Q4 2022 Atmos Energy Corp Earnings Call

Greetings and welcome to the H T O fourth quarter earnings Conference call. At this time all participants are in a listen only mode. A brief 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 as a reminder, this conference.

Is being recorded it is now my pleasure to introduce your host Dan Murphy.

As president of Investor Relations and Treasurer. Thank you Sir you may begin thank.

Thank you Maria.

Morning, everyone. 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 Bennett, Chief Financial Officer.

Our earnings release and conference call Slide presentation.

We will reference in our prepared remarks are available at Atmos energy Dot com under the Investor Relations tab.

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.

We're 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.

Thank you Dan and good morning, everyone. We appreciate your interest in Atmos energy and are glad you joined US This morning.

As Tomorrow is veterans day, and I'd like to take this opportunity to thank you.

Thank you to those have been our own forces and approximate to the 300 of our Atmos energy teammates as part of that nearly 20 million Americans, who are bravely served our country. Thank you for your service.

Yesterday, we reported earnings per share of $5 60, which represents the 20th consecutive year of earnings per share growth Chris.

Chris will provide some additional color around our financial results later in the call.

We will begin today's call with a review of our fiscal 'twenty two accomplishments.

An update on key pipeline projects and.

And we'll close with some thoughts about fiscal 'twenty three.

Our success in fiscal 2022 was once again reflected by the commitment and ongoing effort of all 4800 atmosphere GDP.

I've said, it before and I'll say it again, they are the heart and soul of Atmos energy and provide the foundation for sustained long term success of our company.

Fiscal 'twenty two was our 11th year of executing our proven investment strategy of operating safely and reliably while we modernize our natural gas distribution.

Transmission and storage systems.

Oh, where that 11 year period, we invested over $15 billion in modernizing and expanding our natural gas systems.

Approximately 6300 miles of distribution pipeline.

Approximately 440000 steel service lines.

And over 200 miles of transmission pipeline.

Well that same 11 year period, we added nearly 400000 customers, including over 62000 customers during fiscal 'twenty two and.

And we continue to see strong natural gas demand from new and expanding industrial customers.

In fiscal 2022 we added approximately 50, new industrial customers.

The estimated annual load of 20 Bcf per year once they are fully operational.

Over the last three years, we have added nearly 120 industrial customers with an estimated annual load of 35 Bcf.

And these customers out from various industry manufacturing food processing hospitals automotive and distilleries.

Our physical 22 capital investment of over $2 $4 billion supported the modernization.

In our distribution and transmission systems through the replacement of 715 miles of distribution pipe.

The replacement of more than 47000 service lines of which 24000, where steel service lines.

And over 155 miles of transmission pipe.

All to further enhance system safety and reliability.

Additionally, we installed over 200000 wireless meter reading devices, and now have over 2 million such devices across our system.

I want to take this opportunity to have.

And thank our procurement team for their focus dedication and continued outstanding after we have the necessary materials and resources available for distribution.

Transmission and storage projects.

<unk> done throughout the past decade, their strategic planning efforts have us well positioned for continued execution on our strategy in fiscal 'twenty three.

For example, we currently maintain about six months of inventory for our distribution and transmission operations needs.

And have ordered all of our anticipated steel pipe needs for fiscal year 'twenty three.

We continue to coordinate with our vendors and pipe mills as we place our FY 'twenty for steel pipe orders.

Now I want to provide you an update on a few of our larger Atmos pipeline, Texas projects and.

Their value and safety.

Liability versatility and supply diversification that they provide a P T and its customers.

We are nearing the completion of a P. T third salt dome Cavern project at Battle, which will provide more than six bcf of.

There are additional working gas storage capacity.

We began selling the new cabin this week and remain on track to place the cavern in service by the end of the calendar year.

We are also nearing completion of the second phase of our line ex integrity replacement project.

Which we will replace 63 miles of 36 inch pipeline.

This project is also on track to be completed by the end of this calendar year.

As a reminder line ex rents from wall Hoarder Dallas.

And is key to providing reliable service to the local distribution companies behind a P. T system as well as transportation customers that moved gas from Wockhardt Katy.

