Atmos Energy Corporation
  Nonutility Operations


         JD Woodward
      Senior Vice President
        October 17, 20...
Nonutility Leadership Participants




   JD Woodward          Senior VP, Nonutility Operations,
                         ...
Forward Looking Statements
The matters discussed or incorporated by reference in this presentation may
contain “forward-lo...
Corporate Structure



Atmos Energy Corporation
Atmos Energy Corporation
  (Natural Gas Utility Divisions)   Atmos Energy ...
Overview of Nonutility Operations
 Office Locations and Staffing

                   New Orleans
                       16...
Overview of Nonutility Operations
Business Segments

Gas Marketing
    Marketing
    Utilizes storage and transportation a...
Nonutility Operations



Atmos Energy Corporation
Atmos Energy Corporation
  (Natural Gas Utility Divisions)   Atmos Energ...
Atmos Energy Marketing
    Commercial Business Flow

    Aggregate and Purchase     Transportation and Storage Logistics  ...
Atmos Energy Marketing
    Business Model
The portfolio of assets that AEM manages is either acquired, leased or results f...
Atmos Energy Marketing-Storage




  Atmos Energy Marketing –
          Storage



                                 10
Atmos Energy Marketing - Storage
Types of Storage

                                         Asset Management
       Propri...
Atmos Energy Marketing - Storage
Proprietary Storage
                                                             Example
...
Atmos Energy Marketing - Storage
Full Requirements Storage
                                                           Exam...
Atmos Energy Marketing - Storage
 Billable Plan Storage
                                                           Example...
Atmos Energy Marketing - Storage
 Park and Loan Transactions
                                                             ...
Atmos Energy Marketing - Storage
 Park and Loan Transactions
                                                            E...
Atmos Energy Marketing - Storage
Trading Margin Description
We commercially manage our storage assets by capturing arbitra...
Atmos Energy Marketing - Storage
  Storage – Economic Value vs. GAAP Reported Results




                                ...
Atmos Energy Marketing - Storage



                Schedule of Economic Value (Storage)
                                 ...
Atmos Energy Marketing - Storage
Storage Book – Accounting Issue
    AEM utilizes fair value hedge accounting for its stor...
Atmos Energy Marketing
Storage Margin Volatility
(Potential Impact of Change in GAAP Reported Spread Values)

            ...
Atmos Energy Marketing - Transportation




  Atmos Energy Marketing –
      Transportation



                           ...
Atmos Energy Marketing - Transportation
    Asset Optimization

         Transportation optimization is defined as utilizi...
Atmos Energy Marketing - Transportation
Transportation Opportunities

               Transportation Assets
              T...
Atmos Energy Marketing - Transportation
   Gas Pricing Components for Marketing Services Provided

  Aggregate and Purchas...
Atmos Energy Marketing - Transportation

                                                                                 ...
Atmos Energy Marketing - Transportation
Current Gross Margin Composition

           Margin Type                         C...
Atmos Energy Marketing - Transportation
    Operating and Financial Statistics

                                          ...
Atmos Energy Marketing - Transportation
 Business Process Cycle
                       * Start
                   Marketin...
Atmos Energy Marketing




  Atmos Energy Marketing –
   Business Strategies and
      Market Overview


                 ...
Atmos Energy Marketing
  Storage & Transportation Strategies
Aggregate and Purchase   Transportation and Storage Logistics...
Atmos Energy Marketing
  Gas Marketing Strategies
Aggregate and Purchase    Transportation and Storage Logistics   Sales t...
Nonutility Operations



Atmos Energy Corporation
Atmos Energy Corporation
  (Natural Gas Utility Divisions)   Atmos Energ...
Atmos Pipeline & Storage
Ownership of Strategic Asset Base Provides Revenue Growth & Stability


                         ...
Atmos Pipeline & Storage




 Atmos Pipeline – Texas Assets




                                 35
Atmos Pipeline - Texas
Asset Description
 Pipeline transports and stores gas, as well as provides other pipeline
 services...
Atmos Pipeline - Texas




                         37
Atmos Pipeline - Texas
     Commercial Business Flow



 Commercial Opportunities                          Margins        ...
Atmos Pipeline - Texas
Multiple Commercial Opportunities for Creating Value



        ••Transport incremental gas
       ...
Atmos Pipeline - Texas
    Project Update
Northside Loop Agreement – Energy Transfer
  Atmos Energy and Energy Transfer Fu...
Atmos Pipeline - Texas
Project Map


              North Side
              Loop




                     Enbridge
       ...
Atmos Pipeline & Storage




         Non-Texas Assets




                            42
Atmos Pipeline & Storage - Non-Texas

Storage
  Atmos Pipeline & Storage (AP&S) owns 2 reservoir storage locations that ar...
Atmos Pipeline & Storage - Non-Texas


Pipeline & Storage Strategies
  Own storage and pipeline in strategic areas (with f...
Trans Louisiana Gas Pipeline




                                                      h
                                 ...
Nonutility Operations



Atmos Energy Corporation
Atmos Energy Corporation
  (Natural Gas Utility Divisions)   Atmos Energ...
Other Nonutility - Atmos Energy Services

Strategy
   Provide standardized, pro-active and cost effective gas supply
   fu...
Other Nonutility - Atmos Power Systems

Strategy
   Continue to review electric generation opportunities, based on
   evol...
Nonutility Operations




