Commitments, Guarantees and Contingencies

We incur various contractual obligations and financial commitments in the normal course of business that are reasonably likely to have a material effect on liquidity or the availability of capital resources. Contractual obligations include future cash payments required under existing contractual arrangements, such as debt and lease agreements. These obligations may result from both general financing activities and commercial arrangements that are directly supported by related revenue-producing activities. In April 2015, Nicor Gas entered into a series of natural gas purchase obligations in the ordinary course of business, which are reflected in the table below. The following table illustrates our expected future contractual payments under our obligations and other commitments as of December 31, 2015.



In millions	Total		2016		2017		2018		2019		2020		2021 & thereafter
Recorded contractual obligations:
Long-term debt	$	3,756	$	545	$	22	$	155	$	350	$	—	$	2,684
Short-term debt	1,010		1,010		—		—		—		—		—
Environmental remediation liabilities ⁽¹⁾	431		67		79		70		61		52		102
Total	$	5,197	$	1,622	$	101	$	225	$	411	$	52	$	2,786
Unrecorded contractual obligations and commitments ^{(2) (7)}:
Pipeline charges, storage capacity and gas supply ⁽³⁾	$	5,007	$	795	$	536	$	392	$	370	$	318	$	2,596
Interest charges ⁽⁴⁾	2,418		181		158		156		151		133		1,639
Operating leases ⁽⁵⁾	159		31		26		18		16		15		53
Asset management agreements ⁽⁶⁾	28		11		9		6		2		—		—
Standby letters of credit, performance/surety bonds ⁽⁷⁾	73		73		—		—		—		—		—
Other	5		3		1		1		—		—		—
Total	$	7,690	$	1,094	$	730	$	573	$	539	$	466	$	4,288


(1)	Includes charges recoverable through base rates or rate rider mechanisms.


(2)	In accordance with GAAP, these items are not reflected on our Consolidated Balance Sheets.

(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 balance includes amounts for Nicor Gas and SouthStar gas commodity purchase commitments of 37 Bcf at floating gas prices calculated using forward natural gas prices as of December 31, 2015, and is valued at $76 million. As we do for certain of our affiliates, we provide guarantees to certain gas suppliers for SouthStar in support of payment obligations.


(4)	Floating rate interest charges are calculated based on the interest rate as of December 31, 2015 and the maturity date of the underlying debt instrument. As of December 31, 2015, we have $49 million of accrued interest on our Consolidated Balance Sheets that will be paid in 2016.

(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 GAAP. However, this lease accounting treatment does not affect the future annual operating lease cash obligations as shown herein. Our operating leases are primarily for real estate.


(6)	Represent fixed-fee minimum payments for Sequent’s affiliated asset management agreements.


(7)	We provide guarantees to certain municipalities and other agencies and certain gas suppliers of SouthStar in support of payment obligations.

We are also involved in legal or administrative proceedings before various courts and agencies with respect to general claims, environmental remediation and other matters. Although we are unable to determine the ultimate outcomes of these contingencies, we believe that our financial statements appropriately reflect these amounts, including the recording of liabilities when a loss is probable and reasonably estimable.

Contingencies and Guarantees

Contingent financial commitments, such as financial guarantees, represent obligations that become payable only if certain predefined events occur. We have certain subsidiaries that enter into various financial and performance guarantees and indemnities providing assurance to third parties. We believe the likelihood of payment under our guarantees is remote. No liabilities have been recorded for such guarantees and indemnifications, as the fair values were inconsequential at inception.

Financial guarantees AGL Equipment Leasing Inc. (AEL), a wholly owned subsidiary, holds our interest in Triton and has an obligation to restore to zero any deficit in its equity account for income tax purposes in the unlikely event that Triton is liquidated and a deficit balance remains. This obligation was not impacted by the 2014 sale of Tropical Shipping and continues for the life of the Triton partnerships. Any payment is effectively limited to the net assets of AEL, which were less than $1 million at December 31, 2015. We believe the likelihood of any such payment by AEL is remote and, as such, no liability has been recorded for this obligation.

Indemnities In certain instances, we have undertaken to indemnify current property owners and others against costs associated with the effects and/or remediation of contaminated sites for which we may be responsible under applicable federal or state environmental laws, generally with no limitation as to the amount. These indemnifications relate primarily to ongoing coal tar cleanup, as discussed in the "Environmental Matters" section below. We believe that the likelihood of payment under our other environmental indemnifications is remote. No liability has been recorded for such indemnifications as the fair value was inconsequential at inception.

