AGL Resources Inc. Annual Incentive Plan - 2006


    
      

      

    

     

    EXHIBIT
      10.1

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    


    


    

    


    



    
      
         

         

         

        
        

      

      
        
        

        
          

        

      

      
        
        

        2006
          Annual Incentive Plan

      

    

     

    Table
      of Contents

     

    
      	Glossary
              of terms    	 2
	 	 
	What
              is the Annual Incentive Plan (AIP)?	 3
	 	 
	How
              does the AIP support AGL Resources' strategic goals and
              objectives	 3
	 	 
	Who
              is eligible to participate?	 3
	 	 
	Who
              is ineligible to participate?	 3
	 	 
	What
              is the Performance Measurement Period?	 4
	 	 
	How
              does the AIP work?	 4
	 	 
	What
              are the Performance Measures?	 4
              - 6
	
              	Corporate
                  Performance Goals
	Business
                  Unit Goals
	Individual
                  Performance


            	 
	How
              will Corporate Performance Score, Business Unit Performance and Individual
              Performance Score be weighted?	 6
	 	 
	What
              is my Target Award?	 7
	 	 
	How
              is my AIP award calculated?	 8
	
              	Annual
                  Rate
	AIP
                  Award Calculation Examples


            	 
	What
              is the timing for payment of AIP awards?	 11
	 	 
	What
              about new hires during the Performance Measurement
              Period?	 11
	 	 
	What
              about a change in status during the Performance Measurement
              Period?	 11
	 	 
	What
              is the effect of the AIP award on other benefits?	 12
	 	 
	Who
              administers the AIP?	 12
	 	 
	Are
              awards under the AIP intended to qualify under Section
              162(m)? 	 13
	 	 
	Does
              participation in the AIP create employment rights for
              participants?	 13
	 	 
	By
              what law is the AIP governed?	 13
	 	 
	What
              is the source of the funds required to pay benefits under the
              AIP?	 13
	 	 
	Will
              taxes be withheld from my award?	 13
	 	 
	Can
              the company amend or terminate the AIP?	 13


    

     

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    Glossary
      of Terms

    


    
      	
              AIP

            	
              This
                Annual Incentive Plan

            
	
              Annual
                Rate

            	
              The
                rate of pay used to calculate your AIP award.

              For
                exempt participants, Annual Rate is your earned base salary during
                the
                Performance Measurement Period.

               

              For
                nonexempt participants, Annual Rate equals your earned base rate
                plus
                total earned overtime, shift differential and other premiums paid
                during
                the Performance Measurement Period.

            
	
              Award
                Weighting Factors

            	
              The
                weight assigned to each of the Performance Measures. The total weight
                of
                your Performance Measures equals 100%.

            
	
              Business
                Unit

            	
              The
                designated arrangement of operations and offices providing a measure
                of
                similar business activity by market, location, etc.

            
	
              Business
                Unit Performance Score

            	
              The
                score resulting from each Business Unit’s performance compared to the
                Business Unit’s performance goals.

            
	
              Corporate
                Performance Score

            	
              The
                Corporate Performance Score is the score that corresponds with the
                EPS
                goal achieved and certified for the Performance Measurement
                Period.

            
	
              EPS

            	
              Earnings
                Per Share - Net Income for the Performance Measurement Period divided
                by
                total shares outstanding (basic). Net income is determined in accordance
                with generally accepted accounting principles (GAAP) subject to the
                potential exclusion of certain one-time items.

            
	
              Individual
                Performance Score

            	
              Your
                Individual Performance Score based on both your IPO and Success Factor
                ratings.

            
	
              IPOs

            	
              Individual
                Performance Objectives or “What you do.”

            
	
              Performance
                Measurement Period

            	
              The
                Performance Measurement Period for the current AIP is January 1,
                2006
                through December 31, 2006.

            
	
              Performance
                Measures

            	
              Performance
                Measures are the criteria used to determine AIP awards. Performance
                Measures include corporate and Business Unit performance goals and
                your
                Individual Performance Score.

            
	
              Success
                Factors

            	
              Competencies
                demonstrated to achieve performance or “How you do it.”

            
	
              Target
                Award

            	
              The
                potential amount of incentive compensation that you have the opportunity
                to earn if the Total AIP Performance Score is 100%. A Target Award
                is
                expressed as a percentage of your Annual Rate.

            
	
              Total
                AIP Performance Score

            	
              Represents
                the level of corporate, Business Unit and individual performance
                attained
                at the end of the Performance Measurement Period. Corporate, Business
                Unit, and Individual Performance Scores each can range from 0% to
                200%. 