                Appendix




                           49
Atmos Energy Marketing
 Business Risks and Risk Management

Aggregate and Purchase                   Transportation and St...
Atmos Energy Marketing
  Risk Management & Oversight
Risk Policy
 AEM has in place a risk policy which serves as an overal...
Atmos Energy Marketing
 Risk Management Committee (Governance)

                                                      Atmo...
Atmos Energy Marketing
 Risk Management Philosophy

AEM’s risk management philosophy is conservative and based on a low ri...
Atmos Energy Marketing
Items that can impact earnings:


   Weather
   Customer Demand
   Supply / Storage levels

   Gas ...
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atmos enerrgy _nonutility101705

  1. 1. Atmos Energy Corporation Nonutility Operations JD Woodward Senior Vice President October 17, 2005 1
  2. 2. Nonutility Leadership Participants JD Woodward Senior VP, Nonutility Operations, Atmos Energy Corporation Richard A. Erskine President, Mid-Tex Division and President, Atmos Pipeline-Texas Mark Johnson VP, Nonutility Operations and President, Atmos Energy Marketing Rick Alford SVP, Finance & Administration, Atmos Energy Holdings 2
  3. 3. Forward Looking Statements The matters discussed or incorporated by reference in this presentation may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 or Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this presentation are forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this presentation or in any of the Company’s other documents or oral presentations, the words “anticipate,” “believes,” “estimate,” “expect,” “forecast,” “goal,” “intends,” “objective,” “plans” “projection,” “seek,” “strategy” or similar words are intended to identify forward- looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this presentation, including the successful integration of the Company’s acquisition of the operations of TXU Gas, the Company’s ability to continue to access the capital markets and the other factors discussed in the Company’s SEC filings. These factors include the risks and uncertainties discussed in the Company’s Form 10-K for the fiscal year ended September 30, 2004 and the Company’s Form 10-Q for the three and nine month periods ended June 30, 2005. Although the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. The Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise. 3
  4. 4. Corporate Structure Atmos Energy Corporation Atmos Energy Corporation (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Nonutility Businesses) (Nonutility Businesses) Colorado-Kansas Colorado-Kansas Atmos Energy Marketing Atmos Energy Marketing Kentucky Kentucky • • Storage (Trading) Storage (Trading) • • Transportation (Marketing) Transportation (Marketing) Louisiana Louisiana Atmos Pipeline & Storage Atmos Pipeline & Storage Mid-States Mid-States • • Atmos Pipeline-Texas Atmos Pipeline-Texas • Non-Texas Assets • Non-Texas Assets Mid-Tex ** Mid-Tex Other Nonutility Other Nonutility Mississippi Mississippi • • Atmos Energy Services Atmos Energy Services • • Atmos Power Systems Atmos Power Systems West Texas West Texas * Effective 10/1/04, includes LDC and pipeline operations of former TXU Gas. Pipeline operations functionally reported under the nonutility businesses in Fiscal 2005. 4
  5. 5. Overview of Nonutility Operations Office Locations and Staffing New Orleans 16 196 Employees 6 Main Locations Jackson Owensboro 6 7 Houston 72 AEH Staff Energy Pipeline & Energy Power Franklin Dallas Office Locations Levels Marketing Storage Services Systems 23 72 Houston, TX 72 X X X X New Orleans, LA 16 X X X - Franklin, TN 23 X - X X Owensboro, KY 7 X - - - Dallas, TX (APT) 69 X - X Dallas, TX (AEM) 3 X - - - Jackson, MS 6 X 196 5
  6. 6. Overview of Nonutility Operations Business Segments Gas Marketing Marketing Utilizes storage and transportation assets that are leased or managed to: (1) provide bundled city-gate services (including base-load sales, peaking sales, risk management and demand based storage services), to municipal, industrial, power generator, LDC and affiliate utility customers and (2) capture time and location price differentials (arbitrage) through various trading strategies. Pipeline & Storage Owns or leases storage and pipeline assets in Texas, Kentucky and Louisiana that are utilized to provide storage and transportation services to municipal, industrial, power generator and affiliate utility customers Includes recently acquired pipeline and storage assets from TXU Gas (6,162 miles of intrastate pipelines and 5 storage facilities). Effective 10/1/04, these pipeline operations are functionally reporting under the nonutility businesses. Other Nonutility Provides gas supply services to Atmos utility divisions and peaking power construction services 6
  7. 7. Nonutility Operations Atmos Energy Corporation Atmos Energy Corporation (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Nonutility Businesses) (Nonutility Businesses) Colorado-Kansas Colorado-Kansas Atmos Energy Marketing Atmos Energy Marketing Kentucky Kentucky • • Storage (Trading) Storage (Trading) • • Transportation (Marketing) Transportation (Marketing) Louisiana Louisiana Atmos Pipeline & Storage Atmos Pipeline & Storage Mid-States Mid-States • • Atmos Pipeline-Texas Atmos Pipeline-Texas • Non-Texas Assets • Non-Texas Assets Mid-Tex ** Mid-Tex Other Nonutility Other Nonutility Mississippi Mississippi • • Atmos Energy Services Atmos Energy Services • • Atmos Power Systems Atmos Power Systems West Texas West Texas * Effective 10/1/04, includes LDC and pipeline operations of former TXU Gas. Pipeline operations functionally reported under the nonutility businesses in Fiscal 2005. 7
