John Akers:

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported year-to-date fiscal '24 net income of $743 million or $4.93 per diluted share. And we updated our fiscal '24 earnings per share guidance to a range of $6.70 to $6.80. This performance continues to reflect the commitment, dedication, focus and effort of all 5,000 Atmos Energy employees to successfully modernize our natural gas distribution, transmission and storage systems, while safely providing reliable natural gas service to 3.4 million customers and 1,400 communities across our 8 states.

Richard Sunderland:

Can you hear me?

Richard Sunderland:

Great. Thanks for all the clarifications around guidance and the changes there. I do just want to circle back to that and particularly the language around the roll forward of the growth rate at year-end, ex those nonrecurring items. Just for the sake of clarity, could you quantify again what those items are? And so just to be clear, those two items would then be removed from your year-end results for the purposes of calculating the growth rate on a [ 4 basis ], am I summarizing that correctly?

Richard Sunderland:

Okay. Got it. Very helpful there. And then just to parse the '24 guidance changes a little more finely. If I'm recalling correctly from last quarter, you had said Mississippi was in the prior range and then Texas property tax, there had been a little uncertainty about whether it was all incremental or not, and now we're obviously getting that update today.

Christopher Forsythe:

Okay. So lots to unpack there. So I think, again, on the $0.10 to $0.11 on the Texas property tax, that was really related to -- we're receiving the final valuations in our property tax valuations here in this quarter. And our team is working through what those final valuations will be for taxation purposes. So that's why there's a range there.

Operator:

And our next question comes from the line of Christopher Jeffrey with Mizuho.

John Akers:

Yes, it's a little hard to understand your question there, but I think [indiscernible], you're asking about the spreads on the pipeline. Obviously, at different times throughout the year, there will be maintenance on various other takeaway capacity. That's what we've seen over the last few weeks to months and anticipate several other pipelines to have additional maintenance, which is driving some negative spreads coming out of Waha, I believe, this morning.

Christopher Jeffrey:

One of my questions was about spreads on the pipeline. So maybe to clarify my last question, the CapEx guide for '24 increased from the last update. I was just hoping further color on what's driving the increase in which businesses?

Operator:

[Operator Instructions] And it looks like there are no further questions. So at this point, I will turn the call back over to Dan Meziere for closing remarks. Dan?

Operator:

Thanks, Dan. And again, ladies and gentlemen, that concludes today's call. Thank you all for joining, and you may now disconnect.

Dan Meziere:

Thank you, Adam. Good morning, everyone, and thank you for joining us – for joining our fiscal 2024 first quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 26 and are more fully described in our SEC filings. With that, I will turn the call over to Kevin Akers, our President and CEO. Kevin?

Chris Forsythe:

Thank you, Kevin, and thank you to everyone for joining us this morning. As Kevin mentioned, our fiscal 2024 first quarter earnings per share was $2.08, which represents an 8.9% increase over the $1.91 per share reported in the prior year quarter. Consolidated operating income increased to $399 million or 24% in the first quarter. This performance was driven by several factors. Rate increases in both of our operating segments totaled $84 million. Residential commercial customer growth, combined with higher industrial loads increased operating income by an additional $6 million. Consolidated O&M expense decreased $19 million, primarily driven by lower bad debt expense. In December, the Mississippi Public Service Commission modified how we recover uncollectible customer accounts. Previously, we have recovered these costs through a stable rate filing over a 12-month period. Effective April of 2022, we will now recur these costs for purchased gas cost mechanism over 24-month period, which will benefit our customers. As a result of this change, we reduced our bad debt expense by $14 million during the first quarter. Additionally, with this change, we now collect the bad debt portion of our uncollectible accounts through our purchased gas cost recovery mechanisms 88% of our customer base. O&M decreased an additional $5 million, primarily due to the timing of in-line inspection work at APT that we highlighted last fiscal year. Finally, operating income was favorably impacted by a legislative change in Texas to reduce property tax expenses. In the summer of 2023, the Texas legislature voted to allocate $18 million of the state's budget surplus to offset property taxes assessed on residential commercial property owners for calendar years 2023 and 2024. This legislation became effective during our first fiscal quarter after voters approved the legislation in November. In fiscal 2024, we expect this legislation will reduce our property tax expense by $20 million to $22 million. We recognize approximately $6 million of this impact during the first quarter. This reduction was not reflected in the fiscal 2024 earnings per share guidance we issued in November. We continued to execute our annual regulatory filing strategy. To date, we have implemented $167 million in annualized regulatory outcomes. This amount includes the $27 million associated with APT’s general rate case that was approved in December. We currently have about $61 million in progress and plan to make additional filings this fiscal year seeking $340 million to $370 million in annualized operating income increase. During the quarter we completed over $1.1 billion of long-term debt and equity financing, highlighted by the $900 million long-term debt financing we completed in October 2023. Additionally, we settled $254 million in equity forward agreement. This financing provides the necessary funding for our operations, while maintaining the strength of our balance sheet and overall financial profile. Our equity capitalization as of December 31 was 60% and we did not have any short-term debt outstanding. We also had $3.2 billion in available liquidity. This amount includes approximately $433 million of net proceeds available under existing foreign sale agreements, which is expected to satisfy the remainder of our anticipated fiscal 2024 equity needs and a portion of our anticipated equity needs for fiscal 2025. Our weighted average cost of debt is 4.1% and our weighted average maturity is approximately 18 years, with our next significant refinancing scheduled for June of 2027. And we continue to expect to have limited exposure to floating interest rates in fiscal 2024. Finally, we have $900 million in forward starting interest rate swaps in place to hedge portions or anticipated long-term debt issuances in fiscal 2025 and fiscal 2026. As a reminder, the effective weighted average treasury rate of these swaps is 1.54%. In closing, we are off to a good start for the fiscal year. The execution of our operational, financial and regulatory plans by our employees positions us well to sustain our success. We continue to expect fiscal 2024 earnings per share to be in the range $6.45 and $6.65 per share, inclusive of the favorable impact of the property tax legislation changes in Texas. Thank you for your time this morning. I will now open the call up for questions.

David Arcaro:

Hey, good morning. Thanks so much for taking my questions. Hope you’re doing well.

David Arcaro:

Let’s see. I might have missed the details here. Could you just elaborate a bit on that property tax impact and the change? What EPS impact does that have for the full year this year? And did you say it’s not currently embedded in the EPS guidance?

David Arcaro:

Okay, got it. Understood. Thanks for that color. Let’s see. Wanted to get your color on growth in customer additions. It sounds like you’ve continued to see strong customer additions in the quarter. I guess, what are your expectations for that continuing, just given what you’re seeing in building activities and the economic backdrop in your service territories?

David Arcaro:

Got it. That’s helpful color. I appreciate that. And then maybe just one more for me. I was wondering what your expectations are ahead of just a couple of the general rate cases you have later this year West Texas and MidTex. Just curious if there are any major things that you need to address, maybe out of the ordinary in those rate cases that would cause it to be a big ask or more contentious than usual?

David Arcaro:

Okay. That makes sense. Thanks so much.

Operator:

Your next question comes from the line of Julien Dumoulin-Smith with Bank of America. Your line is open.

Chris Forsythe:

Yes, that’s a good question, Julien. I mean, at this point, we’re sitting here in the middle of the winter heating season, which we’re beginning to think about what we look like going into the summer months in terms of compliance work and other activities that’s still all under evaluation right now. And we’ll have a better update for you in May.

Kevin Akers:

Yes, Julien, I mean, again, we stand by what we have out there in our deck and what we’ve talked about before in our 3% to 3.5% range that’s out there. Obviously, we have folks out on the system ensuring reliability this past winter storm with Heather, which I think we did an exceptional job of continuing to serve our customers out there in that historic winter storm. So we’ll continue to evaluate opportunities, whether those are hydrostatic tests on APT, compliance work across the system. So at this point, we’re still comfortable with the range we have out there and where we set the first quarter into the fiscal year.

Kevin Akers:

Yes, as I said at our opening, very proud of all 5000 Atmos Energy employees. I think we did an exceptional job with this winter storm. The severity that it came in, I think depending on where you want to look at for heating degree day data, it was some 78% colder than normal in some locations, 200% colder than last year. So again, this takes a sustained period of investment in infrastructure improvement across your system. Obviously we did a lot of projects from last year, but we've been at this now for over 12 years. Improving our infrastructure, that's what allows us to be able to serve during these historic periods when they come in. You just can't do that overnight. I think our team's done a good job of identifying opportunities throughout the years and executing on those projects, but also very proud of our product. Look, for that week, I think we set a record across the country at a 174 Bcf of natural gas, with a peak of 72 Bcf for residential and commercial. So again, very proud of natural gas and what it does. And I think if you look at the energy output for that week, according to EIA, natural gas, petroleum and coal consumed 85% of the energy demand for that period. So very proud of what we continue to do as an industry.

Kevin Akers:

Thank you.

Richard Sunderland:

Hi, good morning and thank you for the time today. I'd like to circle back on the property tax item one more time, if I could, just to be clear on that benefit. Is what you quantified the full amount of the benefit, or is that net of any reserves for return to customers? How are you thinking about that latter portion?

Richard Sunderland:

Okay, understood. Very helpful color there. Thank you. And then just turning to the Fort Worth incident, I was curious if you could talk a little bit about the site status. Just seen some media headlines around debris removal. Any current color there would be helpful. Also, who is currently investigating?

Richard Sunderland:

Great. Thank you very much.

Operator:

Your next question comes from the line of Nick Campanella with Barclays. Your line is open.

Chris Forsythe:

Well, right now, Nick, as we talked about a couple of minutes ago, we're still in the middle of the winter heating season. We need to see how our margins hold up as we move into January, February, March. We still evaluating our O&M needs for the fiscal year. So we felt it was prudent to maintain the guidance in this range at this point and provide a more thorough update once we get through the winter heating season.

Chris Forsythe:

Yes, we still have ways to go on that for legal reasons, I can't say precisely how much it's been priced, but under the terms of the agreements that we have in place. But we will just continue to stay ahead of our equity needs through the ATM throughout this fiscal year in preparation for FY 2025.

Kevin Akers:

Sure. Be glad to. Again, we've talked about our growth on every call here for several years now. We continue to grow at close to 2% or above 2%, particularly in our Mid-Tex Division there. So we have that mechanism with good organic growth. You couple that with the rate construct that we have, where we start to earn on 90% of our investment in six months, 99% in 12 months. It's hard for us to see any sort of deal that could compete with the growth and regulatory construct that we have. So we're very proud of our systems, what we do, our relationships, our execution on that. So at this point we are continuing to focus on and remain dedicated to system modernization.

Kevin Akers:

Thank you.

Ryan Levine:

Hi, everybody.

Ryan Levine:

Is there any color you could share around what you're seeing in the legislative sessions and across your service territories? Is there any bills that are being proposed that you're watching closely or that could have an impact on your business or outlook?

Ryan Levine:

Okay. And then in terms of the pipelines or LDC network itself, are you seeing any jurisdictions that are looking to rerate some types that may be classified as transmission to distribution or anything along those lines?

Ryan Levine:

Okay. Appreciate that. Thank you.

Chris Jeffrey:

Hi, this is Chris Jeffrey on for Gabe. Just one quick one on the O&M side. Just seemed like there was a change in the bad debt expense treatment that came through on the quarter. Wondering, is that all kind of realized now? Or will that continue to flow through future periods? And was that contemplated in the original guide?

Chris Jeffrey:

Great. Thanks. That's it for me.

Dan Meziere:

We appreciate your interest in Atmos Energy. And again, thank you for joining us. A recording of this call is available for replay on our website through March 31. Have a great day.

Daniel Meziere:

Thank you, Jay. Good morning, everyone, and thank you for joining us. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com, under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 37 and are more fully described in our SEC filings. I will now turn the call over to Kevin.

Christopher Forsythe:

Thank you, Kevin, and good morning, everyone. Our fiscal '23 earnings per share of $6.10 increased 8.9% over fiscal '22. Our performance continues to reflect the successful execution of our operating, regulatory and financing strategies. In fiscal '23, we implemented $269 million of annualized operating income increases excluding the amortization of excess deferred tax liability. These outcomes combined with outcomes received in fiscal '22, increased operating income by $254 million this fiscal year. Strong customer growth, higher consumption and rising industrial load in our distribution segment increased operating income by an additional $30 million. Consolidated O&M increased $55 million to $765 million, largely driven by higher levels of service orders and increased head count to support our growing service territory, primarily in Texas. This thing came in at the lower end of our updated guidance range as we saw some moderation in inflation in the third and fourth fiscal quarters. Fiscal '23 capital spending of $2.8 billion represent a 15% increase over the prior fiscal year, 85% of that spend was dedicated to improve the safety and reliability of our system. As a result of this spending, our rate base increased by 18% and estimated $16.6 billion as of September 30. Finally, we completed $1.6 billion of long-term financing and completed the securitization process in Kansas and Texas. We finished the fiscal year with an equity capitalization of 61.5% and approximately $2.7 billion of available liquidity, which leaves us well positioned to support our future operations. Looking forward, our strategy continues to focus on system modernization through disciplined capital spending, seeking timely recovery of our costs through our regulatory mechanisms, while financing our operations using a balance of equity and long-term debt to preserve the strength of our balance sheet, mitigate financing risk and minimizing the cost of financing to our customers. We anticipate the execution of this strategy will continue to support 6% to 8% annual earnings per share and dividend per share growth. For fiscal '24, we anticipate earnings per share will be between $6.45 and $6.65, and we anticipate fiscal '28 earnings per share to be in the range of $8.35 and $8.75. Additionally, Atmos Energy's Board of Directors approved a 160th consecutive quarterly cash dividend as an indicated fiscal '24 annual dividend of $3.22, an 8.8% increase over fiscal '23. This plan anticipates total capital spending of approximately $17 billion. This level of spending will continue to support rate base growth of about 11% to 13% per year, which is expected to increase estimated rate base by approximately -- to approximately $29 billion in fiscal '28. In addition to our capital spending, another significant use of cash will be for taxes. We expect to refund $300 million of excess deferred tax liabilities over the next 5 years, with approximately 70% of this amount be funded during fiscal '24 and fiscal '25. And we anticipate we will become a material federal cash tax payer within the next 3 years because of 15% corporate minimum tax that was included in The Inflation Reduction Act. Our O&M spending will continue to focus on compliance-based activities that address system safety. We have assumed O&M inflation of 3.5% annually through fiscal '28, from fiscal '23 levels. For fiscal '24, we anticipate O&M to range from $780 million to $800 million. This 5-year plan includes approximately $10 million of incremental long-term debt and financing, which has been reflected in our earnings per share guidance for both fiscal '24 and fiscal '28. Following completion of our $900 million long-term debt issuance in October, our weighted average cost of debt stood at 4.1%, and our debt maturity schedule is very manageable. Our weighted at maturity is 18.4 years, and our next significant tranche of debt is not scheduled to mature until June of 2027. Additionally, our financing strategy does not contemplate material exposure to floating rate interest rates. To further mitigate interest rate risk, we have $900 million in forward starting interest rate swaps in place to hedge portions of our anticipated long-term debt issuances in fiscal 2025 and '26. The effective weighted average rate of these swaps is 1.59%. Finally, we intend to continue utilizing our ATM program to meet our equity financing needs. As of September 30, we have priced $467 million which represents a significant portion of our anticipated fiscal '24 equity need. Handling recovery of our costs remains a key component of our strategy. We are off to a good start in fiscal '24. Since the beginning of the fiscal year, we had implemented $113 million in annualized operating income increases in our Distribution segment, and we have 5 filings in progress taking about $137 million. Included in this amount is $107 million requested in APT's general rate case. On October 24, APT and the intervening parties filed a comprehensive settlement agreement with the Texas Railroad Commission. The settlement proposes a rate base of $4.3 billion, an authorized rate of return of 8.49%, equity capitalization of 60.44% and an authorized ROE of 11.45%. We anticipate the settlement agreement will be on the commission's agenda for the December 13 meeting. If approved as filed, this settlement would result in a $27 million increase in annualized operating income. We remain confident the execution of this strategy, will continue to support our ability to modernize our system and to support the continued economic development in our service territories. Our customers will continue to benefit from this strategy as we expect our average residential bill will remain one of the most competitively priced utility bills in our customers' health. Thank you for your time this morning. I will now turn the call back over to Kevin to say some closing remarks. Kevin?

Operator:

[Operator Instructions]. Your first question comes from the line of Nick Campanella of Barclays.

Christopher Forsythe:

Nick, it's Chris. Yes, right now, we remain pretty confident that we can still use the ATM to fund those equity needs. As you know, we have a balanced financing strategy. We're certainly looking at a number of factors that's -- cost of the customer, the strength of the balance sheet which supports credit ratings, credit facilities, our ability to finance attractively in the capital markets and equity is a component of that. So we're certainly looking at that particular tool. I mean, we have other tools available to us if needed. But at this time, given the liquidity that we have in the market, we believe we can satisfy those needs through the ATM.

Christopher Forsythe:

Yes, that has been contemplated in the guidance we issued yesterday.

Richard Sunderland:

Am I coming through clearly?

Richard Sunderland:

Great. Following up on the financing side, just curious if 50% to 60% equity capitalization is still the target to think about? Or is 60% more appropriate given the outcome on the APT side?

Richard Sunderland:

Understood. And then turning to the O&M side, you laid out a little bit of this in the script, but just curious if you could parse the recent O&M trends a little bit more. How much of 2H is moderation versus timing? And then how much conservatism is or is not baked into that 2024 outlook?

Operator:

Your next question comes from the line of Gabe Moreen of Mizuho.

Kevin Akers:

Yes, again, I'll reiterate what I said previously. There towards the last quarter, we saw some of the line locating requests drive down just a few percentage points in some of our jurisdictions. Even though here in Texas, we saw an 8% increase. So that's what we were looking at there. That certainly reduced some of our compliance costs. Then again with some of our other compliance activity and timing of those sort of things, we think we've got a good handle on what the next year, the 3- to 5-year window looks like on planned O&M activity, compliance activity, those sort of things. So those were some of the drivers we were looking at that came out of the last quarter and allowed us to stay in that 3% to 3.5% range and at $780 million to $800 million O&M.

