Atmos Energy Corporation

views updated

Atmos Energy Corporation

3 Lincoln Centre, Suite 1800
5430 LBJ Freeway
Dallas, Texas 75240
U.S.A.
Telephone: (972) 934-9277
Fax: (972) 855-3075
Web site:http://www.atmosenergy.com

Public Company
Incorporated: 1983
Employees: 2,062
Sales: $850.2 million (2000)
Stock Exchanges: New York
Ticker Symbol: ATO
NAIC: 22121 Natural Gas Distribution

Atmos Energy Corporation, headquartered in Dallas, Texas, prides itself on being the country’s most efficient provider of natural gas. It is a major utility-holding company with operations in 13 states. Nationally, it ranks fifth among gas distribution companies. It conducts most of its out-of-state business through its major subsidiaries or divisions, which operate in Kentucky as Western Kentucky Gas Company; in Louisiana as Trans Louisiana Gas Company; in Colorado, Kansas, and parts of Missouri as Greeley Gas Company; and in Georgia, Illinois, Iowa, other parts of Missouri, South Carolina, Tennessee, and Virginia as United Cities Gas Company. In its home state of Texas, it runs its natural gas distribution operation under its older name, Energas Company. Atmos also has a propane distribution subsidiary, United Cities Propane Inc., which sells propane in Kentucky, North Carolina, Tennessee, and Virginia. In partnership with three other utilities, Atmos also formed US Propane, which itself partnered with a leading propane distributor, Heritage Propane. In addition to its retail and wholesale propane distribution operations, Atmos has other nonutility businesses. It sells natural gas to West Texas agriculture and industrial customers, owns a 45 percent interest in a natural gas services company, and stores natural gas. In all, Atmos provides natural and propane gas to over one million customers.

1906-23: Amarillo Gas Starts Up and Connects to the Great Panhandle Gas Field

Atmos Energy traces its origins back to 1906, when brothers J.C. and Frank Storm of Kirksville, Missouri, got wind of the need for a gas plant in Amarillo, Texas. Although the Storms would later claim that Amarillo did not seem like a promising place to start a business, they decided to take a chance, hoping that Amarillo would grow into more than just a cattle trail junction. They formed the Amarillo Gas Company and began laying pipe under the town’s streets, not a terribly difficult task considering the fact that none of them were paved.

The Storms manufactured gas from coke and oil, unaware that Amarillo lay only 20 miles from one of the world’s largest natural gas deposits, the great Panhandle gas field, which was not discovered until 1918, when another predecessor of Atmos, the Amarillo Oil Company, began drilling there. Amarillo Gas made a pipeline connection to the field in 1920.

1924-53: Amarillo Gas Becomes Part of Southwestern Development Company

In 1924, Southwestern Development Company acquired both Amarillo Oil and Amarillo Gas. Southwestern also started other gas distribution companies. By 1927, in its search for new markets, it put a pipeline under construction to extend its service to West Texas, all the way to Midland and Odessa.

Despite having to contend with the economic problems caused by the Dust Bowl drought and the Great Depression, Southwestern Development continued to grow in the 1930s. In 1933, it was one of the country’s first gas distributors to inject an odor additive to its gas, an important safety measure that in 1937 became mandatory throughout Texas.

Through the war years of the early 1940s, Southwestern’s customer base grew steadily. By 1945, it was serving about 53,000 people and businesses. At the war’s end, a population boom started that by 1950 had nearly doubled the company’s number of customers. With the start up of new families, gas appliances became increasingly popular, encouraging home economists to provide such services as cooking demonstrations in “blue flame” kitchens in the company offices.

1954-80: Consolidation and Continued Expansion

By 1954, Southwestern had consolidated all its diverse gas distribution businesses under the name Pioneer Natural Gas Company. The reorganized company faced excellent prospects for accelerated sales. For one thing, natural gas was a bargain commodity, and for another, its use was expanding. Notably, during the 1950s and 1960s, farmers in the Panhandle region of Texas, too often devastated by drought, turned to irrigation farming in increasing numbers. They used the inexpensive and readily available gas to power engines for pumping water from underground aquifers and circulating it through irrigation pipes and ditches. In those two decades, the farmers’ need for gas greatly helped Pioneer’s sales. Annually, during dry summer months, the company sold up to 50 billion cubic feet of natural gas, more than it sold for the winter heating of its customers’ homes.