  8. 8. Atmos Energy Marketing Commercial Business Flow Aggregate and Purchase Transportation and Storage Logistics Sales to Markets • AEM is a transportation and storage logistics company that generates margins through commercial transactions with its various customer classes. These transactions cover the the movement of gas from wellhead to burner-tip. • AEM aggregates gas supply, transports it across pipelines, stores gas and withdraws it for delivery to various strategic geographical markets, based upon the terms of its customer agreements. Customers include municipals, industrials, power generators, LDCs and utility affiliates. • AEM manages its commercial transactions and related business processes through a disciplined and conservative risk management philosophy. 8
  9. 9. Atmos Energy Marketing Business Model The portfolio of assets that AEM manages is either acquired, leased or results from various asset management transactions with 3rd parties. Also, transportation and storage assets are contracted for (proprietary). These assets are utilized to capture value and create commercial opportunities. Storage Assets Transportation Assets • Support Customer Marketing • Optimize Value (trading to capture (optimize value of capacity) time and location price differentials) Proprietary Proprietary Asset Management Asset Management • No customer obligation • No customer obligation • Customer obligation • Customer obligation • 100% optionality • 100% optionality • Partial optionality • Partial optionality Customer Sales Customer Sales • Full Requirements • Base-load • Billable Plan • Peaking • Other • Balancing 9
  10. 10. Atmos Energy Marketing-Storage Atmos Energy Marketing – Storage 10
  11. 11. Atmos Energy Marketing - Storage Types of Storage Asset Management Proprietary Billable Plans Full Requirements Billable Plans Full Requirements (18.2 BCF) BCF (12.4 BCF) (18.2 BCF) BCF (12.4 BCF) • •Egan Egan 1.5 1.5 • •Atmos P/L-T 1.0 Atmos P/L-T 1.0 • •Gulf South Gulf South 6.0 6.0 8.5 8.5 Parking Gas Loaning Gas Parking Gas Loaning Gas • No customer obligation (deposited with pipeline) (borrowed from pipeline) (deposited with pipeline) (borrowed from pipeline) • 100% optionality • Customer obligation • Partial optionality 11
  12. 12. Atmos Energy Marketing - Storage Proprietary Storage Example Proprietary Cash Market = $8.00 / dth Forward Nymex = $8.60 / dth Storage Storage AEM buys physical at $8.00 and injects in storage AEM sells forward NYMEX futures at $8.60 Spread captured $ 0.60 / dth Less: Storage fees (0.20) / dth Unit Margin $ 0.40 / dth Proprietary storage - is physical storage that is leased by AEM. Associated Risk - the economic value of this storage is subject to market price changes (both physical and financial) and is realized by withdrawing or injecting gas according to the hedge strategy designed for the facility. Risk Management - Gas injected and held as inventory will be hedged with forward NYMEX sales in the month the gas is to be withdrawn. Forward spreads may be locked-in ahead of time in line with injection and withdrawal capabilities of each storage facility. If the relationships between and among NYMEX forward prices change, hedges may be moved (rolled back or forward) to move withdrawals to the higher priced months and injections to the lower priced months. Margin Impact - The economic value is derived from the difference between the weighted average sales price (WASP) of gas, the weighted average cost of gas (WACOG), adjusted for the gain or loss on financial hedges, less any injection or withdrawal charges, fuel and any interest costs on holding inventory. 12
  13. 13. Atmos Energy Marketing - Storage Full Requirements Storage Example Full Requirements Cash Market = $8.00 / dth Forward Nymex = $8.60 / dth Storage Storage AEM buys physical at $8.00 and injects in storage AEM sells forward NYMEX futures at $8.60 Spread captured $ 0.60 / dth Less: Storage fees (0.20) / dth Unit Margin $ 0.40 / dth Full Requirements Storage - Storage that is managed on behalf of customers that require all of their gas usage requirements to be delivered to their city-gate by their provider (AEM). Associated Risk - The economic value of this storage is subject to market price changes, based on the monthly index. There is also the risk of customer usage being more or less than expected during the winter heating season, which may create price risk. Risk Management - Same as proprietary storage with the following additional steps taken: (1) set up conservative withdrawal profile based on customer usage patterns over the contract period and (2) monitor customer usage and storage activity (especially swing on storage customers) such that NYMEX contracts or physical gas is bought back or sold (whichever is the best value) to ensure hedges and inventory balance as close as possible. Margin Impact - Same as proprietary with the potential changes in economic value that could occur due to swings in customer usage. These swings may erode or increase some of the time spread and daily optionality profits. 13
