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Acquisition should be complete this summer

Atmos: smooth sailing so far on MS Valley Gas deal

When Dallas-based Atmos Energy Corp. (NYSE: ATO) signed an agreement last September to acquire Mississippi Valley Gas Co., a privately held natural gas utility, for $150 million, the transaction was expected to take a year.

So far, the acquisition has been approved by six of the seven Public Service Commissions required by law. Only the Mississippi Public Service Commission has not yet given its blessing.

Since Jackson-based Mississippi Valley Gas is the state’s largest utility, serving approximately 261,500 customers in 144 communities throughout 36 counties, the Mississippi PSC is sorting through mounds of data and approval is expected to be granted this summer.

“The progress on the merger is actually very good,” said Earl Fischer, Atmos senior vice president of utility operations. “We’re working our way through the process and we’re hoping for Mississippi PSC approval sometime this summer.”

Central District Public Service Commissioner Nielson Cochran said the staff is still issuing data requests to Atmos and studying the company’s organizational structure and operating philosophies.

“We are very pleased with Mississippi Valley Gas and the way they’ve operated their company for many years,” Cochran said. “I would be very concerned and reluctant to approve anything that would deteriorate customer service.”

Concerns, common with any utility acquisition of this magnitude, include adequate gas storage and the hedging of gas prices.

“If there’s a sense that Mississippi Valley Gas customers aren’t going to benefit from this, then certainly that would raise questions to address in the public hearings, which will be held in two to three months,” Cochran said.

Jerry Hunter, Atmos director of external communications, said the company’s storage is used as a natural hedge.

“We also use financial instruments to try to keep the price of gas down to our customers,” he said. “We don’t make any money on the gas we sell. We make money on delivering service. A lot of customers don’t know that. We do everything we possibly can to keep the price down to customers because it doesn’t help our business when gas prices get out of line.”

Mississippi Valley Gas operates a 5,500-mile distribution system and 335 miles of transmission pipeline. The utility owns two underground gas storage facilities at Amory and Goodwin in Northeast Mississippi, with a combined working gas capacity of 2.05 billion cubic feet.

Rates of Mississippi Valley Gas are weather-normalized and include provisions for monthly purchased gas cost adjustments and semi-annual rate adjustments. The rate structure is designed to mitigate the effects of weather and provide predictable and stable earnings and cash flow.

Atmos will maintain the off-peak storage plan that Mississippi Valley Gas already has in place, Fischer said.

“In addition to that, we can also back that up with storage up and down our pipeline,” he said.

Even though the addition of Mississippi Valley Gas will make Atmos the country’s third-largest pure gas distributor, each of the companies acquired by Atmos retains some independence.

“We do tend to keep each of the companies we acquire as separate operating units because each one already has its own staff — a president and officers,” said Fischer. “Typically after an acquisition, they look very similar to the way they’ve operated before. Gas distribution companies aren’t very complicated as far as structure goes. There’s a lot of similarity across the country in how they operate. We don’t really merge operations into a conglomerate. They maintain their own identities.”

For now, Mississippi Valley Gas will retain its name.

“We don’t have any plans for a name change although one of our companies has requested that,” said Fischer. “Mississippi Valley Gas has such strong customer and community respect that it would be a shame to change the name. It could change later on in time but there are no plans on the table for that.”

Atmos’ operating divisions already serve communities in Louisiana, Tennessee, Kentucky and Georgia. Last July, Atmos completed its acquisition of the assets of Louisiana Gas Service Company and LGS Natural Gas Company and combined them with its existing Trans Louisiana Gas operations to form Atmos Energy Louisiana.

“Atmos has more than doubled in size during the past four years,” said Robert W. Best, chairman, president and CEO of Atmos Energy Corp. “By expanding into Mississippi, Atmos will enhance its position in the southeastern U.S. and will gain the advantages of a strong operating utility, additional gas-storage facilities and the goodwill from Mississippi Valley Gas’ reputation for providing excellent customer service.”

Fischer pointed out that utility business growth is normally slow in its present system.

“A way to leap frog over that is to grow through acquisitions, to create economies of scale,” he said. “Mississippi Valley Gas will benefit from greater economies of scale and advanced technologies to keep its operating costs low. We’re really just five operating companies and with Mississippi Valley Gas, we’ll be six. We can do a lot better by bringing the companies together instead of remain separated especially in keeping up with technology because it’s so expensive.”

In the last five years, Atmos has invested heavily in technological upgrades and personnel to manage those systems.

“Some gas companies haven’t made those investments and as a result we have some real advantages in saving costs and being able to efficiently serve the customer yet not lose the human touch,” said Fischer.

For example, Atmos operates a call center that will be used to back up the call center already in place at Mississippi Valley Gas for 24-hour service.

“The people at the call center will be empowered to help the customer work through a situation at any time,” Fischer said. “That’s a promise on behalf of the company.”

Mobile data terminals will be installed in service vehicles and information such as service and emergency orders will be routed directly from dispatchers through a network, eliminating massive amounts of paperwork, Fischer said.

“When a service call is complete, the service person will punch it into the computer and the network will handle the rest,” he said. “Some of those terminals are already going into the Jackson area but we’ll have them throughout the entire service area.”

All total, Atmos Energy Corp. distributes natural gas to about 1.4 million customers in 11 states through its operating divisions, which also include Energas Company, Greeley Gas Company, United Cities Gas Company and Western Kentucky Gas Company. Atmos’ non-utility operations include Woodward Marketing, LLC, Atmos Power Systems, Inc., natural gas storage, irrigation, the sale of retail products and services, and an indirect equity interest in Heritage Propane Partners.

Contact MBJ contributing writer Lynne W. Jeter at (800) 993-3392 or lwjeter@yahoo.com</a.

About Lynne W. Jeter

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