We continue to make good progress with our line S. Two project that has three phases.

As a reminder line S to bring supply from the Haynesville and Cotton Valley shale plays.

So the east side of the growing Dallas Fort worth Metroplex.

Phase one of the projects to replace 21 miles of 14 inch pipeline with 36 inch pipeline and.

And it was placed into service the first quarter of fiscal 2022.

And phase two of line S too.

Well replace 17 miles of 14 inch pipeline.

With 36 inch pipeline.

We expect this to be in service late calendar this year.

The final phase of this project is anticipated to be in service late calendar 2024.

And again this project will provide additional supply from the shale plays.

East and bring that gas into the growing Dallas Fort worth Metroplex.

To support the forecasted growth and increased supply diversity to the north of Austin in Williamson County, Texas.

We have begun work on a 22 mile 36 inch line that will connect the southern end of a P T system.

With a 42 inch Permian Highway line that runs from wall holiday Katy.

This line is currently expected to be placed into service.

During the second quarter of fiscal year 2023.

As you've heard in my previous updates our customer service agents and service technicians provide exceptional customer service and support.

During fiscal year 'twenty to our agents and technicians received a 98% satisfaction rating from our customers.

Thank you team for taking exceptional care of our customers every day.

Our strategic focus on digital build delivery and payment option is yielding benefits as over 50% of our customers are receiving electronic bills, while the utility industry average is 33%.

And 81% of the total payments we received as of September 30. This year were electronic methods of payment such as bank drafts credit cards and online banking.

During fiscal 'twenty, two we provided approximately 260000 hours of training.

And in September we reached a milestone of delivering 2 million training hours since the opening of our Charles K Vaughan training Center in 2010.

In fiscal 2022, we continued enhancing our comprehensive environmental strategy focused on reducing our scope one two and three emissions.

And environmental impact from our operations and the five key areas of operations.

<unk> facilities gas supply and customers.

Our efforts in fiscal 'twenty, two to reduce emissions at our environmental impact, including our ongoing distribution and transmission system modernization programs that I mentioned earlier.

Our five apt's storage fields, we completed the installation of.

Of gas cloud imaging technology.

These 360 degree fixed based cameras will continuously monitor our compression and storage field assets for methane emissions and if necessary the technology will send alerts including images.

Land operations employees in addition to text and email alerts.

Additionally in fiscal 'twenty, two we continued our installation of advanced wellhead leak detection at our distribution storage facilities.

And we expanded our system monitoring technologies by adding additional advanced mobile leak detection vehicles as well as implemented technology to capture methane emissions from pipeline maintenance activities.

From a free play.

And facilities perspective, we began transitioning our fleet to gasoline hybrid light duty vehicles, and the C and G for heavy duty vehicles.

Additionally, we are adding CJ refueling stations at our Fort worth and round rock facilities.

Both of which are scheduled for completion by end of this calendar year.

And our corporate data center, we installed a natural gas powered fuel cell to generate high efficiency grid independent electricity with lull emissions.

The fuel sales reduced our emissions at the datacenter about 27%.

This is truly another example of how natural gas plays a pivotal role in lowering greenhouse gas issues.

While increasing reliability to our critical facilities.

We have two new service centers that are pending leadership in energy and environmental design or LEED certification.

Certified as expected this will bring the total number of LEED certified facilities, we have to 17 or approximately 11% of our total facilities.

We are currently transporting approximately eight bcf a year of orangey across our system for end use customers and we are evaluating over 30 opportunities that could further expand the.

The amount of our N G that we are transporting today.

Finally, we are partnering with local habitat for humanity organizations in each of our eight states.

To provide families with zero net energy homes. These.

These homes she's high efficiency natural gas appliances, rooftop solar panels, and advanced insulation materials to produce more energy than they consume.

During fiscal 'twenty, two we completed five new zero net energy homes in Texas.

And one home in Owensboro, Kentucky.

And we are scheduled to complete a home in Jackson, Mississippi.

This December .

We recently broke ground on a home in Dublin, Virginia, and expect to complete construction in the spring of 2023.

The seven Z in the homes that we have completed in the last 14 months demonstrate the value and vital role natural gas plays.