  14. 14. Atmos Energy Marketing - Storage Billable Plan Storage Example Billable Plan Storage Cash Market = $8.20 / dth Forward Nymex = $8.00 / dth Storage AEM sells physical at $8.20 and defers injection into storage Storage AEM buys forward NYMEX futures at $8.00 Spread captured $ 0.20 / dth Less: Storage fees 0.00 / dth Unit Margin $ 0.20 / dth Billable Plan Storage - Storage that is managed on behalf of customers (primarily the Atmos Affiliates and ETN Municipal customers) under a ratable / billing plan arrangement. Prices from injection months are set at monthly indices and billed, and then later withdrawn and delivered per the plan. Associated Risk – During an injection cycle, physical gas can be accelerated, deferred or delivered based on the monthly index price, which creates arbitrage opportunities. Risk Management - AEM can elect to inject into storage per plan or accelerate or defer storage injections to capture arbitrage value, which is hedged by buying and selling forward NYMEX. These optimization strategies are typically executed during the summer injection period when usage is set. Margin Impact - The economic value is derived from the difference between the weighted average sales price (WASP) of gas, the weighted average cost of gas (WACOG), adjusted for the gain or loss on financial hedges, less any injection or withdrawal charges, fuel and any interest costs on holding inventory. 14
  15. 15. Atmos Energy Marketing - Storage Park and Loan Transactions Example Parking Gas Cash Market = $8.00 per dth Parking gas Forward NYMEX = $8.20 per dth AEM buys physical gas at $8.00 and lends to pipeline AEM sells forward NYMEX futures at $8.20 Spread Captured $ 0.20 / dth Less: Parking Fees (0.10) / dth Unit Margin $ 0.10 / dth Parking Gas - Storage or line pack service for which AEM contracts from time to time. Associated Risk - Title to gas is transferred to counterparty and returned to AEM at predetermined dates for a fee. A transaction usually executed in a contango pricing market (prices rising over time). Risk Management – The gas transferred to counterparty is treated as inventory and is hedged in the same manner as proprietary storage, with the exception of the time components of the purchase and sale of gas. These are usually fixed, which eliminates roll back and roll forward optionality Margin Impact -The economic value is derived from the difference between the injection cost and the gas sold on withdrawal, the gain or loss on hedges, less any interest costs on holding inventory. 15
  16. 16. Atmos Energy Marketing - Storage Park and Loan Transactions Example Loaning Gas Cash Market = $8.20 per dth Loaning gas Forward NYMEX = $8.00 per dth AEM sells physical gas at $8.20 and borrows from pipeline AEM buys forward NYMEX futures at $8.00 Spread Captured $ 0.20 / dth Less: Lending Fees (0.10) / dth Loaning Gas - Storage or line pack service for which Unit Margin $ 0.10 / dth AEM contracts from time to time. Associated Risk - Title to gas is transferred from counterparty to AEM and returned to counterparty at predetermined dates for a fee. Usually executed in a backward-dated market (prices declining). Risk Management – The gas transferred to AEM is treated as negative inventory and is hedged in the same manner as proprietary storage, with the exception that AEM buys forward NYMEX contracts to hedge the short position created (as opposed to selling). In addition, the time components of the purchase and sale of gas are usually fixed, which eliminates roll back and roll forward optionality. Margin Impact -The economic value is derived from the difference between the withdrawal cost and the gas sold on injection, the gain or loss on hedges, plus any interest revenue associated with negative inventory. 16
  17. 17. Atmos Energy Marketing - Storage Trading Margin Description We commercially manage our storage assets by capturing arbitrage value through optimization strategies that create embedded (forward) value in the portfolio. We financially report the transactions for external reporting purposes in accordance with GAAP. GAAP Reported Value is the period to period net change in fair value of the portfolio reported in the income statement that results from the process of marking to market the physical storage volumes and corresponding financial instruments in an interim period. Economic Value is the period to period forward margin of our storage portfolio that results from the process of calculating our weighted average cost of inventory (WACOG), and our weighted average sales price of our forward financials (WASP), then multiplying the difference times inventory volumes. This margin will be realized in cash when the hedged transaction is executed or when financials are settled and then reset to stay hedged against physical volumes. Economic Value represents the “forward” economic margin of the transactions, while GAAP reported results reflect that portion of our “forward” margin that has been recorded in the income statement. Volatility in earnings includes the impact of the accounting treatment of our storage portfolio and is reflective of relatively high price volatility of the prompt month, and the relatively low volatility of the offsetting forward months. 17
  18. 18. Atmos Energy Marketing - Storage Storage – Economic Value vs. GAAP Reported Results Economic Value Economic Value Reported GAAP Reported GAAP Value Value - -Physical and Financial Physical and Financial Positions Positions - -Physical and Financial Physical and Financial Positions Positions $16.4 MM $16.4 MM ($7.8 MM) ($7.8 MM) Storage Embedded margin difference $24.2 MM Realizing Economic value is dependent on execution of trading strategies. At June 30, 2005 18