Gabriel Moreen:

Got it. And maybe if I can also ask in the context of becoming a cash taxpayer over the next couple of years. Is there anything you can do kind of as an offset, whether from a corporate level or from a regulatory standpoint, to offset maybe some of the cash impact there? And then maybe also bigger picture, just what you're assuming sort of on interest rates and recoverability from a cost of capital standpoint, over the next couple of years given how dramatically rates have shifted, I guess, since the last 5-year uptake?

Kevin Akers:

Yes. I just want to reemphasize that the plan does reflect, as Chris said, they're us becoming a tax cash payer out in that time frame. So that's all backed into the plan that's out there.

Julien Dumoulin-Smith:

Just maybe picking up where Gabe left off there. Just on the question of taxes, if you don't mind. What about -- for income statement purposes, how do you think about effective tax rate here? I mean, obviously, the comment is about going to a full cash taxpayer here in the next 3 years, certainly relevant from financing. But how do you think about the uptick, obviously, from '23 to '24, and then from there on out, in terms of the effective tax rate on the income statement. Obviously, I get that some of that over time is going to be subsumed back into the regulated cost structure. But I'm just curious on how you would set expectations and if there's any kind of question about recovery and timing there, as well in the next few years as you see that uptick?

Julien Dumoulin-Smith:

Got it. Right. So regulatory strategy on the come here but not overly concerned about what that does in terms of, like maybe a lag headwind here in, call it, '25 and '26 as you kind of get to that more normalized level, if you will?

Julien Dumoulin-Smith:

Excellent. Very much appreciated. And then just on the O&M side, I just wanted to understand, as you think about that normalized, I think you said 3% to 3.5%. Like, how do you think about what is going on in the context of line locates within that composition through the future? I mean, obviously, that's been elevated here. You saw a little bit of reprieve. How do you think about that contributing to that normalized level versus this just being the new norm? Or is there an elevated line locate just embedded in that 3 to 3.5 year?

Julien Dumoulin-Smith:

Okay. Fair enough. But it's not like you have some meaningful further uptick in line locates or something like that, that we should be aware of here?

Christopher Forsythe:

Yes. And the 3.5% annual increase is off of FY '23 levels kind of starting at that elevated level already.

Ryan Levine:

I want to follow up on the O&M getting a little more granular. In terms of the outlook, it's more on an annual basis. But can you speak to maybe the seasonality attributes of the O&M outlook. Should we look to -- this most recent fiscal year as indicative of seasonality trends on a go-forward basis? Is there anything else to call out?

Kevin Akers:

Yes, Ryan, the other thing I'd say, Chris, is spot on with that is, we do -- given the economic growth that we've seen across our service territory, there are times when jurisdictions would want to pull forward projects, whether they're water, sewer related or there's fiber things going on, fiber projects out there that we'll have to move and adjust to as well based upon their time line. It may not be seasonably ratable, but it may be in a quarter it may show up. So again, we have to get the work done when we need to get the work done and work with our communities to make sure we're in concert with their projects as well.

Christopher Forsythe:

Yes. We're aware of some filings that are out there kind of looking at that opportunity. We're looking at those right now and seeing at that, would make -- potentially makes sense for us. But we're aware of what others are trying to do at this point in time.

Daniel Meziere:

We appreciate your interest in Atmos Energy, and thank you again for joining us this morning. A recording of this call is available for replay on our website through December 31. Have a great day.

Daniel Meziere :

Thank you, Aaron. Good morning, everyone, and thank you for joining our fiscal 2023 third quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 34 and are more fully described in our SEC filings. With that, I will turn the call over to Chris Forsythe, our Senior Vice President and CFO. Chris?

Kevin Akers:

Thank you, Chris. Good morning, everyone, and thank you for joining us today. Our fiscal year performance reflects the continued dedication of our 4,800 Atmos Energy employees in executing our proven safety and reliability investment strategy. Through their commitment, focus and effort, we are modernizing our natural gas distribution, transmission and storage systems while safely providing reliable natural gas service to our 3.4 million customers in 1,400 communities across our eight states. We continue to experience strong customer growth, driven by robust employment trends, particularly in Texas. For the 12 months ended June 30, we added nearly 64,000 new customers with just over 48,000 of those new customers located here in Texas. And according to the Texas Workforce Commission, the State continued its streak of record employment. For the 12 months ended May 31, the number of employed reached a new record high at nearly 14.4 million, leading the country in number and percentage of jobs added. Additionally, according to a study by Site Selection Group, the Dallas-Fort Worth Metroplex is projected to add one million people by 2028 to reach nearly 8.5 million people here in the Metroplex. Industrial demand for natural gas in our service territory also remained strong. During the third quarter, we added 10 new industrial customers with an anticipated annual load of approximately 8 Bcf once they're fully operational. Fiscal year-to-date, we've added 41 new industrial customers with an anticipated annual load of approximately 16 Bcf once they are fully operational. On a volumetric basis, that 16 Bcf of anticipated load is equivalent to adding nearly 294,000 residential customers. Finally we continued our outreach efforts to energy assistance agencies and customers. During the first nine months of fiscal year, our Customer Advocacy team and customer support agents helped over 55,000 customers receive about $23 million in funding assistance. Our continued focus on long-term sustainability, combined with executing our proven investment, regulatory and financing strategy has us positioned well for another successful year in fiscal 2023, and reflects the vital role we play in every community, providing safe, reliable and efficient natural gas service to homes, businesses and industries to fuel our energy needs now and in the future. We appreciate your time this morning, and we'll now open the call to questions.

Richard Sunderland:

Hi, good morning. Can you hear me?

Daniel Meziere:

Yes, we can.

Chris Forsythe:

Yes. Thank you, Rich. We'll start with '23. Again, a lot of the timing is related to the APT and line section work that I referenced just a couple of minutes ago, and again, more of that work was ratable this year in the first half year, the fiscal year primarily compared to last year. It was more concentrated in the fourth quarter. As we look forward into fiscal '24, we're still pulling together that five-year plan that we are looking for opportunities to derisk that a little bit in terms of, on the distribution side. Looking at how we might approach line locate the strategy there, as well as just trying to lock in some longer contracts and some of our service contracts that are third party by design. And so those are some things that we're looking at to try to mitigate some increases going forward.

Kevin Akers:

Yes, Richard, this is Kevin. I'll start out. We're right on pace with the procedural schedule as it's outlined there. We're still continuing to get data requests. We're responding to those. So at this point, if you look at the procedural schedule, we feel like we're on track to get an order some time toward the end of the calendar year in that December time frame.

Kevin Akers:

No. Again, we're still continuing to answer questions at this point. We'll see how we progress over the next few weeks or so. But at this point, again, I think we're on track with the outlined procedural schedule.

Kevin Akers:

Thank you.

Operator:

[Operator Instructions] Our next question is from Ryan Levine with Citi. Ryan, please go ahead.

Kevin Akers:

Yes, Ryan. I think as you think about on a go forward, we certainly had anticipated going into '23, some of the inflationary costs. We knew we were going to have some growth. But if you look at the O&M was driven on a line locating, as Chris mentioned before. I would certainly anticipate that to continue. But I think we've got a good outlook on that now on where we stand on number of locates, type of other O&M expenses. As Chris said, as we move to finalize our '24 plan and look forward from that.

Kevin Akers:

Yes. And I think that's the other point, Ryan, here, as our communities, as you've heard us say, are growing, expanding out where we're working with them on timing of their projects, whether they are infrastructure projects or current [indiscernible]. You've got fiber optic projects out there, you've got road relocations, new road construction, that sort of thing going on. Some of this just cycle throughout the full fiscal year period.

Kevin Akers:

Yes. I don't know that I would make that kind of direct correlation. I think what Chris was alluding to are some orders for reread, that sort of thing based on bills, but I don't think it's a meaningful percentage of the rest of the overall operational O&M per se.

Chris Forsythe:

Yes, Ryan. The effective tax rate that you see is roughly 11%. That's heavily influenced by the excess of -- the refunds of excess deferred tax liabilities from the TCJA. We're amortizing those over a three to five year period. So that's why we've included in our deck, kind of the marginal effective tax rate of roughly 22.5% to 23.5% per se. So that you have an idea of really what true tax impacts are if you're modeling your O&M or other types of expenses or revenues. But we do anticipate the GAAP effective tax rate to increase as the excess deferred taxes wind down here over the next couple of years and revert back to that more traditional 22% to 23.5%.

Operator:

[Operator Instructions] And at this point, it does look like we are good on the questions. Dan, would you like me to turn it back over to you for closing remarks?

Operator:

Thank you, Dan. And ladies and gentlemen, that does conclude today's call. Thank you all for joining. You may now disconnect.

Daniel Meziere:

Thank you, Mandy. Good morning, everyone, and thank you for joining our fiscal 2023 second quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 32 and more fully described in our SEC filings. With that, I will turn the call over to Kevin Akers, our President and CEO. Kevin?

Chris Forsythe:

Thank you, Kevin, and thank you to everyone who joined us this morning. As previously mentioned, net income for the first 6 months of the fiscal year was $630 million or $4.40 per diluted share. Year-to-date consolidated operating income increased $744 million or 13%. I'll touch on a few of the highlights of our year-to-date performance. Fiscal '22 and '23 regulatory outcomes increased operating income by $152 million. Additionally, residential growth and rising industrial load in our distribution segment increased operating income by an additional $12 million. And we saw a $7 million increase in APT's through-system business. Most of this increase occurred during our first fiscal quarter when spreads widened while some of the key takeaway pipelines in the Permian undergoing maintenance. Consolidated O&M expense increased $57 million. Distribution O&M increased $43 million, driven largely by supporting our growing service territory in Texas, where we experienced a 10% increase in the number of line locates. They're also seeing higher labor costs for these third-party services. Additionally, service orders system-wide have increased 11%, largely driven by customer growth, increased service requests driven by higher natural gas prices and increased collection activities. As a result, our internal labor costs have risen to fulfill these orders. Finally, we experienced higher levels of bad debt expense due to higher customer bills. Most of this increase was recognized during our second fiscal quarter. The remaining $14 million increase is recognized in our Pipeline and Storage segment, driven by the timing of in-line inspection work compared to the prior year period and increased employee costs. Slides 5 and 6 summarize the key performance drivers for each of our operating segments for the quarter and year-to-date periods. Consolidated capital spending increased 19% or $225 million to $1.4 billion with 86% dedicated to improving the safety and reliability of our system. This increase primarily reflects higher spending at APT, the projects that Kevin discussed just a few minutes ago. We continue to execute our annual regulatory filing strategy. To date, we have implemented $116 million in annualized regulatory outcomes and we have about $298 million annualized outcomes in progress. We anticipate implementing about half of this amount during the second half of our fiscal year. Slides 20 through 31 summarize these outcomes and Slide 17 outlines our planned filings for the remainder of the fiscal year. Our financial position continues to remain strong. In early March, we executed a $2 billion term loan to help repay our maturing $2.2 billion in senior notes. Later that month, the Texas Public Financing Authority completed its state-wide securitization program, and we used the proceeds from that program to pay off the term loan. We no longer have meaningful exposure to floating rate interest debt. We finished our second fiscal quarter with an equity capitalization of 60.9% and approximately $3.3 billion of liquidity. Included in this amount is $673 million in net proceeds available under existing foreign sale agreements that will fully satisfy our anticipated fiscal '23 equity needs and a significant portion of our anticipated fiscal '24 needs. The strength of our financial profile was recognized by Moody's in March when they reaffirm the credit ratings and outlook. We continue to look for opportunities to mitigate interest rate risk associated with our anticipated long-term debt financing needs beyond fiscal '23. In march and April of this year, we executed $250 million in starting interest rate swaps. We have now have $1.6 billion of swaps to effectively hedge portions of the treasury component of our total cost of financing at rates ranging from 1.76% to 2.38%. With this activity, a substantial portion of our anticipated fiscal '24 long-term debt needs have now been hedged. Finally, in Kansas, we are still on track to complete our gas cost securitization this fiscal year. Additional details for our financing activities and our financial profile be found on Slides 9 through 11. Our fiscal year-to-date performance gives us confidence to narrow our fiscal '23 earnings per share guidance from $5.90 to $6.10 to the new guidance range of $6 to $6.10. We expect the contribution to fiscal '23 earnings to be somewhat ratable by quarter in the back half of the fiscal year. A few additional thoughts about our updated guidance. The winter heating season is over and approximately 70% of our distribution segment revenue has been recognized. Going into the fiscal year with elevated commodity costs, we anticipate lower customer consumption primarily due to conservation. However, the consumption we saw during the winter heating season exceeded our expectations. Additionally, the most significant regulatory filings impacting fiscal '23 has been or will soon be completed giving us a better line of sight into the regulatory outcomes for the fiscal year. Regarding O&M, much of this increase was anticipated as we originally guided to an approximate 5.5% increase over fiscal '22 levels. However, as I mentioned a few months ago, we are experiencing higher-than-planned spending to support our growing serous territories, particularly in Texas. This is was what we did during the panic, we are working to offset some of these increases. Assuming we achieve the midpoint of our updated guidance, we anticipate O&M for the remaining 6 months of the fiscal year to be in line with our level of spending in the back half of fiscal '22. Finally, our expected cost of financing is now pretty clear. Securitization Texas has been resolved and our expected long-term debt financing for the fiscal year is now complete. Further, we're anticipating higher-than-planned AEDC partly due to the timing of product closings within the fiscal year and remaining FY '23 equity needs have been fully priced. Details surrounding our fiscal '23 guidance can be found on Slides 13 and 14. Thank you for your time this morning, and we'll now open up the call for questions.

Julien Dumoulin-Smith:

Look, nicely done, guys. I wanted to maybe kick things off quickly. Texas legislature looking at potentially using some of their surplus here potentially look at paying down some of the securitization here. Can you comment on that a little bit here? What are your expectations? Any nuances there? And then ultimately, I would presume that this would effectively never hit customer bills, but I just want to understand sort of the timing and mechanics as to how it's been collected, how it looks like for you guys specifically?

Julien Dumoulin-Smith:

Actually since you bring it up, maybe I'd love to get your perspective on this. Colorado has had some discussions of late across both the PC and then also, in particular, the legislative side on I suppose, gas bills broadly. Any perspectives therein on where this could go? I mean, it seems a little bit -- it lacks specificity, shall we say.

Julien Dumoulin-Smith:

Right. And just going back quickly, a little nuance. You alluded to it in your remarks. On O&M, I mean, seemingly holding the line fairly well here despite a consistently inflationary environment. Can you comment a little bit about what you're seeing out there? I mean, obviously, some of your peers had less success in managing their costs here. Can you comment a little bit about the clarity that you have and the line of sight here and just perhaps what that implies going forward as well?

John Akers:

Yes. And I'll just close that, Julien. As Chris has said before and I've said before on these calls, we're not a just-in-time company when it comes to integrity work, O&M work, those safety-related items on our system. We like to stay well in advance of that, and that does provide some additional flexibility for us when we need it, certainly can speed things up or move things from one period to another. So that's an additional lever we have.

Daniel Meziere:

We appreciate your interest in Atmos Energy, and thank you for joining us. A recording of this call is available for replay on our website through June 30, 2023. Have a good day.

Dan Meziere:

Thank you, Michell. Good morning, everyone. And thank you for joining our fiscal 2023 first quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 24 and more fully described in our SEC filings. With that, I will now turn the call over to Kevin Akers, our President and CEO. Kevin?

Chris Forsythe:

Thank you, Kevin, and thank you everyone for joining us this morning. As Kevin mentioned, our fiscal ‘23 first quarter net income was $272 million or $1.91 per diluted share. Consolidated operating income increased to $321 million or 16% in the first quarter. Our first quarter performance largely reflects positive rate outcomes driven by system modernization spending, continued customer growth in our distribution segment, partial offset by higher O&M spending in both of our segments. Slide 5 summarizes the key performance drivers for each of our operating segments. Rate increases in both of our operating segments driven by increased safety and reliability spending totaled $79 million. Residential customer growth and increased industrial load increased operating income by an additional $5.5 million, and we saw a $5 million increase in APT’s [three] system business due to water spreads driven by maintenance and some of the key takeaway pipelines in the Permian during the quarter. Consolidated O&M expense increased $26 million, driven by planned higher in line inspection spending in APT, higher spending for third party damage prevention activities on our distribution system and increased employee and other administrative costs. Consolidated capital spending increased 16% to $111 million to $796 million with 88% dedicated to improve the safety and reliability of our system. This increase primary reflects higher spending at APT, the project that Kevin discussed just a few minutes ago. We continue to execute our annual regulatory filing strategy. To date, we have implemented $115 million in annualized regulatory outcomes and we currently have about $36 million in progress. Slides 19 through 23 summarize those outcomes, and Slide 16 outlines our planned filings for the reminder of the fiscal year. During the quarter, we completed over $1 billion of long term debt and equity financing, highlighted by the $800 million long term debt financing we completed in October 2022 and $200 million of settled equity forward agreements. As of December 31st, we have approximately $755 million of net proceeds available under existing forward sales arrangements that will fully satisfy our anticipated fiscal '23 equity needs and a significant portion of our anticipated fiscal '24 needs. Finally to mitigate interest rate risk associated with our anticipated long term debt financing needs beyond fiscal '23, we currently have about $1.35 billion in forward starting interest rate swaps to effectively set a portion of treasury component of our total cost of financing at rates ranging from 1.8% to 2.2%. All of this gives us a clear line of sight into our anticipated financing costs of fiscal '23 and a portion of our costs beyond fiscal '23 Our equity capitalization as of December 31st, excluding the $2.2 billion of winter storm financing was 60%. Additionally, we finished the quarter with approximately $3.4 billion of liquidity. Additional details for financing activities as well as our financial profile can be found on Slides 7 through 10. Turning now to securitization. In Texas, the Texas Public Financing Authority and the Bond Review Board continue to work diligently to determine the best outcome for customers with respect to securitization. Additionally, in January, the Texas legislature signaled intent to provide funding to gas and other costs incurred during winter storm Uri that were deemed prudently incurred by the Texas Railroad Commission in November 2021. We are encouraged with these developments and continue to support their efforts. However, we do not anticipate receiving securitization funds for interim winter storm financing matures on March 9th. We currently anticipate refinancing this debt through a combination of the syndicated bank term loan and utilization of our existing credit facilities and cash to minimize the cost of the customer while providing maximum flexibility to repay this debt once the securitization process is completed. Additionally, pursuant to an order issued by the Railroad Commission, we have deferred all carrying costs associated with the interim refinancing effective September 1st, and currently intend to defer carrying costs associated with the existing financing and new interim financing until the securitization process is complete. In Kansas, we received our financing order from the Kansas Corporation Commission in October 2022, and we are progressing well to securitize the approximately $90 million in gas and other costs incurred during winter storm Uri. We anticipate completing the securitization process this fiscal year. In closing, we are off to a good start to the fiscal year. The execution of our operational, financial and regulatory plans in the first fiscal quarter positions us well to achieve our fiscal '23 earnings per share guidance in the range of $5.90 to $6.10. Details surrounding our fiscal '23 guidance can be found on Slides 12 and 13. Thank you for your time this morning. I will now open up the call for questions. Michelle?

