Atmos Energy 2002 Annual Report Download - page 26

In our future rate filings, we intend to seek weather
normalization in rates in most jurisdictions both to
protect Atmos Energy’s income and to prevent
shocks to our customers’ budgets. Many state utility
commissions have approved weather normalization
because it provides consumer protection while it gives
the gas utility adequate income to maintain its
distribution system and make new improvements.
Weather insurance
To limit the uncertainties of weather, Atmos Energy
also uses various financial techniques, such as weather
insurance. Adjusted for our weather-normalized
jurisdictions, weather across our system for all of fiscal
2002 was 6percent warmer than normal.
In fiscal 2002, we had in force the first year of a
three-year weather policy. The policy pays a benefit
when weather in Texas and Louisiana during the
months of October through March averages 7percent
warmer than normal. Breakeven on the policy is
weather that averages 11 percent warmer than normal.
This policy will remain in force for the 2002-2003
heating season. We have an option for a third season
in 2003-2004 if we continue to need the protection.
Because the weather in Texas and Louisiana was about
6percent warmer than normal during the covered
six-month heating season of fiscal 2002, we did not
realize a benefit from the weather insurance. Having
weather insurance provides protection against the
effects on earnings of warm weather in Texas and
Louisiana as has occurred in past years.
Lower gas prices
A positive development in 2002 was the return of
natural gas prices to more historically normal and
stable levels. Our average cost of gas for the fiscal year
was $3.81 per Mcf, compared with $6.83 per Mcf
for the same period last year. The sharp decline in the
year’s gas costs benefited our customers and our
utility operating results.
To moderate the potentially wide spread in gas
commodity costs, Atmos Energy uses a gas-hedging
program. For the 2002-2003 heating season, we
have covered between 45 percent and 50 percent of
our anticipated flowing gas requirements. We will
use the “natural hedge” of our own gas storage fields
for about 20 percent to 25 percent of our winter
requirements and will hedge the remainder with
financial hedges and fixed-forward contracts.
Hedging offers benefits to our utility customers
and to Atmos Energy by avoiding severe price spikes.
This is our second year for a formal gas-hedging
program, and the response to it from our state utility
commissions has been favorable.
Making sound acquisitions
With the addition of Mississippi Valley Gas Company,
beginning in December 2002, our utility operations
now serve about 1.7 million customers in more than
1,000 communities across 12 states.
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OPERATIONAL REVIEW