  19. 19. Atmos Energy Marketing - Storage Schedule of Economic Value (Storage) (in millions) Economic Reported GAAP Value Excess Value Total Timing Value September 30, 2004 $ 12.3 $ (0.8) $ (2.9) $ 13.1 December 31, 2004 $ 12.9 $ 11.8 $ 0.9 $ 1.1 March 31, 2005 $ 8.0 $ (8.8) $ (2.8) $ 16.8 June 30, 2005 $ 16.4 $ (7.8) $ - $ 24.2 19
  20. 20. Atmos Energy Marketing - Storage Storage Book – Accounting Issue AEM utilizes fair value hedge accounting for its storage activity in accordance with the guidelines prescribed by FAS 133. Under this methodology, the changes in value of the physical inventory and the corresponding financial hedges are marked-to-market with the changes in fair value being recognized in current period earnings There is potential volatility in earnings related to the accounting treatment for storage in two different areas: 1. The differential in the movement of the price for the forward months. In other words, the prompt month is likely to be much more volatile than a future period. 2. The physical gas is marked to the Inside FERC (determined on the last day of the month), while the financials are marked to the NYMEX (which settles on the 3rd to last business day of the month). 20
  21. 21. Atmos Energy Marketing Storage Margin Volatility (Potential Impact of Change in GAAP Reported Spread Values) $16.0 $14.0 $12.0 $10.0 ($ in Millions) $8.0 $6.0 $4.0 $2.0 $0.0 5 4 4 5 n-0 p-0 c-0 r -0 Ma De Ju Se $.25 Price Move $.50 Price Move $1 Price Move Sep-04 Dec-04 Mar-05 Jun-05 Storage Volumes: BCF 5.4 6.4 12.5 14.7 21
  22. 22. Atmos Energy Marketing - Transportation Atmos Energy Marketing – Transportation 22
  23. 23. Atmos Energy Marketing - Transportation Asset Optimization Transportation optimization is defined as utilizing “excess” capacity to capture time and location price differentials through customer sales. Vol/Day 12,000 10,000 Capacity Capacity 8,000 Utility Usage Available Available Profile For Industrial 6,000 For Industrial Utilization Utilization 4,000 2,000 Month Jul Aug Sept Oct Nov Dec Jan Feb Mar Apr May Jun 23
  24. 24. Atmos Energy Marketing - Transportation Transportation Opportunities Transportation Assets Transportation Assets Zone 5 - -Asset Management Asset Management Tennessee Gas Pipeline Supply to Market - -Proprietary Proprietary Zone 6 • • Capture arbitrage spreads on pipeline grid Capture arbitrage spreads on pipeline grid Zone 4 • • Excess transport capacity Excess transport capacity Zone 2 • • Pipeline segmentation Pipeline segmentation Zone 3 Example: Zone 1 Transportation Cash Market at 500 leg supply pool = $5.00 per dth Cash Market at Nashville Gas = $5.35 per dth Zone 0 AEM buys physical gas at $5.00 at supply pool AEM sells physical gas at $5.35 at Nashville Gas Spread Captured $ 0.35 / dth Less: transport commodity & fuel (0.18) / dth Zone L Unit Margin & Demand Recovery $ 0.17 / dth 24
  25. 25. Atmos Energy Marketing - Transportation Gas Pricing Components for Marketing Services Provided Aggregate and Purchase Transportation and Storage Logistics Sales to Markets Base Commodity - Fixed Price - Hedge forward - Current Month - Index Price - Flat/Plus/Minus Marketing Transactions Customers Transport / Basis - Baseload sales - Asset Managed • Utilities - Bundled sales - Proprietary • Municipals - Peaking sales - Balancing services • Industrials Fuel - Risk Management - Pass thru • Marketers - Other - Non pass-thru • Power Gen. • Others Management / Admin. Fee - Per Unit - Fixed Amount 25
  26. 26. Atmos Energy Marketing - Transportation AEM owns or manages approximately 1.3 Bcfd of firm pipeline capacity and approximately 39.1 Bcf of storage on various 71 interstate pipelines Owensboro 58 & 59 through contractual Franklin relationships. Dallas Houston New Orleans Transport Storage Duke (ETN) 225,000 Mcfd .99 BCF Owned Storage CMS (Trunkline) 30,000 1.16 Primary Office Location El Paso (SNG) 70,000 1.53 Transco 20,000 .57 Distributed Generation 345,000 Mcfd 4.25 BCF Transport Storage El Paso (TGP) 200,000 Mcfd 4.30 BCF Transport Storage Transport Storage Duke (TETCO) 40,000 1.50 Columbia Gulf 40,000 - El Paso (TGP) 41,000 Mcfd 1.88 BCF Atmos P/L-T 24,000 Mcfd 1.0 BCF Gulf South(Koch) 277,000 8.72 Texas Gas 187,000 13.30 Gulf South / ISS - .75 Duke (TETCO) 20,000 LIG (AEP) 80,000 .60 Columbia Gas 5,000 .78 Bridgeline 30,000 .30 Dominion - .88 Acadian 10,000 .45 National Fuel 8,000 .42 697,000 Mcfd 16.62 BCF 261,000 Mcfd 17.26 BCF 26
  27. 27. Atmos Energy Marketing - Transportation Current Gross Margin Composition Margin Type Commercial Activity Impacted by customer volume demand • Marketing Marketing • Sales prices are: (Bundled gas deliveries & (Bundled gas deliveries & • Cost plus profit margin peaking sales) peaking sales) • Fee based Margins: More predictable - - Transport management Transport management Impacted by: • • Gas price spread values in the Trading Trading market (arbitrage opportunity) • Physical storage capabilities - - Storage management Storage management • Available storage and transport capacity Margins: More variable Total margins reflect: • Stability from marketing margins Total AEM Total AEM • Upside from trading around storage Margins Margins and transportation assets to capture arbitrage value 27
