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Conference Call to Review Fiscal 2006 Second Quarter Financial Results May 5, 2006 9:00 a.m. EDT

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Page 1: atmos enerrgy  26_pres

Conference Call to ReviewFiscal 2006 Second Quarter

Financial Results

May 5, 20069:00 a.m. EDT

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Forward Looking Statements

The matters discussed or incorporated by reference in this presentation may contain “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this presentation are forward-looking statements made in good faith by the Company and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this presentation or in any of the Company’s other documents or oral presentations, the words “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “goal,” “intend,” “objective,” “plan” “projection,” “seek,” “strategy” or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those discussed in this presentation, including the Company’s acquisition of the TXU Gas operations, the Company’s ability to continue to access the capital markets and the other factors discussed in the Company’s SEC filings. These factors include the risks and uncertainties discussed in the Company’s Form 10-K for the fiscal year ended September 30, 2005 and the Company’s Form 10-Q for the three-month period ended December 31, 2005. Although the Company believes these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. The Company undertakes no obligation to update or revise forward-looking statements, whether as a result of new information, future events or otherwise.

Further, the Company will only update earnings guidance through its quarterly and annual earnings releases. All estimated financial metrics for fiscal year 2006 and beyond that appear in this presentation are current as of the date noted on each relevant slide.

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$88.5 $88.8

$25.0

$50.0

$75.0

$100.0

2Q 2005 2Q 2006

($ in millions)($ in millions)

Key DriversKey DriversIncreased contribution from natural gas marketing segment Weather was 16% warmer than normal and 6% warmer than the prior-year quarter, as adjusted for jurisdictions with weather-normalized rates Net increase in sales taxesIncreased interest expense due to higher average short-term debt balances and an increase in the 3-month LIBOR rate Increase in O&M expense due to higher employee costsIncrease in bad debt expense due to higher customer bills from higher gas pricesRate increases associated with Texas GRIP recovery of 2003 and 2004 capital investment

Net IncomeNet Income

Consolidated Financial Results – Fiscal 2006 2Q

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4

$1.11 $1.10

$0.40

$0.60

$0.80

$1.00

$1.20

2Q 2005 2Q 2006

Notes Notes Quarter-over-quarter increase of 1.3 million weighted average diluted shares outstanding

Earnings per Diluted ShareEarnings per Diluted Share

Consolidated Financial Results – Fiscal 2006 2Q

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Net Income by SegmentNet Income by Segment

Consolidated Financial Results – Fiscal 2006 2Q

73.7

3.8 10.60.4

54.7

21.9

12.1

0.1

$0.0

$20.0

$40.0

$60.0

$80.0

2Q 2005 2Q 2006Utility Natural gas marketingPipeline and storage Other nonutility

($ in

mill

ions

)

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6

DriversDrivers$29.5 million increase in gross profit

$7.4 million decrease in utility gross profit primarily due to

o $14.7 million decrease primarily due to a 17.2 Bcf decrease in throughput, as a result of weather that was 6 percent warmer than last year

o $1.4 million decrease due to the impact of Hurricane Katrina in the Louisiana Division

o $6.4 million increase in transportation marginso $2.9 million increase from GRIP rate adjustments

in Mid-Tex and West Texas Divisions

Consolidated Financial Results – Fiscal 2006 2Q

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Consolidated Financial Results – Fiscal 2006 2Q

Weather Adjusted for WNA JurisdictionsWeather Adjusted for WNA JurisdictionsFor the second quarter of fiscal 2006, weather was 16 percent warmer than normal, and 6 percent warmer than the same period last year, as adjusted for jurisdictions with weather-normalized operations

At March 31, 2006, we had WNA in the following service areas for the following periods as noted, which covered approximately 1.1 million of our meters in service:

Tennessee November – AprilGeorgia October – MayMississippi November – April*Kentucky November – AprilKansas October – MayAmarillo, TX October – MayWest Texas October – MayLubbock, TX October – MayVirginia January – December

*Effective in fiscal 2006, WNA period was 11/1 – 4/30. Prior to October 1, 2005, WNA period was 11/15 – 5/15.

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14% 11%

14% 16% 17%

30%32%

23%

0% 0%

7%

0% 0%

16%

(40)

(30)

(20)

(10)

0

10MS CO / K

SMid-States

Kentucky

W. Texas

Louisiana

Mid-TexConsolidated

Actual / Normal Adjusted for WNA

Warmer Than Normal Weather Effect by Utility DivisionWarmer Than Normal Weather Effect by Utility Division

Perc

ent (

War

mer

) Col

der t

han

Nor

mal

Consolidated Financial Results – Fiscal 2006 2Q

• Utility gross profit in the quarter was adversely affected by $24.3 million due to weather that was 16% warmer than normal, as adjusted for jurisdictions with weather-normalized rates

• Louisiana and Mid-Tex Divisions do not have weather-normalized rates, and experienced warmer than normal weather of 30% and 32%, respectively

