REGULATORY MATTERS

9 Months Ended

Sep. 30, 2011

13.	REGULATORY MATTERS

Bad debt rider. In September 2009, Nicor Gas filed for approval of a bad debt rider with the ICC under an Illinois state law which took effect in July 2009. On February 2, 2010, the ICC issued an order approving the company’s proposed bad debt rider. This rider provides for recovery from customers of the amount over the benchmark for bad debt expense established in the company’s rate cases. It also provides for refunds to customers if bad debt expense is below such benchmarks.

As a result of the February 2010 order, Nicor Gas recorded in income a net recovery related to 2008 and 2009 of $31.7 million in the first quarter of 2010, all of which has been collected. The benchmark, against which 2011 and 2010 actual bad debt experience is compared, is approximately $63 million. The company’s actual 2010 bad debt experience was $35.7 million, resulting in a refund to customers of $27.3 million which is being refunded over a 12-month period that began June 2011.

SNG plant legislation. Nicor Gas signed an agreement in the third quarter of 2011 to purchase approximately 25 Bcf of SNG annually for a 10-year term beginning as early as 2015. The counterparty intends to construct a 60 Bcf per year coal gasification plant in southern Illinois. The project is expected to be financed by the counterparty with external debt and equity. In addition, the final price of the SNG may exceed market prices and is dependent upon a variety of factors, including plant construction costs, and is not estimable. However, this agreement complies with an Illinois statute that authorizes full recovery of the purchase costs; therefore the company expects to recover such costs. Since the purchase agreement is contingent upon various milestones to be achieved by the counterparty to the agreement, the company’s obligation is not certain at this time. While the purchase agreement is a variable interest in the counterparty, Nicor Gas has concluded, based on a qualitative evaluation, that it is not the primary beneficiary required to consolidate the counterparty. No amount has been recognized on Nicor’s balance sheet in connection with the purchase agreement.

On October 11, 2011, the IPA approved the form of a draft 30-year contract for the purchase of 20 Bcf per year of SNG from a second proposed plant. The draft contract approved by the IPA has been submitted to the ICC for further approvals by that regulatory body. The ICC is expected to approve a final form of contract for the second plant in 2012.