            


    


    
      
         

         

         

        
        

      

      
        2

        
          

        

      

      
        
        

        2006
          Annual Incentive Plan

      

    


    Q.
      What is the Annual Incentive Plan
      (AIP)?

    


    A. The
      Annual Incentive Plan (AIP) is a key part of the Company’s total compensation
      program. It is intended to provide a meaningful opportunity to earn cash awards
      by working together to achieve the Company’s performance objectives. The primary
      features are -

    
      	·  	
              Ensuring
                total cash compensation levels are
                competitive

            


    

    
      	·  	
              Rewarding
                strong financial performance

            


    

    
      	·  	
              Aligning
                pay with performance

            


    

    
      	·  	
              Recognizing
                individual performance and differentiating
                rewards

            


    

    
      	·  	
              Reinforcing
                how individual contributions support corporate
                success

            


    

    


    Q. How
      does the AIP support AGL Resources’ strategic goals and
      objectives?

    


    A. The
      AIP
      is designed to align the interests of employees with those of the Company’s
      shareholders and customers as well as with the strategic objectives of the
      Company. For 2006 our corporate goals are:

    
      	·  	
              Provide
                superior growth in earnings and
                dividends.

            


    

    
      	·  	
              Build
                on our growing reputation for customer service excellence through
                enhanced
                logistics.

            


    

    
      	·  	
              Make
                our people the competitive edge.

            


    

    
      	·  	
              Be
                relentless in business process
                improvement

            


    

    


    The
      AIP
      pays cash awards to eligible employees if established Performance Measures
      are
      met or exceeded during the Performance Measurement Period. Performance Measures
      may include corporate and/or Business Unit performance goals and your Individual
      Performance Score, which is based on both your IPO and Success Factor
      ratings.

    


    Q. Who
      is eligible to participate?

    


    A. You
      are
      eligible to participate in the AIP if you satisfy all of the following
      conditions:

    
      	·  	
              Full-time
                employee of AGL Resources or of one of the following subsidiaries
                or
                operating divisions:

            


    

    
      	§  	
              Atlanta
                Gas Light; 

            


    

    
      	§  	
              AGL
                Networks (excluding sales
                employees)

            


    

    
      	§  	
              AGL
                Services

            


    

    
      	§  	
              Chattanooga
                Gas

            


    

    
      	§  	
              Elizabethtown
                Gas - (excluding sales employees)

            


    

    
      	§  	
              Elkton
                Gas

            


    

    
      	§  	
              Florida
                City Gas

            


    

    
      	§  	
              Jefferson
                Island Storage & Hub

            


    

    
      	§  	
              Virginia
                Gas

            


    

    
      	§  	
              Virginia
                Natural Gas (VNG) 

            


    

    
      	·  	
              Employed
                on or before September 30, 2006; or retired during the Performance
                Measurement Period; and

            


    

    
      	·  	
              Active
                status as an employee or on an approved paid leave of absence when
                AIP
                award payments are distributed or you retired during the Performance
                Measurement Period.

            


    

    


    *Union
      employees are eligible to participate only if their applicable Collective
      Bargaining Agreement (CBA) provides for such participation

    


    Q. Who
      is ineligible to participate?

    


    A Employees
      in any of the following categories are ineligible - 

    
      	·  	
              Seasonal,
                part-time, co-op, interns, and contract employees are not eligible
                to
                participate. 

            


    

    
      	·  	
              Employees
                who are eligible to participate in any other annual cash incentive
                plan
                are not eligible to participate.

            


    

    
      	·  	
              In
                addition, employees who are hired after September 30, 2006, and those
                who
                resign or are discharged on or before the date any awards are paid
                are not
                eligible for payment of an award.

            


    

    
      	·  	
              Union
                employees whose CBA does not provide for such
                participation.

            


    

    


    
      
        
        

      

      
        3

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    Q. What
      is the Performance Measurement Period?

    


    A. The
      Performance Measurement Period for the current AIP is January 1, 2006 through
      December 31, 2006.

    


    Q. How
      does the AIP work?

    


    A. At
      the
      beginning of the Performance Measurement Period, corporate performance goals
      (earnings per share or EPS) are approved by the Policy Committee and the
      Compensation and Management Development Committee of the Board of Directors.
      Performance Measures also include: (i) Business Unit performance goals, which
      are approved by the Policy Committee; (ii) IPOs, which are established in
      discussions with your manager; and (iii) Success Factors established for your
      position.
      

     

    Based
      on
      how we perform at each of those levels as determined at the end of the
      Performance Period, cash awards, if any, are paid to each participant. These
      payments are based on your Annual Rate and your Target Award percentage as
      discussed later in this document.

    


    Q. What
      are the Performance Measures?

    Details
      are provided below for the corporate, Business Unit and individual levels of
      performance.

    


    A. Corporate
      Performance Goals

    


    Corporate
      performance is measured against the EPS goal approved by the Board of Directors
      for the Performance Measurement Period and certified by them at the end. For
      purpose of the AIP, the certified EPS is used as the corporate performance
      measure in calculating payouts under the plan. 