Nick Campanella:

I just wanted to ask on just the recent move in gas prices. Can you kind of just talk about how that's affecting your financial plan or your hedging strategies at all here? Clearly, it should help with bill headroom as well. But maybe you can just give us some more color on what the recent move means?

Chris Forsythe:

Just a couple of things, Nick. First off from a financing perspective, the $800 million long erm debt that we issued in October satisfies our anticipated long term debt financing needs. And as I've also already mentioned equity we got that priced for the remainder of the fiscal year. And you understand the math on the equity given where we are and in terms of what our financing needs over the next five years. Additionally, we do have full access to our credit facilities today, the operating credit facility, which supports our commercial paper program, a $1.5 billion program. We had no short term debt as of December 31st, so we had the ample liquidity there to support operations as well as gas supply. And then finally, just commenting on hedging to kind of follow from Kevin's point, our gas supply team kind of sets that hedging program in advance of the winter heating season. And between the combination of storage that Kevin alluded to, in the hedging programs, we had just under 50% of the cost locked in for this winter heating season. So to the extent that gas prices moderate for the other, say 50% or so, that should have a positive impact on the customer bill.

Chris Forsythe:

Yes, of the $755 million, as I mentioned, Nick, that satisfies all of our needs and a substantial portion of our needs -- all of our needs for '23 and a substantial portion of our needs for fiscal '24. So the ATM program continues to work very well for us. We'll continue to utilize that to kind of just layer in additional pricing, if you will, on the equity needs for '24 with an eye towards just being opportunistic on pricing.

David Arcaro:

Could you comment on the investigation by the Railroad Commission into the -- some of the service challenges that your system experienced during the winter weather in December? And just any initiatives or actions that you're pursuing on the back of that experience?

David Arcaro:

And then I was wondering, could you elaborate a bit just on the plans for refinancing some of the floating rate notes that are coming due related to winter storm Uri costs? And just is there an EPS impact that you might anticipate from having to refinance those just sort of waiting for the securitization process to get completed here?

Operator:

Your next question comes from Gabe Moreen of Mizuho Securities.

Kevin Akers:

Yes, I'll start and then Chris can jump in. As you heard in Chris' remarks, most of the O&M that we've experienced in the first quarter is what we thought we would see. It's in the range that we've already laid out there. And what I mean by that is that with the growth that we talked about, we certainly -- both on our side and in our jurisdictions have driven increased from a line locating perspective. That economic growth certainly drove new routes, new commercial businesses, new roads, new infrastructure, which drives up locating expenses. As a matter of fact, our Texas number of load case is up almost 10% this quarter-over-quarter last year. And then in addition, as you heard on some of the projects that I mentioned, we had some additional in line inspection work that we needed to pull forward on the APT side and some additional pigging activity that we slowed during the COVID period, but wanted to pick that work back up. So all things we anticipated kind of occurring during the quarter but saw a lot more line locating expense just given the growth that we're experiencing. Chris, anything additional?

Gabe Moreen:

And maybe if I could just follow up with sort of -- and apologies if I missed it, but you got a couple large projects that have either wrapped up or nearing completion. Can you maybe just talk about kind of what's next in the queue from a larger project standpoint as you look at across your system?

Operator:

Your next question comes from Richard Sunderland of JPMorgan.

Kevin Akers:

Again, our team continues to stay close with the producers out there, midstream processors to keep it handle on, as you said, as well as new projects that are coming online. But I think the other thing that we'll continue to work on is the tie-in to some of those lines, that's the other opportunity, I think, for us as those projects continue to build coming out of Waha and head east that gives us an opportunity to get additional tests or to bring in additional supply into our areas as well. So all good signs, as you say, on the forward look. Right now, we believe these prices and the conversations we're holding, numbers look really good as you head into [Novi] March upcoming. So right now, I don't see things changing in the short run, at least the information we're getting out there. And then as we continue through this winter period, pulling on storage and get ready to inject for next season, the pricing looks really good there. As I said before, some in the $2 range or so. So that should have a very positive impact for our bills for next year.

Ryan Levine:

Most of my questions were asked already, but I just want to follow up on one. In terms of the Mid Tex DAR proceeding. Can you provide an update around that regulatory activity?

Operator:

There are no further questions at this time. So I will turn the conference back to Dan Meziere for any closing remarks.

Operator:

Ladies and gentlemen, this does conclude your conference call for this morning. We would like to thank you all for participating and ask you to please disconnect your lines.

Daniel Meziere:

Thank you, Maria. Good morning, everyone, and thank you for joining our fiscal 2022 fourth quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on slide 39 and are more fully described in our SEC filings. With that, I will turn the call over to Kevin.

Christopher Forsythe:

Thank you, Kevin, and good morning, everyone. As Kevin mentioned, fiscal 2022 diluted earnings per share was $5.60, which represents a 9.4% increase over fiscal 2021. Our performance reflects the continued execution of our proven strategy of modernizing natural gas distribution, transmission and storage systems, recovering our cost timely and financing our operations in a balanced manner. We also continue to experience strong customer growth, and we saw a significant improvement in our bad debt expense, both of which offset lower customer consumption and increased O&M spending. Slides four through six provide some details summarizing our financial performance for the fiscal year. Consolidated operating income increased $220 million from rate adjustments implemented in fiscal 2021 and fiscal 2022. These adjustments were primarily driven by safety liability and system expansion spending. Approximately 68% of this increase is recognized in our distribution segment. We continue to see robust customer growth in our distribution segment, which increased operating income by an additional $15 million. This growth offset a $17 million decrease in consumption, most of which occurred during the second fiscal quarter. Additionally, we experienced a $31 million increase in consolidated O&M expense. O&M, excluding bad debt expense, increased $56 million, primarily driven by increased pipeline maintenance activities in both of our segments and employee-related costs compared with the prior year. This increase was partially offset by a $25 million decrease in bad debt expense as we were able to perform collection activities for our full fiscal year. In comparison, in the prior year, we resumed collection activities late in our third fiscal quarter. This decrease also reflects the exceptional work of our customer service team in assisting customers with their bills. During fiscal 2022, we arranged only $34 million of funding to help 67,000 customers with their monthly bill. As a result, our bad debt expense in fiscal 2022 was in line with our pre-pandemic experience. Finally, reductions in fiscal 2022 revenue associated with the refund of excess deferred tax liabilities reduced operating income by approximately $112 million. This reduction was substantially offset by lower income tax expense. Consolidated capital spending increased 24% or $475 million to $2.4 billion, with 88% dedicated to improving the safety and reliability of our system. This increase primarily reflects the increased system modernization, integrity and expansion spending to meet the growing natural gas demand in our service territories. Approximately 90% of this spending began to earn a return within six months of the test period end. We accomplished this by implementing $216 million of annualized operating income increases excluding the amortization of excess deferred tax liabilities. And since the end of the fiscal year, we have reached agreement with our regulators in an additional $112 million in annualized operating income increases during our fiscal 2023 first quarter. As of today, we have two filings pending exceeding about $16 million. Slides 29 through 38 summarize our regulatory activities for fiscal 2022. During fiscal 2022, we completed over $1.6 billion of long-term debt and equity financing to support our ongoing operations. We fully satisfied our fiscal 2022 equity needs through our ATM equity sales program. As of September 30, we had about $777 million available under existing equity forward arrangements that will fully satisfy our anticipated fiscal 2023 needs and a portion of our anticipated fiscal 2024 needs. This equity financing complemented the $800 million of long-term debt financing we issued during fiscal 2022. We also continue to make progress in securitization. In Texas, we anticipate receiving $2.0 billion from the Texas public financing authorities within the next few months. We'll use the proceeds and available cash on hand to fully retire the $2.2 billion in interim winter storm financing that matures in March of 2023. This will eliminate all of our exposure to floating rate debt. In Kansas, on October 25, the Kansas Corporation Commission issued a financing order authorizing us to securitize $118 million in gas and over cost over a seven to 10-year period. We anticipate completing the securitization process by the end of our second fiscal quarter. As a result of these financing activities, our equity capitalization at the end of fiscal year, excluding the $2.2 billion of winter storm financing or 61.3%. Additionally, we finished the fiscal year with approximately $3.1 billion of available liquidity. In October, we issued $800 million of long-term debt through two tranches. First tranche was a $500 million 30-year senior note with a coupon of 5. 75%. We had financially hedges tranced and received $197 million upon settlement of forward starting interest rate swap, which reduced the effective rate of 4.5%. Second tranche was a $300 million 10-year senior note with a coupon of 5.5% because we have already satisfied our fiscal 2023 equity needs through our ATM program, this transaction and completed our anticipated fiscal 2023 financing activities. Details for our financing activities and our financial profile can found on slides nine and 12. Finally, we finished the fiscal year with a very well-funded pension plan. Based on the current funded position of the plan and the funding requirements in the Pension Protection Act of 2006, we do not anticipate the need to make a minimum required contribution during fiscal 2023. In addition to addressing our fiscal 2023 financing needs, during the fourth quarter of fiscal 2022, we've also been preparing to ensure supply reliability and competitive natural gas prices for our customers for the upcoming winter heating season. Our gas supply team has done an outstanding job preparing for the upcoming winter heating season. Our proprietary and contracted storage is over 96% full. Additionally, we have physically and financially hedged 23% of our expected winter purchase requirements. Through the use of storage and physical and financial hedges, we have stabilized prices for just under half for our normal winter usage in the mid-$5 range. The remainder of our anticipated gas supply needs will be satisfied through a combination of base load purchases at first-of-month prices, peaking contracts and storage purchases when needed. Today, we have transportation capacity of 38 pipelines across our eight-state footprint, which provides our team access to a wide variety of liquid-traded producing basins. Further, a significant portion of our gas supply needs will continue to be sourced from Waha, which has traditionally traded below NYMEX and Henry Hub pricing. As a reminder, all prudently incurred gas costs recovered through purchased gas cost mechanisms generally over 12 months. This calculation generally involves a weighted average approach, which helps to smoothly impact on customer bills. Additionally, as a reminder, we have the opportunity to recover the gas cost portion of bad debt expense through a purchase guidance cost mechanisms in five states, which covers approximately 81% of our distribution customer base. Finally, we continue to actively communicate with our customers about how they can mitigate the potential impact of higher gas prices through energy conservations and how we can help by offering installment plans and budget billing plans and locating energy assistant agencies. Looking forward, yesterday, we initiated our fiscal 2023 earnings per share guidance in the range of $5.90 to $6.10. Consistent with prior years, we expect about two-thirds of our earnings will come from our distribution segment. Details surrounding our fiscal 2023 guidance can be found on slides 20 and 21. Fiscal 2023 capital spending is expected to approximate $2.7 billion. Already 5% of this spending is expected to begin earning a return within six months of the test period end. Substantially, all this increase we incurred in our distribution segment to support our system modernization efforts. Spending on our pipeline storage segment is expected to be in line with fiscal 2022 levels and is expected to represent approximately one-third for consolidated capital spending in fiscal 2023. And yesterday, Atmos Energy's Board of Directors approved a 156th consecutive quarterly cash dividend. The indicated annual dividend for fiscal 2023 is $2.96, an 8.8% increase over fiscal 2022. Slide 19 summarizes the key themes under our fiscal 2023 five-year plan. In short, these themes are very consistent with what we have been presenting over the last several five-year plans. Over the next five years, we anticipate earnings will grow annually at 6% to 8%. By fiscal 2027, we anticipate earnings per share to be in the range of $7.65 to $8.05. We also anticipate dividends per share to increase annually in line with earnings per share. Continued spending for system replacement and modernization and expansion will be the primary driver for the anticipated increase in capital spending, net income and earnings per share from fiscal 2027. This plan anticipates total capital spending of approximately $15 billion. This level of spending will continue to support rate base growth of about 11% to 13% per year, which translates into an estimated rate base of approximately $25 billion in fiscal 2027, up from $14 billion at the end of fiscal 2022. From an O&M perspective, we will continue to focus on compliance-based activities that address system safety. For fiscal 2023, we anticipate O&M to range from $700 million to $720 million, and we've assumed O&M inflation of 3% to 3.5% annually through fiscal 2027 off of FY 2022 levels. In addition to the spending plans I outlined, we have assumed approximately $435 million in excess deferred tax refunds over the next five years. We anticipate about 65% of this amount will be refunded during fiscal 2023 and fiscal 2024. As a result, we expect our effective income tax rate in fiscal 2023 to range between 10% and 12%. We've also planned for becoming a material cash taxpayer in the back half of the five-year plan because of the 15% corporate minimum tax that was included in the Inflation Reduction Act that was passed this past August. We've continued to finance our operations in a balanced fashion using a combination of long-term debt and equity to preserve the strength of our balance sheet. Excluding securitization, we anticipate the need to raise between $8.5 billion and $9.5 billion in incremental long-term financing over the next five years. As I mentioned earlier, we've already satisfied $1.5 billion of this anticipated need. Strength for our balance sheet enables us to use that prove the mix of long-term debt and equity financing to target a 50% to 60% equity capitalization ratio, inclusive of short-term debt. This financing plan has been fully reflected in our earnings per share guidance through fiscal 2027. To mitigate interest rate risk associated with our anticipated long-term debt financing needs beyond fiscal 2023, we currently have about $1.35 billion before starting interest rate swaps to effectively fix the treasury component of our total cost of financing at rates ranging from 1.5% to 2.2%. Additionally, as I mentioned a few minutes ago, once we repay the interim winter storm financing, we will have no floating rate debt, which further mitigates interest rate risk. See slide 12 for details. And our debt profile remains very manageable with a weighted average maturity of 18 years and a weighted average cost of debt of about 3.78%, excluding the $2.2 billion of incremental financing related to Winter Storm Uri, and no material refinancing needs until fiscal 2027. From an equity perspective, utilizing our ATM program is a preferred method for raising equity. As I mentioned earlier, the equity forwards we executed during fiscal 2022 has fully satisfied our anticipated fiscal 2023 equity needs and a portion of our fiscal 2024 meetings. The execution of this plan to modernize our system through disciplined capital spending, timely recovery of those investments through our various regulatory mechanisms and balanced long-term financing all supports our ability to grow earnings per share and dividends 6% to 8% annually through fiscal 2027. And as you can see on slides 25 through 27, the execution of this plan will also keep our customer bills very competitive from a cost perspective compared with other common utility bills in the customer household. Thank you for the time this morning. I will now turn the call back over to Kevin for his closing remarks. Kevin?

Operator:

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] Our first question is from Richard Sunderland with JPMorgan. Please proceed with your question.

Kevin Akers:

Yes, I'll start and then hand it over to Chris. As we've moved out of the pandemic and moving forward, we continue to work with our vendors, our contractors. We've got long-term contracts in place. Some of those have been updated to reflect inflationary costs here recently. All of those are included in the numbers that we've laid out in the 2023 and the five-year plan there. Additionally, such things as line locating, leak survey, we've incurred some additional costs there. But again, all within the parameters laid out there, and we think we have ourselves well positioned to have an understanding of those costs as we continue to move forward. And as far as levers going forward, we have the same opportunity for levers that we had as we were in the pandemic. It's been like travel, even though we're back and trying to find our new normal on a day-to-day basis here, we're not fully traveling to all events or activities that we did pre-pandemic, taking advantage of the technology such as Teams or Zoom meetings, those sort of things that are out there. And some of the things that Chris outlined in our strategy, financing strategy and some of the outcomes there are all things that fold into reducing that O&M as well and trying to keep cost tamping down on a going-forward basis. So Chris, any additional thoughts?

Richard Sunderland:

Got it. That's very helpful color. And just a quick follow-up on that front. So I understand your point about some of these vendor contracts rolling in at higher inflationary costs, is this a trend you expect to continue into 2024? How do you see that kind of moderating over time to get back to the 3% to 3.5% outlook?

Richard Sunderland:

Got it. That makes sense. And just quickly switching gears, several months until Texas securitization proceeds, if I heard you correctly in the script, just any color on the process from who you are and what you're watching for on this front?

Richard Sunderland:

Understood. Thank you for the time today.

Kevin Akers:

Thank you.

Gabe Moreen:

Hey good morning everyone. I'm just wondering if you could give us an update on sort of the customer growth outlook going forward here, whether you've seen any signs of changes given, I guess, the slowdown in the housing market? And whether you think you're going to be in that 1.5% to 2% annual range from a customer growth standpoint?

Gabe Moreen:

Great. And then speaking of interest rates and kind of locking them in, kudos for locking in interest rates for some time on new instruments. I'm just curious in the current interest rate environment, whether you're going to continue to lock in interest rates in anticipation of debt issuance down the line? And then I guess a related question to the minimum book tax. You talked about that potentially hitting kind of towards the end of the five-year plan. Does that change at all the financing plans given the interest expense is tax deductible, would you shift a little bit more? Or to try to, I guess, minimize cash taxes, appreciating that, that's not for several years?