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$1.11$1.12 $1.10

1,3301,422

1,772

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

2Q 2004 2Q 2005 2Q 2006750

1,000

1,250

1,500

1,750

2,000

2,250

EPS Degree Days*

Consolidated Financial Results – Fiscal 2006 2Q

Relationship of Diluted EPS to Heating Degree Days*Relationship of Diluted EPS to Heating Degree Days*

*Adjusted for WNA

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10

Drivers Drivers $29.5 million increase in gross profit (continued)

$4.2 million increase in pipeline and storage gross profit primarily due to favorable arbitrage spreads and higher transportation & services margins, offset by 8.0 Bcf decrease in transportation volumes, before intersegment eliminations, due to warmer than normal weather in the Mid-Tex Division

$32.8 million increase in natural gas marketing gross profit primarily due too $23.3 million increase in unrealized storage mark-to-market gains

primarily due to favorable movement in the forward prices used to value financial hedges on physical storage inventory and fixed-price forward contracts, coupled with an increase in physical storage position of 11.1 Bcf quarter-over-quarter

o $9.8 million increase in unrealized marketing mark-to-market gains primarily due to favorable movement in the forward prices used to value the financial derivatives used in these activities

o $4.1 million decrease in realized storage contribution due to warmer weather which resulted in fewer withdrawal opportunities compared with the prior-year quarter

o $3.8 million increase in realized marketing margins primarily due to higher margins realized on increased volumes sold of 2.9 Bcf quarter-over-quarter

Consolidated Financial Results – Fiscal 2006 2Q

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Consolidated Financial Results – Fiscal 2006 2Q

Natural Gas Marketing Segment 2006 2005 Change

Storage Activities Realized margin $10,611 $14,669 ($4,058)

Unrealized margin 2,741 (20,545) 23,286Total Storage Activities 13,352 (5,876) 19,228

Marketing Activities Realized margin 21,005 17,236 3,769

Unrealized margin 9,620 (200) 9,820Total Marketing Activities 30,625 17,036 13,589

GROSS PROFIT $43,977 $11,160 $32,817

Net physical position (Bcf) 23.6 12.5 11.1

Three Months Ended March 31

(In thousands, except physical position)

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Consolidated Financial Results – Fiscal 2006 2Q

DriversDrivers

Increased O&M expenses of $9.3 million primarily due to

$4.8 million net increase in employee costs associated with increased headcount and increased benefit costs, resulting from changes in the pension assumptions used to determine the fiscal 2006 costs$4.5 million increase in provision for doubtful accounts primarily due to increased collection risk on higher customer bills caused by higher gas prices

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DriversDriversIncreased taxes, other than income, of $9.8 million

Primarily due to increased franchise fees and state gross receipts taxes resulting from higher revenues, compared to the privilege period

Increased interest charges of $2.4 million $3.6 million increase primarily due to higher short-term debt balances used for natural gas purchases made at significantly higher prices coupled with an increase in the 3-month LIBOR rate, partially offset by $1.2 million decrease in interest charges from the early payoff of $72.5 million of First Mortgage Bonds in June 2005

Increased miscellaneous expense of $3.4 million primarily due to $3.3 million increase due to an adverse regulatory ruling in Tennessee related to the calculation of a performance-based rate mechanism associated with gas purchases

Consolidated Financial Results – Fiscal 2006 2Q

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Pension, PostPension, Post--Retirement & Other Benefits ExpenseRetirement & Other Benefits Expense

(in in millions))

1.4

3.4

3.3

2.6

2.6

3.9

5.2

2.5

$0.0$2.0$4.0$6.0$8.0

$10.0$12.0$14.0$16.0

2Q 2005 2Q 2006

OtherMedical & DentalPost-retirementPension

$14.2

Consolidated Financial Results – Fiscal 2006 2Q

$10.7

2006 Pension Assumptions8.50% return on plan assets5.00% discount rate4.00% wage increase

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22.0

41.2

24.1

59.7

$0

$25

$50

$75

$100

2005 2Q 2006 2Q MaintenanceGrowth

Utility CAPEX(in millions)

Nonutility CAPEX (in millions)

Fiscal 2006 2Q ExpendituresMaintenance Capital: $84.4 millionGrowth Capital: $26.3 million

$83.8

Consolidated Financial Results – Fiscal 2006 2Q

Capital Expenditures Capital Expenditures

$63.2

2.2

24.7

$0

$10

$20

$30

$40

2005 2Q 2006 2Q

$26.9

$7.1

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$148.1$159.8

$50.0

$75.0

$100.0

$125.0

$150.0

$175.0

YTD 2005 YTD 2006

($ in millions)($ in millions)

Key DriversKey DriversIncreased contribution from nonutility businesses, primarily natural gas marketing segment, due to higher margins and market volatilityHigher interest expense due to higher average short-term debt balances used to fund higher-priced natural gas purchasesYear to date, weather was 12% warmer than normal and 1% warmer than the prior-year period, as adjusted for jurisdictions with weather normalized ratesIncrease in provision for doubtful accounts Lost margin and increased O&M expenses related to Hurricane Katrina GRIP rate adjustments in Texas effective in 2006