Regulatory Matters

In February 2015, Atlanta Gas Light made a filing with the Georgia Commission for a rate true-up of allowed unrecovered revenue of $178 million through December 2014 related to its PRP. In October 2015, Atlanta Gas Light received a final order from the Georgia Commission, which represented a resolution of all matters previously outstanding before the Georgia Commission, including a final determination of the true-up recovery related to the PRP. This order allows Atlanta Gas Light to recover $144 million of the $178 million unrecovered program revenue that was requested in its February 2015 filing. The remaining unrecovered amount relates primarily to recoveries of previously allowed rate of return amounts, which are included in our unrecognized ratemaking amount and does not have a material impact on our consolidated financial statements as of December 31, 2015. Provisions in the order resulted in the recognition of $1 million of interest expense related to the PRP true-up for the year ended December 31, 2015 on our Consolidated Statements of Income.

We began recovering the $144 million in October 2015 through the monthly PRP surcharge, which increased by $0.82 on October 1, 2015 and will further increase by $0.81 on each of October 1, 2016 and October 1, 2017. The cumulative total monthly increase to the PRP surcharge will remain at $2.44 and be effective until the earlier of the full recovery of the under-recovered amount or December 31, 2025. During 2015 we recognized $2 million of revenue for this program.

Additionally, one of the capital projects under the PRP experienced construction issues on certain segments in late 2013, and prior to these segments being placed into service it was necessary to complete mitigation work. The order from the Georgia Commission allows for the recovery of these mitigation costs in future base rates, but delayed such recovery until at least March 31, 2017. Provisions in the order resulted in the recognition of $5 million in operation and maintenance expense for the year ended December 31, 2015 on our Consolidated Statements of Income. Atlanta Gas Light continues to pursue contractual and legal claims against certain third-party contractors in connection with the mitigation costs incurred for construction issues experienced in finalizing the PRP. Any amounts recovered through the legal process will be retained by Atlanta Gas Light. At March 31, 2017, the total capitalized mitigation cost for which Atlanta Gas Light will seek recovery in future rates is approximately $28 million.

In August 2014, staff of the Illinois Commission and the CUB filed testimony in the Nicor Gas 2003 gas cost prudence review disputing certain gas loan transactions offered by Nicor Gas under its Chicago Hub services and requesting refunds of $18 million and $22 million, respectively. We filed surrebuttal testimony in December 2014 disputing that any refund is due, as Nicor Gas was authorized to enter into these transactions and revenues associated with such transactions reduced ratepayers’ costs as either credits to the PGA or reductions to base rates consistent with then-current Illinois Commission orders governing these activities. In July 2015, the Administrative Law Judge issued a proposed order concluding that Nicor Gas’ supply costs and purchases in 2003 were prudent, its reconciliation of the related costs was proper, and the propositions by the staff of the Illinois Commission and the CUB were based on hindsight speculation, which is expressly prohibited in a prudence review examination. In September 2015, the Illinois Commission issued a final order approving the proposal of the Administrative Law Judge. In November 2015, the Illinois Commission granted the CUB's petition for a rehearing on this matter. In February 2016, the Administrative Law Judge issued a proposed order on rehearing affirming the original order by the Illinois Commission, which now requires approval by the Illinois Commission.

In December 2012, we filed a petition with the Georgia Commission for approval to resolve a volumetric imbalance of natural gas related to Atlanta Gas Light’s use of retained storage assets to operationally balance the system for the benefit of the natural gas market. In September 2014, we filed a stipulation that was entered between us, staff of the Georgia Commission and several Marketers that included a resolution of the 4.6 Bcf imbalance over a five-year period from January 1, 2015 through December 31, 2019, which was approved by the Georgia Commission in December 2014. During the first half of 2015, discretionary funds available to the Universal Service Fund, which is controlled by the Georgia Commission, were used to resolve their obligation of 25% of the imbalance, or approximately 1.15 Bcf of natural gas. Atlanta Gas Light was also obligated to resolve 25% of the 4.6 Bcf imbalance, or approximately 1.15 Bcf of natural gas, through system injections, which were fully replaced by September 30, 2015.