Gabe Moreen:

Great. Thank you.

David Arcaro:

Hey good morning. Thanks so much for taking my question. Wondering if you could talk just a little bit more about the customer bill outlook here? And whether you think there could be any increased pressure to manage rate increases going forward? Are there steps that you're looking at to take just to manage that outlook?

David Arcaro:

Got it. Thanks for that. Very helpful. And then wondering if you could comment on the NTSB report that was published last month related to the gas incident from a year ago? And just what initiatives are being undertaken internally in response to that?

David Arcaro:

Okay, got it. Thanks. And just one quick follow-up on the tax side of things. Is there a cash tax level that you're expecting in the near term or for 2023 just as kind of a starting point as to what cash tax rate you're experiencing under the current business?

David Arcaro:

Perfect. Okay, thanks so much.

Operator:

[Operator Instructions] Our next question comes from Julien Dumoulin-Smith with Bank of America. Please proceed with your question.

Kevin Akers:

Yes, I'll start and then hand it over to Chris. Again, we have great confidence in the process that the legislature laid out that the Railroad Commission has approved and that the TPFA is going through now. Our role now is just supporting with questions -- answers to questions that the groups have. We're not sitting at the table or anything like that. We are just responding to Q&A or information request that sort of thing at this point. So again, we remain very confident in the process and the ability of the teams to get the answers they need to move forward. So, Chris, anything additional?

Julien Dumoulin-Smith:

Got it. Right. So it's truly sort of administrative in execution in terms of the shift in time line? It seems like it and driven by the state more than you guys?

Julien Dumoulin-Smith:

Got it. Excellent. Thank you. And then if I can go back to the conversation on O&M as well. Obviously, pressure across the industry, you guys highlighting it in your 2023 numbers. If I can overlay that with the regulatory strategy as it exists today. I mean, as you think about your ability to earn your returns and just accelerate time lines on any kind of regulatory proceedings here, is that shifting anything at all? Obviously, you have a plethora of associated mechanisms across your portfolio of utilities. But can you speak a little bit to the extent to which this is shifting and/or accelerating some time line for recovery? Again, obviously, this in tandem with your elevated level of spending. I'm just curious if you can comment on that.

Christopher Forsythe:

Yes, and the one thing, Julien, I want to add to that, too, is that with our -- the regulatory strategy, the annual mechanisms, it's a smaller increase, if you will, each year. It also gives us the opportunity to stay in regular contact with our regulatory partners to -- so they understand what we're doing from a total spend perspective. And that's a part of the strategy as well is keeping them well informed of what's going on in our operations, what we're seeing from a safety, maintenance, compliance perspective so that when we do have the other filing in front of them, they're aware of what's included in that filing.

Christopher Forsythe:

Thank you.

Operator:

It appears that there are no further questions at this time. I would now like to turn the floor back over to Dan Meziere for closing comments.

Operator:

This concludes today's teleconference. You may disconnect your lines at this time. Thank you for your participation.

Daniel Meziere:

Thank you, Brock. Good morning, everyone, and thank you for joining our fiscal 2022 third quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 33 and are more fully described in our SEC filings. With that, I will turn the call over to Chris Forsythe, our Senior VP and CFO. Chris?

John Akers:

Thank you, Chris. Good morning, everyone, and thank you for joining us today. The fiscal year-to-date results, Chris just shared reflect the continued focus on our vision of being the safest provider of natural gas services. And supporting that vision of our 4,700 dedicated employees executing our safety and reliability investment strategy and our prudent regulatory and financing strategies. These strategies, combined with a strong portfolio of assets will continue to support our ability to grow earnings per share and dividends 6% to 8% annually through fiscal 2026. We continue to see robust growth in demand for natural gas in our service territories. During the 12-month period ended June 30, 2022, we added nearly 59,000 new residential customers which represents a 1.8% increase. And during the third quarter of this year, we added 13 new industrial customers that have an expected annual natural gas usage of 5 Bcf when they are fully operational. Fiscal year-to-date, we have added 28 new industrial customers that have an expected annual natural gas usage of 10 Bcf when they are fully operational. As you heard me say before, on a volumetric basis, that 10 Bcf of annual industrial customer usage is equivalent to adding 170,000 residential customers. Last month, we released our most recent corporate responsibility and sustainability report, which illustrates our environmental, social and governance strategy focused on reducing our Scope 1, 2 and 3 emissions and environmental impact from operations in the 5 key areas of operations, fleet, facilities, gas supply and customers. The report also summarizes the commitments as well as the progress made towards executing that strategy during fiscal 2021 and early fiscal 2022. I wanted to comment on one of the exciting highlights in the corporate responsibility report. That is our Zero Net Energy Homes initiative. By partnering with local Habitat for Humanity organizations in each of our 8 states, we are providing families with Zero Net Energy Homes that use high-efficiency natural gas appliances, rooftop solar panels and insulation to produce more energy than they consume over the course of the year all in a cost-effective manner. Again, as you've heard us mention before, we've completed our first Zero Net Energy Home in Evans, Colorado in September of 2021. And during the third quarter of this year, we completed a second Zero Net Energy Home in Taylor, Texas located just north of Austin. Construction is underway on 3 additional Zero Net Energy Homes in Dallas, one in Jackson, Mississippi, one in Owensboro, Kentucky, and all these are scheduled for completion by November of this year. Additionally, groundbreaking is scheduled later this calendar year for an additional 5 Zero Net Energy homes, one in Dublin, Virginia, one in Colombia, Tennessee and 3 in Lubbock, Texas. These homes provide families with a comfortable natural gas home that demonstrates the value and vital role natural gas plays in helping customers reduce their carbon footprint in a cost-effective manner. Our fiscal year performance and participation in community projects such as these as our Zero Net Energy homes, reflect the commitment, dedication, focus and effort of our 4,700 Atmos Energy employees as they see a vital role in our 1,400 communities by safely delivering reliable, efficient and abundant natural gas to homes, businesses and industries to fuel our energy needs now and in the future. We appreciate your time this morning, and now we'll open the call for questions.

Kody Clark:

It's Kody Clark on for Julien. So first, wondering if you can walk us through the main drivers for the remainder of the year. It seems like you're well ahead based on year-to-date results, rate increases for the remainder of the year and your updated expectations on O&M and interest. I guess I'm just trying to get a better understanding of your expectations within that $550 million to $560 million range.

Kody Clark:

That's right. I'm sorry about that. Hopefully, you can hear me better now.

Kody Clark:

Understood. Okay. And as we look toward FY '23, curious if you can opine on how you see inflation cascading through your O&M budget and capital plan. What sort of trends are you expecting into next year? And any mitigating measures that you're thinking about?

Christopher Forsythe:

Yes. And Kevin, I'll add to that. I mean you spot on with just the keeping up annually with the increases on the O&M front. But I'll also comment on the treasury side as well. I mean our team has done an excellent job trying to get ahead of rising interest rates, with the exception of the interim Winter Storm financing, which we will take out once the securitization funds are received that we have no floating rate debt. We have executed nearly $2 billion in forward starting interest rate swaps on future planned debt issuances beyond fiscal 2022 at very attractive rates, and we've done that here over the last year or so. And we're really well positioned. When you look at our overall weighted average cost of debt today, it's at 3.8%, which is very beneficial for our customers. And finally, we don't have any significant near-term refinancing needs. Our most -- I guess the most current one that's out there right now is about $500 million due in 2027. So from a balance sheet and financing perspective, we're also have taken advantage over the last year or so, we're trying to lock in some of the lower rates for the benefit of the customers, which also helps mitigate the impact on the customer bill.

Operator:

The next question is from Insoo Kim of Goldman Sachs.

John Akers:

Yes. Sure. Just before we get into that, again, our service story is extremely blessed. We have exceptional leadership at the city, the state level there, great chambers of commerce, great economic development partners in each of our states. And so we have a well-diversified industrial footprint out there. For example, in a couple of our divisions, we've seen the addition of hydroponic greenhouse facilities, which are large consumers of natural gas. We've seen the location of the distilling industry, both new facilities and expansion of distilling facilities out there. We've seen an EV battery manufacturing plant located on our facilities. We've seen concrete and asphalt facilities, expansions of colleges and universities. So as well as some metals, aluminum, steel, smaller plants and then expansions of some existing ones as well. So as you can see there, it's a variety of everything across the board there, which is good for a local economy. And the thing that comes along with these expansions or new additions, as you know, is the jobs, the amount of jobs that this supports and brings in the community, which means rooftops and commercial load as well.

John Akers:

Okay. Yes. There's a lot packed into that question. So let me first start with, we're still reviewing, going through all of the detail that's laid out in the bill. And as you know, the bill still got a long way to go through the legislative process. And could be altered one way or the other as it makes its way through. But we're going to stay very close to the process and stay close to the details to see what potential upside exist for us out there. However, I will say it is good to see Senator Manchin's comments that this bill is not arbitrarily shut off abundant fossil fuels, I think, is his quote. Then in a recent article I saw some time from last year, Senator Manchin indicated that natural gas must be included in any clean energy program. So for me, it's good to see and hear that because it's going to take all forms of energy, right? A diversified energy portfolio, as we've been saying for a long time, including natural gas, our nearly 3 million miles of pipeline infrastructure in our underground storage fields, which we have about 120 Bcf here at Atmos Energy. All that's going to be required to meet the growing demand going forward. And again, it's good to see that realization, the conversation at that level being taken place because a one-sized energy solution, I don't think provides the security viability and affordability that this country needs to meet the growing energy demand that's out there. So we look forward to continuing to see how the bill evolves. We think we are a good operator, a prudent operator. As you've seen through our pipeline replacement projects, we tightened up our system, we've got a good environmental strategy out there. So I think we can operate in this legislation, but we're going to continue to monitor and see what the details show as this thing moves forward.

Daniel Meziere:

We appreciate your interest in Atmos Energy, and thank you again for joining us. A recording of this call is available for replay on our website through September 30. Have a great day.

Christopher Forsythe:

Thank you, Dan, and good morning, everyone. We appreciate you joining us and your interest in Atmos Energy. Last night, we reported fiscal '22 second quarter net income of $325 million or $2.37 per diluted share compared to $297 million or $2.30 per diluted share in the prior year quarter. Year-to-date, earnings were $574 million or $4.24 per diluted share compared with earnings of $514 million or $4.01 per diluted share in the prior year period.

Nicholas Campanella:

So a lot of detail. Thanks for the update. Just on the financing side of things, your cost of equity has improved since the start of your fiscal year. And I know you're largely set on '22 equity needs now and you gave us a lot of detail around the forward program. But just any thoughts on why not do more now and take this off the table for kind of future years? And is it just that you guys are being just fairly formulaic? And how you execute here? And just any thoughts on out your equity?

John Akers:

Yes. Nick, it's Kevin. There's a couple of things in that -- in your question. Let me first start with, as you heard in my opening comments there, our team has and continues to stay very attuned to and keep affordability at the top of the mind and focused on how we can help. You heard the things that our customer service organization, our customer advocacy team are doing with outreach to energy assistance organizations, trying to find funds, get customers connected to that, find ways we can communicate proactively with customers. For example, during the last winter period, we sent out, think about 1.5 million notices, whether those were phone calls, where those were text, whether those were e-mails, those sort of things, trying to alert customers to pending colder than normal situations moving into the area.

Insoo Kim:

First, just more on detail for the quarter. I saw on the pipeline side, the O&M year-over-year was up a decent bid. On the distribution side, down year-over-year. Is this just more timing between the quarters? And I know from a guidance perspective for the year, it doesn't seem like much has changed. But just curious on some clarity there.

Insoo Kim:

Okay. Got it. Second question, just more curious on your observations. We've talked probably over the past couple of years, just about the different changing narratives on the future of gas, and it seems like the latest narrative has changed maybe more to a positive for the sector just on energy, security and all that stuff. Have you seen that play out at all on the ground, whether it's customer growth or just demand for gas in your various jurisdictions, if there was ever really an impact from this narrative on the negative side over the past couple of years, just seeing -- I know you had mentioned customer growth or demand being stronger than expected. So I don't know if that would tied to any of that in your thoughts.

Operator:

[Operator Instructions] Our next question comes from Julien Dumoulin-Smith with Bank of America.

John Akers:

Yes, Julien, let me start here and Chris, certainly can add some color if he wants to get into percentages or not. But as we've talked about this before, I couldn't be any proud of our procurement team, our operations team, our engineering teams, all working collectively as we -- we're coming through the last year or so, the pandemic inflationary discussions were picking up. We were seeing some of the signs out there. They were very active. You heard us talk about going from a 3-month to 6-month inventory of materials and pipe. You've also heard us continue to talk about that we have 95% to 100% of our pipe on the ground for the remainder of this fiscal year's steel needs. And that we are already beginning identification and getting steel pipe to the mills for '23 and identifying cost as far out as '24 in those project needs.

Julien Dumoulin-Smith:

Got it. But not ready to quantify in aggregate, but maybe you do see some of these inflationary pressures that could fall through. And maybe to clarify that further, even to the extent of which you do would you perhaps defer some of these investments in order to keep your budget flat? Or is there an argument that would just be made you move forward with the projects despite some modest inflation?

Julien Dumoulin-Smith:

All right. Excellent. And so just one other -- please go for it.

Julien Dumoulin-Smith:

Okay. Excellent. And then just on the transportation and RNG front, you made some comments here. You talked about 30 projects here. It seems like -- or 30 opportunities sees your verbiage. Can you expand a little bit more about what that could amount to just from a sort of a capital opportunity perspective, if you will?

Julien Dumoulin-Smith:

Got it. Lots of projects lingering there, but largely sales element.

Operator:

And there are no further questions at this time. I'll turn the floor back to Dan Meziere for closing remarks.

Dan Meziere:

Thank you, Hillary. Good morning everyone and thank you for joining our fiscal 2022 first quarter earnings call. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussions might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 25 and are more fully described in our SEC filings. With that, I will turn the call over to Chris Forsythe, our Senior Vice President and CFO. Chris?

Kevin Akers:

Thank you, Chris, and good morning, everyone. Before I begin my update today, I want to take just this opportunity to recognize and say thank you to all 4,700 Atmos Energy employees. It is through your dedication, your focus and effort that we safely provide natural gas service to 3.2 million customers in 1,400 communities across our eight states. Thank you for all you do every day for Atmos Energy. I also want to take this time to thank our hometown heroes, our first responders and emergency responders for their continued dedication and support for all of us. And as you just heard, we're off to a great start. The results Chris summarized reflect the commitment of all 4,700 Atmos Energy employees as we work together to continue modernizing our natural gas distribution, transmission and storage systems on our journey to be the safest provider of natural gas services. During the first quarter, we achieved several project milestones that further enhance the safety, reliability, versatility, and supply diversification of our system. For example, at APT, we placed into service Phase 1 of a two-phase pipeline integrity project that will replace 125 miles of Line X. As a reminder, Line X runs from Waha to Dallas and is key to providing reliable service to the local distribution companies behind APT's system. Phase 1 replaced 63 miles of 36-inch pipeline. Phase 2 includes an additional 62 miles of 36-inch pipeline and is anticipated to be completed late this calendar year. Additionally, we completed the first of a three-phase project to replace our existing Line S2. This 91 mile, 36-inch project will provide additional supply from the Haynesville and Cotton Valley shale plays to the East side of the growing Dallas Fort Worth metroplex. Phase 1 replaced 21 miles of this line and Phase 2 will replace an additional 18 miles and is expected to be completed late this calendar year. Phase 3, which will replace the remaining 52 miles, is expected to be in service in 2023. During the completion of Phase 1 for Line X and Phase 1 for Line S2, our teams used recompression practices to avoid venting or flaring over 70,000 metric tons of carbon dioxide equivalent. This is an excellent example of how Atmos Energy's environmental strategy is being integrated into our daily operations. APT's third salt dome cavern project at Bethel is now approximately 80% complete and remains on track to be placed in service late this calendar year. As a reminder, this project is anticipated to provide an additional 5 BCF to 6 BCF of cavern storage capacity. As I mentioned during our November call, we have started work on a 22 mile, 36-inch line that will connect the Southern end of APT's system with the 42-inch Kinder Morgan Permian Highway line that runs from Waha to Katy. This new line will support the forecasted growth and increased supply diversity to the North of Austin in both Williamson and Travis County in Texas. This line is expected to be in service late December of this year. In addition to those system modernization projects, we continue to make progress in advancing our comprehensive environmental strategy that is focused on reducing Scope 1, 2 and 3 emissions and reduce our environmental impact from our operations in the following five key areas; operations, fleet, facility, gas supply and customers. For example, across our storage facilities, we utilize advanced methane detection technologies, including gas cloud imaging, acoustic monitoring, forward-looking infrared handheld cameras, and laser-based remote methane leak detectors. At APT storage fields, we are making progress with the installation of the remaining gas cloud imaging cameras for continuous methane monitoring and anticipate completion by the end of this fiscal year. Our RNG strategy focuses on identifying opportunities to transport RNG for our customers. We currently transport approximately 8 BCF a year and anticipate another four projects to come online within the next 12 to 18 months. Those four projects are expected to provide an additional BCF a year of RNG capacity. Furthermore, we are evaluating approximately 20 opportunities that could further expand our RNG transportation. Two, Zero Net Energy Homes are underway in Texas; one in Taylor and the other in Dallas. The home in Taylor is being developed through our partnership with the Williamson County Habitat for Humanity, and we estimate the home to be completed in late March. And in Dallas, we are working with the Dallas Habitat for Humanity and estimate construction of this Zero Net Energy Home to begin mid-March. These homes use high efficiency natural gas appliances, coupled with rooftop solar panels and insulation to minimize the home's carbon footprint. These Zero Net Energy Homes demonstrate the value and vital role natural gas play in helping customers reduce their carbon footprint in an affordable manner. Providing these families with a natural gas home that is environmentally friendly and cost efficient is just one way Atmos Energy feels safe in thriving communities. And finally, over the next five years, we will invest $13 billion to $14 billion in capital to support the replacement of 5,000 to 6,000 miles of our distribution, transmission pipe, or about 6% to 8% of our total system. We will also replace 100 to 150 steel service lines which is expected to reduce our inventory by approximately 20%. This level of replacement work is expected to reduce methane emissions from our system by 15% to 20% over the next five years. Our first quarter activities and initiatives reflect the continued successful execution of our strategy to modernize our natural gas distribution, transmission and storage systems as we continue our journey to be the safest provider of natural gas services. These efforts, along with the strength of our balance sheet, our strong liquidity, has Atmos Energy well positioned to continue serving the vital role we play in every community; that is delivering safe, reliable, efficient and abundant natural gas to homes, businesses and industries to fuel our energy needs now and in the future. We appreciate your time and interest this morning. We'll now open the call for questions.