Net IncomeNet Income

8%

Consolidated Financial Results – Fiscal YTD

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$1.90$1.98

$1.25

$1.50

$1.75

$2.00

$2.25

YTD 2005 YTD 2006

NotesNotesPeriod-over-period increase of 3.1 million weighted average diluted shares outstanding

Earnings per Diluted ShareEarnings per Diluted Share

Consolidated Financial Results – Fiscal YTD

4%

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Net Income by SegmentNet Income by SegmentConsolidated Financial Results – Fiscal YTD

110.7

17.1 19.7

0.6

103.0

33.423.3

0.1

$0.0

$25.0

$50.0

$75.0

$100.0

$125.0

YTD 2005 YTD 2006Utility Natural gas marketingPipeline and storage Other nonutility

($ in

mill

ions

)

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DriversDrivers$54.0 million increase in gross profit

$15.5 million increased utility gross profit primarily fromo $20.3 million increase from higher franchise fees and gross

receipts taxes paid by the customer, primarily in the Mid-Tex Division

o $5.9 million decrease primarily due to decreased throughput of 10.3 Bcf, due to weather that was 1 percent warmer than the prior-year period

o $4.1 million increase due to rate adjustments resulting from the GRIP-related recovery for 2003 and 2004 capital expenditures in Mid-Tex Division

o $0.4 million increase due to rate adjustments from GRIP filings in West Texas Division

o $3.5 million decrease due to the impact of Hurricane Katrina

Consolidated Financial Results – Fiscal YTD

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36%51%

13%

2003–2004 Heating Season

(Prior to TXU Gas Acquisition)

Weather Normalized

Weather-Sensitive Margin

Nonweather-Sensitive Margin*

48%35%

17%

2004–2006EHeating Season

(Post-TXU Gas Acquisition)

* Non-weather sensitive margin is gas consumption not correlated to weather, i.e., gas clothes dryer, gas water heater, gas cooking, and includes monthly fixed charge

Utility Margin SensitivityUtility Margin Sensitivity

Consolidated Financial Results – Fiscal YTD

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6% 8% 7% 8%

13%

20%

26%

16%

1% 0%

4%

0% 0%

12%

(30)

(20)

(10)

0

10MS CO / K

SMid-States

Kentucky

W. Texas

Louisiana

Mid-TexConsolidated

Actual / Normal Adjusted for WNA

Perc

ent (

War

mer

) Col

der t

han

Nor

mal

Consolidated Financial Results – Fiscal YTD

• Year to date gross profit was adversely affected by $32.3 million due to weather that was 12% warmer than normal, as adjusted for jurisdictions with weather-normalized rates

• Louisiana and Mid-Tex Divisions do not have weather-normalized rates, and experienced warmer than normal weather of 20% and 26%, respectively

YTD Warmer than Normal Weather Effect by DivisionYTD Warmer than Normal Weather Effect by Division

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($.16)

($.12)

($.09)

($.05)

($0.16)

($0.14)

($0.12)

($0.10)

($0.08)

($0.06)

($0.04)

($0.02)

$0.005% 10% 15% 20%

MidMid--Tex Division Estimated Annual Earnings Impact of Tex Division Estimated Annual Earnings Impact of Warmer Than Normal Weather*Warmer Than Normal Weather*

Percent Warmer than Normal

EPS

Impa

ct

Consolidated Financial Results – Fiscal YTD

*Reflects changes in gross profit and related changes in bad debt and state and federal taxes

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$1.98

$1.69

$1.90

2,387

2,415

3,012

$0.75

$1.00

$1.25

$1.50

$1.75

$2.00

YTD 2004 YTD 2005 YTD 20062,000

2,250

2,500

2,750

3,000

3,250

3,500

EPS Degree Days*

Consolidated Financial Results – Fiscal YTD

Relationship of EPS to Heating Degree DaysRelationship of EPS to Heating Degree Days

*Adjusted for WNA

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DriversDrivers$54.0 million increase in gross profit (continued)

$32.3 million increase in natural gas marketing gross profit primarily due to

o $19.7 million increase in realized marketing margins primarily due to increased volumes sold of 14.0 Bcf year over year and capturing higher margins in certain market areas that experienced increased volatility

o $19.6 million increase in realized storage contribution primarily due to favorable arbitrage spreads as a result of increased market volatility period over period

o $13.0 million increase in unrealized storage mark-to-market losses primarily due to unfavorable movement in the forward prices used to value financial hedges on physical storage positions and fixed-price forward contracts, coupled with an increase in physical storage positions of 11.1 Bcf period-over-period

o $6.0 million increase in unrealized marketing mark-to-market gains primarily due to favorable movement in the forward prices used to value the financial derivatives used in these activities

Consolidated Financial Results – Fiscal YTD

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Consolidated Financial Results – Fiscal YTD

Natural Gas Marketing Segment 2006 2005 Change

Storage Activities Realized margin $36,883 $17,259 $19,624

Unrealized margin (21,051) (8,027) (13,024)Total Storage Activities 15,832 9,232 6,600