Environmental Matters

We are subject to federal, state and local laws and regulations governing environmental quality and pollution control that require us to remove or remedy the effect on the environment of the disposal or release of specified substances at our current and former operating sites. See Note 4 for additional information on our environmental remediation costs.

In September 2015, the EPA filed an administrative complaint and notice of opportunity for hearing against Nicor Gas. The complaint alleges violation of the regulatory requirements applicable to polychlorinated biphenyls in the Nicor Gas distribution system and the EPA seeks a total civil penalty of approximately $0.3 million. While we are unable to predict the ultimate outcome of this matter, the final disposition of this matter is not expected to have a material adverse impact on our liquidity or financial condition.

Litigation

We are involved in litigation arising in the normal course of business. Although in some cases we are unable to estimate the amount of loss reasonably possible in addition to any amounts already recognized, it is possible that the resolution of these contingencies, either individually or in aggregate, will require us to take charges against, or will result in reductions in, future earnings. Management believes that while the resolutions of these contingencies, whether individually or in aggregate, could be material to earnings in a particular period, they will not have a material adverse effect on our consolidated financial position or cash flows for the year.

The company and each member of the Board were named as defendants in four purported shareholder class action lawsuits filed in the United States District Court for the Northern District of Georgia, Atlanta Division, which we refer to as the "Court": Patrick Baker v. AGL Resources Inc., et al., which we refer to as the "Baker Action", Jeff Morton v. AGL Resources Inc., et al., which we refer to as the "Morton Action", Sarah Halberstam and Baruch Z. Halberstam (as custodian for Benjamin Halberstam) v. AGL Resources Inc., et al., which we refer to as the "Halberstam Action", and Manuel Abt v. AGL Resources, Inc., et al., which we refer to as the "Abt Action", filed on September 16, 2015, September 22, 2015, September 28, 2015 and October 9, 2015, respectively. Southern Company and Merger Sub were also named as defendants in the Baker Action and the Morton Action. We refer to the Baker Action, the Morton Action, the Halberstam Action and the Abt Action, collectively, as the "Actions". The Actions alleged that our preliminary proxy statement contained false and misleading statements and omitted material information in violation of certain provisions under the Exchange Act. The Actions also alleged that the members of the Board were liable for those alleged misstatements and omissions. The Morton Action further alleged that the members of the Board breached their fiduciary duties owed to the shareholders of the company in connection with the merger and that Southern Company and Merger Sub aided and abetted such breaches. The Actions sought, among other things, preliminary and permanent injunctive relief enjoining the merger, rescission or rescissory damages in the event the merger is implemented and an award of attorneys' and experts' fees and costs. On October 23, 2015, the Court consolidated the four actions, and on January 5, 2016, the Court dismissed the consolidated action without prejudice.

PBR Proceeding Nicor Gas’ PBR plan was a regulatory plan that provided economic incentives based on natural gas cost performance. The PBR plan went into effect in 2000 and was terminated effective January 1, 2003, following allegations that Nicor Gas acted improperly in connection with the plan. Under this plan, Nicor Gas’ total gas supply costs were compared to a market-sensitive benchmark. Savings and losses relative to the benchmark were determined annually and shared equally with sales customers. Since 2002, the amount of the savings and losses required to be shared has been disputed by the CUB and others, with the Illinois Attorney General (IAG) intervening, and subject to extensive contested discovery and other regulatory proceedings before administrative law judges and the Illinois Commission. In 2009, the staff of the Illinois Commission, IAG and CUB requested refunds of $85 million, $255 million and $305 million, respectively.

In February 2012, we committed to a stipulation with the staff of the Illinois Commission for a resolution of the dispute through credits to Nicor Gas customers of $64 million. On November 5, 2012, the Administrative Law Judges issued a proposed order for a refund of $72 million to ratepayers. In the fourth quarter of 2012, we increased our accrual for this dispute by $8 million for a total of $72 million as a result of these developments and their effect on the estimated liability.

In June 2013, the Illinois Commission issued an order requiring us to refund $72 million to current Nicor Gas customers through our PGA mechanism based upon natural gas throughput. All refunds were completed in the first half of 2014. The CUB's February 28, 2014 appeal of the Illinois Commission’s order requesting refunds consistent with its 2009 request was rejected by the appellate court in Illinois on March 18, 2015.