Richard Sunderland:

Hi. Good morning. Thanks for taking my questions. Maybe just starting on O&M. How is the balance of work and timing tracking versus expectation? Just curious if you have any early sense here, I guess directionally where expenses are putting you in the guidance range?

Richard Sunderland:

Got it. Thanks for the color there. In the mid to the high level, could you outline the expected timing of major base rate cases over the next, say, two to three years, including the APT system?

Richard Sunderland:

Got it. Thanks for outlining all that. Thanks for the time today.

Operator:

Our next question is from Julien Dumoulin-Smith of Bank of America. Please proceed with your questions.

Kevin Akers:

Thank you. So on Kansas, as I said, we're kind of in early stages right now and beginning the securitization proceedings. In the terms of tenders, it will depend upon what market conditions look like. We're obviously going to be looking to seek AAA rating on that. And we will be working with our banking partners as well as with the staff to determine the appropriate period to make these securitization costs, if you will, as affordable as we can for our Kansas customers. But it's still too early to tell where we are at this point.

Kevin Akers:

Yes, the dialogue we've had with both Moody's and S&P has been -- they've basically been telling us we're going to wait to see what the Texas Railroad Commission financing looks like. That was issued yesterday. I'm sure they have a copy of that. We're anticipating conversations with those rating agencies hopefully here this second fiscal quarter.

Chris Forsythe:

Sure. So our effective tax rate for the first quarter was about 5.9% that we're anticipating, including the excess deferred tax liabilities and effective income tax rate in the 7% to 9%, given that we are refunding these excess deferred tax liabilities over the next three to five years, that effective tax rate should be in place in that general range over that time period. So when you back out the impact of the excess deferred tax liability refunds, the marginal effective income tax rate is in the 22% to 24% range.

Kevin Akers:

Sure.

Kevin Akers:

You're talking about particularly here in the metroplex, Julien. As Chris mentioned in his opening remarks, we've been growing just a little bit north of that 1.7% here in the metroplex, probably in the 40,000 to 45,000 customer range per year. It's a lot of residential growth. And as you get those rooftops, as you know, you'll have the supporting commercial businesses as well. We do have a few industrial customers that come in the metroplex area. A lot of this is also showing up in residential rooftops down in the Austin corridor as well. Again, that's why we're putting in that Permian connector line down there; forecasted growth, forecasted demand, expansion down there with all of the people moving in from various locations across the country. That's what we're seeing at least here in Texas across our other jurisdictions, as we talked about, it's been a really good diverse mix of not only residential but as well as industrial growth as well. I think at our fourth quarter call that we added 45 industrial customers last year that we anticipate once they're fully online or utilized somewhere between 12 BCF and 14 BCF of natural gas, that equates to around 200,000 residential customers. And these are customers that are in the metals, they're in healthcare, they're in the auto industry, a good variety of distilling. So we're getting a good mix of natural gas demand and response for the product across all sectors, whether that's Kentucky, Tennessee, Mississippi, good industrial growth. We continue to see good residential growth in our Colorado properties with people coming from the West Coast into Colorado, and then again outside of Olathe, Kansas property.

Operator:

Our next question is from Insoo Kim of Goldman Sachs. Please proceed with your question.

Kevin Akers:

Yes, so I'll start out and then hand over to Chris. The short answer is no on that. As you've heard us talk about at the end of last quarter when we kind of rolled out our five-year plan and forward-look there, we did have some of this contemplated in our O&M projection that Chris just talked about. As well you've heard us also talk about we worked very hard throughout the procurement team to stay ahead of some of our needs. We try and keep at least a six-month inventory. We're trying to increase that now, whether that's at our supplier or in our own warehouses. And as you may have heard us say before, all of our steel pipe needs for this fiscal year, all those projects that we just talked about, all that pipe is on site, at location. So we feel like we're in really good shape. We stay ahead of our needs to our vendors. So at this point, I think given the work for our procurement team, given that we've got our pipe needs, at least our steel pipe needs covered at this point, we anticipate that our O&M levels that we have baked in right now should be able to handle what we're seeing right now. It should not have any impact on our CapEx spend going forward in the short range.

Kevin Akers:

Yes, I'll start out and again we'll see if Chris wants to add anything here. I'm looking at the Waha prices this morning, cash prices, and we’re sitting at $3.60 out there. The forwards for Waha if you're taking a look at that for the April off period is around $3.45, something like that. So no crystal ball here, obviously. But I think when you look at the rig count that we're seeing, just last week of well over 600 rigs in the U.S. working, about half those in the Permian, we're seeing production levels that are now in the 14 BCF to 14.25 BCF a day range with projections. I think by the end of this calendar year first of '23 in the 16 BCF a day range, I would hope that kind of supply pushes these prices down even further. But we'll have to wait and see on that piece of it. But very encouraged again by the number of rigs, the supply that's coming online. And just one last comment there on the basis differential. Remember that that's part of our Rider REV mechanism we have on APT and 75% of that goes directly back to the customer to reduce those rates, so that is a sharing mechanism there for those customers' benefit. Chris, anything additional?

Insoo Kim:

Got it. But at least it would help with the bill headroom, so I guess indirect benefit on that front.

Insoo Kim:

Got it. Thank you so much.

Operator:

[Operator Instructions]. Our next question is from Ryan Levine of Citi. Please proceed with your questions.

Kevin Akers:

Good morning.

Kevin Akers:

Well, as I said in my opening remarks there, this is going to be a 22 mile line, 36-inch. It certainly will help us meet the forecasted growth in that Austin corridor, both in Williamson and Travis counties down there. And we anticipate this line to be in service late this calendar year, it could be first of next year. We're well on our way with all the necessary aspects to get that project rolling forward. So you're right. Those are the projects outlined; Phase 2, S2 Phase 2 and Phase 3 of S2 and then project here are the major projects we have on tap for APT along with the finalization of that third cavern there. And those all again will bring that diversity, reliability and versatility to APT system, many areas to bring supply and increase capacity.

Kevin Akers:

Yes, we have the majority of what we need to begin work on that at this time.

Chris Forsythe:

Sure. So the big maturity that you see next year is the $2.2 billion interim Winter Storm financing we executed last March. We're anticipating with the completion of the Texas securitization process by the end of the fiscal year that we would use the net proceeds received from that securitization process to repay that $2.2 billion. So, again, setting aside the $2.2 billion, when you look at it, the average maturity is 19.23 years. We're in a very, very good spot. And as we continue to execute the five-year financing plan, Dan is here and his team are looking at all the options that are on the table in terms of laddering and maturity schedules, all in with the idea of trying to minimize costs for our customers.

Kevin Akers:

Well, as we've said before, we certainly don't have our heads in the sand here. We always got our eyes and ears open on the market and what's going on. But we believe we have the best properties out there and we're in very supportive natural gas states, communities, we have very supportive regulatory and legislative jurisdiction that you know with six of our eight states having All Fuels Bill. Another one, Virginia, I believe has something in the legislature this year along the lines of an All Fuels Bill, so that could move us to seven of our eight jurisdictions. As we talked about this morning, these communities are growing. They're expanding both residential, commercial and industrial. And as we've talked about before, we don't need an acquisition to meet our 6% to 8% earnings per share growth that we talked about in our plan. So at this point, we remain focused on executing our system modernization strategy, as we continue our journey to be the safest provider in natural gas services.

Kevin Akers:

Thank you.

Dan Meziere:

We appreciate your interest in Atmos Energy and again thank you for joining us. A recording of this call is available for replay on our Web site through March 31, 2022. Have a good day.

Dan Meziere:

Thank you, Diana. Good morning, everyone, and thank you for joining us. With me today are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP measures to the closest GAAP financial measure. As we review these financial results and discuss future expectations, please keep in mind that some of our discussions might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 37 and more fully described in our SEC filings. I will now turn the call over to Kevin.

Chris Forsythe:

Thank you, Kevin, and good morning, everybody. Our fiscal '21 diluted earnings per share of $5.12, representing 8.5% increase over adjusted diluted earnings per share of $4.72 reported in the prior year. As a reminder, our fiscal 2020 GAAP results included a one-time non-cash income tax benefit of $21 million or $0.17 per diluted share related to the enactment of new tax legislation in Kansas. As we entered fiscal 21, we conservatively planned for lower non-residential revenues while planning to execute our normal O and M program. Though nonresidential sales volumes declined 10% period-over-period during the first quarter and early into the second quarter, we carefully manage our O&M spending focusing on compliance-related activities. Non-residential sales volumes rebounded sooner than we anticipated, which created the opportunity to expand our O&M spending in the second half of the fiscal year. Additionally, the timing difference between the impact of refunding excess deferred taxes on our revenues and deferred income tax expense contributed about a penny to fiscal 21 results. As a result, actual earnings-per-share slightly exceeded the higher-end of our guidance range. Taking a closer look, consolidated operating income rose approximately 10% to $905 million. Slides 5 and 6 provide details of the year-over-year changes to operating income for each of our segments. I will touch on a few of the fiscal year highlights. Rate increases in both of our operating segments driven by increased safety and reliability capital spending totaled $207 million. We continue to benefit from strong customer growth and most of our jurisdictions, resulting in a $19 million increase in distribution operating income. During fiscal '21, we added 51,000 new customers, which represents a 1.6% increase over the last 12 months. Sales volumes for our commercial customers recovered fiscal '21, rising almost 6% over last year. Service order revenue in our distribution segment declined about $8.5 million primarily due to the waiver of our customer service fees for disconnections and reconnections. Additionally, our bad debt expense increased about $18 million year-over-year. Bulk collection activities resume in the third quarter, and we continue to offer flexible payment arrangements, help customers find financial assistance, and remain in close contact with our regulators. We continue to believe this bad debt will be recovered over time. Consolidated [Indiscernible] and expense, excluding bad debt, increased $31 million with a focus on system safety, including enhanced leak surveys, pipeline integrity work, and continued records establishment, and retention. Additionally, line locate requests increased over 9% as a result of increased economic activity and the effects of our third-party damage awareness efforts. Capital and spending increased to $2 billion with 88% of our spending directed towards investments to modernize the safety, reliability, and environmental performance of our system. In fiscal 21, over 90% of our capital spending began to earn a return within 6 months of the test period end. We accomplished this by implementing $226 million of annualized operating income increases. Excellent in the amortization of excess deferred tax liabilities. Since the end of fiscal year, we have reached agreement for the regulators and additional $69 million annualized operating income during our fiscal 2022 first quarter. As of today, we have four filings pending seeking about $22 million. Slides 27 to 36 summarize our regulatory activities. During fiscal '21, we completed over $1.2 billion of long-term debt and equity financing to support our ongoing operations. We fully satisfied or fiscal '21 equity needs through our ATM equity sales program. Under that program, we issued approximately 6 million shares under forward agreements for $578 million, and we settled approximately 6 million shares for net proceeds of $607 million. As of September 30th, we had approximately $300 million remaining under existing equity forward arrangements that will satisfy a significant portion of our fiscal '22 equity needs. This equity financing complemented the $600 million of long-term debt financing we issued last fall. Additionally, we improved our financial flexibility during fiscal '21. During the second quarter, we renewed, extended, an increase in non-liquidity under our credit facilities. Our primary 5-year $1.5 billion facility was extended to March of 2026 and retained the $250 million accordion feature, and we replaced our expiring 364 day, $600 million credit facility with a new $900 million, 3-year credit facility with a $100 million accordion feature. We now have $2.5 billion available under 4 credit facilities. The financial flexibility these facilities provide improves our ability to respond to unforeseen events such as winter storm hearing. Additionally, we issued a new $5 million shelf registration statement and a new $1 billion ATM program to support our financing plans for fiscal '22 and beyond. Additionally, during the fourth quarter we mitigated future interest rate risk by executing $875 million of forward starting interest rate swaps. Currently we have $1.85 billion in swaps to support our future long-term debt financing needs. Finally, our treasury team did an outstanding job in upstanding for $2.2 billion in cost effective interim financing to pay for the gas costs incurred during winter storm Uri, all of which preserved our ability to continue supporting our operational needs. As a result of these financing activities, our equity capitalization, excluding the $2.2 billion of winter storm financing, was 60.6% as of September 30th. Additionally, we finished the fiscal year with approximately $2.9 billion of total liquidity, and strength of our balance sheet and liquidity, we just well-positioned as we move into fiscal '22. Details of our financing activities and financial profile can be found on Slides 9 to 12. We've also fair to winter operations for the next fiscal year. You heard Kevin discuss that our procurement team has mitigated supply chain and inflation risk in our operations. Our gas supply chain has also done an excellent job preparing our gas supply strategy for the upcoming winter heating season. Our proprietary contracted storage is over 95% full and a weighted average cost of gas for approximately $3. Additionally, we have physically and financially hedged about 1/3 of our expected purchase requirements in approximately $4. Through the use of storage and hedge purchases, we have stabilized prices for approximately 1/2 of our normal winter usage in the mid-$3 range. The remainder of anticipating gas supply needs, we satisfied through a combination of baseline purchases at person on prices, peaking contracts, and spot purchases but needed. Today, we had transportation capacity on 37 pipelines across our 8-state footprint which provides our gas supply team access to a wide variety of producing basins to ensure supply reliability and competitive natural gas prices for our customers. As a reminder, all the gas costs we incur are recovered through purchase gas cost mechanisms generally over 12 months, and the process journey involves a weighted average approach, which helps us move the impact in customer bills. Finally, we've been actively communicating with our customers about how they can mitigate the potential impact of higher gas prices to energy conservation, as well as the various ways we can help them with their bills through installment plans, budget billing, and locating energy assistance agencies. Looking forward, fiscal '22 will begin the second decade of pursuing our safety-focused organic growth strategy. Yesterday, we initiated our fiscal '22 earnings-per-share guidance in the range of $5.40 to $5.60. Consistent to prior years, we expect about 2/3 of our earnings will come from our distribution segment. Details surrounding our fiscal '22 guidance can be found on Slides 20 and 21. Also yesterday, Atmos Energy's Board of Directors approved a 152nd consecutive quarterly cash dividend. The indicated annual dividend for fiscal '22 is $2 and 72%, with 8.8% increase over fiscal '21. Finally, fiscal '22, capital spending is expected to rise by 25%, and it's expected to be in the range of $2.4 billion to $2.5 billion. Most of this increase will be incurred at APT, which represent approximately 1/3 of our capital spending in fiscal '22 as a result of the project work that Kevin described a few minutes ago. Over 90% of fiscal '22 capital spending is expected to begin earning return within 6 months when the test period end. Slide 19 summarizes the key themes underlying our fiscal '22 5-year plan. Over the next 5 years, we anticipate earnings per share will grow 6% to 8% per year. By fiscal '26, we anticipate earnings per share to be in the range of $7 and $7.40. We also anticipate dividends per share to increase annually in line with earnings per share. Continued spending per system replacement modernization, and environmental improvements, consistent expansion will be the primary driver for the anticipated increase in capital spending, net income and earnings per share through fiscal '26. Over the next five years, we anticipate total spending at approximately $13 billion to $14 billion. This level of spend is expected to support rate-based growth of about 11% to 13% per year. This translates into an estimated right base of $21 billion to $23 billion in fiscal '26, up from about $12 billion at the end of fiscal '21. From an O&M perspective, we continue to focus on compliance-based activities that address system safety. For fiscal '22, we anticipate O&M to range from $690 million to $710 million and we assumed O&M inflation of 3% to 3.5% annually through fiscal '26. In addition to the spending plans I outlined; we had assumed approximately $600 million in excess deferred tax refunds over the next 5 years will flow back to customers. As a result, we expect our effective tax rate in fiscal '22 to be between 9% and 11%. This rate assumes no tax changes are currently being considered at the federal level, and the financing perspective, we will continue to follow the financing strategy we've been executing the last few years to preserve the strength of our Balance Sheet. Excluding securitization, we anticipate the need to raise between $7 billion and $8 billion incremental long-term financing over the next 5 years. The strength of our Balance Sheet analysis to use a prudent mix of long-term debt and equity financing to target a 50% to 60% equity capitalization ratio, inclusive of short-term debt. This financing plan has been fully reflected in our earnings-per-share guidance through fiscal '26. In October, we completed a $600 million 30-year senior note issuance with a coupon of 2.85% after factoring in a favorable settlement of forward starting interest rate swaps, the effective rate on this issuance is 2.58%, and our debt profile remains very manageable with a weighted average maturity of 19 years, excluding the $2.2 billion of incremental winter storm financing. Finally, as I previously mentioned, we have hedged a substantial portion of our anticipated long-term debt needs to mitigate interest rate risk. From an equity perspective, utilizing our ATM program continues to be our preferred method for raising equity. As I mentioned earlier, the equity forwards we executed during fiscal '21 will satisfy a significant portion of our expected equity needs for fiscal '22. we expect to rage our remaining fiscal '22 equity needs through our ATM program. Regarding Securitization, we have made substantial progress in the last few months. Yesterday, the Bureau Commission of Texas unanimously issued a final determination of regulatory asset that will be securitized under the Statewide program. The final order stipulated that all of our gas and storage costs are prudently incurred and are fully recoverable. The next step is for the Railroad Commission to issue a financing order. Following the issuance of the financing order, the Texas Public Financing Authority has up to 180 days to complete the securitization transaction. Upon receipt of the securitization funds, we will repay the $2.2 billion of winter storm financing we issued last March. In Kansas, we filed our Securitization application in mid-September. We are currently responding to various questions, and a procedural schedule has been set, with all proceedings expected to begin in January. Finally, annual filing mechanisms with the primary means to which we'd recover capital spending. These mechanisms enable us to more efficiently deploy our capital spend, and generate returns necessary to attract the capital we made to finance our investments, and these mechanisms produce a smaller impact to customer bills while providing the regular rate adjustments that support our system modernization efforts. We have assumed no material changes these mechanisms to fiscal '26. In fiscal '22, we anticipate completing filings for $215 million to $225 million in annualized regulatory outcomes that will impact fiscal years, '22 and '23. The execution of this plan to modernize our system to disciplined capital spending, timely recovery of those investments through our various regulatory mechanisms, and balanced long-term financing, all supports our ability to grow earnings per share and dividends in the 6 to 8% range annually through fiscal 2026, and as you can see on Slide 25. The execution of this plan will also keep customer bills affordable and it help us sustain this plan for the long term. Thank you for your time this morning. I will now turn the call back to Kevin for his closing remarks. Kevin?