Marketing Activities Realized margin 50,572 30,835 19,737

Unrealized margin 3,892 (2,063) 5,955Total Marketing Activities 54,464 28,772 25,692

GROSS PROFIT $70,296 $38,004 $32,292

Net physical position (Bcf) 23.6 12.5 11.1

Six Months Ended March 31

(In thousands, except physical position)

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Consolidated Financial Results- Fiscal YTD

Fair Value of Contracts at March 31, 2006 Maturity in Years Source of Fair Value

< 1

1 - 3

4 - 5

> 5

Total FairValue

(In thousands) Prices actively quoted $ 6,607 $(1,396) $ — $ — $ 5,211 Prices provided by other external sources

4,492

(196)

— —

4,296

Prices based on models &

other valuation methods

(300)

(269)

— —

(569) Total Fair Value $ 10,799 $(1,861) $ — $ — $ 8,938

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Drivers Drivers $54.0 million increase in gross profit (continued)

$ 6.4 million increase in pipeline and storage gross profit

o $9.4 million due to favorable arbitrage spreads coupled with a 9.0 Bcf increase in total transportation volumes and higher transportation & services margins, offset by

o $3.0 million decrease due to the absence of inventory sales year over year

Consolidated Financial Results – Fiscal YTD

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Consolidated Financial Results – Fiscal YTD

DriversDrivers

Increased O&M expenses of $6.7 million primarily due to

$5.8 million increase in provision for doubtful accounts primarily due to increased collection risk associated with higher gas prices$2.0 million increase in Hurricane Katrina related losses$0.9 million increase due to higher administrative costs year over year$2.1 million decrease due to absence of UCG acquisition-related M&I costs which became fully amortized in December 2004

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Pension, PostPension, Post--Retirement & Other Benefits ExpenseRetirement & Other Benefits Expense

(in in millions))

2.6

6.8

7.7

5.1

5.0

7.6

10.5

5.1

$0.0

$5.0

$10.0

$15.0

$20.0

$25.0

$30.0

$35.0

YTD 2005 YTD 2006

OtherMedical & DentalPost-retirementPension

$28.2

Consolidated Financial Results – Fiscal YTD

$22.2

2006 Pension Assumptions8.50% return on plan assets5.00% discount rate4.00% wage increase

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1.86

0.0

0.83

0.29

0.58 0.55

0.0

0.5

1.0

1.5

2.0

2001 2002 2003 2004 2005 2006YTD

Perc

ent

Utility Bad Debt Expense as a Percent of RevenuesUtility Bad Debt Expense as a Percent of Revenues

Consolidated Financial Results – Fiscal YTD

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DriversDriversIncreased taxes, other than income, of $16.6 million

Primarily due to increased franchise fees and state gross receipts taxes resulting from higher revenues, compared to the privilege period

Increased interest charges of $6.1 million $8.5 million increase primarily due to higher short-term debt balances used for natural gas purchases made at significantly higher prices coupled with an increase in the 3-month LIBOR rate, partially offset by $2.4 million decrease in interest charges from the early payoff of $72.5 million of First Mortgage Bonds in June 2005

Increased miscellaneous expense of $3.3 million$3.3 million increase due to an adverse regulatory ruling in Tennessee related to the calculation of a performance-based rate mechanism related to gas purchases

Consolidated Financial Results – Fiscal YTD

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41.2

87.9

43.3

112.9

$0

$50

$100

$150

$200

2005 YTD 2006 YTD MaintenanceGrowth

Utility CAPEX(in millions)

Nonutility CAPEX (in millions)

Fiscal 2006 YTD ExpendituresMaintenance Capital: $152.3 millionGrowth Capital: $ 60.9 million

$156.2

Consolidated Financial Results – Fiscal YTD

Capital Expenditures Capital Expenditures

$129.1

17.6

39.4

$0

$20

$40

$60

$80

2005 YTD 2006 YTD

$57.0

$8.4

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Highlights – Fiscal YTD

Senior Leadership ChangesSenior Leadership Changes

April 13, 2006, Atmos Energy announced Kim R. Cocklinto succeed R. Earl Fischer as senior vice president, utility operations

Earl Fischer will be retiring October 1, 2006Kim Cocklin, who joins Atmos Energy from Piedmont Natural Gas Company, will begin transitioning this summer

March 31, 2006, Atmos Energy named Mark H. Johnson to succeed the retiring JD Woodward as senior vice president, nonutility operations, effective April 1, 2006

Johnson previously held the position of vice president, nonutility operations and president of Atmos Energy Marketing, LLC

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Highlights – Fiscal YTD

Rate Case Filing Rate Case Filing –– MissouriMissouri

April 7, 2006, filed 1st rate increase in over 9 years in Missouri

Request for revenue increase of about $3.4 million, or 5.9%

Investments approximate $22.0 million over the 9-year period

Serve approximately 60,000 residential, commercial and industrial customers in Missouri