Helping customers reduce their carbon footprint in a cost effective manner.

To wrap up fiscal 'twenty two.

A 4800 Atmos energy employees, who are feeling safe thriving communities initiatives made a difference in the lives of others by supporting schools and students with books meals and snacks, we honored our health care workers and first responders by supporting more than 140 nonprofit.

Dedicated to taking care of our hometown heroes supplying them with meals and needed supplies.

We planted trees and worked in our community gardens, our team hosted utility fares in energy assistance Blitzes too.

To support our share the warmth program for over 11000 customers and donated $7 million of financial support.

And for local and for 300, local food banks and shelters.

A natural and volunteer resources T provided translated into nearly 9 million meals for our neighbors in need across our 1400 communities.

I am very proud of our team because of their investment of time.

Talent and resources, we are making a difference in our communities.

A successful physical 2022 has as well positioned as we move into the second decade of our strategy.

I'll now turn the call over to Chris who will provide some additional color around our physical 2022 financial results and discuss our fiscal 2023 guidance and updated five year plan through fiscal 2027.

I will then return with some closing comments Chris already.

Thank you Kevin and good morning, everyone as Kevin mentioned fiscal 'twenty, two diluted earnings per share was $5.60, which represents a nine 4% increase over fiscal 'twenty one.

Our performance reflects the continued execution of our proven strategy of modernizing natural gas distribution transmission and storage systems recovering our cost timely refinancing our operations in a balanced manner.

We also continued to experience strong customer growth.

And we saw a significant improvement or bad debt expense, both of which offset lower customer consumption increased O&M spending.

Slides four through six provide some detail summarizing our financial performance for the fiscal year.

Solid operating income increased 2% and $20 million from rate adjustments implemented in fiscal 'twenty, one and fiscal 'twenty two.

Adjustments were primarily driven by safety reliability and system expansion spending.

Approximately 68% of this increase is recognized in our distribution segment.

Continue to see robust customer growth in the 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.

Boy related cost compared with the prior year.

This increase was partially offset by $25 million decrease in bad debt expense as we were able to perform collection activities for full fiscal year.

In comparison in the prior year, we resumed collection to the late in our third fiscal quarter.

This decrease also reflects the exceptional work of our customer service team in assisting customers with Brookdale.

During fiscal 'twenty, two essentially $34 million of funding to help 67000 customers with their monthly bill.

As a result of bad debt expense in fiscal 'twenty two was in line with our pre pandemic experience.

Finally reductions in fiscal 'twenty, two revenue associated 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.

88% dedicated to improving the safety and reliability of our system.

This increase primarily reflects increased system monetization integrity and expansion spending to meet the growing natural gas demand in our service territories.

Approximately 90% of their spending began to earn a return within six months of the test or yeah.

We accomplished many $216 million of annualized operating income increases, excluding the amortization of excess deferred tax liabilities.

Since the end of the fiscal year, we have reached agreement with the regulators and an additional $112 million in annualized operating income increases during our fiscal 'twenty three first quarter.

As of today, we have two filings pending seeking about $60 million.

It's 29% 38 summarize our regulatory activities for fiscal 'twenty two.

During fiscal 'twenty, two we completed over $1 $6 billion of long term debt and equity financing to support our ongoing operations.

Oh satisfied or fiscal 'twenty, two equity needs through our ATM equity sales program.

As of September 30, we had about $777 million available under existing equity forward arrangements.

Fully satisfy our anticipated fiscal 'twenty three needs with a portion of our anticipated fiscal 'twenty four 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 proceeding to the $2.0 billion from the Texas public financing authority within the next few months.

Use of proceeds and available cash on hand to fully retire the $2 2 billion.

An interim winter storm financings that matures in March 2023.

This will eliminate all of our exposure to floating rate debt.

Kansas on October 25th the Kansas Corporation Commission issued a financing order authorizing us to securitize and $818 million and gas and other costs over seven to 10 year period.

First they completed 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 was 61, 3%.

Additionally, we finished the fiscal year with approximately $3 1 billion of available liquidity.

October we issued $800 million of long term debt tranches.

First tranche is a $500 million 30 year senior notes with a coupon of 547, 5% we.