Operator:

Thank you. The floor is now open for questions. [Operator Instructions] Our first question is coming from Julien Dumoulin-Smith of Bank of America. Please go ahead.

Kevin Akers:

Good morning, Kody. How are you?

Kody Clark:

Good. So first on the delta between the 11% to 13% rate base growth and the 6% to 8% EPS growth. I know there's a good deal of equity contemplated in plan, so definitely cognizant of the dilution there, but low like regulatory lag, given the recovery mechanisms that you have across your jurisdiction, so I'm wondering if there are any other drivers of that delta that you would call out.

Kody Clark:

Got it. Okay. And then building off that question a little bit. I'm wondering how you would characterize where you see yourself in that 6% to 8% long-term EPS growth range. Is it more towards the midpoint or top 10? I'm asking because the past couple of year-end updates I've seen you performed well during the year, rebase off that strong number and then reiterate the 6 to 8% growth after that. So are you being a little bit conservative or how would you think about that?

Kody Clark:

Okay. And then last one if I can just sneak it in that. We've seen the market multiple for gas utilities decline relative to the electric peers throughout the year, and at the same time has seen some healthy transaction multiples for some of the gas utilities. So how are you thinking about potentially monetizing an asset or assets to offset the ATM equity needs. I know you've stated in the past thing you'd like your business mix, but wondering if that has changed at all.

Kody Clark:

Great. That's all I had.

Kody Clark:

Okay. Very good.

Richard Sunderland:

Hi. Good morning. Thanks for taking my questions here. Just wanted to start with this Permian highway project. Does it create incremental base and takeaway or just better connectivity to the Permian highway pipeline?

Richard Sunderland:

Understood. And then I realized the entire five-year capital plan is up year-over-year. But is there anything notable in the 2022 CapEx step-up or just any color there?

Richard Sunderland:

Great. Thank you for the color.

Insoo Kim :

Thank you. My first question is on just general gas hedging. I know that the salt dome is coming on and that's going to help just the storage capacity but whether it's in Texas or other regions, you're following what the hedging rules are that the commissions of those states put on limited to that, but just whether it's a result of Uri or some other spikes we're seeing in the current winter season, any dialogue with any of the commissions on potentially changing the hedging strategy?

Insoo Kim :

Got it. And my second question, the proposed methane fee that's in the reconciliation package. I think more on the upstream and midstream side of things, but just curious on your thoughts or whether it's direct or indirect, any potential impact or ramifications you see for your utilities or just the gas LDC industry in general?

Insoo Kim :

Got it. We'll leave it there. Thank you, both.

Stephen Byrd:

Hey, good morning.

Chris Forsythe:

Hey, Steve.

Chris Forsythe:

Go ahead, Kevin.

Chris Forsythe:

Well, I don't foresee anything that could impact us at this point, those are averages as you know, that we put out there, we continue to look for diversification across our pipes as you heard us mentioned earlier, we're across 37 pipelines, multiple basins. So we tried to blend in as much diversification and flexibility as we can within our systems. We have these annual mechanisms that tend to level out, increases over time, and I think for conservative on those gold bars there on 25, as you've heard us say before, we're looking way out into the future on some of those prices, and as outlook today, while hard at cash basis is $3.98 Katy to $4.40 and I believe the non-Maxx is at $4.91 today. So I think again, with the great work, our gas supply team does, where our assets are located on multiple pipes, availability of storage, that sort of thing, we're in a really good position. Chris, anything you want to add? Yes, I'd say, too as we saw about what could potentially move the needle in terms of pricing, and it's again, it's weather patterns. It sums in the pricing dynamics that Kevin just described. Also, just customer usage and to all that's very, very difficult to predict and trying to estimate or come up with a true impact, and again, with an 8-state footprint that covers a fairly significant geographical difference that you could have weather patterns that impact the eastern portion of the U.S. that are completely there from Texas and what we might experience in Colorado. So really, it's, I think, pretty challenging for us to say across the 8-state footprint if there is a trade key driver to watch out for. I think it's going to be a combination of all of the items you just mentioned; pricing, the basins that we have access to. They're very highly liquid basins. So we were able to have a good keen eye on what that pricing situation customer usage, as well as just general weather patterns.

Chris Forsythe:

It's a challenge for us because we don't have the holding Company structure like many of our peers do. So when you look at each of our divisions or each of our states, that's all under one corporate umbrella. So we can't do a minority sale for a single jurisdiction. The way we're structured today, it would have to be a partial assets sale or a certain geographic region that we would have to exit, and as you heard Kevin talk earlier with Kody, we're very happy with the assets that we have, the jurisdiction footprints. We do see the dislocation between what the private market is a place of evaluation on versus what we're seeing from the public traded perspective and we think again to the public and trade perspective, the fact that 97% of our asset base is located in jurisdictions that are supportive of natural gas, both from a policy perspective, the regulatory perspective, the fact that we have very strong customer growth is currently being a little bit underappreciated, and that's where we just need to continue to remind those investors that we are very well-positioned in the country to capture the growth experienced in our jurisdictions and have jurisdictions that have strong support natural gas.

Stephen Byrd:

Understood. Thank you very much.

Ryan Levine:

Good morning.

Kevin Akers:

Hey, Ryan.

Chris Forsythe:

Key pluses or minuses obviously will be the execution of the regulatory strategy. Customer usage patterns, whether although we are [Indiscernible] normalized, 97% of our jurisdictions, we can see a little bit of that weather year-over-year, and just timing of O&M spending as we continue our ongoing system safety and compliance work, those are the key drivers that we generally point to when we're talking about where we can fall within the 6% to 8% range.

Chris Forsythe:

Sure. It's the ongoing expansion of our compliance work. You've heard us talk before that we're in a mode now, doing more compliance work every year rather than holding back and waiting for another rate case to occur. So as we continue to look at the rule making that's happening at the federal and the state level, we work to try to get ahead of that, so that when it comes time for a compliance deadline to have met, we're getting there. Well in advance on when that deadline is and we're also just looking at the system needs and what we want to be doing from a safety perspective. So when talked about advanced leak detection technologies and further expanding that across our footprint, as well as just ongoing hydrotesting at inline inspection work on our large-scale distribution in some of transmission lines to make sure that better system is operating as safely as it possibly can.

Kevin Akers:

Are you referring to the infrastructure bill there, Ryan?

Kevin Akers:

On the infrastructure bill itself, as you know, it's very comprehensive, we're still working our way through it, but some of the things that we've seen that we are focusing in on our incentives in there for high-efficiency natural gas appliances, systems that regard hydrogen research and development, as well as there's some, I think, $500 million or so over the next 5-year increase for low heat. That's in there as well. The rest of it at this point, we're still working our way through the detailed piece of that with, with our peer companies and with the American Gas Association.

Kevin Akers:

Short answer is no.

Operator:

Thank you. At this time, I would like to turn the floor back over to management for closing comments.

Dan Meziere:

Thank you, Maria. Good morning, everyone, and thank you for joining us today. With me this morning are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP measures to the closest GAAP financial measure. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on slide 29, and are more fully described in our SEC filings. With that, I will turn the call over to our President and CEO, Kevin Akers. Kevin?

Chris Forsythe:

Thank you, Kevin, and good morning, everybody. Last night, we reported fiscal 2021 third quarter net income of $102 million or $0.78 per diluted share, compared to adjusted earnings of $97 million or $0.39 per diluted share in the prior year quarter. Year-to-date, earnings were $617 million or $4.77 per diluted share, compared with adjusted earnings of $515 million or $4.20 per diluted share in the prior year period. Adjusted earnings in both prior year periods excluded $21 million or $0.17 non-cash income tax benefit recognized in the third quarter of fiscal 2020 [led] [Ph] to the enactment of new tax legislation in Kansas. Our third quarter and year-to-date performance reflects the continued execution of our strategy, and was in line with our expectations outlined in our last quarterly call. Additionally, our results for the nine-months, ended June 30, continue to reflect the impact of refunding excess deferred tax liabilities to our customers. As a reminder, last quarter, we received authorization to refund excess deferred tax liabilities to APT's customers, and distribution customers in Tennessee over a three-year period. During the third quarter, and in July, we received authorization to begin refunding excess deferred tax liabilities to distribution customers in Louisiana, Virginia, and for certain of our customers in our West Texas division over a three-year period. The refund of excess deferred taxes is recognized as reduction in revenue, and a reduction to income tax expense. However, there is a timing difference between the recognition of the income tax benefit, which is recognized in our annual effective tax rate when the regulatory orders are approved, and the corresponding reduction in revenue which is recognized over time as it is billed to customers. This timing difference resulted in a $0.06 benefit during the nine-months ended June 30. We anticipate that most of this timing difference will reverse during the fourth quarter. Taking a closer look at the performance, consolidated operating income increased about 13%, to $814 million, during the nine months ending June 30. Slides four and five summarize the key performance drivers for each of our operating segments. Rate increases in both our operating segments totaled $170 million. Customer growth in our Distribution segment contributed an incremental $15 million as we are continuing to benefit from strong population growth in virtually all of our service territories. New customer connections increased 1.68% over the last 12 months, and net customer growth over the same period was 1.82%. Sales volumes for commercial customers continue to trend in a favorable direction. Third quarter sales volumes increased 25% over the prior year quarter, and were consistent with what we experienced before the pandemic. Year-over-year, commercial sales volumes were 6% higher. We experienced an $8.5 million decline in service order revenues in our Distribution segment primarily due to the temporary suspension of collection activities and waiver of our customer service fees for disconnections and reconnections. Additionally, our bad debt expense has increased about $22 million year-over-year. We even focused on keeping our customers connected to our system by offering more flexible payment arrangements, and helping our customers find financial assistance to help with their bills. During the third quarter, we resumed collection activities, focusing first on the largest past-due balances, which are typically the oldest. Additionally, we continue to remain in close contact with our regulators about our customer outreach efforts. And we believe this bad debt expense will be recovered over time. Consolidated O&M expense excluding bad debt increased $8 million year-over-year, and $22 million quarter-over-quarter as we increased pipeline maintenance activities in each of our segments and in-line inspection work at APT. Additionally, we experienced a 12.5% quarter-over-quarter increase in line locate requests as a result of increased economic activity and the effects of our third-party damage prevention efforts. The O&M spending we experienced during the third quarter was in line with our expectations we outlined during the second quarter call is expected to continue into the fourth quarter. Consolidated capital spending decreased 3% to $1.36 billion, with 80% of our spending directed towards safety and reliability to modernize our system. The slight year-over-year decrease primarily reflects timing of spending in our distribution segment. We remain on track to spend $2 billion to $2.2 billion in capital expenditures this fiscal year to modernize our distribution and transmission network to further enhance its safety and reliability while reducing methane emissions. From regulatory perspective, we've completed all the filings that will impact fiscal 2021. We are now focused on filings that will impact fiscal '22. To date, we've completed $186 million in annualized regulatory outcomes. As a reminder, many of these regulatory outcomes reflect the lower revenues due to the refund of access to deferred tax liabilities. However, this amount does not include the corresponding reduction in income tax expense. And we currently have about $53 million in progress, most of which it's expected to be implemented during the first quarter of fiscal 2022. Slides 13 through 28 provide additional details. From a financing perspective, the third quarter was relatively quiet. During the quarter, we executed forward sales arrangements under our ATM program for approximately [1 million] [Ph] shares for $100 million. As of June 30, we had approximately $213 million in net proceeds available under existing forward sales agreements. We have now priced all of our fiscal 2021 equity needs as well as a portion of our fiscal 2022 equity names. As we said before, using our ATM equity sales program is our preferred method to meet our plant equity needs. During the third quarter, we issued a new $5 million self-registration statement and a new $1 billion ATM equity sales program. The new shelf in ATM program positions us well to meet our future financing needs while maintaining the strength of our balance sheet. Securitization is also another tool that will help preserve the strength of our balance sheet. On June 16, Governor Abbott signed HB 1520 Texas Statewide Securitization Program to address the extraordinary gas costs incurred by natural gas utilities during winter storm hearing. Last week, we filed our application to participate in the program seeking to recover $2 billion. We are currently awaiting a formal procedure schedule from the Texas Railroad Commission. We are also making progress with our securitization application in Kansas, anticipate making a filing before the end of the fiscal year. As of June 30, our equity capitalization was 60.2% excluding the $2.2 billion of storm-related financing issued during the second quarter. And we finished the quarter with approximately $3.2 billion of liquidity. Details of our financing activities and our financial profile can be found in slides seven through 10. Yesterday, we reaffirmed our fiscal 2021 earnings per share guidance in the range of $4.90 to $5.10 per diluted share. Based on our third quarter performance and what we were anticipating for the fourth quarter, we continue to believe earnings per share will be at the upper end of this range. We anticipate the fourth quarter activities will mirror what we experienced during the third quarter with sales volumes consistent with seasonal norms and O&M spending that we'll be continuing to focus on system maintenance and compliance. Slides 11 through 12 provide additional details around our guidance. Thank you for your time today. And I'll now turn the call over to Kevin or his closing remarks. Kevin?

Operator:

At this time, we will be conducting a question-and-answer session. [Operator Instructions] Our first question is from Insoo Kim with Goldman Sachs. Please proceed with your question.

Chris Forsythe:

Yes. So, Insoo, so really 2022, we're still working through that right now. So, I'm not really going to comment on that today, but we'll update everybody on that coming November. But again, what we're trying to accomplish right now for 2021 is to focus on the system maintenance, some of the which we were able to safely defer over the last first six months of the fiscal year, as you waited to see what our customer counts are going to do in commercial sales volumes and so on and so forth. So, really the focus right now is to kind of get back to a more normalized O&M run rate. As we see now, that's the pandemic at least at this moment isn't impacting our top line revenues in a material way and remain focused on that, that system maintenance that's in the inline inspection work. Again, we're also saying a lot of economic activity, which is driving the line locates. And as I mentioned we had 12.5% quarter-over-quarter increase. We're up 10% year-over-year. So it's a busy time right now, certainly here in the Dallas Fort Worth area and our focus will be to continue to executing on the strategy as we get to the end of the fiscal year.

Kevin Akers:

It's pretty much the same story. Insoo, I appreciate the question. We continue to talk to all key stakeholders about these opportunities. As you've seen here, we talked about the increases that we just recently observed on our system. We continue to share with them the opportunities we're seeing out there. And we continue to work with our legislators and regulators in Colorado as they're probably the closest to most on putting legislation on the books right now. So I think for us, this fits nicely into our, as I said earlier on our overall environmental strategy and the focus areas that we'll have, we'll keep an eye on these projects as they come to fruition. We'll certainly share those with our regulators and legislators and keep them abreast of the opportunities, but for now that that's been our focus and making sure we get those opportunities available to customers across our system.

Kevin Akers:

Thank you.

Ryan Levine:

Good morning. I was hoping that you'd be able to speak to if you're seeing any disruptions in your suppliers around high density polyethylene and how that may impact your business?

Ryan Levine:

If the disruption in the industry were to persist, is there a point in time when it could be more impactful for your outlook?

Ryan Levine:

Okay. Appreciate it. Thanks for taking my questions.

Dan Meziere:

Thank you. We appreciate your interest in Atmos Energy. And thank you again for joining us. Recording of this call will be available for replay on our website through September 30, 2021. Have a good day.

Dan Meziere:

Thank you Kevin. Good morning everyone and thank you for joining us today. With me this morning are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which will be -- which we will reference in our prepared remarks are available at atmosenergy.com under the Investor Relations tab. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP measures to the closest GAAP financial measure. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on slide 29 and more fully described in our SEC filings. With that, I will turn the call over to our President and CEO, Kevin Akers. Kevin?