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April 13, 2006, Atmos Pipeline-Texas 2005 GRIP filing of $3.4 million revenue increase related to return and capital-related expenses on $22.1 million in net investment during calendar 2005

March 31, 2006, Mid-Tex Division 2005 GRIP filing of $12.1 million related to return and capital-related expenses on $63.6 million increase in net investment during calendar 2005

September 2005, Mid-Tex Division 2004 GRIP filing of $6.7 million related to return and capital-related expenses on $29.4 million increase in net investment during calendar 2004, subsequently implemented Feb. 2006

September 2005, Atmos Pipeline-Texas 2004 GRIP filing of $1.9 million revenue increase related to return and capital-related expenses on $10.6 million in net investment during calendar 2004, subsequently implemented January 2006

September 2005, West Texas Division 2004 GRIP filing for $3.8 million on increase in net investment of $22.6 million

Implementation of new charges in January 2006, except for the inside city limits customers, which went into effect in May 2006.

Highlights – Fiscal YTDGRIP Filings GRIP Filings –– State of TexasState of Texas

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ACCEPT

IGNORE

DENY

SUSPEND

GRIP Filing Process in TexasGRIP Filing Process in Texas

Highlights – Fiscal YTD

60 days

Effective Immediately

Atmos appeals Atmos appeals to RRC within to RRC within

30 days30 days

Effective under “Operation of Law”

Up to 105

days

45 days

RRCRRCRulesRules

Atmos files Atmos files with citieswith cities

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Rate Stabilization Results Rate Stabilization Results -- MississippiMississippiOctober 3, 2005, Mississippi Public Utilities Staff reached an agreement with the Mississippi Division of Atmos Energy, requiring an up-front rate reduction of $600,000 effective October 1, 2005 and the following revisions:Annual filings to be made, effective November 1 each year, beginning September 5, 2006New earnings sharing mechanism established

50/50 sharing of all earnings above allowed ROE for the first year Thereafter, Atmos allowed to retain up to 250 additional basis points above ROE

Calculated ROE plus a performance adjuster of up to 50 basis points (currently 9.8%)Shifts $10 million in annual margins from volumetric to customer chargeRevised WNA to include approximately 4% of additional heating degree daysReduced regulatory lag, adjusts for forward-looking known and measurable expenses and utilizes an average expected rate base Changes affect approximately 251,000 customers

Highlights – Fiscal YTD

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49.2

2.7

11.4

35.1

Volumes(Bcf)

March 31, 2005March 31, 2006

Total:

Pipeline & Storage

Natural Gas Marketing

Atmos Utility

Segment

$ 441.0

15.5

158.4

$ 267.1

Balance($MM’s)

$ 5.57$ 273.8$ 6.8864.1

5.8515.87.382.1

6.7977.46.8323.2

$ 5.15$ 180.6$ 6.8838.8

WACOGBalance($MM’s)

WACOGVolumes(Bcf)

Highlights – Fiscal YTD

Gas Held in Underground StorageGas Held in Underground Storage

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39

October 18, 2005, Atmos Energy entered into a $600 million, 3-year committed revolving credit facility through October 18, 2008

Replaces $600 million, 364-day working capital facility on essentially the same terms and serves as a backup liquidity facility for our commercial paper program

November 10, 2005, Atmos Energy entered into a new $300 million 364-day committed revolving credit facility

Supplements amounts available under existing $18 million committed credit facility and $25 million uncommitted credit facility, under essentially the same terms as the $600 million 3-year committed revolving credit facility

November 28, 2005, Atmos Energy Marketing (AEM) increased its $250 million uncommitted credit facility to $580 million, with essentially same terms.

On March 31, 2006, AEM subsequently amended and extended this facility to March 31, 2007

April 1, 2006 Atmos Energy renewed the existing $18 million committed credit facility, with no material changes to terms and pricing

Highlights – Fiscal YTD

Credit FacilitiesCredit Facilities

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40

Moody’s RatingSenior Unsecured Debt: Baa3Commercial Paper: P-3Outlook: stable

Standard & Poor’sSenior Unsecured Debt: BBBCommercial Paper: A-2Outlook: stable

FitchSenior Unsecured Debt: BBB+Commercial Paper: F-2Outlook: stable

Investment Grade Credit RatingsInvestment Grade Credit Ratings

Highlights – Fiscal YTD

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$0.00

$0.20

$0.40

$0.60

$0.80

$1.00

$1.20

'84 '85 '86 '87 '88 '89 '90 '91 '92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06

Note: Amounts are adjusted for mergers and acquisitions. For fiscal 2006, $1.26 is the indicated annual dividend.

