Atmos Energy 1998 Annual Report Download - page 25

GROWING THE MARKET SHARE OF THE NON-UTILITY OPERATIONS
Non-utility operations contributed about 24 percent of
reported net income in 1998, including the sale of certain
United Cities’ assets. Atmos’ non-utility operations include
propane distribution, gas storage and energy services, and
leasing and rental operations.
Atmos Propane, Inc.
Atmos currently is the 33rd largest propane distributor in
the country according to the 1998 survey published by LP
Gas Magazine. Our goal is to increase the size of our propane
operation with the objective of creating value through the
economies of scope and scale that we think can be achieved
by consolidation in the currently very fragmented industry.
The propane operations serve more than 37,000 customers
in Tennessee, Kentucky, Virginia and North Carolina. During
1998, the Company completed five propane acquisitions
that added 8,500 new customers in Tennessee. The
Company’s primary competitors are independent operators
and co-ops.
The Company’s propane operations reported a loss of
$66,000 for fiscal 1998 compared to a loss of $90,000 for
fiscal 1997. In each of these years, propane operations were
significantly impacted by warmer weather and lower margins
due to increased competition. The Company is committed
to profitability in its current propane operations as well as
growth of the propane business. To that end, the propane
operation is changing its strategic direction to focus on retail
and wholesale propane distribution, and will be exiting less
profitable segments of the business including transportation,
propane cylinder exchange and propane appliance sales and
service. To increase margins, the Company is continuing its
strategy of pre-buying propane in the off-season to lock in
its supply so that it avoids price spikes in the winter months.
The Company has targeted its Southeast service area to
increase market penetration, and is also evaluating marketing
incentive programs to increase market share.
Gas Storage and Energy Services
The Company’s gas storage and energy services segment
includes wholesale gas services through Woodward
Marketing, irrigation, natural gas storage, and retail services.
Woodward Marketing, LLC Woodward Marketing, LLC, a
natural gas services firm, contributed $3.9 million pre-tax
earnings in 1998 compared with $3.3 million in 1997, due
to an increase in gas volumes sold in 1998 compared to
1997 as well as a modest average margin improvement.
Atmos owns a 45 percent interest in Woodward, which is
based in Houston, Texas. Woodward provides natural gas
services to the Company, industrial customers, municipali-
ties and natural gas utilities in the Southeast, Midwest and
California. Woodward’s management services include contract
negotiation and administration, load forecasting, nominations
and scheduling, storage management, capacity utilization
and risk management. Atmos expects Woodward’s growth to
continue through increased gas usage by existing customers
and by adding new customers. Atmos continues to consider
opportunities for electricity marketing as an added service
through Woodward Marketing, LLC.
Irrigation Atmos serves a unique agricultural market in West
Texas, selling natural gas to farmers who use natural gas-fired
engines that pump water for irrigation. Due to hotter and
drier weather in 1998, irrigation sales volumes increased 34
percent and revenues increased to $52.0 million compared to
$40.8 million in 1997.
Natural Gas Storage Atmos has underground storage facilities
in Kansas and Kentucky that allow the Company to pur-
chase natural gas during the summer when prices are lower
and store it for the Company’s use or to sell it to others dur-
ing the winter months when natural gas prices are higher.
Storage contributed $1.8 million in net income in 1998,
compared to $.7 million in 1997.
Retail Energy Services Our retail energy services strategy is
to develop partnerships to sell the natural gas commodity,
and eventually the electric commodity, to customers behind
the meter when unbundling occurs in the states where we
operate. Until then, we are focusing on three retail initiatives
through Atmos Energy Services: selling other products and
services to our customers by developing partnerships with
experienced mass marketers; restructuring our non-regulated
agricultural and industrial businesses to separate them from
our utility businesses; and identifying technological opportu-
nities that can increase our cash flow, earnings and gas
throughput. We believe our approach to retail services limits
our investment and operating expenses, minimizes risk, and
positions the Company for unbundling when it does occur.
Leasing and Rental
The Company leases and rents appliances, real estate, equipment
and vehicles to the United Cities Division. Net income from
leasing and rental increased to $3.3 million in 1998, compared
with $1.1 million in 1997, due to the sale of certain assets.
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