We had financially hedges tranche and received $197 million upon settlement of forward, starting interest rate swap, which reduced the effective rate to four 5%.

Second tranche was a $300 million 10 year senior notes with a coupon of 545%.

We have already satisfied or fiscal 'twenty three equity needs through our ATM program. This transaction and completed our anticipated fiscal 'twenty three financing activities.

Details of our financing activities and our financial profile from found on slides nine through 12.

Finally, we finished the fiscal year with a very well funded pension plan.

Based upon the current funded position of the plan and the funding requirements for the pension Protection Act 2006, we did not anticipate the need to make a minimum required contribution during fiscal 'twenty three.

In addition to addressing our fiscal 'twenty three refinancing needs during the fourth quarter of fiscal 'twenty. Two 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.

Powertrain contracted storage is over 99, 6% full.

There shouldn't be officially naturally hedged 23% of our expected winter purchase requirements.

The use of storage and physical and financial hedges, we have stabilized prices for just under half for a normal winter usage in the mid $5 range.

The remainder of our anticipated gas supply needs will be satisfied through a combination of baseball purchases at first of month prices, peaking contracts stores purchases when needed.

Today, we have transportation capacity 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 water, which is traditionally traded below Nymex Henry hub pricing.

As a reminder, all prudently incurred gas cost recoveries in the purchased gas cost mechanisms generally over 12 months.

This calculation generally involved in weighted average approach, which self to a smoothing impact on customer bills.

Additionally, as a reminder, we have the opportunity to recover the gas cost portion of bad debt expense for purchase gas cost mechanisms in five states, which covers approximately 81% of our distribution customer base.

Finally, we continue to actively communicate with their customers about how they can mitigate the potential impact of higher gas prices energy conservation and how we can help by offering installment plans and budgets are on plan and locating energy assessment agencies.

Looking forward yesterday, we initiated our fiscal 'twenty three earnings per share guidance in the range of $5 90 to $6 10 sense consistent with prior years, we expect about two thirds of our earnings come from our distribution segment.

Sales surrounding our fiscal 'twenty three guidance can be found on slides 20 and 21.

Fiscal 'twenty three capital spending.

Should approximate $2 7 billion already 5% of our of the spending is expected to begin earning a return within six months of the test period and substantially all this increase we incurred in our distribution segment to support our system modernization efforts.

Spending on our pipeline and storage segment is expected to be in line with fiscal 'twenty two levels.

Expected to represent approximately one third of our consolidated capital spending in fiscal 'twenty three.

And yesterday Atmos Energy's board of directors approved a 156th consecutive quarterly cash dividend.

The indicated annual dividend for fiscal 'twenty three is $2 96 eight.

Eight 8% increase over fiscal 'twenty two.

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, 6% to 8% by.

By fiscal 'twenty seven we anticipate earnings per share it's been in the range of $7 65 to $8.05.

Also anticipate dividends per share to increase annually in line with earnings per share.

Because he was spending for system replacement modernization and expansion will be the primary driver for anticipated increase in capital spending net income and earnings per share from fiscal 'twenty seven.

This plan anticipates total capex 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.

From $14 billion at the end of fiscal 'twenty two.

But when O&M perspective, we will continue to focus on compliance based activities that address system safety.

For fiscal 'twenty, three we anticipate O&M to range from $700 million $720 million and we've assumed only an inflation of three to three 5% annually through fiscal 2027 off of FY 'twenty two levels.

In addition to the Spanish bonds I outlined we have assumed approximately $435 million excess deferred tax refunds over the next five years. We just spent about 65% of this amount will be refunded during fiscal 'twenty, three and fiscal 'twenty four.

As a result, we expect our effective income tax rate in fiscal 'twenty three to range between 10 and 12%.

We are also planning for becoming a material cash taxpayer the back half of the five year plan, because a 15% corporate minimum tax that was included any 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 859 $5 billion incremental long term financing over the next five years.

As I mentioned earlier, we've already satisfied $1 $5 billion of this anticipated needs.

