COMMITMENTS AND CONTINGENCIES

Commitments and Agreements:

Certain of the Company’s long-term contracts associated with the delivery and storage of natural gas include fixed charges of approximately $134.0 through September 2024. During the transition period ended September 30, 2014 and the calendar years ended December 31, 2013 and 2012, the Company recognized approximately $33.8, $50.0 and $51.0, respectively, of current year commitments through expense and its regulatory accounts in the accompanying financial statements. The Company also is committed to purchase minimum quantities of gas at market-related prices or to pay certain costs in the event the minimum quantities are not taken. These purchase commitments are approximately 111 bcf through August 2020.

Environmental Matters:

Various environmental laws and regulations apply to the operations of the Company. Historically, the cost of environmental compliance has not materially affected the Company’s financial position, results of operations or cash flows. New regulations, enforcement policies, claims for damages or other events could result in significant unanticipated costs.

The Company is in the chain of title of nine former manufactured gas plant sites, four of which it still owns, and five former manufactured gas distribution sites, one of which it still owns. Management expects that, should future remediation of the sites be required, the Company’s share of the remediation costs will not materially affect the financial position of the Company. During 2011, a removal action was completed at the Huntsville, Alabama manufactured gas plant site pursuant to an Administrative Settlement Agreement and Order on Consent among the EPA, the Company and the current site owner.

In 2012, the Company responded to a U.S. Environmental Protection Agency (EPA) Request for Information Pursuant to Section 104 of Comprehensive Environmental Response, Compensation, and Liability Act (CERCLA) relating to the 35th Avenue Superfund Site located in North Birmingham, Jefferson County, Alabama. The Request related to a former site of a manufactured gas distribution facility owned by the Company and located in the vicinity of the 35th Avenue Superfund Site. In September 2013, the Company received from the EPA a General Notice Letter and Invitation to Conduct a Removal Action at the 35th Avenue Superfund Site. The letter identifies the Company as a Potentially Responsible Party (PRP) under CERCLA for the cleanup of the Site or costs the EPA incurs in cleaning up the Site. The EPA also offered the PRP group the opportunity to conduct Phase I of the proposed removal action which involved removal activities at approximately 50 residences that purportedly exceed certain risk levels for contamination. In August of 2014, the EPA offered the PRP group the opportunity to conduct Phase II of the proposed removal action which involved removal activities at approximately 30 additional residences that purportedly exceed certain risk levels for contamination. The Company has discussed its designation as a PRP with the EPA, and the Company has requested additional information from the EPA regarding its designation as a PRP. The Company has not been provided information at this time that would allow it to determine the extent, if any, of its potential liability with respect to the 35th Avenue Superfund Site and the proposed removal action; therefore, no amount has been accrued as of September 30, 2014.

Legal Matters:

The Company, from time to time, is party to various pending or threatened legal proceedings. Certain of these lawsuits include claims for punitive damages in addition to other specified relief. The Company recognizes its liability for contingencies when information available indicates both a loss is probable and the amount of the loss can be reasonably estimated. Based upon information presently available, and in light of available legal and other defenses, contingent liabilities arising from threatened and pending litigation are not considered material in relation to the respective financial position of the Company. It should be noted, however, that there is uncertainty in the valuation of pending claims and prediction of litigation results.

On December 17, 2013, an incident occurred at a Housing Authority apartment complex in Birmingham, Alabama which resulted in one fatality, personal injuries and property damage. The Company is cooperating with the National Transportation and Safety Board which is investigating the incident. The Company has been named as a defendant in several lawsuits arising from the incident and additional lawsuits and claims may be filed against the Company.

Lease Obligations:

The Company entered into an amendment to its lease for its primary offices in February 2013 with a term ending February 28, 2018. There is no renewal option. This lease is classified as an operating lease. The Company also has a lease obligation for additional office space which expires January 31, 2024. Under the terms of this lease, the Company has five renewal options to extend the lease term by five years under each renewal. This lease is accounted for as an operating lease. The Company has subleased all of this office space to Energen pursuant to a sublease that expires on December 31, 2019 with an option to extend through January 31, 2024.

The Company’s total payments related to leases included as operating expense were $1.8, $2.4 and $2.1 for the transition period ended September 30, 2014 and the calendar years ended December 31, 2013 and 2012, respectively. These amounts are net of approximately $0.0, $0.7 and $1.0 of sublease income in the transition period ended September 30, 2014 and the calendar years ended December 31, 2013 and 2012, respectively. Minimum future rental payments required after September 30, 2014 under leases with initial or remaining noncancelable lease terms in excess of one year are as follows:



($ Millions)
2015	2016	2017	2018	2019	2020 and thereafter
4.3	3.9	4.0	2.9	2.1	9.1

Included in the table above are approximately $11.0 of payments associated with subleasing of its previous headquarters, which are expected to be reimbursed to the Company by Energen through the remaining term of the related lease.