$1.26

Annual Dividend Growth Annual Dividend Growth -- 1984 to 2006E1984 to 2006E

Consolidated Financial Results – Fiscal 2006E

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42

Atmos Energy anticipates earnings to be at the lower end of the range of $1.80 - $1.90 per fully diluted share for the 2006 fiscal year

Assumptions include:• Adverse impact of Hurricane Katrina on margin of between $8 million and

$10 million• Greater contribution from nonutility businesses due to higher gas price

volatilityo Expected gross margin contribution from the marketing segment in the range of

$80 million to $90 milliono No material mark-to-market impact at fiscal year end

• Continued execution of rate strategy and collections efforts• Bad debt expense of no more than $20 million • Average short-term interest rate @ 4.5 % • No material acquisitions

Capital expenditures are expected to be between $400 million and $415 million

Earnings Guidance Earnings Guidance –– 2006 Fiscal Year2006 Fiscal Year

Consolidated Financial Results – Fiscal 2006E

Note: Changes in these events or other circumstances that the company cannot currently anticipate could materially impact earnings, and could result in earnings for fiscal 2006 significantly above or below this outlook.

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56334768

140

603559

82

158

724264

87

205

86

5265

97

215

136

82

133

178

428

146-155

83-95

138-140

187-198

425-450

0

200

400

600

800

1000

1200

20012002

20032004

20052006E

Selected Income Statement ComponentsSelected Income Statement Components($ in millions)

D & A $187 - $198Interest $138 - $140Income Tax $83 - $95Net Income $146 - $155

O & M $425 - $450

2006E Consolidated($ millions)

Consolidated Financial Results – Fiscal 2006E

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44

Net Income by SegmentNet Income by Segment

UtilityNatural Gas Marketing Pipeline & StorageOtherTotalAvg. Diluted SharesEarnings Per Share

2005

$ 8123311

13679.0

$ 1.72

($ millions, except EPS) 2004

$ 631733

8654.4

$ 1.58

$ 75 - 8039 - 4131 - 32

1 - 2146 - 155

81.3$1.80 - $1.90

2006E2003

$ 62(1)

74

7246.5

$ 1.54

Consolidated Financial Results – Fiscal 2006E

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Cash flows from operationsMaintenance/Non-growth capital Dividend

Cash available for debt reductionand growth projects

2003 2005

$ 49(110)(55)

$ (116)

$ 387 (243)(99)

$ 45

2004

$ 271(126)(67)

$ 78

($ millions)

Note: The company issued approximately $2.0 billion in debt and equity in 2004. Net cash proceeds exceeded the TXU Gas purchase price by approximately $56 million (after $43 million related to Treasury lock obligations) in anticipation of funding significant and attractive growth projects.

2006E

$ 390 - 410 (220 - 228)

(103)

$ 67 - 79

Cash FlowCash Flow

Consolidated Financial Results – Fiscal 2006E

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90

211

90-94

183-189

$0

$50

$100

$150

$200

$250

$300

$350

2005 2006E MaintenanceGrowth

Estimated Capital Expenditures Estimated Capital Expenditures –– 2006 Fiscal Year2006 Fiscal Year

Utility CAPEX(in millions)

2 30

90-93

37-39

$0$20$40

$60$80

$100

$120$140

2005 2006E

Nonutility CAPEX (in millions)

Consolidated fiscal 2006 CAPEX projection is $400-$415 million

$301 $273-$283 $127-$132

$32

Consolidated Financial Results – Fiscal 2006E

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Pension, PostPension, Post--Retirement & Other Benefits ExpenseRetirement & Other Benefits Expense

(in millions)in millions)

4.7

12.8

16.8

10.0

9.6

13.4

22.2

6.7

$0.0

$10.0

$20.0

$30.0

$40.0

$50.0

$60.0

2005 2006E

OtherMedical & DentalPost-retirementPension

$51.9

Consolidated Financial Results – Fiscal 2006E

$44.3

2006 Pension Assumptions8.50% return on plan assets5.00% discount rate4.00% wage increase

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Consolidated Financial ResultsFiscal 2006 2Q

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Consolidated Income Statements –Fiscal 2006 2Q

Three Months Ended March 31(000s except EPS) 2006 2005

Operating Revenues:Utility Segment 1,447,620$ 1,235,377$ Natural Gas Marketing Segment 818,629 512,891 Pipeline and Storage Segment 45,483 45,546 Other Nonutility Segment 1,595 1,278 Intersegment Eliminations (279,481) (110,007)

2,033,846 1,685,085 Purchased Gas Cost:

Utility Segment 1,131,885 912,309 Natural Gas Marketing Segment 774,652 501,731 Pipeline and Storage Segment 211 4,407 Other Nonutility Segment - - Intersegment Eliminations (278,305) (109,256)

1,628,443 1,309,191 Gross Profit 405,403 375,894

Operation and Maintenance Expense 112,698 103,420 Depreciation and Amortization 47,076 45,326 Taxes, other than income 64,796 54,967 Miscellaneous Income (Expense) (2,439) 958 Interest Charges 35,492 33,073 Income Before Income Taxes 142,902 140,066 Income Tax Expense 54,106 51,564 Net Income 88,796$ 88,502$ Net Income Per Share: Basic 1.10$ 1.12$ Diluted 1.10$ 1.11$ Average Shares Outstanding: Basic 80,573 79,270 Diluted 81,040 79,760

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Consolidated Income Statements –Fiscal 2006 YTD