In 1958, Pioneer acquired the Empire Southern Gas Company, again expanding its customer base. Then, during the 1960s, its success also prompted Pioneer to diversify beyond its production and utility operations. Among other things, it started coal and uranium mining, heavy machine production, and tire retreading operations. In all, the parent company added 13 subsidiaries, some of which were closed down when they failed to operate at an acceptable profit margin. Included in these was Trans State Tire Company, which Pioneer bought in 1969 and sold off a year and a half later.

Pioneer’s diversification continued into the 1970s. In 1973, it still owned and operated ten subsidiaries. Notably, after the energy crunch that started in 1971, Pioneer began bolstering its exploration operations, and over the next ten years, riding the oil boom, turned itself into a billion-dollar corporation.

1981-87: Pioneer Forms Energas Company and Spins It Off to Prosper on Its Own

As part of a restructuring move, in 1981 Pioneer formed Energas Company, its natural gas distribution subsidiary, and two years later spun it off as an independent company, one that Pioneer’s managers did not expect to survive on its own. Charles Vaughan, Energas’ first president, had other expectations, however. He was determined to make the operation grow. Ironically, when the oil bubble burst in the mid-1980s, it was Pioneer that did not survive intact. It was absorbed in a merger, while, despite the odds, Energas not only survived but seemed to thrive on economic adversity.

In 1986, Energas began a period of significant expansion when it acquired the Trans Louisiana Gas Company (TransLa), a company originally formed in 1928 as Gulf Public Service Company.

Gulf Public had become part of a Louisiana utility company that had earlier started out in Alexandria, Louisiana, as an ice manufacturer and distributor. Through acquisitions and mergers, TransLa had increased the geographical range of its customer base to stretch from Monroe in the northern part of Louisiana to Franklin in the southern part.

Initially, Energas made history by attempting a hostile takeover of TransLa, the first such attempt in the industry. However, when TransLa was placed on the block by its own board, the buyout by Energas became amicable enough. Its acquisition added 69,000 Louisiana residents and businesses to Energas’s customer base. The purchase also prompted the company to move its corporate headquarters to Dallas, a more centralized location.

In the following year, 1987, Energas acquired Western Kentucky Gas Company (WKG), an outfit that, in 1934, had began providing natural gas for about 2,200 customers. At the time of its acquisition by Energas, WKG’s customer base had grown to almost 150,000. It was serving Kentucky communities in the higher growth regions of the state. It also serviced a number of major industrial customers, including aluminum plants and food processors as well as the only Corvette plant in the world. The assets of WKG included those of two other companies: Western Kentucky Gas Resources and Dixie Irrigation. These became wholly owned subsidiaries of Energas.

1988-2001: Energas Becomes Atmos Energy and Continues to Expand

In 1988, Energas changed its name to Atmos, a name selected on the strength of the fact that it came from a Greek word meaning “gases in the atmosphere.” The name also seemed to connote energy. In any case, as Atmos Energy Corporation, the newly organized company began trading on the New York Stock Exchange. As part of the change, Energas Company was reorganized as an unincorporated division of Atmos. In the same year, Dixie Irrigation, which came to Energas with its acquisition of WKG, changed its name to WKI, Inc., but two years later was dissolved.

Atmos continued its dynamic growth into and through the 1990s. In 1993, it purchased the Greeley Gas Company, then privately owned by the Schlessman family. Greeley had been founded in 1902 in Greeley, Colorado. Like Amarillo Gas, until gas was piped in from the Texas Panhandle in the 1930s, it initially distributed manufactured gas for homes and such public conveniences as street lamps. In 1944, Gerald Schlessman acquired the company and began expanding its operations by purchasing several smaller companies. At the time of its transfer to Atmos, Greeley had almost 100,000 customers in Colorado, Kansas, and Missouri. Included in its customer base were residents and businesses in fast growing regions like Colorado’s ski and resort towns of Durango and Steamboat Springs.

Company Perspectives:

As our industry changes, we will continue to lead the way —but we’ll never give up that hometown touch you’ve come to expect. Our one million + customers have always known that being an Atmos customer means you get dependable, efficient service when you need it. We know that your time is as important as ours and do our best to perform service tasks as quickly as possible. When you contact us, you can depend on a prompt and personal response. So, even though we are one of the largest gas distribution companies in the United States, you will feel like our most important customer.

