Atmos Energy Q1 2022 Earnings Report

Atmos Energy EPS Results

• Actual EPS: $1.86
• Consensus EPS: $1.86
• Beat/Miss: Met Expectations
• One Year Ago EPS: $1.71

Atmos Energy Revenue Results

• Actual Revenue: $1.01 billion
• Expected Revenue: $1.02 billion
• Beat/Miss: Missed by -$7.90 million
• YoY Revenue Growth: +10.70%

Atmos Energy Announcement Details

• Quarter: Q1 2022
• Date: 2/8/2022
• Time: After Market Closes
• Conference Call Date: Wednesday, February 9, 2022
• Conference Call Time: 9:35AM ET

Atmos Energy (NYSE:ATO) (NYSE:ATO) is a regulated natural gas distribution and pipeline company headquartered in Dallas, Texas. Through its utility operations, the company delivers natural gas to residential, commercial, industrial and agricultural customers, with services focused on safe and reliable energy delivery.

Atmos Energy serves customers across eight states: Colorado, Kansas, Kentucky, Louisiana, Mississippi, Tennessee, Texas and Virginia. Its operations include local natural gas distribution as well as pipeline transportation and storage activities, primarily through its Atmos Pipeline-Texas business.

The company traces its roots to 1906 and has expanded over time through growth and acquisitions in the natural gas industry. Atmos Energy is led by John A. Sells, who serves as president and chief executive officer.

Atmos Energy Q1 2022 Earnings Call Transcript

Key Takeaways

• Atmos Energy reported Q1 net income of $249 million (EPS $1.86), with consolidated operating income of $276 million driven lower by a $39 million refund of excess deferred tax liabilities; excluding that impact, operating income rose $16 million year-over-year.
• The company invested $684 million in Q1 capital spending and remains on track to spend $2.4–2.5 billion this fiscal year, with over 80% focused on distribution/transmission modernization to enhance safety, reliability and reduce methane emissions.
• Atmos secured over $1 billion of long-term financing, including a $600 million senior note and equity via its ATM program, lowering its weighted average debt cost to 3.81% and maintaining approximately $3.1 billion of liquidity.
• Regulatory and securitization progress includes Texas Railroad Commission approval to issue bonds for Winter Storm Uri costs, the start of Kansas proceedings, and the planned repayment of $2.2 billion of interim storm financing by fiscal year-end.
• The company advanced system modernization and environmental goals by completing Phase 1 of the Line X and Line S2 replacements, starting a 22-mile Permian connector, expanding storage at Bethel, deploying methane detection technology, growing RNG transport capacity, and planning to replace 5,600 miles of pipe over five years to cut emissions 15–20%.

Presentation

[Operator]

Greetings. Welcome to the Atmos Energy Q1 earnings conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note, this conference is being recorded. I will now turn the conference over to your host, Dan Meziere, Vice President of IR and Treasurer. Thank you. You may begin.

[Dan Meziere, VP of Investor Relations and Treasurer at Atmos Energy]

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'll reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab.

[Dan Meziere, VP of Investor Relations and Treasurer at Atmos Energy]

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. With that, I will turn the call over to Chris Forsythe, our Senior Vice President and CFO. Chris?

[Chris Forsythe, SVP and CFO at Atmos Energy]

Thank you, Dan, and good morning, everyone. We appreciate you joining us and your interest in Atmos Energy. Yesterday, we reported fiscal 2022 first quarter net income of $249 million, or $1.86 per diluted share. Our first quarter performance was in line with our expectations, and reflects the ongoing execution of our operating, financial, and regulatory strategies.

[Chris Forsythe, SVP and CFO at Atmos Energy]

Consolidated operating income decreased to $276 million in the first quarter, primarily due to a $39 million decrease in revenues associated with the refund of excess deferred tax liabilities. As a reminder, beginning in the second quarter of fiscal 2021 and through the end of last fiscal year, we've reached agreement with regulators in various states to begin refunding excess deferred tax liabilities, generally over a three to five year period.