Chris Forsythe:

Thank you, Kevin and good morning everyone. Last night, we reported fiscal 2021 second quarter net income of $297 million, or $2.30 per share, compared to $240 million or $1.95 per share in the prior year quarter. Year-to-date earnings were $514 million, or $4.01 per share, compared with earnings of $418 million, or $3.42 per share in the prior year period. Our second quarter and year-to-date performance largely reflects positive rate outcomes driven by safety and reliability spending, customer growth in our distribution segment, lower O&M spending and a reduction in our annual effective tax rate. During the second quarter, APT began refunding $107 million in excess deferred tax liabilities to its customers over a three-year period. Additionally, in Tennessee, we began refunding $17 million in excess deferred taxes over a three-year period. As a reminder, these refunds result in a reduction to revenue and a corresponding reduction in income tax expense, resulting in no material impact to our net income. Since these excess deferred taxes were approved during the second quarter, we adjusted our annual effective tax rate to reflect the lower tax expense that we will realize this fiscal year. The application of this lower annual effective tax rate to our results for six months ended March 31, resulted in an $0.11 benefit during the second quarter. However, we can only recognize the associated reduction in revenue, as it is built over the last six months of the fiscal year. Therefore, this $0.11 benefit will be fully offset during the third and fourth quarters, as we build those lower revenues. Consolidated operating income, increased about 17% to $681 million during the six months ended March 31. Slides four and five summarize the key performance drivers for each of our operating segments. Rate increases in both of our operating segments, driven by increased safety and reliability capital spending, totaled $130 million. Customer growth in our distribution segment contributed an incremental $11 million, as we continue to benefit from strong population growth in several of our service areas. For the 12 months ended March 31, we experienced 1.87% net customer growth in our North Texas distribution business and 1.61% net growth across our eight-state footprint. We experienced an $8 million decline in service order revenues in our distribution segment, primarily due to the temporary suspension of collection activities. Additionally, our provision for bad debt expense increased almost $9 million in our distribution segment, compared to the same period last year. This combined $17 million decrease, represented the most significant impact to our financial performance through the economic downturn caused by the pandemic. Our commercial sales volumes have turned significantly better than our expectations since the start of the fiscal year. After 15% period-over-period decrease in sales volumes during the first quarter, commercial sales volumes increased 16% in the second quarter compared to the same period last year and were about 2% higher year-over-year. While some of this increase is attributed to the significantly colder weather experienced during the second quarter, commercial sales volumes have trended less than 5% below the two-year weather-normalized average, which much of that -- much of that decrease experienced during the first fiscal quarter. Throughout the second quarter, we have noted steady improvement as economic activity has started to pick up. Consolidated O&M expense, excluding bad debt expense, decreased $14 million. O&M in our distribution segment was about $6 million lower than the prior year, primarily reflecting lower travel costs. O&M in our pipeline and storage setting was approximately $8 million lower than the prior year, primarily due to the completion of some nonrecurring well integrity work in the prior year period and conservative O&M management, as we evaluated how our revenues would materialize over the first six months of the fiscal year. Consolidated capital spending decreased 15% to $846 million, with 87% of our spending directed towards safety and reliability spending. The decrease largely reflects the timing of spending in our distribution segment. We remain on track to spend $2 billion to $2.2 billion in capital expenditures this fiscal year, to further enhance the safety and reliability of our distribution and transmission network, while reducing methane emissions. We continue to execute our well-established regulatory strategy, focused on annual filing mechanisms, which mitigate the incremental impact to customer bills, while reducing lag. To-date, we have implemented $110 million in annualized regulatory outcomes. And we have currently about $145 million in progress. Slides 27 and 28 summarize the key attributes for these outcomes. And slide 17 summarizes our planned activities for the remainder of the fiscal year. Due to the historic nature of Winter Storm Uri, we experienced unforeseen -- unforeseeable and unprecedented market pricing for gas costs, which resulted in aggregated natural gas purchases during the month of February of approximately $2.3 billion. To help pay for these costs, we completed $2.2 billion of long-term debt financing in March. As a reminder, gas costs are a pass-through cost and recover in all of our jurisdictions. However, in Kansas and Texas, due to the size of the costs incurred, our regulators issued orders, authorizing natural gas utilities to record regulatory assets to account for the extraordinary costs associated with the storm. As of March 31, we have recorded a $2.1 billion regulatory asset with approximately $2 billion recorded in Texas and approximately $77 million recorded in Kansas. As Kevin mentioned, we have the ability to securitize these costs in Kansas and we are carefully monitoring the proposed statewide securitization legislation in Texas. We also executed forward sales arrangements under our ATM for approximately 2.5 million shares for $239 million. And we settled forward agreements on 4.5 million shares for approximately $461 million of net proceeds. As of March 31st, we have approximately $116 million in net proceeds available under existing forward sale agreements and we have about $313 million available for issuance under the ATM program. We intend to satisfy our remaining fiscal 2021 equity needs through our ATM program. As a result of this financing activity, our equity capitalization excluding the $2.2 billion of storm-related financing issued during the second quarter was 60.4% as of March 31st and we finished the quarter with approximately $3.5 billion of liquidity. Details of our financing activities and our financial profile can be found on slide 7 to 10. Yesterday, we reaffirmed our fiscal 2021 earnings per share guidance in the range of $4.90 to $5.10 per diluted share. As a reminder, approximately 70% of our distribution revenues are earned through the first six months of the fiscal year. And substantially, all of our pipeline storage and other segments revenues are earned under a straight fixed variable rate design. Now that the winter season -- winter heating season is over, we have more clarity around our revenues for the remainder of the fiscal year and we believe fiscal 2021 earnings per share will be at the upper end of our guidance range. We anticipate our sales volumes to be consistent with what we typically experience during the second half of the fiscal year. We also anticipate that our service order revenues will frank consistently with the first six months of the fiscal year. We've also reflected in this guidance the decrease in revenue over the last six months in the fiscal year as we refund excess deferred taxes to our customers and we have updated our income tax expense guidance range to reflect the impact of these refunds. Finally, we anticipate that O&M will increase modestly during the second half of the fiscal year and be in line with our original O&M guidance range. We continue to meet all of our compliance requirements and we will begin to address some of the system maintenance work we were able to safely delay during the first half of the fiscal year. Slides 11 and 12 provide additional details around our guidance. Thank you for your time today. And I will now turn it back over to Kevin for his closing remarks. Kevin?

Operator:

Thank you. [Operator Instructions] Our first question today is coming from Insoo Kim from Goldman Sachs. Your line is now live.

Chris Forsythe:

Sure, Insoo. And good morning. So yeah, so a couple of things. I mean, the regulatory outcomes were pretty much in line with our expectations, primarily because that reflects the capital spending that we did in the prior fiscal year. So when we made those filings up late last year, they carry over into this year. So we had pretty good visibility into those outcomes. I would -- you noted the temporary timing difference around the update to the annual effective tax rate which will unwind by the end of the year. And then also two we were very conservative on the O&M spending in the first half of the fiscal year as we were able to kind of just take a wait-and-see approach with respect to how our commercial customers in particular would behave during the pandemic. And as I mentioned a few minutes ago, the performance there has been better than what we anticipated. So we did hold back some of the spending on the O&M side until we had a better sense where those revenues will begin to materialize. And now that we're out of the winter heating season and focused on the second half of the year, as I mentioned, we'll be modestly increasing that O&M spend. And given the momentum that we see with the regulatory outcomes, the commercial sales volumes beginning to trend in the right direction, as economic activity picks up and the fact that we'll do some modest increases on O&M spending, we feel confident that we'll be at the upper end of the range by the end of the fiscal year.

Kevin Akers:

No. Good morning. I appreciate your question. Let's just start with the transaction that you're talking about there and discussion around our assets. And again, as you heard Chris go through the financial updates, the performance for year-to-date, our historical performance, we remain very happy with our asset mix our regulatory construct. And again, Insoo as you know, we began to earn 90% of our investment in the first six months and 99% after 12 months. And we've talked about how that story is very simple, very straightforward easy for our folks investors all stakeholders to understand. And there are complications with these acquisitions as we go forward. That's why we like our plan that we have laid out today the performance that our divisions execute on day in and day out. But I think this transaction sends a very strong signal right to the market. In our opinion, it sends a very strong about the value of natural gas that it brings, particularly meeting the energy needs on a go-forward basis, the value of these assets that have been somewhat questioned over time, but are now should be coming into clear focus. So I think it sends a very strong signal to everybody about the role that natural gas is playing continue to play going forward and the value of this infrastructure out there for the reliability, the certainty the affordability that natural gas brings. So very happy to see that have occurred, but remain very, very happy and positive with our regulatory construct and performance of our assets.

Kevin Akers:

Thank you.

Stephen Byrd:

Hey, good morning. Congrats on continued great performance.

Stephen Byrd:

I wanted to just discuss renewable natural gas a little bit more and maybe just at a high level get your thoughts on the kind of the overall magnitude of that potential in the longer term away from kind of very near term just thinking through, how meaningful that might be? I know it's a broad question. Just interested in your longer-term take on that.

Stephen Byrd:

No, that's fair. Great. And then maybe just – I wanted to dig in a little bit more on Texas and lessons learned from the winter storm. You all gave a very good and very thorough update on sort of everything going on in Texas. Again, kind of a longer-term question. Just interested in your take on sort of other changes that you see that would be needed in Texas whether that's operational changes, changes to contract structure? Just other things on your mind longer-term to ensure kind of we don't have a repeat of what happened in Texas?

Stephen Byrd:

That’s really great color. Thank you so much.

Ryan Levine:

Hi everybody. In terms of the salt-dome storage project that you highlighted in the Dallas region, could you speak to what additional development opportunities you have on salt-dome storage within your footprint more broadly?

Ryan Levine:

Are there additional opportunities within your footprint on the salt-dome side, that you have the resource or commercial arrangements that you would be able to pursue, to the extent that it was needed?

Ryan Levine:

Okay. And then, in terms of the financing plan, I appreciate the update around the securitization proceedings in the different service territories. To the extent, that the Senate and the Governor support the proposal in Texas, does that crystallize financing plans for 2021? And can you provide some color around, how you're currently thinking about your equity needs, in light of evolving regulatory decision-making?

Ryan Levine:

So just a follow-up, to the extent that that were to happen, does that put off the table any additional equity financing needs beyond the forward agreements that -- and other programs you already have in place?

Ryan Levine:

I appreciate that. Thank you.

Charles Fishman:

Good morning. Kevin, assume the securitization passes, we're also seeing signs of inflation across the economy that people are concerned about, which will make it more difficult to control your O&M cost which you've certainly done a phenomenal job over the last years now, that certainly put some pressure on rates and create some headroom issue, because we obviously know it's important to keep rates at the general inflation or less. But does that put some pressure on 7% to 8% CapEx growth there? How do you think about that, because obviously that's the key to your earnings growth?

Charles Fishman:

Yes. But as far as -- and I'm sorry I broke up. I'm putting myself off speaker here. I -- obviously, regulators look at the general level of rate increases. And will some of these costs that really aren't -- well inflation and higher interest rates not in your control, will that put some pressure on your CapEx growth, is what I was getting at the 7% to 8% annual growth rate that you've targeted over the next five years?

Charles Fishman:

Okay. And if I might ask a second question. I was intrigued earlier this week, when the utility in Phoenix mentioned, they were very proud of the industrial growth going on in Phoenix and they said, it was second only to Dallas. And quite frankly that surprised me. I know, that's electric and we're talking gas here. But -- and industrials are a small percentage of your revenue. I think, I'm looking at slide 13, it looks like 2%. But are you seeing -- in this industrial growth, are you seeing higher gas demand specific to certain chemical industries or anything that might give you an extraordinary boost in revenues from the industrial sector going forward?

Charles Fishman:

Okay. That’s all I had. Thank you.

Dan Meziere:

Thank you. We appreciate your interest in Atmos Energy, and thank you again for joining us. A recording of this call will be available for replay on our website through June 30 of 2021. Have a good day.

Dan Meziere:

Thank you, Bob. Good morning, everyone, and thank you for joining us this morning. With me this morning are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. Today’s presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today’s presentation for definitional information and reconciliations of non-GAAP measures to the closest GAAP financial measure. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on slide 25 and are more fully described in our SEC filings. Our first speaker today is Chris Forsythe, Senior Vice President and CFO of Atmos Energy. Chris?

Kevin Akers:

Thank you, Chris. As you can see, from our first quarter results, we are off to a good start. We remain focused on executing our proven investment strategy of operating safely and reliably, while we modernize our natural gas distribution, transmission and storage systems. We are continuing our investments in people, processes and technologies that will enable Atmos Energy to scale and efficiently and safely invest $11 billion to $12 billion over the next five years. Working to achieve our vision to be the safest provider of natural gas services, we provide safety messaging to our customers and our communities, innovate and advance employee training, and invest in the modernization of our system. Over the last 10 years we’ve invested more than $11 billion company-wide to modernize our pipeline infrastructure. Over 80% of which was allocated to safety and over the next five years we anticipate spending $11 billion to $12 billion as we replace approximately 5,000 miles to 6,000 miles of our distribution and transmission pipe, including the replacement of the remaining cast iron [ph] by the end of 2021. To build upon our continuous improvement efforts, in 2016, we started the process of implementing a pipeline safety management system following the American Petroleum Institute 2015 publication of the voluntary recommended practice. This voluntary measure encourages continuous improvement by reviewing practices, policies and procedures, as we learn from our experiences and from those of others in the industry. This quarter the National Transportation Safety Board held a public meeting on January 12th, related to the incident that occurred at Dallas, Texas residents in February 2018. The field and gas investigation and lab reports confirmed that unrecorded third-party excavation damage on mechanical equipment caused a major crack and leak. We are currently reviewing the complete findings and recommendations released after the meeting and expect to receive the final report soon. Because third-party damage remains one of the greatest threats to natural gas distribution systems, we have been and will continue to be a champion for damage prevention, through such efforts as auditing our third-party line locating services, to empowering our employees to proactively stop by excavation sites, to provide damage prevention materials and ensure to corporate on notification. We have seen our third-party damage rate continue to outperform the industry average. We continue to undertake numerous safety and other continuous improvement actions, such as updating our leak survey and leak investigation procedures to include mandatory 911 notification when a probable or existing hazardous condition is discovered if first responders are not already on site. As I’ve discussed before, we’ve enhanced our technical training program to provide a virtual format coupled with hands on experience for our employees. In this virtual training environment, we have been able to reduce class sizes and duration to improve the training experience all without sacrificing quality. These are only a few of the improvements that Atmos Energy has been making towards achieving our vision to be the safest provider of natural gas services. You may recall on our FY 2020 fourth quarter earnings call, we announced five focus areas in our environmental strategy all designed to reduce our carbon footprint in combination with our pipe replacement efforts. These five focus areas our gas supply, operations, fleet, facilities and customers. I also discuss the progress made in minimizing our carbon footprint, as well as our water and land impact at some of our offices and service centers. Today I want to highlight another focus area for you, gas supply. We are working to increase the amount of RNG that we have on our system to help customers reduce their carbon emissions. Annually, we move nearly 5.5 BCF of RNG across our system, which represents approximately 2% of our distribution sales volumes. We are currently assessing over 20 RNG opportunities adjacent to our system in several states for additional supplies. During the first quarter, we initiated a project in Colorado with a dairy to connect RNG from their facility to our system. Although, it’s too soon to commit to how much RNG we can ultimately transport across our system, please know we will be working with regulators and all stakeholders to help develop the framework for commercially viable RNG solutions to support our customers and improve the environment. Finally, during the first quarter, we continued to enhance our sustainability reporting, as we published our third Corporate Responsibility and Sustainability report, as well as our Methane Emissions report. Both of these can be found in the Corporate Responsibility section of our website. These reports paired with our Corporate Responsibility section of our website, allow us to tell our story and keep stakeholders informed about what we are doing to support the communities where we live and work. As you can see from the highlighted continuous improvement efforts, we remain focused on the long-term sustainability of Atmos Energy and the foundation of that long-term sustainability is the 4,700 men and women who are dedicated to safely operating our system, providing exceptional customer service and giving back to the communities where we live and work every day. They are successfully executing a proven strategy that is focused on modernizing our system to safely deliver reliable and affordable natural gas in an environmentally responsible manner. The long-term fundamentals of this strategy remain the same. They’re supported by the fact that we operate in constructive jurisdictions for several of our markets continue to have strong long-term growth potential, most notably the DFW Metroplex, which is the fourth largest metropolitan area in the country. Additionally, these jurisdictions recognize the value that natural gas provides to their economies in an environmentally responsible manner. The successful execution of our strategy, the strength of our balance sheet and our strong liquidity leaves us well-positioned to continue to safely deliver reliable, affordable, efficient and abundant natural gas to homes, businesses and industries to fuel our industry need -- energy needs now and in the future. I appreciate your time this morning and thank you for your interest in Atmos Energy. And we’ll take any questions that you may have and I’ll turn it back over to the Operator.

Jeremy Tonet:

Hi. Good morning.

Kevin Akers:

Hey. Good morning, Jeremy.

Chris Forsythe:

Sure, Jeremy. I’ll start here and Kevin feel free to jump in as well. As I mentioned earlier, we had about a $9 million quarter-over-quarter impact that we’ve attributed to COVID between commercial load loss, the decline in service order revenues and a little bit of bad debt expense. On the commercial load loss, that is certainly well within the planning scenarios that we had developed over the summer and into the fall as we established our earnings per share guidance. So from that perspective, we’re pleased to see that that the commercial load loss is in line with those expectations. We’ll continue to monitor that as we moved through the second quarter. We got a still another two months or three months left in our winter heating season, which by the end of winter heating season, we’ll have about 70% of our distribution revenues booked for the fiscal year and we’ll have some more clarity around what the impact of the margin line item will be. Same thing with the service order revenues, a lot will be contingent upon when we resumed full collection activities and we’re working with our regulators on that keeping you abreast of what we’re doing there and but, again, that is completely in line with our expectation.

Jeremy Tonet:

That’s very helpful. Thanks. And maybe just kind of turning over to O&M, given the O&M tailwinds you have realized already. What are the main drivers and timing of your expected O&M growth over the course of the year?

Jeremy Tonet:

Got it. That’s helpful. Thanks. And you touched on this a bit in your commentary, but I was hoping you could expand a bit more, it seems for the -- in the marketplace for the LDC space as a whole, there’s some concern with regards to new laws that could impact, new gas hookups, effectively banning that. Just wondering, I guess, how you guys see that risk for you in your service territories and how I guess it compares for Atmos versus other LDC peers and difference that you see there?

Jeremy Tonet:

Got it. And I think we might have seen some legislation and some states that were -- at the state level that would ban or stop these types of bans. Have you guys seen anything like that in your service stories or have any expectations for that?

Jeremy Tonet:

Got it. I’ll stop there. Thank you very much.

Operator:

The next question is from Richie Ciciarelli of Bank of America. Please proceed with your question.

Chris Forsythe:

Good morning, Richie.

Richie Ciciarelli:

Hey. Thanks for taking my question. Just on the customer growth side, so obviously pretty impressive this quarter. Just can you provide any more color on what you’re seeing from the customer classes and more on the residential side with new customer hookups? And how is that kind of progressed into fiscal 2Q, thus far with, potentially more immigration into the State of Texas there?