    


    The
      EPS
      goal represents an aggressive goal intended to provide an incentive for
      participants to extend extraordinary efforts to match the expectations of our
      investors and customers.

    


    At
      the
      end of the Performance Measurement Period (December 31, 2006), the Corporate
      Performance Score is expressed as a percentage and can range from 0% to
      200%.

    


    The
      following chart shows the approved corporate performance goals for the AIP
      and
      corresponding Corporate Performance Scores for the Performance Measurement
      Period (January 1, 2006 through December 31, 2006).

    


    
      	
               

              Earnings
                Per Share Goal

            	
               

              Corporate
                Performance Score

            
	
              $2.58
                *

            	
              50%

            
	
              $2.60
                

            	
              75%

            
	
              $2.63
                

            	
              100%

            
	
              $2.65

            	
              150%

            
	
              $2.68

            	
              200%

            


    

    


    *The
      Company must meet or surpass $2.58 EPS for the year ending December 31, 2006,
      the corporate financial performance threshold, in order for any payment to
      be
      made, despite the level of your Business Unit performance or Individual
      Performance Score.   

    


    For
      EPS
      results falling between the levels noted above, the Corporate Performance Score
      will be interpolated on a straight-line basis. However, the Corporate
      Performance Score cannot exceed 200%.

    


    
      
        
        

      

      
        4

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    In
      determining the Corporate Performance Score, the Compensation and Management
      Development Committee of the Company’s Board of Directors has the discretion to
      remove the effects of all or a portion of significant one-time items (whether
      positive or negative) from reported EPS. 

    


    Business
      Unit Performance Goals

    


    Like
      the
      Company EPS goal, Business Unit goals are aggressive and intended to provide
      an
      incentive for participants to focus their efforts and perform at stretch levels
      as a team. Business Units represent smaller divisions of AGL Resources that
      participants impact more directly through their day-to-day performance.


    


    All
      AGL
      Resources operations and business locations have been assigned to a Business
      Unit for performance measurement under the AIP. Each of the following is a
      separate AIP Business Unit.

    
      	·  	
              Distribution
                Operations in Georgia, Tennessee and
                Florida

            


    

    
      	·  	
              Distribution
                Operations in Virginia, Maryland and New
                Jersey

            


    

    
      	·  	
              Jefferson
                Island Storage & Hub

            


    

    
      	·  	
              AGL
                Networks

            


    

    
      	·  	
              AGL
                Resources Services Company

            


    

    


    Eligible
      employees in each of these Business Units will have part of their AIP
      performance measured by the success of their respective Business Unit.  The
      Business Unit Performance Goals consist of specific goals with respect to
      financial performance.  

    


    The
      precise Business Unit Performance Goals for 2006 have been established for
      each
      Business Unit and have been distributed to the Management Committee members
      for
      communication.  These goals contain sensitive information that would be
      inappropriate to distribute with this document.  A separate document, the
“2006 AIP Business Unit Performance Goals Exhibit,” is on file with each
      respective business head and the Policy Committee members.

     

    At
      the
      end of the Performance Measurement Period (December 31, 2006), each Business
      Unit’s Performance Score is calculated and expressed as a percentage that can
      range from 0% to 200%.  Targets will equal 100% performance.

     

    In
      determining the Business Unit Performance Score, the Policy Committee has the
      discretion to adjust for the effects of all or a portion of significant one-time
      items (whether positive or negative) affecting the score based on its review
      of
      the actual performance of the Business Unit compared to the Business Unit goals
      as set forth on the 2006 AIP Business Unit Performance Goals
      Exhibit.

     

    Individual
      Performance 

    


    As
      noted
      earlier, one of the key objectives of the AIP is to provide recognition of
      individual contributions to our business success. A related objective is to
      provide meaningful differentiation of awards. When a participant achieves
      superior levels of performance, the award they receive is appropriately greater
      than the awards received by participants with lower performance
      ratings.

    


    There
      are
      two measures of individual performance - IPOs measure individual performance
      -
      the “what you achieve” and Success Factors measure competencies demonstrated to
      achieve that performance - the “how you achieve.” Performance ratings for these
      two measures will be combined to determine your Individual Performance Score
      which can range from 0% to 200%. This score will be considered along with the
      Corporate and Business Unit Performance Scores to determine your individual
      award payout. An example will be provided later in this document.

    


    At
      the
      end of the Performance Measurement Period, your IPO and Success Factor
      performance will be assessed separately using the ratings below. 