[Chris Forsythe, SVP and CFO at Atmos Energy]

These refunds reduce revenues throughout the fiscal year when those revenues are billed. The corresponding reduction in our interim annual effective income tax rate is recognized at the beginning of the fiscal year. Therefore, period-over-period changes in revenues and income tax expense may not offset within the interim periods, but will substantially offset by the end of the fiscal year.

[Chris Forsythe, SVP and CFO at Atmos Energy]

Excluding the impact of these excess deferred tax liability refunds, operating income increased $16 million over the prior year quarter. Slide five 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 capital spending, totaled $47 million. Continued robust customer growth in our distribution segment increased operating income by $4 million.

[Chris Forsythe, SVP and CFO at Atmos Energy]

For the 12 months ended December 31, we added 55,000 new customers, which represents a 1.7% increase. These increases are partially offset by a $20 million increase in consolidated O&M expense. As a reminder, in the prior year quarter, we deferred non-compliance spending into later in the fiscal year as we evaluated our customer load during that time period.

[Chris Forsythe, SVP and CFO at Atmos Energy]

Therefore, the period-over-period variance partially reflects this timing difference. The first quarter increase is primarily driven by increased pipeline maintenance activities. Consolidated capital spending increased to $684 million. The $227 million period-over-period increase reflects increased system modernization spending in our distribution segment, spending to close out phase I of APT's Line X and Line S2 projects, and project timing.

[Chris Forsythe, SVP and CFO at Atmos Energy]

We remain on track to spend $2.4 billion-$2.5 billion in capital expenditures this fiscal year, with more than 80% of this spending focused on modernizing our distribution and transmission network, which also reduces methane emissions. We are also on track with our regulatory filings. To date, we have implemented $73 million in annualized regulatory outcomes, excluding refunds of excess deferred tax liabilities.

[Chris Forsythe, SVP and CFO at Atmos Energy]

Currently, we have about $36 million in progress. Slides 17 through 24 summarize these outcomes, and slide 16 outlines our planned filings for the remainder of the fiscal year. To date, we have completed over $1 billion of long-term financing, following the completion of the $600 million 30 year senior note issuance in October.

[Chris Forsythe, SVP and CFO at Atmos Energy]

We executed four sales arrangements under our ATM program for approximately 2.7 million shares for $260 million, and we settled forward agreements on 2.7 million shares for approximately $262 million. As of December 31st, we have approximately $295 million in net proceeds available under existing forward sale agreements.

[Chris Forsythe, SVP and CFO at Atmos Energy]

As a result of this activity, we've now priced a substantial portion of our fiscal 2022 equity needs and anticipate satisfying our remaining equity needs through our ATM program. As a result of this financing activity, our equity capitalization, excluding the $2.2 billion of Winter Storm financing, was 59% as of December 31st. Additionally, we finished the quarter with approximately $3.1 billion of liquidity.

[Chris Forsythe, SVP and CFO at Atmos Energy]

In January, we completed the issuance of $200 million of long-term debt through a tap of our existing 10 year 2.625% notes due September 2029. The net proceeds were used to pay off our $200 million term loan that was scheduled to mature in April. Following this offering, excluding the interim winter storm financing, our weighted average cost of debt decreased to 3.81%, and our weighted average maturity increased to 19.23 years, which further strengthens our financial profile. Additional details of our financing activities, our equity forward arrangements, as well as our financial profile, can be found on slides seven through 10.

[Chris Forsythe, SVP and CFO at Atmos Energy]

We continue to make progress on securitization. Yesterday, the Texas Railroad Commission unanimously issued a financing order authorizing the Texas Public Finance Authority to issue customer rate relief bonds to securitize costs associated with Winter Storm Uri over a period not to exceed 30 years. We currently anticipate the securitization transaction will be completed by the end of our fiscal year.