In July of 1997, Atmos reached a major milestone when it acquired its millionth customer. That mark came from its merger with the United Cities Gas Company of Brentwood, Tennessee. United Cities was founded in 1929 as a butane air manufacturer and distributor, operating plants in 17 cities. It had grown through various acquisitions, eventually expanding its operations into ten states. In 1996, the year before its purchase by Atmos, United Cities had revenues of $353.4 million and reported a net income of $17.2 million. As a division of Atmos, United Cities reduced its range to eight states, but by the decade’s end it accounted for about 250,000 homes and businesses in Atmos’s customer base, distributing natural gas in over 375 cities and towns in midwest-ern and southeastern states.

By 1998, Atmos had grown into the 12^th largest natural gas utility in the country, but not without some “painful side effects.” Up through 1996, the company’s business strategy had been to operate each of its acquired companies, many of which lacked advanced technology, as separate business units. In time, that policy proved very inefficient, particularly when the company tried to link them in its expanding network. Many of the companies had incompatible computer systems that often made customer information retrieval difficult if not impossible. None of them even had identical billing systems.

To improve service and cut overhead, Atmos sought to create uniform and consistent procedures for conducting its business. Accordingly, it phased in some new programs, starting with a fresh customer service initiative (CSI). The CSI consisted of several projects, including the creation of a centralized customer support center, the implementation of hand-held meter reading devices and mobile data terminals for in-field service, and the development of a new customer information system (CIS) with the infrastructure to support it. The implementation of these new initiatives quickly cut operation expenses and increased Atmos’s net earnings. Until Atoms created its centralized call center in Amarillo, it had relied on more than 100 unconnected local service offices to conduct its business, an inefficient system at best.

Atmos continued its growth into the start of the new century. In April 2000, it arranged to purchase two Louisiana natural gas LDCs (local distribution companies) from Citizens Utilities, paying approximately $375 million. The two companies, Louisiana Gas Service of Harvey, Louisiana, and LGS Natural Gas, its intrastate pipeline affiliate, added about 279,000 customers in the New Orleans and Monroe areas of the state.

Atmos’s growth and consolidations strategies also involved some select divestitures and partnering agreements. Among other moves taken in 2000, Atmos sold the assets of a natural gas distribution system serving around 5,100 customers in the Gaffney, South Carolina, area to Piedmont Natural Gas.

However, the company’s focus in 2000 was on growth. Besides its purchases in Louisiana, it acquired some smaller companies. Among others, it purchased the Missouri gas distribution assets of Southwestern Energy Co. The assets were part of Associated Natural Gas Co., a division of Arkansas Western Gas Co., Southwestern’s utility subsidiary. The acquisition brought 48,000 additional residential, commercial, and industrial consumers into Atmos’s customer base. In exchange for 1.4 million shares of its common stock, worth about $33.3 million, Atmos also purchased the remaining 55 percent interest in Houston-based Woodward Marketing L.L.C., a natural gas services company in which Atmos already owned a 45 percent interest. Altogether, the additions increased Atmos’s customer base to 1.4 million, making it the fifth largest pure gas utility in the United States. Atmos also became the largest natural gas utility in Louisiana.

Principal Subsidiaries

Energas Company; Greeley Gas Company; Trans Louisiana Gas Company; UCG Energy Corp.; United Cities Gas Company; Western Kentucky Gas Company.

Principal Competitors

Southern Union Company; TXU Corp.; UtiliCorp United Inc.; Xcel Energy Inc.

Key Dates:

1906:: J.C. and Frank Storm found the Amarillo Gas Company, forerunner of Atmos Energy.
1918:: Amarillo Oil Company drills first natural gas well in the great Panhandle gas field.
1924:: Amarillo Gas Company and Amarillo Oil Company are acquired by Southwestern Development Company.
1953:: Southwestern’s various gas distribution businesses are consolidated as Pioneer Natural Gas Company.
1981:: Pioneer Corporation names its natural gas distribution division Energas Company.
1983:: Energas is spun off as an independent, publicly held gas distribution company.
1986:: Company acquires Trans Louisiana Gas Company.
1987:: Company acquires Western Kentucky Gas Company.
1988:: Energas changes name to Atmos Energy and begins trading on the New York Stock Exchange.
1993:: Atmos Energy acquires Greeley Gas Company.
1997:: Atmos merges with United Cities Gas Company.