    
      	·  	
              FM
                (Fails to Meet)

            


    

    
      	·  	
              PM
                (Partially Meets)

            


    

    
      	·  	
              SM
                (Successfully Meets)

            


    

    
      	·  	
              ME
                (Meets and Exceeds) 

            


    

    
      	·  	
              SE
                (Significantly Exceeds)

            


    

    


    
      
        
        

      

      
        5

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    The
      two
      ratings (for IPO and Success Factor performance) will be combined to calculate
      your AIP award. See that discussion below.

    


    The
      expected distribution across the Company for the Individual Performance Score
      ratings is as follows: 

    
      	·  	
              FM
                (<5%)

            


    

    
      	·  	
              PM
                (20-30%)

            


    

    
      	·  	
              SM
                (40-60%) 

            


    

    
      	·  	
              ME
                (20-30%)

            


    

    
      	·  	
              SE
                (<10%)

            


    

    


    Rating
      integrity within each functional area and Business Unit is the responsibility
      of
      each manager. Rating integrity across functions and Business Units will be
      the
      responsibility of the Management Committee.

    


    The
      Individual Performance Score will be a composite of the IPO and the Success
      Factor ratings. Once the ratings for each have been determined, the Individual
      Performance Score will be derived from a matrix similar to the following. This
      one is provided for illustration only.

    


    Example
      -
      Individual Performance Score Matrix

    


    
      	
            	
            	    	
              IPO

            
	
              S

            	
              F

            	
            	
              FM

            	
              PM

            	
              SM

            	
              ME

            	
              SE

            
	
              U

            	
              A

            	
              FM

            	
              0%

            	
              0%

            	
              0%

            	
              0%

            	
              0%

            
	
              C    

            	
              C

            	
              PM

            	
              0%

            	
              50%

            	
              80%

            	
              115%

            	
              150%

            
	
              C

            	
              T

            	
              SM

            	
              0%

            	
              65%

            	
              100%

            	
              135%

            	
              165%

            
	
              E

            	
              O

            	
              ME

            	
              0%

            	
              85%

            	
              120%

            	
              150%

            	
              185%

            
	
              S

            	
              R

            	
              SE

            	
              0%

            	
              105%

            	
              135%

            	
              170%

            	
              200%

            
	
              S

            	 	 	 	 	 	 	 


    

    


     

    The
      table
      will weight the IPO score at approximately 65% of the total and the Success
      Factor score at approximately 35% of the total. This score is used with the
      Corporate and Business Unit Performance Scores based upon your participation
      tier to determine your AIP award.

     

    Participants
      who receive a “Fails to Meet” (FM) rating on either the Success Factor rating or
      the IPO rating will not be eligible for an incentive award regardless of
      Corporate and Business Unit performance.


    
      	 	
               

            


    

    
       

    

    Q. How
      will the Corporate Performance Score, Business Unit Performance Score and
      Individual Performance Score be weighted?

    A. Because
      participants have different levels of impact on each of the measures, the AIP
      will weight each factor differently for different categories of participants.
      This provides a better” line of sight” to performance at each participant’s
      level in the organization.

    


    Award
      Weighting Factors

    


    The
      Performance Measures for corporate, Business Unit and individual performance
      are
      weighted so that some Performance Measures will affect your Total AIP
      Performance Score more than others. Weighting factors are expressed as
      percentages. The total weight of all of your Performance Measures equals 100%.
      

    


    
      
        
        

      

      
        6

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    The
      following table shows tiers of participation and the corresponding weight of
      corporate, Business Unit and individual performance. 

    


    
      	
              Tier

            	
              Corporate

              Score

            	
              Business
                Unit Score

            	
              Individual

              Score

            
	
              Policy
                Committee Officers*

            	
              75%

            	
              0%

            	
              25%

            
	
              Other
                Officers

            	
              25%

            	
              50%

            	
              25%

            
	
              Grades
                K- O

            	
              25%

            	
              25%

            	
              50%

            
	
              Grade
                J and below (Non-Union)

            	
              0%

            	
              50%

            	
              50%

            
	
              Union
                **

            	
              0%

            	
              50%

            	
              50%

            


    

    *
      The
      Policy Committee Officers participate in the Executive Performance Incentive
      Program as approved by AGL Resources’ shareholders. It mirrors the corporate EPS
      portion of the AIP but is subject to the requirements of Section 162(m) of
      the
      Internal Revenue Code and the review of the Compensation and Management
      Development Committee of the Board of Directors. 

    **Subject
      to the express terms of the relevant CBA.

    


    Q. What
      is my Target Award?

    


    A. Your
      Target Award is expressed as a percentage of your Annual Rate and represents
      the
      potential amount that you have the opportunity to earn as incentive compensation
      if the Total AIP Performance Score is 100%. The actual award which you receive,
      if any, may be greater or less than the Target Award depending on the level
      of
      corporate, Business Unit, and individual performance. 

    


    The
      following table shows salary grades and corresponding Target
      Awards.