Six Months Ended March 31(000s except EPS) 2006 2005

Operating Revenues:Utility Segment 2,852,630$ 2,149,058$ Natural Gas Marketing Segment 1,920,474 1,006,692 Pipeline and Storage Segment 85,195 89,236 Other Nonutility Segment 3,087 2,637 Intersegment Eliminations (543,720) (193,914)

4,317,666 3,053,709 Purchased Gas Cost:

Utility Segment 2,256,714 1,568,679 Natural Gas Marketing Segment 1,850,178 968,688 Pipeline and Storage Segment 211 10,628 Other Nonutility Segment - - Intersegment Eliminations (541,430) (192,283)

3,565,673 2,355,712 Gross Profit 751,993 697,997

Operation and Maintenance Expense 220,915 214,197 Depreciation and Amortization 90,336 89,323 Taxes, other than income 110,212 93,622 Miscellaneous Income (Expense) (1,991) 1,343 Interest Charges 71,681 65,615 Income Before Income Taxes 256,858 236,583 Income Tax Expense 97,035 88,482 Net Income 159,823$ 148,101$ Net Income Per Share: Basic 1.99$ 1.92$ Diluted 1.98$ 1.90$ Average Shares Outstanding: Basic 80,444 77,290 Diluted 80,911 77,769

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Utility Operating Income – By DivisionFiscal 2006 2Q

Three Months Ended March 312006 2005

Utility Operating Income Colorado-Kansas Division 14,650$ 16,248$ Kentucky Division 9,055 10,758 Louisiana Division 8,596 16,250 Mid-States Division 24,895 24,705 Mid-Tex Division 29,455 41,022 Mississippi Division 16,752 18,509 West Texas Division 13,539 15,302 Other 822 404 Total Utility Operating Income 117,764$ 143,198$

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Utility Operating Income – By DivisionFiscal 2006 YTD

Six Months Ended March 312006 2005

Utility Operating Income Colorado-Kansas Division 23,260$ 24,483$ Kentucky Division 15,247 16,603 Louisiana Division 16,487 22,583 Mid-States Division 39,193 35,843 Mid-Tex Division 80,242 79,570 Mississippi Division 26,745 27,116 West Texas Division 19,670 21,088 Other 3,169 999 Total Utility Operating Income 224,013$ 228,285$

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Utility Volumes - Fiscal 2006 2Q

Three Months Ended March 312006 2005 Change % Change

Sales Volumes (MMcf) Residential 65,869 78,477 (12,608) (16%) Commercial 33,833 37,048 (3,215) (9%) Public authority and other 3,649 2,962 687 23% Industrial 8,054 9,648 (1,594) (17%) Irrigation 316 60 256 427% Total 111,721 128,195 (16,474) (13%)Transportation (MMcf) 31,152 31,904 (752) (2%) Total Consolidated Utility Volumes (MMcf) 142,873 160,099 (17,226) (11%)

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Utility Volumes - Fiscal 2006 YTD

Six Months Ended March 312006 2005 Change % Change

Sales Volumes (MMcf) Residential 119,578 129,246 (9,668) (7%) Commercial 62,972 64,911 (1,939) (3%) Public authority and other 6,940 6,978 (38) (1%) Industrial 17,063 17,891 (828) (5%) Irrigation 356 126 230 183% Total 206,909 219,152 (12,243) (6%)Transportation (MMcf) 61,754 59,882 1,872 3% Total Consolidated Utility Volumes (MMcf) 268,663 279,034 (10,371) (4%)

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Cash Flow Statements - Fiscal 2006 YTD

2006 2005(000s)

Net income 159,823$ 148,101$ Depreciation and amortization 90,670 89,800 Deferred income taxes 58,199 42,605 Other 7,587 3,315 Net change in operating assets and liabilities (167,888) 116,272

Operating cash flow 148,391 400,093

Acquisitions - (1,912,532) Capital expenditures - growth (60,889) (41,337) Capital expenditures - non-growth (152,341) (96,129) Other, net (2,842) (1,957)

Operating cash flow after investing activities (67,681) (1,651,862)

Repayment of long-term debt (2,162) (3,849) Settlement of Treasury lock agreements - (43,770) Dividends paid (50,933) (49,211)

Cash flow after acquisitions and growth capital (120,776)$ (1,748,692)$

Six Months Ended March 31

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Capitalization - Fiscal 2006 YTD

(000s)

Short-term debt 262,315$ 6.3% -$ 0.0%

Long-term debt 2,184,428 52.6% 2,260,704 58.1%

Shareholders' equity 1,706,291 41.1% 1,632,270 41.9%

Total capitalization 4,153,034$ 100.0% 3,892,974$ 100.0%

As of March 312006 2005

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As a Reminder…

The audio and slide presentation of this conference call will be available on Atmos Energy’s Web site by 9:00 a.m. Eastern Daylight Time on May 5, 2006, through midnight on August 9, 2006. Atmos Energy’s Web site address is: www.atmosenergy.com.

