Atmos Energy Corp. is seeking to secure more renewable natural gas supplies at a time when gas utilities are under pressure to decarbonize their distribution systems.
The Dallas-based utility operator is assessing more than 20 renewable natural gas, or RNG, opportunities in several parts of its eight-state footprint, according to Atmos President and CEO Kevin Akers. Additionally, the company intends to work with regulators and other stakeholders to develop frameworks that will help bring commercially viable RNG to market, Akers said during a Feb. 3 quarterly conference call.
"We are working to increase the amount of RNG that we have on our system to help customers reduce their carbon emissions," Akers said, marking a shift in tone on the fuel from a year ago.
Atmos transports roughly 5.5 Bcf of RNG per year, or about 2% of its total annual distribution sales volumes. Akers said it is too soon to commit to how much RNG it can ultimately transport.
RNG is processed from waste sources into a pipeline-quality substitute for methane, the chief component of natural gas. Most of the RNG suppliers Atmos is considering are dairy farms and landfills, Akers said.
In the first quarter, Atmos initiated a project to connect a Colorado dairy farm with its distribution system, and it continues to work with supply projects in Kentucky and other jurisdictions, Akers said. About 130 facilities are producing RNG across North America, with about 110 more in development, according to the American Gas Association.
Atmos territories remain 'constructive' amid decarbonization push
More than a year after California cities began restricting gas use in new buildings, Akers said the company sees no signs of gas bans cropping up in its territories. The company continues to work through its stakeholder engagement strategy to communicate the value of gas service to cities and state legislators, he added.
Atmos is working with industry associations and peer utilities to monitor state legislation to prohibit gas bans, Akers said. Two states where Atmos operates — Tennessee and Louisiana — passed such laws in 2020. Lawmakers have introduced bills in at least four of Atmos' other operating states during their current legislative sessions.
Executives stressed that Atmos operates in constructive regulatory jurisdictions where it continues to see customer growth. In 2020, the company's customer count increased 1.4% across its territories and 1.7% in North Texas, driven by residential growth.
Suburban homebuying and strong underlying economic fundamentals in the Dallas-Fort Worth commercial market underpin the Texas growth, Atmos Senior Vice President and CFO Christopher Forsythe said. Akers also highlighted industrial expansion in Mississippi and Kentucky.
Asked about the potential for asset sales, Forsythe said Atmos is "very comfortable" with its territories. "We always consider it, but that's not a key part of our strategy, and we don't need that type of activity to achieve 6%-8% earnings per share growth over the next five years."
Guidance reaffirmed; quarterly earnings increase
Atmos reaffirmed its 2021 EPS guidance of $4.90 to $5.10 per share, as well as its capital spending forecast of $2 billion to $2.2 billion for the year.
Atmos on Feb. 2 reported consolidated net income of $217.7 million for its fiscal first quarter ended Dec. 31, 2020, up nearly 22% from the year-ago period. Quarterly EPS of $1.71 topped year-ago earnings of $1.47 per share and expectations for $1.53 per share, according to the S&P Capital IQ consensus normalized earnings estimate.
Shares of Atmos were down nearly 2% following the conference call.
Ongoing COVID-19 pandemic impacts reduced operating income by about $9 million in the quarter, with most of the headwinds in the distribution segment, Forsythe said. Sequential operating income was down by $2.5 million due to lower demand among commercial customers amid ongoing economic strain. Atmos also reported a $4.5 million quarter-over-quarter decline in service order revenues linked to the suspension of bill collection, and bad debt increased by $2 million sequentially.