    


    
      	
              AGL
                Resources’ 

              Salary
                Grade

            	
              Target
                Award 

              (%
                of Annual Rate)

            
	
               

              Nonexempt
                (includes eligible bargaining unit employees)

            	
               

              5%

            
	
              G
                & H

            	
              6%

            
	
              I

            	
              8%

            
	
              J

            	
              10%

            
	
              K

            	
              12%

            
	
              L

            	
              14%

            
	
              M

            	
              17%

            
	
              N

            	
              21%

            
	
              O

            	
              25%

            
	
              Officers

            	
              Individually
                determined

            


    

    


    Note
      that
      your Target Award % may change through the course of the year if you are
      assigned to another position. If that occurs, your award calculation will
      prorate the target and earnings for the time in each position.

    



    
      
         

         

         

        
        

      

      
        7

        
          

        

      

      
        
        

        2006
          Annual Incentive Plan

      

    


    Q. How
      is my AIP award calculated?

    


    A. The
      calculation of your AIP award begins with your Annual Rate of pay multiplied
      by
      your Target Award %. A formula is then applied that includes the Corporate,
      Business Unit, and Individual Performance Scores weighted according to your
      participation tier. The examples below illustrate this calculation.


    


    Annual
      Rate

    


    For
      exempt employees, your Annual Rate is your earned base pay during the
      Performance Measurement Period as an eligible participant. 

    


    For
      nonexempt employees, your Annual Rate is your earned base pay plus total
      overtime, shift differential pay and other pay premiums earned as an eligible
      participant during the Performance Measurement Period. 

    


    Therefore,
      Annual Rate will exclude periods when you were on unpaid leave or otherwise
      inactive or ineligible.

    


    AIP
      Award Calculation Examples

    


    At
      the
      end of the Performance Measurement Period (December 31, 2006), the AIP award
      is
      calculated based on your Annual Rate, Target Award, and Total AIP Performance
      Score. 

    


    In
      the
      two examples below, an AIP award is calculated using different sets of
      assumptions for “Mary” and “John”. 

    


    Example
      “A” - MARY

    
      	·  	
              Mary
                is an active employee of AGL Resources for all of 2006 in Chattanooga
                Gas
                Company.

            


    

    
      	·  	
              Mary’s
                annual salary on January 1, 2006 was $75,000 but she received a salary
                increase on February 1 to $80,000 which continued through the rest
                of the
                year. 

            


    

    
      	·  	
              Mary
                was in the same position throughout 2006


            


    

    
      	o  	
              Position
                grade is J 

            


    

    
      	o  	
              Target
                Award is 10%.

            


    

    
      	·  	
              Mary
                did not have any leave or inactive status periods during the
                year.

            


    

    
      	·  	
              Performance
                Scores

            


    

    
      	o  	
              Company’s
                EPS = $2.63.

            


    

    
      	o  	
              Business
                Unit Performance Score = 95%.

            


    

    
      	o  	
              Mary’s
                Success Factor rating is SM and her IPO rating is ME.
                

            


    

    


    Step
      1
      -
      Determine performance scores for each element - Corporate, Business Unit and
      Individual

    


    
      	·  	
              Corporate
                Performance Score

            


    

    Corporate
      result: EPS = $2.63 

    From
      the
      table, EPS at $2.63 = a Corporate Performance Score of 100%

    


    
      	
               

              Earnings
                Per Share Goal

            	
               

              Corporate
                Performance Score

            
	
              $2.58
                *

            	
              50%

            
	
              $2.60
                

            	
              75%

            
	
              $2.63
                

            	
              100%

            
	
              $2.65

            	
              150%

            
	
              $2.68

            	
              200%

            


    

    *The
      Company must meet or surpass $2.58 EPS. For EPS results falling between the
      levels noted above, the Corporate Performance Score will be interpolated.
      However, the Corporate Performance Score cannot exceed 200%.

    


    
      
        
        

      

      
        8

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    The
      Corporate Performance Score of 100% will be entered into the Total AIP
      Performance Score calculation in Step 3.

    


    
      	·  	
              Business
                Unit Performance Score

            


    

    Chattanooga
      Gas Company’s performance is combined with other Georgia and Tennessee
      distribution operations results and compared to the Business Unit performance
      goals. A combined Business Unit Performance Score is then determined for all
      participants in the Business Unit. In this example, we are assuming a Business
      Unit Performance Score of 95% which will be entered into the Total AIP
      Performance Score calculation in step 3.

    


    
      	·  	
              Individual
                Performance Score 

            


    

    Using
      the
      matrix provided, Mary’s Success Factor rating (SM) and IPO rating (ME) combine
      to produce an Individual Performance Score of 135%.