[Chris Forsythe, SVP and CFO at Atmos Energy]

Upon receipt of the securitization funds, we will repay the $2.2 billion in winter storm financing we issued last March. In Kansas, we started our securitization proceedings at the Kansas Corporation Commission in late January. Based on the current procedural schedule, we are anticipating a financing order by the end of our fiscal third quarter. Our first quarter performance was a solid start to the fiscal year.

[Chris Forsythe, SVP and CFO at Atmos Energy]

The execution of our operational, financial, and regulatory plans are on track, which positions us well to achieve our fiscal 2022 earnings per share guidance of $5.40-$5.60. Details around our guidance can be found in slides 12 and 13. Thank you for your time this morning. I will now turn the call over to Kevin for his closing remarks. Kevin?

[Kevin Akers, President and CEO at Atmos Energy]

Thank you, Chris, and good morning, everyone. Before I begin my update today, I wanna 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 wanna take this time to thank our hometown heroes, our first responders and emergency responders, for their continued dedication and support for all of us. As you just heard, we're off to a great start.

[Kevin Akers, President and CEO at Atmos Energy]

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 enhanced the safety, reliability, versatility, and supply diversification of our system.

[Kevin Akers, President and CEO at Atmos Energy]

For example, at APT, we placed into service phase I 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 system. Phase I replaced 63 miles of 36-inch pipeline. Phase II includes an additional 62 miles of 36-inch pipeline and is anticipated to be completed late this calendar year.

[Kevin Akers, President and CEO at Atmos Energy]

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 I replaced 21 miles of this line, and phase II will replace an additional 18 miles and is expected to be completed late this calendar year.

[Kevin Akers, President and CEO at Atmos Energy]

Phase III, which will replace the remaining 52 miles, is expected to be in service in 2023. During the completion of phase I for Line X and phase I 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.

[Kevin Akers, President and CEO at Atmos Energy]

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 five-six 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 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 increase supply diversity to the north of Austin in both Williamson County and Travis County in Texas. This line is expected to be in service late December of this year.

[Kevin Akers, President and CEO at Atmos Energy]

In addition to those system modernization projects, we continue to make progress in advancing our comprehensive environmental strategy that is focused on reducing scope one, two and three emissions and reduce our environmental impact from our operations in the following five key areas, operations, fleet, facilities, gas supply, and customers.

[Kevin Akers, President and CEO at Atmos Energy]

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.

[Kevin Akers, President and CEO at Atmos Energy]

We currently transport approximately eight BCF a year and anticipate another four projects to come online within the next 12-18 months. Those 4 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.

[Kevin Akers, President and CEO at Atmos Energy]

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. 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.

[Kevin Akers, President and CEO at Atmos Energy]

These zero net energy homes demonstrate the value and vital role natural gas plays 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 fuels safe and thriving communities.

[Kevin Akers, President and CEO at Atmos Energy]

Finally, over the next five years, we will invest $13 billion-$14 billion in capital support to replacement of 5,000-6,000 miles of our distribution and transmission pipe, or about 6%-8% of our total system. We will also replace 100-150 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%-20% over the next five years.

[Kevin Akers, President and CEO at Atmos Energy]

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, have 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.

[Operator]

Thank you. At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we pull for questions. Our first question is from Richard Sunderland of J.P. Morgan. Please proceed with your question.

[Richard Sunderland, Equity Research Analyst at J.P. Morgan]

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

[Chris Forsythe, SVP and CFO at Atmos Energy]

Yeah, sure, Richard, this is Chris. Good morning. Yeah, really the O&M spending was generally in line with our expectations. You know, as I mentioned in my prepared remarks, when you look at our current year compared to the prior year quarter, you know, the prior year quarter was a bit of a low mark.

[Chris Forsythe, SVP and CFO at Atmos Energy]

When you look to where we are now, and it's roughly a 15% increase quarter-over-quarter. When you look to the midpoint of our guidance compared with last year's O&M levels, that's about a 3% increase. Right now we're still seeing O&M trending in that $600 million-$710 million range. We believe that at least where we are, as we said today, that spending will continue to be in line with those expectations.

