Dallas-based Atmos Energy may be the biggest pure gas utility company in the United States, but size is definitely not the name of the game when it comes to the company's marketing and trading business. A focus on customer service and low risk transaction management will be fundamental tenets of the operation going forward, said Mark H. Johnson, the new head of Atmos' nonregulated division.
Johnson, 46, is taking the helm of the nonregulated business from J.D. Woodward, the founder of Amos Energy Marketing's predecessor company, Woodward Marketing, which was acquired by Atmos through its purchase of United Cities Gas in 1997 and through a purchase of the remainder of the company in April 2001. Under Woodward's leadership, Atmos Energy's nonutility operations, which are based in Houston, reported net income of $55 million in 2005. Johnson was vice president of nonutility operations at Atmos. In his new position, he will oversee 130 employees serving customers in 22 states.
"Fortunately J.D. Woodward was a visionary type guy. There's a lot of overlap in what he did and the strategies that we have put in place," Johnson told NGI in an interview on Thursday. "At this point, we feel pretty good about all the paths that we've chosen. We are going to continue to try to accentuate our strengths, and a lot of times that falls in the same footprint as our utilities so we are going to continue to try to grow in those areas especially. And then we are going to continue to do what we've always done: look for areas of growth where we have marketing expertise and pipeline capacity or storage capability."
Atmos Energy Corp. is the country's largest natural gas-only distributor, serving about 3.2 million gas utility customers in 12 states. The nonregulated Holdings division provides natural gas marketing and procurement services to about 1,000 industrial, commercial and municipal customers and manages company-owned natural gas pipeline and storage. The division makes up about 15% of the total operating income ($375-385 million) of Atmos Energy Corp.
"We're not a high volume type of a company. We are a service-oriented company," said Johnson. "It's not as flashy and doesn't create the huge numbers that you might see at some other [companies], but it's a solid core business and we've been real happy with the longevity of it."
Johnson noted that the energy trading business has gotten a bad name in recent years. "But the way we use trading [is different than most]," he said. "We back-to-back our deals. We hedge our deals. When we talk about the word 'trading,' that's really just the way that we effectively manage our obligations. We move gas from one area to another to stay hedged.
"Trading [for Atmos] is not taking open-ended positions. It's about how we actually get our gas bought and sold in an effective manner, and that's one of the reasons we have been successful in this very volatile and tumultuous time."
He noted that there are plenty of new Wall Street banks and hedge funds getting into the marketing and trading business today and that has significantly improved market liquidity. Many of these new entrants may be looking for a quick way to make big profits. But that model has had problems in the past. The volatility usually ends up killing them. Atmos, said Johnson, is content to get its hands dirty with customer needs. It's not the kind of business "you can build up in a year just because you have a large balance sheet," he said. "It takes a lot of relationship building, and that's something we've done and maintained over a long period of time. And that's where we continue to focus.
"We've got a very good record as far as being able to maintain our customer base," said Johnson. "We have a low turnover rate among our employees as well, which adds to the stability that our customers see."
The biggest risk in energy marketing today is credit, he said. A lot of companies are struggling because of high gas costs. "Some can't get enough liquidity to buy gas to serve their customers," he said. "They are constrained on how much they can grow. Fortunately we've addressed those problems and we are in great shape there."
A lot of companies in the marketing business also have concerns about counterparty credit risk. Meanwhile, high fuel costs are hitting customers hard. "You worry about them being able to pay their bills, and that is a very real risk, and to me probably one of the most significant risks that we face," he said.
"Even though the economy is growing, you still have to be concerned about whether customers can make an $8, $9 or even $15 gas price (last winter) fly and still make a profit on their products. Industrial loads are different today. We also have to make sure the utilities we serve have their [purchased gas adjustments] in order. It's just a tough market right now."
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