    


    
      	 	 	
              IPO

            
	 	
               

            	
              FM

            	
              PM

            	
              SM

            	
              ME

            	
              SE

            
	
              Success

            	
              Factor

            	
              FM

            	
              0%

            	
              0%

            	
              0%

            	
              0%

            	
              0%

            
	
              PM

            	
              0%

            	
              50%

            	
              80%

            	
              115%

            	
              150%

            
	
              SM

            	
              0%

            	
              65%

            	
              100%

            	
              135%

            	
              165%

            
	
              ME

            	
              0%

            	
              85%

            	
              120%

            	
              150%

            	
              185%

            
	
              SE

            	
              0%

            	
              105%

            	
              135%

            	
              170%

            	
              200%

            


    

    


    The
      Individual Performance Score of 135% will be entered in the Total AIP
      Performance Score calculation in Step 3.

    


    Step
      2
      -
      Calculation of Annual Rate 

    Annual
      salary of $75,000 for one month = $6,250

    Annual
      salary of $80,000 for eleven months = $73,333

    Annual
      Rate = $78,583

    


    The
      Annual Rate of $78,583 will be entered in the award calculation formula in
      Step
      4.

    


    Step
      3
      -
      Calculation of Total AIP Performance Score

    


    
      	
              Measure

            	
              Weighting

            	
              Performance
                Score

            	
              Weighted
                Performance

            
	
              Corporate

            	
              25%

            	
              100%

            	
              25%
                x 100% = 25%

            
	
              Business
                Unit

            	
              25%

            	
              95%

            	
              25%
                x 95% = 23.75%

            
	
              Individual

            	
              50%

            	
              135%

            	
              50
                x 135% = 67.5%

            
	
              Total
                AIP Performance Score

            	 	 	
              25%
                + 23.75% + 67.5% = 116.25%

            


    

    


    Step
      4
      -
      Award Calculation

    Multiply
      Mary’s Annual Rate ($78,583) times her target award percentage (10%) and her
      Total AIP Performance Score (116.25%).

    


    AIP
      Award
      = $78,583 x 10% x 116.25% = $9,135.27

    


    
      
        
        

      

      
        9

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    Example
      “B” - JOHN

    
      	·  	
              John
                is an active employee of AGL Resources Services Company for all of
                2006,
                except for 1 month (April) when he was
                inactive.

            


    

    
      	·  	
              For
                the first part of the year, John was in a grade F position with a
                target
                award of 5% 

            


    

    
      	·  	
              He
                works in the Controller’s organization in Atlanta. The AGSC Business Unit
                Performance was 105%.

            


    

    
      	·  	
              His
                annual salary on January 1 was $38,000 but he received an increase
                on
                October 1 when he was promoted to a grade G having a 6% target award.
                His
                annual salary for the rest of the year was
                $42,000.

            


    

    
      	·  	
              He
                earned $2,750 in overtime during
                2006.

            


    

    
      	·  	
              Company’s
                EPS = $2.60

            


    

    


    John’s
      Success Factor rating is ME and his IPO rating is SE

    


    Step
      1
      -
      Determine performance scores for each element - Corporate and Individual
      

    


    
      	·  	
              Corporate
                Performance Score

            


    

    Corporate
      result: EPS = $2.60

    From
      the
      table, EPS at $2.60 = Corporate Performance Score of 75%

    For
      John,
      since his total performance is based 50% on Business Unit results and 50% on
      his
      individual performance, the Corporate result of $2.60 simply means the threshold
      was exceeded and allows AIP payments to be made.

    


    
      	
               

              Earnings
                Per Share Goal

            	
               

              Corporate
                Performance Score

            
	
              $2.58
                *

            	
              50%

            
	
              $2.60
                

            	
              75%

            
	
              $2.63
                

            	
              100%

            
	
              $2.65

            	
              150%

            
	
              $2.68

            	
              200%

            


    

    *The
      Company must meet or surpass $2.58 EPS. For EPS results falling between the
      levels noted above, the Corporate Performance Score will be interpolated.
      However, the Corporate Performance Score cannot exceed 200%.

    


    
      	·  	
              Business
                Unit Performance Score

            


    

    The
      AGL
      Resources Services Company Business Unit performed at 105% of their target.
      So
      the Business Unit Performance Score of 105% will be entered in the Total AIP
      Performance Score calculation in Step 3.

    


    
      	·  	
              Individual
                Performance Score

            


    

    John’s
      Success Factor rating (ME) and IPO rating (SE) combine to produce an Individual
      Performance Score of 185% in the matrix example.