[Richard Sunderland, Equity Research Analyst at J.P. Morgan]

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

[Chris Forsythe, SVP and CFO at Atmos Energy]

Sure. I mean, again, we typically execute 18 to 20-22 annual regulatory filings. The fiscal second quarter is our busiest filing period, so we'll be making a number of GRIP filings at APT as well as in our Mid-Tex and West Texas divisions. We'll also be making a regulatory filing, annual regulatory filing in Mississippi in early March as well as in Louisiana and a secondary filing in July in Mississippi. A lot of activity to be coming over the next several months. Much of this will be implemented by the end of the fiscal year.

[Chris Forsythe, SVP and CFO at Atmos Energy]

We will also file our West Texas and Mid-Tex, our RM filings generally at the end of March, first part of April, and those are scheduled to become implemented on around October 1st, so really start of the next fiscal year. With respect to APT, the general rate case is scheduled to begin in our fiscal 2023 time period. We've factored that into our five year plan. The GRIP filing that we'll make here in mid-February will be the last GRIP filing before that annual rate proceeding next year.

[Richard Sunderland, Equity Research Analyst at J.P. Morgan]

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

[Chris Forsythe, SVP and CFO at Atmos Energy]

Thank you, Richard.

[Operator]

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

[Julien Dumoulin-Smith, Senior Research Analyst at Bank of America]

Hey, good morning, team. Thanks for the time. Congratulations on everything here. Just following up on Kansas here. Obviously the process kicking off here. Just can you talk a little bit about the expectations on the tenor ultimately on that proceeding and frankly anything else that you think relevant that we should be talking about in terms of parameters. Obviously kudos on getting the RRC finalized here.

[Chris Forsythe, SVP and CFO at Atmos Energy]

Well, thank you. On Kansas, as I said, we're kind of in early stages right now and beginning the securitization proceedings. You know, the terms of tenors, it's, you know, it will depend upon what market conditions look like. We're obviously gonna be looking to seek a triple-A rating on that. We will be working with our banking partners as well as with the staff to determine the appropriate period to make the securitization costs, if you will, as affordable as we can for our Kansas customers. It's still too early to tell where we are at this point.

[Julien Dumoulin-Smith, Senior Research Analyst at Bank of America]

Got it, understood. Actually related, especially considering the progress that you've made with the RRC, I mean, how are you thinking about the rating agencies moving forward here on removing the negative outlook to be specific.

[Chris Forsythe, SVP and CFO at Atmos Energy]

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

[Julien Dumoulin-Smith, Senior Research Analyst at Bank of America]

Got it. A quick last one here, just on tax rate. Obviously depressed here, just the comments in the transcript here. To the extent to which that you should expect to continue to see this rate going forward, the lower rate, just given the tax liability?

[Chris Forsythe, SVP and CFO at Atmos Energy]

Sure. You know, our effective tax rate for the first quarter was about 5.9%. We're anticipating, you know, including the excess deferred tax liabilities, an effective income tax rate in the 7%-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. When you back out the impact of the excess deferred tax liability refunds, the marginal effective income tax rate is in the 22%-24% range.

[Julien Dumoulin-Smith, Senior Research Analyst at Bank of America]

Right. Yeah. Indeed. Thank you for clarifying that. Sorry, actually, if I can clarify the last question on APT.

[Chris Forsythe, SVP and CFO at Atmos Energy]

Sure.

[Julien Dumoulin-Smith, Senior Research Analyst at Bank of America]

I mean, how are you seeing customer growth trends here? I mean, some of your peers talking pretty robustly of late. Just curious to see what you're seeing, especially as it impacts some of your other jurisdictions here, like APT.

[Kevin Akers, President and CEO at Atmos Energy]

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 40,000-45,000 customer range per year. It's a lot of residential growth. Then as you get those rooftops, as you know, you'll have the supporting commercial businesses as well.