  28. 28. Atmos Energy Marketing - Transportation Operating and Financial Statistics Financial Operations Nine Months Ended June 30, 2005 (In thousands, except storage balances) • Approx. 1,000 customers (FY 2004) Marketing Activities • Currently operates in 22 states Realized margin: $ 43,182 Unrealized margin: (3,200) Total Marketing Activities: $ 39,982 • Operating revenues (FY 2004): $1.6 billion Storage Activities • Gas Purchases (FY 2004): 228 BCF Realized margin: $ 15,482 Unrealized margin: (7,065) Total Storage Activities: $ 8,417 • Transports on over 18 major interstate pipelines Gross profit: $ 48,399 • Own, manage or contract • 1.3 BCF/d of transportation Ending storage balance 14.7 Bcf • 39 BCF of storage Sales volumes 203.8 Bcf 28
  29. 29. Atmos Energy Marketing - Transportation Business Process Cycle * Start Marketing & Deal Valuation & Origination Risk Assessment - Continuous cycle of integrated processes Trading - Start to finish execution Post Audit of - Risk Management Risk Management Deal (from deal origination - Optimize storage Economics to post audit of deal and transport capacity economics) - Discipline and controlled processes, done correctly $ Value the first time Financial Deal - Established metrics to Reporting & Management measure compliance Analysis & Confirmation - Excellent communication between all process owners is critical Gas Scheduling Gas Accounting & Logistics & Settlements 29
  30. 30. Atmos Energy Marketing Atmos Energy Marketing – Business Strategies and Market Overview 30
  31. 31. Atmos Energy Marketing Storage & Transportation Strategies Aggregate and Purchase Transportation and Storage Logistics Sales to Markets Commercial Transport & Storage Strategies Control storage in strategic areas (with focus on high deliverable salt storage) Maximize value from storage and transportation assets, as markets provide opportunities through price movement: Storage Arbitrage Transport arbitrage Park and Loans Mid-stream business Challenges Increased competition in securing storage capacity (putting pressure on returns) Pipelines tightening operational flexibility 31
  32. 32. Atmos Energy Marketing Gas Marketing Strategies Aggregate and Purchase Transportation and Storage Logistics Sales to Markets Commercial Marketing Strategies Retain existing customers by providing excellent value for products and services. Expand Asset Management business; including use of asset replication strategy Providing pipeline type services to replace customer held capacity. Expand into new customer markets (Texas, Mobile Bay, others) Provide balancing services to customers off of Atmos Pipeline - Texas Develop new Producer Services business (gas cost reduction strategy) Challenges High gas prices (impact on credit risk, working capital, etc.) Increasing competition in traditionally strong AEM markets (East Tennessee) Weather impact on customer demand / usage 32
  33. 33. Nonutility Operations Atmos Energy Corporation Atmos Energy Corporation (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Nonutility Businesses) (Nonutility Businesses) Colorado-Kansas Colorado-Kansas Atmos Energy Marketing Atmos Energy Marketing Kentucky Kentucky • • Storage (Trading) Storage (Trading) • • Transportation (Marketing) Transportation (Marketing) Louisiana Louisiana Atmos Pipeline & Storage Atmos Pipeline & Storage Mid-States Mid-States • • Atmos Pipeline-Texas Atmos Pipeline-Texas • Non-Texas Assets • Non-Texas Assets Mid-Tex ** Mid-Tex Other Nonutility Other Nonutility Mississippi Mississippi • • Atmos Energy Services Atmos Energy Services • • Atmos Power Systems Atmos Power Systems West Texas West Texas * Effective 10/1/04, includes LDC and pipeline operations of former TXU Gas. Pipeline operations will functionally report under the nonutility businesses in Fiscal 2005. 33
  34. 34. Atmos Pipeline & Storage Ownership of Strategic Asset Base Provides Revenue Growth & Stability Atmos Pipeline & Storage Storage Assets Pipeline Assets UCG Storage, Inc. Atmos Pipeline –Texas WKG Storage, Inc. Trans LA Gas Pipeline Trans LA Gas Storage, Inc. Atmos P/L - Texas Storage Assets supply storage- Upstream pipeline services type services to Atmos provided to Atmos Mid-Tex Mid-Tex Division, affiliates Division, affiliates & third parties & third parties 34
  35. 35. Atmos Pipeline & Storage Atmos Pipeline – Texas Assets 35
  36. 36. Atmos Pipeline - Texas Asset Description Pipeline transports and stores gas, as well as provides other pipeline services for distribution, industrial, electric generation, cross haul and other shippers Approximately 6,162 miles of intrastate pipeline • Total projected transportation volume is approximately 591 Bcf o Current average volume of approximately 1.6 Bcf/d. o Demonstrated peak day deliveries of 3.5 Bcf/d o The Dallas / Fort Worth Metroplex comprises approximately 75% • of on-system distribution demand Five Storage facilities (One salt cavern; four depleted reservoirs) Working Gas Capacity: 39 Bcf • Maximum withdrawal: 1.2 Bcf/d • Maximum Injection: 270 MMcf/d • 36
  37. 37. Atmos Pipeline - Texas 37
  38. 38. Atmos Pipeline - Texas Commercial Business Flow Commercial Opportunities Margins Potential Risk Risk Management - Atmos Utility : Mid-Tex Division - Tariff Based Rates - Weather - Seamless Performance - Firm Service - Industrial - Tariff Based Rates - Weather - Strong Customer Service - Limited Competition - Timely & accurate information - Limited Credit Exposure - Electric Generation - Market Based Rates - Weather - Enforceable Contract Language - ERCOT - Strong Customer Service - Competition - Flexible Value added Service - Through System - Market Based Rates - Basis Differentials - Timely Information - Competition - Marketing Excellence - Available Capacity - Market Knowledge - Other - Market Based Rates - Basis Differentials - Strong Customer Service - Competition - Volume Monitoring - Available Capacity - Market Knowledge Maintain/Increase Margins + Increased Throughput + Low Risk Profile = Stable Earnings Growth 38
