Atmos Energy 2004 Annual Report Download - page 12

RESULTS OF OPERATIONS
Atmos Energy’s consolidated net income for fiscal 2004
was $86.2 million, or $1.58 per diluted share. That compares
with $71.7 million, or $1.54 per diluted share, in fiscal
2003. Utility operations contributed 73 percent of earnings,
and nonutility operations provided 27 percent. Return
on average shareholders’ equity was 9.1 percent, and total
return to our shareholders was 10.4 percent. We paid
cash dividends in 2004 of $1.22 per share for an annualized
dividend yield at year-end of 4.8 percent.
TXU GAS ACQUISITION
On June 17, Atmos Energy announced it would acquire
the natural gas distribution and pipeline operations of
TXU Gas Company, the largest
gas utility in Texas.After receiving
the required approvals from
three state utility regulatory
commissions, we completed the
transaction on October 1, 2004,
paying an adjusted cash price
of $1.905 billion.
Adding TXU Gas’ 1.5
million utility customers made Atmos Energy the largest
natural-gas-only utility in the United States. The
operations also provide us above-average annual growth
in customer accounts, the ability to earn a return on
capital investments promptly through automatic rate
adjustments and the opportunity to deliver more
gas to wholesale customers through one of the largest
intrastate gas pipeline systems in Texas.
Because of these factors, we estimate that the
TXU Gas operations, since renamed our Mid-Tex Division,
will contribute from 5 cents to 10 cents to earnings
per diluted share in fiscal 2005. Adding the TXU Gas
operations increased Atmos Energy’s proportion of
operating income from regulated operations to about
90 percent.
OTHER ACQUISITIONS AND DIVESTITURES
In February, we acquired the natural gas distribution
assets of ComFurT Gas, Inc., a privately held gas utility
system in Buena Vista, Colorado.
We paid $1.95 million cash for
a 49-mile distribution system,
serving approximately 1,800
utility customers.
During 2004, we and three
other utility partners completed
the sale of our interests in the
general partnership and limited
partnerships of Heritage Propane Partners, L.P. We
received cash proceeds of approximately $26.6 million
and recorded a $5.9 million pretax book gain, ending
our interest in the propane business.
18 OPERATIONS REVIEW OPERATIONS REVIEW 19
WEATHER AND THROUGHPUT
Weather during fiscal 2004 was 6 percent warmer than in
fiscal 2003 and 4 percent warmer than normal, as adjusted
for jurisdictions with weather-normalized operations.
Primarily because of lower consumption, our
utility gas throughput in 2004 declined about 1 percent
from that in 2003 to 246.0 billion cubic feet (Bcf). Of
this total, utility gas transportation volumes were 72.8
Bcf. In our nonutility segment, natural gas marketing
sales volumes
declined 1.5
percent from
those in 2003
to 222.6 Bcf.
In states
with warmer
winter weather, we have sought weather-normalization
adjustments in our rates. Weather normalization protects
our customers from steep increases in their winter gas
bills when the weather turns unusually cold and it protects
our earnings when the winter is unseasonably warm.
We now have weather normalization or higher base
rates in eight of our largest states. About 17 percent of our
margins are exposed to weather in the 2004–2005 heating
season, an increase from 10 percent due to the addition
of the Mid-Tex operations.
RATE ADJUSTMENTS
During 2004, we added $16.2 million in net revenues from
rate filings in Kansas, Texas and Mississippi. We expect
to add $15 million to $20 million a year in average annual
rate increases over the next five years. To keep our
actual rates of return as close as possible to our allowed
returns, we are seeking other rate adjustments, as well.
We are proposing weather normalization in juris-
dictions with warmer weather, shifting more revenue
from the gas
commodity
charge to base
rates, improv-
ing our rate
design to miti-
gate the effects
of declining usage per customer, recovering the gas
cost portion of bad debt expense and working to eliminate
regulatory lag for capital spending on gas utility infra-
structure improvements.
NATURAL GAS PRICES
Natural gas prices continued to rise during fiscal 2004.
Our utility system’s average cost of gas purchased for
customers was $6.55 per thousand cubic feet (Mcf), an
increase of 13.7 percent over the $5.76 per Mcf we paid
in fiscal 2003. The increase was largely due to a tightening of
natural gas supply and demand. Although gas resources
CUSTOMER COMPARISON
Atmos Energy
AGL Resources
ONEOK
Southwest Gas
WGL Holdings

3.0
2.5
2.0
1.5
1.0
0.5
0.0
Customers (millions)
Customers before TXU Gas acquisition (millions)
Adding TXU Gas’1.5 million customers
made Atmos Energy the largest natural-
gas-only utility in the United States.