    


    
      	 	 	
              IPO

            
	 	
               

            	
              FM

            	
              PM

            	
              SM

            	
              ME

            	
              SE

            
	
              Success

            	
              Factor

            	
              FM

            	
              0%

            	
              0%

            	
              0%

            	
              0%

            	
              0%

            
	
              PM

            	
              0%

            	
              50%

            	
              80%

            	
              115%

            	
              150%

            
	
              SM

            	
              0%

            	
              65%

            	
              100%

            	
              135%

            	
              165%

            
	
              ME

            	
              0%

            	
              85%

            	
              120%

            	
              150%

            	
              185%

            
	
              SE

            	
              0%

            	
              105%

            	
              135%

            	
              170%

            	
              200%

            


    

    


    The
      Individual Performance Score of 185% will be entered in the Total AIP
      Performance Score calculation in Step 3.

    


    
      
        
        

      

      
        10

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    Step
      2
      -
      Calculation of Annual Rate 

    Annual
      Salary of $38,000 for nine months (excluding one month on inactive status)
      =
      $25,333

    Overtime
      earnings during 2006 = $2,750 while in the grade F position

    Annual
      Rate for the first 9 months = $25,333 + $2,750 = $28,083

    Annual
      salary of $41,000 for three months = $10,250

    These
      rates will be entered into the award calculation in Step 4 with their respective
      Target Award %.

    


    The
      Annual Rate of $41,500 will be entered in the award calculation formula in
      Step
      4.

    


    Step
      3
      -
      Calculation of Total AIP Performance Score

    The
      Corporate EPS result of $2.60 means AIP payments can be made. 

    


    
      	
              Measure

            	
              Weighting

            	
              Performance
                Score

            	
              Weighted
                Performance

            
	
              Business
                Unit

            	
              50%

            	
              105%

            	
              50%
                x 105% = 52.5%

            
	
              Individual

            	
              50%

            	
              185%

            	
              50%
                x 85% = 92.5%

            
	
              Total
                AIP Performance Score

            	 	 	
              52.5%
                + 92.5% =
                145%

            


    

    


    Step
      4
      -
      Award Calculation

    Multiply
      John’s Annual Rates ($28,083 and $10,250) times his Target Award percentages (5%
      and 6%) and his Total AIP Performance Score (145%).

    


    AIP
      Award
      = ($28,083 x 5%) + (10,250 x 6%) x 145% = ($1,404.15 + $615) x 145% =
$2,927.77

    


    Q. What
      is the timing for payment of AIP awards?

    


    A. The
      current AIP Performance Measurement Period is January 1, 2006 through December
      31, 2006.

    


    Payment
      of awards, if any, will occur as soon as administratively practicable during
      the
      first quarter of fiscal 2007, but not later than March 15, 2007.

    


    Q. What
      about new hires during the Performance Measurement Period?


    


    A. You
      must
      be employed by September 30, 2006 to be eligible to participate in the AIP.
      If
      you were hired between January 1, 2006 and September 30, 2006, your award,
      if
      any, will be prorated based on the number of months in the Performance
      Measurement Period that you were an eligible employee. If you have entered
      into
      an agreement with the Company during the Performance Measurement Period that
      specifies another arrangement, the terms of your agreement with the Company
      govern the terms of your AIP award. 

    


    Q. What
      about a change in status during the Performance Measurement
      Period?

    


    A. That
      will
      depend on the type of change as follows:

    


    Salary
      Grade, Target Award or Transfer  -
      For
      purposes of calculating an AIP award, if you had a change in salary grade or
      FLSA classification (exempt or nonexempt), then your award, if any, will be
      prorated based on your time and earnings in each grade level and FLSA
      classification. In addition, your award will be prorated if there is a change
      in
      your Target Award percentage during the Performance Measurement Period. (See
      “Example B” above.) Changes in Business Unit during the Performance Measurement
      Period will not be tracked. Your Business Unit at the end of the Performance
      Period will determine the Business Unit Performance Score used in calculating
      your award. 

    


    
      
        
        

      

      
        11

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    Employees
      are not eligible to participate in multiple annual cash incentive plans
      simultaneously. Participants in plans other than AIP who transfer into the
      AIP
      during the Performance Measurement Period will receive a prorated payment,
      if
      any is earned under the AIP, based on the effective date of the transfer.
      Payments, if any, under the other incentive plan will be pursuant to the terms
      of the plan. Managers of transferring employees should complete performance
      review forms at the time of transfer and provide a copy to the employee’s new
      manager.

    


    Retirement
      -
      If you
      retire on or before the date that any awards are paid (i.e.,
      the date
      that award payments are distributed) under the terms of the AGL Resources
      Retirement Plan or any other retirement plan approved by the Board of Directors
      for that purpose, you will be eligible for payment of an award. Your award,
      if
      any, will be prorated based on the number of months in the Performance
      Measurement Period that you were an eligible employee and will be based on
      your
      salary grade level and Business Unit as of your retirement date or December
      31,
      2006, whichever is earlier.