[Kevin Akers, President and CEO at Atmos Energy]

We do have a few industrial customers that come in 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.

[Kevin Akers, President and CEO at Atmos Energy]

That's what we're seeing at least here in Texas, across our other jurisdictions as we've talked about. It's been a really good diverse mix of not only residential but as well as industrial growth as well. Reported, I think, at our fourth quarter call that we added 45 industrial customers last year that we anticipate once they're fully online, will utilize somewhere between 12-14 BCF of natural gas.

[Kevin Akers, President and CEO at Atmos Energy]

That equates to around 200,000 residential customers. These are customers that are in the metals, they're in the healthcare, they're in the auto industry, a good variety, distilling. 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.

[Julien Dumoulin-Smith, Senior Research Analyst at Bank of America]

Got it. Excellent. Thank you guys. Appreciate it. I'll pass it on.

[Operator]

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

[Insoo Kim, Senior Research Analyst at Goldman Sachs]

Yeah, thank you. My first question is just on cost overall. You know, I think you've recorded in the first fiscal quarter, you know, the distribution gas costs of, you know, over $7 per Mcf, you know, versus, I think four-dollar range last year. Thinking about that and other potential inflation factors, whether it's labor or other commodities for your CapEx. When you do the math, any concern there in your ability to achieve your, you know, whether it's a 22 or beyond CapEx while managing the bill impact?

[Kevin Akers, President and CEO at Atmos Energy]

Yeah. I'll start out and then hand over to Chris. 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.

[Kevin Akers, President and CEO at Atmos Energy]

As well, you've heard us also talk about we've worked very hard to have a 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. 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. We feel like we're in really good shape. We stay ahead of our needs through our vendors.

[Kevin Akers, President and CEO at Atmos Energy]

At this point, I think given the work of 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 capital spend going forward in the short range.

[Insoo Kim, Senior Research Analyst at Goldman Sachs]

Got it. Thanks for that reminder, and that's a good color. My second question is kind of related to that, maybe on the other side. You know, I think we've seen, you know, the gas basis in, you know, in your Texas region kind of widen out again, given talks about, you know, takeaway capacity concerns. You know, you're obviously working on a line to connect with the Kinder Morgan line there. But any views on, you know, future gas cost forecasts in your Texas jurisdiction and any opportunity to potentially take advantage of that spread in the near or longer term, acknowledging that, you know, from a hedging perspective, I know you're limited on kind of what you can do.

[Kevin Akers, President and CEO at Atmos Energy]

Yeah. I'll start out, and again, we'll see if Chris wants to add anything here. I'm looking at, you know, the Waha prices this morning, cash prices, and we're sitting at $3.60 out there. You know, the forwards for Waha, if you're taking a look at that for the April off period, is around $3.45, something like that.

[Kevin Akers, President and CEO at Atmos Energy]

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, you know, we're seeing production levels that are now in the 14 to 14.25 Bcf a day range with projections, I think, by the end of this calendar year, first of 2023 in the 16 Bcf a day range. I would hope that kind of supply, you know, pushes these prices down even further.

[Kevin Akers, President and CEO at Atmos Energy]

You know, we'll have to wait and see on that piece of it. Very encouraged again by the number of rigs, the supply that's coming online. 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. That is a sharing mechanism there, for those customers' benefit. Chris, anything additional?

[Chris Forsythe, SVP and CFO at Atmos Energy]

Right. Yeah. I think the Rider REV comment is spot on, Kevin. You know, we don't, you know, we certainly think about that in our planning process, but it's not a material portion of APT's business.

[Insoo Kim, Senior Research Analyst at Goldman Sachs]

Got it. At least it would help with the bill headroom. I guess indirect benefit on that front. Got it. Thank you so much.

[Kevin Akers, President and CEO at Atmos Energy]

Thank you.

[Operator]

As a reminder, if you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we hold for additional questions. Our next question is from Ryan Levine of Citi. Please proceed with your question.

[Ryan Levine, Senior Equity Analyst at Citi]

Good morning.