Strength of our balance sheet enables us to use a prudent mix of long term debt and equity financing to targeting 50% to 60% equity capitalization ratio inclusive of short term debt. This financing plan has been fully reflected in our earnings per share guidance to fiscal 'twenty seven.

Mitigate interest rate risk associated with our anticipated long term debt financing needs beyond fiscal 'twenty. Three we currently have about $1.35 billion forward, starting interest rate swaps to effectively fix the treasury component of our total cost of financing at rates ranging from one 5% to 2%.

As I mentioned, a few minutes ago. Once we repay the interim one restore financing we will have no floating rate debt, which further mitigate interest rate risk.

Slide 12 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 seven 8%, excluding the $2 $2 billion of incremental financing related to winter storm here and no material refinancing need until fiscal 'twenty seven.

From an equity perspective, utilizing our ATM program as a preferred method for raising equity.

As I mentioned earlier the equity forwards we executed during fiscal 'twenty, two is fully satisfied or anticipated fiscal 'twenty three equity needs and a portion of our fiscal 'twenty four days.

Execution of this plan to modernize our systems and disciplined capex spending timing.

Timely recovery of those investments through our various regulatory mechanisms balanced long term financing.

All supports our ability to grow earnings per share and dividends, 6% to 8% annually through fiscal 'twenty seven.

As you can see on slides 25 27, the execution of this plan will also keep our customer bills and very competitive from a cost perspective, compared with other top utility bills and the customer household.

For the time this morning, I'll now turn the call back over to Kevin for his closing remarks, Kevin.

Thank you Chris as you heard this morning, we have taken several steps to mitigate execution risk in fiscal 'twenty three.

As I mentioned in my opening remarks, our procurement team has done an excellent job of sourcing the materials needed to support our capital spending program in fiscal 'twenty three.

Gas supply team has us well positioned for the upcoming heating season, and as Chris noted our fiscal year 'twenty three financing costs are now and we have hedged a significant portion of our financing needs beyond FY 'twenty three.

I'm very excited about direction and long term sustainability of Atmos energy.

<unk> has been set with a proven safety driven a.

A company with organic growth at yield 6% to 8% fully regulated earnings per share commensurate dividend per share growth supported by a strong financial profile.

They shouldn't we operate in a diversified and growing jurisdictional footprint that are supportive of our natural gas investment in natural gas infrastructure, 98% of our rate base is situated in six or eight states that have passed legislation in support of energy choice.

We have constructive regulatory mechanisms that support the necessary capital investments to modernize our natural gas distribution transmission and storage systems.

We have a long runway of work to support the planned $15 billion in capital spending over the next five years.

And as you can see on slide 16, and 17. This spending will support the replacement of 5006 thousand miles of distribution and transmission pipe.

We're about 6% of our total system we.

We also plan to replace between 120000, and 170000 steel service lines, which is expected to reduce our inventory.

20%.

Focusing on long term sustainability has always been a part of our strategy and is reflected in the vital role we play in every community.

That is delivering safe reliable and efficient natural gas to homes.

As an industry to feel our energy needs now and in the future.

We appreciate your time this morning, and now we'll open the call for questions.

Okay.

Thank you we will now be conducting a question and answer session. If you'd 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 he would like to remove your question from the queue for.

For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.

Our first question is from Richard Sunderland with Jpmorgan. Please proceed with your question.

Hey, good morning, and thank you for the time today, starting on the O&M side. Your 2023 guidance implies a higher step up relative to about three and three 5% target what are the drivers of the higher near term O&M inflation and then maybe more broadly how do you think about O&M as a lever to manage cash flow.

Bill impacts overall.

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

As we moved out of the pandemic and moving forward, we continue to work with our vendors are contractors.

We've got long term contracts and in play some of those have been updated to reflect inflationary cost here recently all of those are included in the numbers that we've laid out in the 'twenty three and the five year plan there. Additionally.

Additionally, such things as lawn 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 things.

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, we're 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 followed into.

Reducing that O&M as well I'm trying to keep cost tamping down on a go on a going forward basis.

Chris any additional thoughts yeah. The only other thing that Kevin I would add is rich you've heard us talk about this before the last couple of years in terms of levers we.

