Atmos Energy Corporation Preparing for Winter Atmos Energy Corporation

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Atmos Energy Corporation One of the Nation’s Largest Pure-Gas Distribution Companies Provides natural gas service in eight states serving three million customers 288 Bcf in annual requirements Over 4 Bcf in peak day requirements Over 67 Bcf of storage capacity Financially or physically hedge up to 58 Bcf per year Over 2.3 Bcf of daily transportation capacity on 18 interstate pipelines Atmos owns one of the largest intrastate pipelines in Texas Connects the Waha, Katy and Carthage hubs Dedicated to Atmos’ needs of 2.4 Bcf per day

Overview Atmos takes a very proactive approach to managing its gas supply. Serving eight states across a wide geographic area allows us to take what we learn from one area and apply it throughout the enterprise. Planning Design Day Instruments Hedging Shifted Volume Simulations Daily Management Tariff Changes

Planning Atmos Planning Overview Forecast the volumetric natural gas requirements Design day Normal purchases Short term daily usage forecast Recommend the appropriate upstream pipeline transportation and storage capacity Annual review with statistical expert to improve forecast methodology Validate current processes and results Recommend improvements in methodology

Planning Changes to Design Day Problem: During the 2010-11 winter usage approached and exceeded Atmos’ calculated design day; however, HDDs did not. (844) (9,054) (17,851) Load studies done in 2010-11 winter Design Day HDD Actual HDD 67 63 Design Day HDD Actual HDD 89 76 Design Day HDD Actual HDD 56 47 Forecast models are run each year incorporating most recent usage If an anomaly is witnessed in one area, we review the data to see where we can use this information in other areas Forecasted (Dth) Actual (Dth)

Planning Changes to Design Day Solution: Incorporate the wind into our design day variables Forecasted Actual Forecast with Wind Incorporating Wind into our models increased accuracy Utilizing the same methodology across all of Atmos’ territories required additional transport capacity, all of which was used during the 2013-14 winter a Reserve margin is enough to make up for shortfall after incorporating wind b Forecasted for Design Day (HDDs for Actual volume were 9° warmer), growing area

Hedging Atmos Hedging Overview Hedge normal winter usage net of expected storage withdrawals Depending on area, able to hedge using fixed physical contract, swaps, call options and deferred premium call options Call option Premium is due within two business days of the trade If I bought a May-15 call option today, payment for the premium would be due on October 13th Deferred premium call option Premium is due after the underlying has settled If I bought a May-015 call option but the premium was deferred, payment for the premium would be due the first part of May 2015 (after the contract settled)

Hedging Call Options As prices of options have decreased as a result of lower volatility and price of the underlying security, Atmos began seeking regulatory approval to use them Regulators comfortable having a known, maximum cost, view call options akin to an insurance policy At the money call options taken first trading day Apr-Oct of each month for the following January contract

Hedging Shifting Volume Typically storage levels and supply are robust at the end of October through November (which is when the Nov-Dec contracts expire) Atmos’ customers use the majority of their gas during the Jan-Mar period, which is also when one could see storage constraints and production freeze-offs Atmos has shifted some of its hedging volume from the months that may not be as high of a risk from price increases due to weather and overall usage and increased the hedging volume for the months that would be at risk.

Daily Management Scenario Planning Atmos’ gas supply portfolio contains several components. In order to meet their customers demand, Atmos runs through a simulated “winter” with its Gas Reps. Variables Include: Forecasted Weather/Demand Current Storage Levels Try to meet incremental demand in the most economic way Daily/Monthly Market Price In some areas, it has been a few years since a design day has occurred. Having Atmos’ Gas Reps. look through supply/transport agreements during these scenarios will help the decision process if/when adverse conditions occur.

Daily Management Tariff Language Problem: Transport customers do not always purchase gas in the spot market to match their expected usage. Background: Transport customers either balance their imbalance monthly or pay a fixed amount per MMBtu ($0.50 above FOM for example) for their overage which may not reflect the market price of gas.

Physical Gas Prices February 2014 ICE Daily Averages Marketers/Transporters do not want to purchase gas in the spot market and pay these prices... …but would much rather work off their imbalance during this part of the month. $5.28

Daily Management Tariff Language Problem: Transport customers do not always purchase gas in the spot market to match their expected usage. Background: Transport customers either balance their imbalance monthly or pay a fixed amount per MMBtu ($0.50 above FOM for example) for their overage which may not reflect the market price of gas. Solution: Move from monthly balancing to daily Change tariff language so that the cashout price is a multiple of the prevailing gas daily price index