Atmos Energy 2005 Annual Report Download - page 4

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P I P E L I N E ฀ A N D ฀ S T O R A G E
An฀especially฀noteworthy฀part฀of฀the฀acquisition฀was
our฀addition฀of฀one฀of฀the฀largest฀intrastate฀natural฀gas฀
pipelines฀in฀Texas,฀which฀became฀the฀Atmos฀Pipeline–
Texas฀Division.฀This฀expansive฀pipeline฀system,฀shown฀
on฀page฀9,฀supports฀our฀regulated฀utility฀operations฀by฀
carrying฀natural฀gas฀from฀producers฀and฀storage฀fi฀elds฀to฀
our฀local฀distribution฀system.฀It฀crisscrosses฀the฀state,฀
with฀terminals฀at฀three฀major฀gas฀transportation฀hubs฀
where฀we฀can฀buy฀gas฀from฀other฀intrastate฀lines฀and฀
major฀interstate฀pipelines.฀It฀also฀transports฀volumes฀
from฀the฀state’s฀nine฀major฀gas-producing฀basins,฀
which฀hold฀a฀substantial฀portion฀of฀our฀country’s฀onshore฀
natural฀gas฀reserves.
฀ Atmos฀Pipeline–Texas฀gives฀us฀new฀opportunities฀
to฀transport฀gas฀for฀producers฀to฀wider฀markets.฀In฀
fi฀scal฀2005,฀the฀pipeline฀added฀transportation฀volumes฀
of฀375.6฀billion฀cubic฀feet฀(Bcf).฀It฀contributed฀$149.5฀
million,฀or฀95฀percent,฀of฀the฀$157.9฀million฀in฀gross฀profi฀t฀
from฀our฀pipeline฀and฀storage฀segment.฀By฀comparison,฀
the฀segment’s฀gross฀profi฀t฀last฀year฀before฀the฀acquisition฀
was฀just฀$10.4฀million.
฀ We฀are฀continuing฀to฀unlock฀added฀value฀from฀the฀
Texas฀pipeline.฀We฀currently฀have฀four฀pipeline฀projects฀
under฀way฀that฀we฀expect฀will฀add฀to฀earnings฀starting฀
in฀fi฀scal฀2006.฀The฀largest฀of฀these฀is฀a฀joint-venture฀project฀
to฀install฀45฀miles฀of฀30-inch฀pipeline฀to฀serve฀the฀
northern฀suburbs฀of฀the฀Dallas-Fort฀Worth฀Metroplex.฀
This฀new฀pipeline฀will฀help฀Atmos฀Energy฀deliver฀
reliable฀natural฀gas฀supplies฀to฀one฀of฀the฀fastest-growing฀
consumer฀markets฀in฀the฀country.฀It฀also฀will฀provide฀
needed฀gas฀transmission฀capacity฀to฀serve฀natural฀gas฀
producers฀and฀shippers฀in฀the฀Texas฀intrastate฀
wholesale฀gas฀market.
N A T U R A L ฀ G A S ฀ M A R K E T I N G
Our฀natural฀gas฀marketing฀segment฀produced฀
exceptional฀results฀in฀fi฀scal฀2005,฀contributing฀30฀cents฀
per฀diluted฀share.฀The฀improvement฀largely฀was฀due฀
to฀achieving฀more฀favorable฀arbitrage฀spreads฀using฀our฀
underground฀natural฀gas฀storage฀facilities.฀It฀also฀
came฀from฀our฀marketing฀efforts฀that฀added฀customers฀
in฀new฀areas.
฀ The฀TXU฀Gas฀acquisition฀opened฀up฀a฀large฀gas฀
marketing฀area฀in฀Texas฀with฀hundreds฀of฀prospective฀
customers,฀providing฀further฀confi฀rmation฀that฀the฀
acquisition฀is฀a฀good฀fi฀t฀with฀all฀segments฀of฀our฀business.
฀ During฀fi฀scal฀2005,฀our฀nonutility฀operations฀
contracted฀for฀9.0฀Bcf฀of฀additional฀working฀gas฀storage฀
capacity฀and฀expanded฀our฀marketing฀efforts฀into฀
four฀more฀states.฀Altogether,฀our฀natural฀gas฀marketing฀
operations฀now฀serve฀more฀than฀800฀industrial,฀
municipal฀and฀other฀customers฀in฀22฀states.