[Kevin Akers, President and CEO at Atmos Energy]

Good morning.

[Ryan Levine, Senior Equity Analyst at Citi]

I was hoping just to follow up on the APT expansion to Permian Highway. Can you elaborate on the kind of the timeline in terms of executing on that project, and if you're seeing any other commercial development opportunities off of APT that are gaining more traction?

[Kevin Akers, President and CEO at Atmos Energy]

Well, as I said in my opening remarks there, this is gonna be a 22-mile line, 36-inch. Certainly will help us meet the forecasted growth in that Austin corridor, both in Williamson and Travis Counties down there. We anticipate this line to be in service late this calendar year, could be first of next year. We're well on our way with all the necessary aspects to get that project rolling forward.

[Kevin Akers, President and CEO at Atmos Energy]

You know, right now, those are the projects outlined. Phase II X2, phase II and phase III of S2, and then this project here are the major projects we have on tap for APT, along with the finalization of that third cavern there. Those all again will bring that diversity, reliability, and versatility to APT system. Many areas to bring supply in and increase capacity.

[Ryan Levine, Senior Equity Analyst at Citi]

Do you have all the rights-of-way and supplies already procured to help execute on that project?

[Kevin Akers, President and CEO at Atmos Energy]

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

[Ryan Levine, Senior Equity Analyst at Citi]

Okay. Switching gears in terms of the financing plan, you outlined your maturity schedule. Looks like there's a bigger maturity due next year with some floating rate debt. Curious how you're thinking about staggering your debt maturities going forward, and also in context of the recent decision from yesterday.

[Chris Forsythe, SVP and CFO at Atmos Energy]

Sure, Ryan. The big maturity that you see next year is the $2.2 billion interim Winter Storm financing that 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.

[Chris Forsythe, SVP and CFO at Atmos Energy]

Again, setting aside the $2.2 billion, when you look at it, our weighted average maturity of 19.23 years, we're in a very good spot. As we, you know, continue to execute the five year financing plan, you know, Dan Meziere and his team are looking at all the options that are on the table. In terms of laddering and maturity schedules, all in, you know, with the idea of trying to minimize costs for our customers.

[Ryan Levine, Senior Equity Analyst at Citi]

Okay. Last question for me. There continues to be talk of LDC assets in the market for sale. Curious if there's any change in how you're looking at deals and if you're spending any more time contemplating acquisitions.

[Kevin Akers, President and CEO at Atmos Energy]

Well, Ryan, as we've said before, we certainly don't have our heads in the sand here. We're always got our eyes and ears open on the market and what's going on. We believe we have the best properties out there. We're in very supportive natural gas states, communities. We have very supportive regulatory and legislative jurisdictions, as you know, with six of our eight states having all-fuels bills.

[Kevin Akers, President and CEO at Atmos Energy]

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.

[Kevin Akers, President and CEO at Atmos Energy]

You know, and as we've talked about before, we don't need an acquisition to meet our 6%-8% earnings per share growth that we've talked about in our plan. At this point, we remain focused on executing our system modernization strategy as we continue our journey to be the safest provider of natural gas services.

[Ryan Levine, Senior Equity Analyst at Citi]

appreciate the time. Thank you.

[Kevin Akers, President and CEO at Atmos Energy]

Thank you.

[Operator]

We have reached the end of the question-and-answer session. I will now turn the call back over to Dan Meziere for closing remarks.

[Dan Meziere, VP of Investor Relations and Treasurer at Atmos Energy]

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

Participants

Executives

• Chris Forsythe, SVP and CFO
• Dan Meziere, VP of Investor Relations and Treasurer
• Kevin Akers, President and CEO

Analysts

• Insoo Kim, Senior Research Analyst at Goldman Sachs
• Julien Dumoulin-Smith, Senior Research Analyst at Bank of America
• Richard Sunderland, Equity Research Analyst at J.P. Morgan
• Ryan Levine, Senior Equity Analyst at Citi