    


    Death
      or Long Term Disability -
      If you
      die or are placed on Long Term Disability under AGL 

    Resources’
      LTD Plan during the Performance Period as an eligible participant and AIP awards
      are paid at the end of the Performance Period, you, or in the case of your
      death
      your estate, will receive a prorated payment representing the time of your
      active participation during the Performance Period.

    


    Resignation,
      Severance or Discharge
      - If you
      resign or are discharged on or before the date when any awards are paid
      (i.e.,
      the
      date that payment amounts are actually distributed), you will not be eligible
      for payment of an award, even if your severance, if any, extends past that
      date.

    


    Leaves
      of Absence 

    
      	·  	
              Any
                paid leave of absence over 12 weeks will result in a prorated award
                based
                on the number of months of active service beyond the 12 week leave
                period
                during the Performance Measurement Period provided that you return
                to
                active status upon expiration of your leave.


            


    

    
      	·  	
              If
                you take an approved unpaid leave of absence that does not qualify
                under
                FMLA, you will be eligible for the payment of a prorated award based
                on
                the number of months of active service during the Performance Measurement
                Period. You will be eligible to receive the prorated portion of the
                award
                if you return to active status by March 15, 2006.
                

            


    

    
      	·  	
              If
                you are on military leave, you will receive payment of the award
                according
                to AGL Resources’ military leave policy.


            


    

    


    Q. What
      is the effect of the AIP award on other benefits?

    


    A. AIP
      awards count as compensation for the Retirement Savings Plus (RSP) Plan and
      Nonqualified Savings Plan (NSP). Awards also count as compensation for
      participants subject to the Career Average Earnings formula under the AGL
      Resources’ Retirement Plan, but do not count as compensation for participants
      subject to the Final Average Earnings formula under the AGL Retirement
      Plan.

    


    Q. Who
      administers the AIP?

    


    A. The
      AIP
      will be administered by the Policy Committee of the Company. Except as otherwise
      set forth in this document, no person, other than members of the Committee,
      will
      have any discretion concerning decisions affecting the AIP. 

    


    The
      Committee will have the authority to interpret the AIP and establish such rules
      and regulations as it deems necessary or advisable for the proper administration
      of the AIP, and will make determinations and will take such other action in
      connection with or in relation to accomplishing the objectives and goals of
      the
      AIP, including adjusting individual awards as it deems necessary or advisable.
      Each determination or other action made or taken by the Committee pursuant
      to
      the AIP, including interpretation of the AIP and the specific conditions and
      provisions of the awards granted hereunder will be final and conclusive for
      all
      purposes and upon all persons. 

    


    
      
        
        

      

      
        12

        
          

        

      

      
        
          2006
            Annual Incentive Plan

        

      

    

     

    The
      Compensation and Management Development Committee of the Company’s Board of
      Directors will have the sole authority to determine and certify the corporate
      performance, following the end of the Performance Measurement
      Period.

    


    Q. Are
      awards under the AIP intended to qualify under Section
      162(m)?

    


    A. In
      order
      to qualify for the exemption under Section 162(m) of the Internal Revenue Code
      of 1986, as amended, awards must be issued under a plan that has been approved
      by shareholders. As a result, awards granted to “Covered Persons,” as that term
      is defined under Section 162(m), and intended to qualify as “qualified
      performance-based compensation” will be granted under the Company’s Executive
      Performance Incentive Plan, or a successor to such plan.  However, to the
      extent permitted under Section 162(m), the awards granted to such Covered
      Persons will be calculated in the same manner as Awards issued
      pursuant to this AIP.

    


    Q. Does
      participation in the AIP create employment rights for AIP
      participants?

    


    A. The
      AIP
      does not constitute a contract of employment and participation in the AIP will
      not give a Participant the right to continue in the employ of the Company on
      a
      full-time, or any other basis. Participation in the AIP will not give any
      participant any right or claim to any benefit under the AIP, unless such right
      or claim has specifically been granted by the Policy Committee under the terms
      of the AIP.

    


    Q. What
      law is the AIP governed by?

    


    A. The
      AIP
      and all rules and determinations made and taken pursuant hereto will be governed
      by the laws of the State of Georgia, to the extent not preempted by federal
      law,
      and construed accordingly.

     

    Q. What
      is the source of the funds required to pay benefits under the
      AIP?

    


    A. The
      funds
      used to pay AIP benefits will be paid from the Company’s general
      assets.

    


    Q. Will
      taxes be withheld from my award?

    


    A. Your
      award is considered “supplemental” income and is subject to federal and state
      income tax withholding, as well as the employee portion of social security
      (FICA) and Medicare taxes. 

    


    Q. Can
      the Company amend or terminate the AIP?

    


    A. The
      Company reserves the right to amend or terminate the AIP at any time at its
      discretion. 

     

     

    
      
        
        

      

      
        13