Kevin Akers:

Yeah. Chris, I just quickly add to that. In addition in some of our other states, Mississippi, Kentucky, we’re seeing industrial expansion as well, which is a good sign in this economy, as well as new industrial customers coming into those locations as well. So we see it, as Chris said, with residential commercial starting move in the Metroplex, but again, good opportunity on the industrial side and our other footprint as well.

Chris Forsythe:

Sure. I mean, we certainly we go put together our strategic plan every year, refresh it, if you will. I mean, these are things that we’re certainly thinking about. I’ll just remind everybody that when we put together our most recent five-year plan consistent with what we’ve done the last several years, all of our equity financing is already assumed in that five-year plan. So when you look at the 6% to 8% earnings and dividends per share growth, the projected share price that we put out, or sorry, earnings per share out in the out years that has assumed a wide variety of potential stock prices. And we put we put that guidance out after we’ve gone through that rigorous assessment. So we feel right now the current financing strategy is one -- that is one been successful for us in the past. We continue to believe that will be successful for us in the future. And but we will continue to evaluate certainly different structures. And we’ve talked about before in terms of asset dispositions, our 8-state footprint, we’re very, very comfortable with. We’ve got good jurisdictions, very constructive jurisdictions that we are very familiar with these jurisdictions and as this -- again, 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 the 6% to 8% earnings per share growth over the next five years.

Kevin Akers:

Yeah. You hit the answer there with the last two. It’s the dairy industry itself and its landfill projects at this point probably have the majority of those approximately 20 projects that we’re looking at and it’s scattered across our footprint. As we mentioned in their opening remarks, we just closed out a supply project with a firm there in Colorado and we continue to work on several others across Kentucky and other parts of our jurisdiction as well. But there are in that area. There are in the dairy side and the landfill side at this point.

Chris Forsythe:

Thank you, Richie.

Insoo Kim:

Thank you. My first question is a follow-up to the customer growth one. When you look -- when we look at what’s embedded in your five-year growth plan, what’s the range of customer growth across your jurisdiction that you’re assuming?

Insoo Kim:

Got it. So I guess when we look at the capital spend and the rate base growth, it’s not -- the bulk of it, again, is just infrastructure replacement and modernization as opposed to new customer line hookups.

Chris Forsythe:

Exactly. You can get a lot more here.

Insoo Kim:

Right.

Insoo Kim:

Yeah. Got it. My other question is, to your comments on kind of safety improvement initiatives and actions that you’ve taken already and following up on the NTSB recommendations, when given the report that had come out about a month ago. Do you -- what do you see from either an O&M perspective or I guess, a capital perspective that could be elevated versus your plan or is that already embedded in the growth plan that you’ve laid out?

Insoo Kim:

Got it. That’s it for me. Thank you.

Operator:

[Operator Instructions] Our next question is from Charles Fishman of Morningstar. Please proceed with your question.

Kevin Akers:

There’s a lot packed in there. Let me see if I can cover all those for you. The final report itself from our understanding, Charles, is merely just corrections or edits to the abstract and other information that you’ve seen out there already. And again, we anticipate that coming out really soon. And the Railroad Commission was a party to the investigation just as we were and they paused their investigation until the NTSB was complete. So we anticipate them to pick up their investigation sometime here soon. As you saw on the recommendations, they’ll be partnering with SAMSA [ph] to do an audit of our integrity management programs. So we anticipate them to pick their investigation backup and close it out relatively soon. I think on your other question, there is no open litigation related to the incident.

Kevin Akers:

Yeah. We will all receive -- in that NTSB report, those recommendations, as you pointed out, were directed to several of the parties to the investigation, will all have responses back to the NTSB. And it’s my understanding that our initial responses will have a timeframe of about 90 days or so to get our initial response back once we received that final report.

Chris Forsythe:

Yeah. It’s pretty close. I mean, as you mentioned, Charles, we’ve got the orders that cover about 90% of our customer base right now. We’re evaluating the language in those orders. They were sufficiently broad and so we’re interpreting and how best to evaluate that order vis-à-vis our filings talking with our regulators and we anticipate by the end of the fiscal year that we will establish some form of regulatory asset. It’s just a matter of timing in this fiscal year when we establish that, but we are closely evaluating that right now and that’s been factored into the guidance for the remainder of the fiscal year.

Chris Forsythe:

Thank you, Charles.

Dan Meziere:

We appreciate your interest in Atmos Energy and thank you for joining us. The recording of this call will be available for replay on our website through March 31, 2021. Have a good day.

In addition to modernizing our systems, we have been focusing on other ways to further reduce our carbon footprint. We categorized our environmental focus into 5 areas:

gas supply, operations, fleet, facilities and customers.

Insoo Kim:

My first question is on your 2021 guidance. I appreciate the commentary you gave on the sensitivities on what could happen with COVID during these winter months. But as we think about the midpoint of that guidance, are you able to give us a little more specificity as to what's embedded in terms of any demand impact net?

Christopher Forsythe:

I think when we looked at our markets, in the back half of the year, Louisiana, Mississippi are -- excuse me, Mid-Tex were 2 that saw most of our -- the commercial decline that I commented on earlier. But right now, towards the back half of the year, it wasn't nearly as severe as we anticipated. It certainly recovered as we moved along through the third and fourth quarters. And we always have to continue to watch and see. I think it's also going to be contingent upon how the buyer spreads, how states may respond to containing the spreads, protecting the citizenry and also balancing the needs of the economy.

Christopher Forsythe:

Yes. I think there's an element of conservatism in our numbers this year, as I mentioned, because we're going to be cautious about what we're seeing around the nonresidential load loss as we go into the winter heating season. If you go back to the kind of midpoint of the guidance for fiscal '20, had we achieved that and then you kind of extrapolate that out, that would get you closer to 7%, I believe.

Christopher Forsythe:

Yes. The holding company structure, we get that question from time to time. We like the transparency that our current structure provides for a regulatory environment. It minimizes the questions that you get around what are you doing at the parent level versus at the operating level in terms of equity capitalization, debt financing, so on and so forth. We've seen instances where regulators have tried to kind of pierce that at operating company level and try to get to the parent level to impute a capitalization at the opco level. So we feel like having a transparent capital structure the way we do today, just takes one less question off the table, and we can remain focused on talking about what we're doing with the spending in terms of modernizing system to make it perform more safely, more reliably and more environmentally responsible.

Stephen Byrd:

Congrats on the continued very good results. I wanted to build on a couple of questions there that were just asked. Just over time, how do you think about the delta between rate base growth and EPS growth? I think you've had a fairly consistent approach there. I was just curious as you continue to get bigger. If there are any sort of changes to your thoughts around that delta between rate base and EPS growth?

Stephen Byrd:

Understood. That balance sheet -- [ conservative ] balance sheet certainly has been a nice asset for you all to have. Now that makes sense. I wanted to shift over to M&A, which is -- I know you all don't really need any kind of inorganic growth. You've got great organic growth, really more at a high level. When you think about the skills and the capabilities that you've developed over time and you think about sort of applying that skill set to others, do you often sort of see a gap in that skill set where you could add value? Are there certain sort of categories of value-add you could provide or is that not something you spend much time kind of thinking about in the context of sort of inorganic growth?

Stephen Byrd:

Understood. Okay. And then maybe just lastly, I know this is not likely to be relevant anytime soon, but we do think longer-term about green hydrogen. And I was especially interested just given your geography, in some cases your proximity to sort of pure hydrogen infrastructure nearby, and I was just curious your latest thoughts on sort of the cost to be able to accommodate green hydrogen, what percentage could be blended. And I appreciate that green hydrogen is quite expensive compared to natural gas. I'm not really thinking in the near-term. But also beyond sort of what you could do with your own system, whether there might, in the future, be some potential to combine your capabilities with the capabilities of sort of pure hydrogen infrastructure nearby to create really a backbone that could allow for a larger conversion to green hydrogen and usage of your systems? So I know that's fairly broad, but was just curious your thoughts on that.

Operator:

Our next question comes from Richie Ciciarelli with Bank of America.

John Akers:

Exactly, as I said before, we're focused on that $11 billion to $12 billion going back into our system, modernizing our system, both at the distribution, transmission and storage levels, if you will. And again, you look at that regulatory construct on the times we just talked about that coming back to us in rate recovery. It's hard for me to say that you could get that type of recovery through an acquisition. We've been part of several, as you know, over the years. And they are extremely difficult at times to integrate both from an operational perspective, from an employee perspective and a cultural perspective. And right now, we have shown a decades long ability to execute on this strategy. And that's what we're going to continue to focus on making sure we're investing in the right things, getting the right recovery for that and modernizing our system so we can be environmentally sound as we continue to go forward and tighten our system up for our customers, our communities and our investors.

Christopher Forsythe:

That's a pretty good assumption.

Christopher Forsythe:

Yes. I think we'll just have to see how the year unfolds, Richie. I mean first and foremost, we still have to maintain compliance throughout the entire system. And we don't want to achieve compliance just by barely achieving -- by barely making it, if you will. So we'll just have to continue to look at that in terms of -- we do have just general inflation as everybody does in some of our just general costs as they continue to go up. So we'll just continue to monitor that, see where the fiscal year takes us in terms of revenue, looking at the portfolio of O&M activities. And we'll -- to the extent that we need to adjust, we'll update at the appropriate time.

Charles Fishman:

Slide 19, where you -- 5,000 to 6,000 miles of pipe replacement over the next 5 years. Where will you stand at the end of 2025 as far as how many miles of pipe are left or how many years of that kind of pace goes on? What's the -- what are we looking at post 2025?

Charles Fishman:

Okay. And then, Kevin, with that argument, I mean, I look at the average monthly bill slide on 26. And I realized you rolled it forward, now you're starting 2009, isn't as good as 2008, when it was much higher. I was just comparing them. But you do have significant increases. What you just told me, is that the argument you used to municipalities you serve, the regulators?

Charles Fishman:

Yes. Well, continuing on that affordability issue, we've seen some electrification mandates on the coast. I don't believe there's been anything in your service territories, correct me if I'm wrong, but is -- let me ask you this, how are your market share with respect to new construction? Are you maintaining your market share with respect to single-family and multifamily with respect to competing against an all-electric new home or new apartment?

John Akers:

Yes. You're exactly right. You've seen the challenges, particularly on the West Coast that, unfortunately, some of those folks are having during the peaks right now. So you draw parallels back to a winter period and trying to meet that demand, and those peak needs is going to be even more challenging. But as you've heard me probably say before, right now, the population of the U.S. is about 330 million to 335 million and due to head toward 360 million by 2030. That's adding at Texas 30-plus million people here in less than a decade. So where are you going to get that energy? Natural gas, as we just talked about, is abundant, it's affordable and it's reliable. So -- and as the fourth largest proven reserve country in the world, I don't know why we would continue to leverage that asset and find ways to continue to grow that when we're thinking about a diversified energy portfolio going forward. So I think you're spot on with that. And that's how we view it. We view it that the industry serves 70 million, 75 million customers today where we continue to grow with that. And we are in the right place with the right infrastructure today to continue to provide that reliable service.

Christopher Forsythe:

We appreciate your interest in Atmos Energy, and thank you for joining us. A recording of this call is available for replay on our website through December of 2020. Have a good day.

As I said earlier, our robust risk management process has served us extremely well during this pandemic and will continue to guide us as we execute at the highest levels on all facets of our business. Our year-to-date results were in line with our expectations. Our balance sheet is strong, and we have further enhanced our liquidity. Our focus remains the same:

the health and safety of our employees, customers and communities as we execute our proven investment strategy; and continue delivering safe, reliable, affordable and efficient natural gas to homes, businesses and industries to fuel our energy needs now and in the future.

Operator:

[Operator Instructions] Our first question today is coming from Richie Ciciarelli from Bank of America.

Christopher Forsythe:

Well, Rich, that's a good question. With the fiscal year-end rapidly coming to a close, we're deep in our planning cycle right now and we're certainly evaluating what's going on in the economies in the 8 states that we serve. And so we're keeping a close eye on that. We're not ready to announce yet what assumptions we're going to put into the fiscal 2021 guidance. As you know, we'll roll that out here in the fall in November. But we are taking a look at that. We're also assessing operationally what we're going to be doing to keep our employees safe and the community safe, and we'll have a better picture and more information to provide in November.

Christopher Forsythe:

When you say offsets, I mean, it's primarily -- we just have to continue to see, first and foremost, what we can do in terms of work that can be performed and doing it in a way that we can keep our employees safe, keep our community safe. And as Kevin said at the top of the call, doing our part to minimize the spread of the virus in the community. So we, obviously, have compliance work that has to be completed on certain schedules and time lines, and we can't let that slip. But we will be evaluating things, but we do have a little bit of discretion in the event that we do need to align our O&M with any potential volumetric and revenue declines due to the pandemic.

Aga Zmigrodzka:

How should we think about your equity needs for 2021? Is it fair to assume that with the updated forward equity agreements that will be sufficient or should we expect a larger equity offering?

Aga Zmigrodzka:

What has been an increase in bad debt? And how quickly you can recover those costs for the mechanism that you have in place?

Aga Zmigrodzka:

I have a last question. Could you please maybe discuss a little in more detail what are the components of lower O&M? What is short in nature and you could still benefit from that in 4Q? And how much of cost savings you're expecting going forward kind of more sustainable?

John Akers:

Yes, the type of work...

John Akers:

Well, I was going to talk about the components and things that we looked at that we could defer going into the period. I'll hand off to Chris to talk to you about the numbers specifically. But there's such things like this right-of-way encroachment clearing trees, overhang brush, those sort of things, cleanup around GIS data, record digitization, those sort of things. And where we're ahead on certain inspections on our systems right now. Those things that we can move out to a different period, not do away with, not cancel, but move to a different period. Those are the sort of O&M things that we have shifted during the last quarter to 2 quarters and are currently evaluating now what opportunities do we have maybe to pick back up some of that and what does that timing look like as we head that into the end of this fiscal year and into next fiscal year. Chris?

Operator:

Our next question today is coming from in Insoo Kim from Goldman Sachs.

Christopher Forsythe:

Well, as really the -- what we're seeing across the board, as I mentioned, Mid-Tex and Louisiana in the third quarter were probably the hardest hit from a volumetric perspective. And that was in that all in, in the 20% range. The other states range anywhere from 9% to 17%, 18%. And as I mentioned, too, we have seen a steady improvement since really the middle part of May, kind of when things seem to have bottomed out. So all in, when I talked about that 11% versus the 2 year historical average, most of our divisions now are kind of right in that range. You do see a little bit of weakness still, but again, it's improving in a bit in Mississippi and Louisiana. But overall, things continue to trend in a better way than what we were seeing in the first half of the third quarter.

Insoo Kim:

Great. In terms of cost contingencies, I think you spoke on it and a couple of people have asked the questions already. But given a little bit stronger-than-expected performance for this year, does it, all else being equal, give you a little bit more contingencies that you could utilize in 2021?

Insoo Kim:

Got it. And finally, just on the technology side, I think you mentioned things like automated customer bill payments and whatnot. Whether it's that or other technological advancements you are making or plan to make on the horizon? Are -- what type of efficiencies could you realize from those type of -- that type of work?

Operator:

Our next question today is coming from Ryan Levine from Citi.

John Akers:

Yes. Ryan, 2 separate things there. We know there's a lot of discussion here lately about hydrogen, particularly with some of the things that are going on in Europe right now. And I know some of the dual fuel companies are talking about projects at particular sites, a site-specific hydrogen utilization, if you will. So it's a much different look than if you think about some of the discussion of blending. That's not yet on the near-term horizon. There are studies going on through particular groups associations. GTI even has a group together that's studying opportunities around hydrogen at this point. So that to say, I think, it's early for us to think about, to your question, how does that fit into our current distribution system. There's a lot of things that need to be worked out from a material standpoint, a supply standpoint, a utilization standpoint at the customer premises. So, I think, that's further out for us. It is separate from RNG, whether it comes from landfill or it's captured through digesters. The only challenge there is the BTU content, the quality of the gas. But once you get over that hurdle, it blends right in with the rest of our stream that we're delivering to customers. And as we talked about before with you, we're doing about 5 to 6 Bcf a year of RNG across our system that we're moving, and we continue to look for those opportunities near our system today.

Christopher Forsythe:

I think you hit it on the head. It's just the -- again, looking at the O&M, aligning that O&M with the revenues that we're expected to get going into the next fiscal year. We're certainly mindful of the capital markets opportunities as well. As you can see in our 10-Q, we have layered in some hedges for future financing activities going out for a few years now to help lock in or take advantage of some of the current interest rate environment. So those are a couple of opportunities as well. So I think those are 2 very good ones to keep an eye on, and that's certainly items that we are contemplating as we finalize our fiscal '21 plans.

Christopher Forsythe:

I am not sure I understand your question, Ryan.

Christopher Forsythe:

I see. Yes. So really the financing needs of the corporation, they're outlined on the website. It's at $5 billion to $6 billion over the current 5-year planning window of 2020 through 2024. Obviously, we'll update that in the fall as well. And those financing needs are really driven just by the -- primarily by the cash flow needs of the Corp and the spending needs. So I think we'll evaluate the timing and the execution of the various tools that we have available to us from a financing perspective. But we -- and obviously, you can also see we've layered in hedges for the fall for an anticipated debt issuance. So that one is kind of forecasted already and is out there for all to see.

Charles Fishman:

I had a question on Slide 8, capital spending. Certainly, the 17% increase is terrific. You say you're on target. I guess, I happen to be in the Dallas area over the July 4 weekend and the construction along I-75 is amazing. And I was just wondering if you could provide some color. Is your new construction connections, which, I believe, is not part of the 88% safety and reliability, is that on target as well? Has that been impacted by COVID-19, at least with respect to your plan? And, obviously, my viewing is just a small piece of all your jurisdictions. I wonder if you can maybe provide some color on new construction in your other jurisdictions because, obviously, you don't have as much control over that as you do on the safety and reliability spend.

John Akers:

Yes. I think that's a good indication here -- as we, again, talk to builders and developers, they're continuing to develop properties. They're continuing to have people come in. Right now, we are continuing to see strong activity in that area. And yes...