soliciting new customers in Georgia on November 1, 1998.