R A T E ฀ S T R A T E G Y
We฀continue฀to฀be฀successful฀in฀maintaining฀our฀rates,฀
with฀$15฀million฀to฀$25฀million฀in฀average฀annual฀
additions฀to฀our฀utility฀revenues.฀Part฀of฀the฀increase฀in฀
fi฀scal฀2005฀came฀from฀our฀GRIP฀fi฀lings฀in฀Texas.฀GRIP,฀
the฀Gas฀Reliability฀Infrastructure฀Program,฀is฀a฀Texas฀
law฀that฀permits฀natural฀gas฀utilities฀to฀earn฀a฀timely฀
return฀of฀and฀on฀their฀basic฀investments.฀Without฀fi฀ling฀
a฀lengthy฀rate฀case,฀a฀utility฀can฀raise฀rates฀annually฀
to฀pay฀for฀investments฀in฀pipelines฀and฀other฀facilities฀to฀
maintain฀reliability฀and฀safety฀and฀to฀meet฀customer฀
growth.฀The฀utility฀must฀fi฀le฀a฀complete฀rate฀case฀at฀least฀
every฀fi฀ve฀years฀to฀justify฀its฀GRIP฀expenditures.
฀ Higher฀natural฀gas฀costs฀have฀intensifi฀ed฀public฀
scrutiny฀of฀all฀utilities’฀rates.฀As฀a฀result,฀regulatory฀
bodies฀in฀three฀of฀our฀states฀have฀been฀asked฀to฀review฀
our฀rate฀structures.฀We฀are฀cooperating฀fully฀in฀these฀
inquiries฀and฀believe฀our฀rates฀in฀all฀jurisdictions฀
remain฀fair฀and฀reasonable.
฀ In฀our฀rate฀fi฀lings,฀we฀are฀seeking฀to฀decouple฀the฀
recovery฀of฀our฀approved฀margins฀from฀customer฀
usage฀patterns฀that฀are฀affected฀by฀weather,฀declining฀
use฀and฀conservation.฀Because฀gas฀volumes฀fl฀uctuate,฀
our฀earnings฀depend฀on฀consumption฀factors฀over฀which฀
we฀have฀little฀control.฀We฀are฀seeking฀to฀put฀more฀of฀
our฀costs฀into฀our฀basic฀monthly฀customer฀charge฀and฀
to฀add฀adjustments฀that฀help฀moderate฀the฀effects฀of฀
the฀rise฀and฀fall฀in฀our฀gas฀sales฀volumes.
฀ Our฀most฀recent฀rate฀agreement฀in฀Mississippi,฀
for฀example,฀refl฀ects฀our฀decoupling฀goals.฀The฀state’s฀
Public฀Service฀Commission฀allowed฀us฀to฀shift฀$10฀
million฀in฀annual฀margins฀from฀volume-based฀charges฀
to฀fi฀xed฀customer฀charges.฀We฀also฀were฀granted฀an฀
improved฀weather฀normalization฀adjustment฀(WNA),฀
which฀adjusts฀our฀rates฀when฀winter฀weather฀turns฀
either฀unseasonably฀warm฀or฀cool,฀and฀we฀obtained฀a฀
GRIP-like฀mechanism฀in฀Mississippi฀to฀reduce฀the฀
regulatory฀lag฀for฀the฀investments฀we฀make฀on฀behalf฀of฀
our฀customers.
$1.26
$1.40
1.20
1.00
0.80
0.60
0.40
0.20
0.00
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D i v i d e n d s
Atmos฀Energy฀has฀provided฀shareholders฀with฀22
consecutive฀years฀of฀annual฀increases฀in฀dividends
(adjusted฀for฀mergers฀and฀acquisitions).
The฀indicated฀annual฀rate฀for฀fi฀scal฀2006฀is฀$1.26฀per฀share.฀
hurricanes฀PROVE
THE฀METTLE฀of฀the฀
atmos฀energy฀team
Across฀Louisiana฀to฀the฀Mississippi฀Delta,฀Atmos฀Energy฀
employees฀responded฀courageously฀to฀Hurricanes฀
Katrina฀and฀Rita.฀After฀Katrina฀devastated฀southern฀
Louisiana฀on฀August฀29,฀Atmos฀Energy฀was฀the฀fi฀rst฀
utility฀back฀into฀hard-hit฀Jefferson฀Parish.฀There฀and฀
elsewhere,฀employees—many฀of฀whom฀had฀lost฀their฀
own฀homes—worked฀tirelessly,฀some฀living฀for฀weeks฀
at฀company฀service฀centers฀in฀order฀to฀respond฀to฀
customers’฀needs.฀Atmos฀Energy฀mobilized฀supplies฀
and฀manpower฀to฀aid฀its฀crews,฀displaced฀employees,฀
customers฀and฀neighbors.฀The฀second฀storm,฀Rita,฀delivered฀
a฀lesser฀blow฀to฀Atmos฀Energy’s฀operations฀in฀western฀
Louisiana.฀Disruption฀was฀further฀minimized฀thanks฀to฀
wise฀preparedness฀and฀fast฀response.