  39. 39. Atmos Pipeline - Texas Multiple Commercial Opportunities for Creating Value ••Transport incremental gas Transport incremental gas ••Provide other value - -added services Provide other value added services No Capital required No Capital required Value $ ••Invest capital with Invest capital with commercial and regulatory returns commercial and regulatory returns •Capacity optimization - -mainline •Capacity optimization mainline compression compression • •North Metro enhancement project North Metro enhancement project Regulatory with GRIP • •Expand storage capacity Expand storage capacity Certain capital projects will also be eligible Capital required Capital required for GRIP recovery ($40-45 million) ($40-45 million) 39
  40. 40. Atmos Pipeline - Texas Project Update Northside Loop Agreement – Energy Transfer Atmos Energy and Energy Transfer Fuel will construct and operate approximately 45 miles of 30quot; pipeline extending from Justin to Frisco, in the northern part of the DFW Metroplex creating incremental capacity of 200 MMcf/d. Atmos’ initial investment will be approximately $45 million, which can be contributed over a two- year period. The Justin to Line F segment is expected to be in-service by December 2005. Compression is ordered and anticipated to be in-service by March 2006. CAPEX: approximately $4 million in fiscal 2005; $41 million in fiscal 2006. Enbridge - Line (Corridor Compression Project) Executed agreement in June 2005 to install compression to enhance re-injection capabilities at Bethel and to transport up to 100 MMcf/d into Enbridge’s new 36” Carthage pipeline at Bethel. Start date anticipated in early 2006, subject to compressor availability. CAPEX: approximately $3 million in fiscal 2005; $17 million in fiscal 2006. Devon – Line (Corridor Compression Project) Executed agreement in June 2005 to transport up to 50,000 dth/day into Enbridge. Start date anticipated in early 2006, subject to compressor availability. Katy Capacity Expansion A Request for Interest was issued in April 2005; subsequently signed agreements with 3 shippers to transport an additional 50,000 dth/day of capacity to the Katy area. Project is expected to come online in June 2006. CAPEX: approximately $13 million to $15 million in fiscal 2006. 40
  41. 41. Atmos Pipeline - Texas Project Map North Side Loop Enbridge Compression 41
  42. 42. Atmos Pipeline & Storage Non-Texas Assets 42
  43. 43. Atmos Pipeline & Storage - Non-Texas Storage Atmos Pipeline & Storage (AP&S) owns 2 reservoir storage locations that are located in Kentucky and a 25% interest in a reservoir storage location in Louisiana. All three provide a combined usable capacity of 3.9 BCF. East Diamond is a reservoir storage facility located in Kentucky with 2.2 BCF of usable capacity. Barnsley is a reservoir storage facility located also in Kentucky with a 1.3 BCF of usable capacity. Napoleonville is a salt storage facility located in Louisiana. AP&S (through Trans Louisiana Gas Storage) owns a 25% interest in Napoleonville (Acadian owns the remaining 75% and manages the facility). AP&S’s interest is .4 BCF. Pipeline AP&S owns a 21 mile pipeline (24 inch with 270,000 per day capacity) that has receipt interconnects with Gulf South, Bridgeline, Acadian and Columbia Gulf. This pipeline has the ability to deliver to the Atmos utility, a few industrial customers, an Entergy power plant, and Entergy’s LDC in New Orleans. 43
  44. 44. Atmos Pipeline & Storage - Non-Texas Pipeline & Storage Strategies Own storage and pipeline in strategic areas (with focus on high deliverable salt storage) Maximize value from storage and transportation assets, as markets provide opportunities through price movement: Storage Arbitrage Transport arbitrage Park and Loans 44
  45. 45. Trans Louisiana Gas Pipeline h ris rish Pa s Storage is held on upstream pipelines Orleans Pa rl e ha h .C ris St Jefferson Pa • Bridgeline • Acadian • Gulf South Entergy Louisiana Entergy Louisiana (TLGP Sales) (TLGP Sales) S5,T13S,R20E Gulf South Pipeline S5,T13S,R20E Gulf South Pipeline S48,T13S,R21E S48,T13S,R21E Atmos Energy Louisiana Atmos Energy Louisiana S5,T13S,R23E S5,T13S,R23E Acadian Gas Pipeline Acadian Gas Pipeline S48,T13S,R21E S48,T13S,R21E AEL 18” TLGP 24” Bridgeline Gas Bridgeline Gas (Paradis) (Paradis) TLGP 16” S39,T14S,R20E S39,T14S,R20E Future Interconnect Future Interconnect Columbia Gulf Columbia Gulf S24,T13S,R23E TLGP Pipeline TLGP Pipeline B’line 14” October 26, 2001 N Metropolitan New Orleans Area Metropolitan New Orleans Area 21 Miles of 24” TLGP Pipe W E .95 Miles of 12” TLGP Pipe TLGP Transmission // TLGP Sales Points TLGP Transmission TLGP Sales Points 45 S
  46. 46. Nonutility Operations Atmos Energy Corporation Atmos Energy Corporation (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Natural Gas Utility Divisions) Atmos Energy Holdings, Inc. (Nonutility Businesses) (Nonutility Businesses) Colorado-Kansas Colorado-Kansas Atmos Energy Marketing Atmos Energy Marketing Kentucky Kentucky • • Storage (Trading) Storage (Trading) • • Transportation (Marketing) Transportation (Marketing) Louisiana Louisiana Atmos Pipeline & Storage Atmos Pipeline & Storage Mid-States Mid-States • • Atmos Pipeline-Texas Atmos Pipeline-Texas • Non-Texas Assets • Non-Texas Assets Mid-Tex ** Mid-Tex Other Nonutility Other Nonutility Mississippi Mississippi • • Atmos Energy Services Atmos Energy Services • • Atmos Power Systems Atmos Power Systems West Texas West Texas * Effective 10/1/04, includes LDC and pipeline operations of former TXU Gas. Pipeline operations will functionally report under the nonutility businesses in Fiscal 2005. 46
