Fitch Affirms Atmos Energy Corp.’s IDR at ‘BBB’; Outlook Stable

Fitch Ratings has affirmed Atmos Energy Corp.’s (Atmos) Issuer Default Rating (IDR) at ‘BBB’ and its senior unsecured debt rating at ‘BBB+’. Approximately $2.12 billion of notes and debentures are affected by the rating action. In addition, Atmos’ short-term IDR and debt rating relating to its $600 million commercial paper program are affirmed at ‘F2′. The Rating Outlook remains Stable.

The ratings and Stable Outlook reflect the scale, quality, and geographic and regulatory diversity of Atmos’ operations. The ratings also recognize Atmos’ efficient operations and effective practices in dealing with regulators across its multi-state service territory. Notably, over 90% of its utility customers are now covered under weather normalization mechanisms lessening earnings volatility. Increased utility profits are supported by recently resolved rate filings across several state jurisdictions that in total will result in approximately $67 million of incremental margin for fiscal 2008. The adoption this year of a rate review mechanism that allows for annual cost of service and rate base adjustments for a large portion of the company’s Mid-Tex Division should limit regulatory lag.

In addition, Fitch believes that favorable natural gas supply/demand dynamics in Texas, particularly in the northern and eastern parts of the state will benefit its intrastate pipeline and storage assets. Demand driven volumes generated from regional population growth and increased use of natural gas for electric generation, along with increasing natural gas production out of the Barnett Shale Basin north of Fort Worth should stimulate volumes for the next several years. Supply driven pipeline volume growth experienced during the most recent quarter ended June 30, 2008, was particularly strong.

Of moderate concern is the higher level of business risk associated with gas supply management, marketing, and pipeline and storage services performed by its unregulated subsidiary, Atmos Energy Holdings, Inc. (AEM) and the uncertainty related to the development and operation of planned natural gas midstream projects, including the proposed Ft. Necessity Gas Storage project in Louisiana which has a total cost to completion in excess of $200 million and will likely be subject to ongoing inflationary pressures now common to the industry. An additional uncertainty is the effect high commodity prices would have on liquidity, both at the utility to fund seasonal inventory borrowing and at AEM to provide supplier collateral to support its activities.

Atmos serves nearly 3.2 million utility customers in twelve states and operates a 6,300-mile Texas pipeline system. AEM and other unregulated subsidiaries provide gas supply management, marketing, and pipeline and storage services for municipals, industrials, power generators, and affiliated and non-affiliated utilities.

Fitch’s rating definitions and the terms of use of such ratings are available on the agency’s public site, www.fitchratings.com. Published ratings, criteria and methodologies are available from this site, at all times. Fitch’s code of conduct, confidentiality, conflicts of interest, affiliate firewall, compliance and other relevant policies and procedures are also available from the ‘Code of Conduct’ section of this site.