To listen to the live conference call, dial 800-218-9073 by 9:00 a.m. Eastern Daylight Time on May 5, 2006.

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Appendix

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Atmos Energy Marketing - Storage

We commercially manage our storage assets by capturing arbitrage value through optimization strategies that create embedded (forward) value in the portfolio. We financially report the transactions for external reporting purposes in accordance with GAAP.

GAAP Reported Value is the period to period net change in fair value of the portfolio reported in the income statement that results from the process of marking to market the physical storage volumes and corresponding financial instruments in an interim period.

Economic Value is the period to period forward margin of our storage portfolio that results from the process of calculating our weighted average cost of inventory (WACOG), and our weighted average sales price of our forward financials (WASP), then multiplying the difference times inventory volumes. This margin will be realized in cash when the hedged transaction is executed or when financials are settled and then reset to stay hedged against physical volumes.

Economic Value represents the “forward” economic margin of the transactions, while GAAP reported results reflect that portion of our “forward” margin that has been recorded in the income statement. Volatility in earnings includes the impact of the accounting treatment of our storage portfolio and is reflective of relatively high price volatility of the prompt month, and the relatively low volatility of the offsetting forward months.

Economic Value vs. GAAP Reported ResultsEconomic Value vs. GAAP Reported Results

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Economic Value vs. GAAP Reported ResultsEconomic Value vs. GAAP Reported Results

Atmos Energy Marketing

Reported GAAPValue

- Physical and FinancialPositions

($35.8 MM)

Reported GAAPValue

- Physical and FinancialPositions

($35.8 MM)

Economic Value*(Commercial Value)

- Physical and FinancialPositions

$30.8 MM

Market Spread

Embedded margindifference

$66.6 MM*Realizing Economic Value is dependent on ability toexecute – deliver physical gas & close financial hedges

Support data appears onthe following slideAt March 31, 2006

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Physical Period Volume Total Total TotalEnding (Bcf) WASP WACOG EV ($ in millions) ($ per mmbtu) ($ in millions) ($ per mmbtu) ($ in millions)

12/31/2004 6.4 8.3569 6.3385 2.0184 12.9 1.8401 11.8 0.1783 1.1

3/31/2005 12.5 7.1916 6.5459 0.6457 8.0 (0.7044) (8.8) 1.3501 16.8

12/31/2005 12.8 9.3918 8.8366 0.5552 7.1 (3.0094) (38.6) 3.5646 45.7

3/31/2006 23.6 10.3880 9.0806 1.3074 30.8 (1.5195) (35.8) 2.8269 66.6

($ per mmbtu)Economic Value (EV) Market SpreadGAAP Reported Value - MTM

Economic Value vs. GAAP Reported ResultsEconomic Value vs. GAAP Reported Results

Atmos Energy Marketing

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62

$15.0 million----

$13.7 million$1.3 millionKaty Capacity

Expansion/ Compression

----------------Devon Line/

Corridor Compression

$15.2 million

---

$15.2 million

2005

GRIP Filings **

$6.9 million

$4.0 million

$1.6 million

Actual2005

CAPEX*

$79.7 million

$17.8 million

$48.2 million

Estimated 2006

$71.4 million

$21.8 million

$34.6 million

2006 Northside Loop JV with Energy

Transfer

Total:

Enbridge Line/Corridor Compression

Project

Project UpdateProject Update

Estimated total annual revenues are $15.0 million; of which $6.7 million are expected to occur in fiscal 2006.* CAPEX is calculated on a fiscal year basis** Capital expenditures are included in GRIP filings on a calendar year basis and when the asset is operational

Atmos Pipeline - Texas

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Atmos Pipeline - Texas

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64

Project Map

North SideLoop

EnbridgeCompression

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65

Metropolitan New Orleans AreaTLGP Transmission / TLGP Sales Points

Metropolitan New Orleans AreaTLGP Transmission / TLGP Sales Points

St. Cha

rles P

arish

Jeffe

rson

Par

ish

Orle

ans

Par

ish

N

S

EW

October 26, 2001

TLGP 24”

Bridgeline Gas(Paradis)

S39,T14S,R20E

Bridgeline Gas(Paradis)

S39,T14S,R20EFuture Interconnect

Columbia GulfFuture Interconnect

Columbia Gulf

B’line 14”

Acadian Gas PipelineS48,T13S,R21E

Acadian Gas PipelineS48,T13S,R21E

Gulf South PipelineS48,T13S,R21E

Gulf South PipelineS48,T13S,R21E

TLGP 16”

AEL 18”

Entergy Louisiana(TLGP Sales)S5,T13S,R20E

Entergy Louisiana(TLGP Sales)S5,T13S,R20E

Atmos Energy LouisianaS5,T13S,R23E

Atmos Energy LouisianaS5,T13S,R23E

S24,T13S,R23E

21 Miles of 24” TLGP Pipe.95 Miles of 12” TLGP Pipe

Storage is held on upstream pipelines

• Bridgeline

• Acadian

• Gulf South

TLGP PipelineTLGP Pipeline

Trans Louisiana Gas Pipeline