  47. 47. Other Nonutility - Atmos Energy Services Strategy Provide standardized, pro-active and cost effective gas supply functions to Atmos utility divisions. Major Services Provided Gas supply planning Gas supply procurement Regulatory compliance support Gas supply invoice reconciliation / reporting Corporate utility hedging Opportunities Accurate and timely communications with each of the Atmos Utilities and headquarters. To the extent possible, standardize gas supply functions across Atmos Energy. Provide proactive strategy and planning process for utility divisions. 47
  48. 48. Other Nonutility - Atmos Power Systems Strategy Continue to review electric generation opportunities, based on evolving market to meet needs of municipal and industrial customers. Currently reviewing a new electric product offering, which would include a 10 year prepaid gas supply component. A key benefit of electric projects is that it allows us to secure long term fuel management opportunities (eg. Four bcf/year of natural gas for 10 years) Major Services Offered Construct and lease electric peaking power and base-load generating plants and associated facilities. 48
  49. 49. Nonutility Operations Appendix 49
  50. 50. Atmos Energy Marketing Business Risks and Risk Management Aggregate and Purchase Transportation and Storage Logistics Sales to Markets Commercial Opportunities Potential Risks Risk Management Gas Marketing - Bundled delivered gas sales - Contract disputes - Enforceable contract language - Lost customers - Strong customer service - Credit exposure - Credit risk management - Peaking sales and balancing - Position accuracy - Timely & accurate position monitoring - Volume variances - Physical storage to meet swings - Price risk - Hedging & contract language Storage & Transportation - Storage and transportation management - Position accuracy - Timely & accurate position monitoring - Volume variances - Physical storage to meet swings (asset management, storage and transport - Price risk - Hedging & contract language arbitrage, park and loan, pipeline segmentation) - Basis risk - Hedging & contract language - Capital cost recovery - Valuation analysis and execution - Operational - Adherence to process, controls & contracts 50
  51. 51. Atmos Energy Marketing Risk Management & Oversight Risk Policy AEM has in place a risk policy which serves as an overall guide for all of its employees and contractors regarding managing the business risks of the company. The policy outlines AEM’s overall risk philosophy and also includes its risk profile, controls, procedures, responsibilities, and reporting requirements. AEM’s Risk Management Committee monitors this policy for compliance and provide overall oversight of the company’s risk management program. Risk Management Committee (see next slide) Reporting AEM utilizes a variety of reports to analyze and report the results of its trading and risk management activities. Daily Trading report Daily P&L report Daily Position report Deal Validation report Various Other reports 51
  52. 52. Atmos Energy Marketing Risk Management Committee (Governance) Atmos Board Audit Committee Atmos Management Committee AEH Risk Management Committee AEC AEM AEH Vice President AEH AEM AEM VP and Corporate President SVP - Finance Risk Control, SVP – Business SVP - Trading SVP - Marketing Controller & Admin. (Chair) Credit, Finance Development Responsibilities The AEM Risk Management Committee has overall responsibility for the oversight of risk management and trading activities. The Risk Management Committee is chaired by the SVP Finance & Administration and reports through the Atmos Management Committee and the Audit Committee of the Atmos Energy Board of Directors. The Risk Management Committee’s duties are to establish and oversee compliance with all risk management policies, controls and procedures, as well as to periodically review risk management strategies. The Risk Management Committee receives, reviews and helps resolve (as appropriate) any internal control issues and audit findings related to risk management. 52
  53. 53. Atmos Energy Marketing Risk Management Philosophy AEM’s risk management philosophy is conservative and based on a low risk tolerance. AEM recognizes that there are various business risks inherent in its business, that could impact its financial results. Market/price, credit, contract/legal, operational, systems, customer retention, others AEM is strongly committed to managing these risks prudently, in accordance with its controls, procedures, and other risk management practices. As it pertains to its marketing and trading positions, it is AEM’s intent to maintain minimal net open positions. Open positions can create price risk exposure to AEM on a short-term basis and may occur due to the time lag in executing financial hedges and other business factors. AEM closely monitors its marketing and trading positions and manage the risk related to any open positions that may occur. 53
  54. 54. Atmos Energy Marketing Items that can impact earnings: Weather Customer Demand Supply / Storage levels Gas Price daily / monthly price volatility (physical and financial transactions) Position Management Customer Growth / Retention Accounting Treatment of Storage (FAS 133) 54
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