A lot of this O&M spending or virtually all of it is focused on safety maintenance and compliance and so we have the opportunity to continue.

To expand those types of activities there is a little bit of inflation in the numbers as Kevin alluded to but we're not a just in time safety or compliance company. So we're looking forward in 'twenty threes, you're too kind of staying ahead of the curve. If you will on those on those type of activities. So if there is in fact, they need to pull on the lever.

As Kevin alluded to again, we have that opportunity. So that's really what's driving it there is really no.

Anything new or different in the underlying EBIT for just staying higher activities across the entire system as Kevin mentioned line locating we continue to do enhanced leak survey activities.

We're also staying a little bit of cost increases after inflation as well.

Got it that's very helpful color and just a quick follow up on that right. 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 three to three 5% outlook.

Okay.

Yes, we would.

We continue to have conversations with our contractors and service providers as well right now I think we're well positioned I don't Wanna trying.

Pair into a crystal ball to see what's out there, but again, we're very comfortable with what we have into our plan as it sits today the conversations we're having with our contractors vendors suppliers on cost as they see them going forward and we've accurately captured those at this point.

Got it that makes sense. So just just quickly switching gears several months until Texas securitization proceeds if I if I heard you correctly in the script just any color on the process from here and what are you watching for on this front.

Yeah, Richard we're obviously in close contact with the Texas public financing authority Theres a lot of questions that we and all of the participating utilities are having.

And the processes is moving along.

As quickly as they can.

I said within the next few months. So we were hoping for the end of the calendar year could potentially slip into early 2023.

Again were working diligently alongside our other participating utilities and a T. P. S. A to get this wrapped up as quickly as possible.

Understood. Thank you for the time today.

Thank you thank.

Thank you.

Our next question is from Gabe Moreen with Mizuho.

Please proceed with your question.

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 gonna be about maybe one 5% to 2% annual range from a customer growth standpoint.

Yeah. Thank you.

Yeah, obviously, the existing housing market with the increased interest rates, we've seen some slowdown.

Across our service territory.

For that but the new home market.

According to our builders or developers our folks on the ground across our service territories and the feedback we're getting.

Has been less of an impact if you will than the existing home market.

Even though you anticipate some decrease.

We head into the first part of the year some of that getting just a winter time period itself some of that being an impact from the inflation, but what we're being told is there is a significant backlog of homes under construction today with approved buyers that have already locked in interest rates out there.

And just to give you. Some example here according to.

Texas Workforce Commission, just a couple of months ago, some of the data, they're putting out the metroplex in particular is experiencing pre pandemic job growth with new hires exceeding 100000 annually.

The Austin area as well as seeing about 40000 annual job growth unemployment in our service territories continues to remain low and again, our builders and developers have.

Backlog folks wanting.

Qualified and ready to purchase homes so.

Good news to hear that our service territory, even with.

The inflationary environment. We're currently and continue to see strong job growth strong economic growth in our builders and developers are able to keep up with that demand.

Great and then speaking of interest rates and kind of walk into them you know kudos for hockey and interest rates for some time on duration I'm just curious in the current interest rate environment, whether you think youre going to continue to lock in interest rates in anticipation of debt issuance kind of a line and then I guess.

The later question to the minimum book tax you've talked about that potentially hitting.

Towards the end of the five year plan does that change.

Changed at all the financing plans given the inter.

Interest expense is tax deductible would you would you shift a little bit more of a charter I guess minimized.

Cash taxes appreciating the desktop for several years.

Sure Yeah, well game all the credit goes to Dan <unk>, who is treasurer team for locking in those rates and we had the opportunity and we continue to look for opportunities to hedge interest rates, obviously, you're in a rising price environment right now our rate environment excuse me it's Chad.

Challenging, but it's something that we will continue to look at certainly.

Month in month out as we continue to watch where the fed is going with with rate increases.

With respect to either the corporate minimum tax.

Yeah, Amit that cash need and therefore the related financing is already assumed in the current five year plan, we're expecting that tax hit sometime in the next four to five years.

The size of the impact is still a little bit TBD as.

As we look at.

Where the final rules around depreciation how prepares our handle that type of thing, but we have made some assumptions in that plan and it's reflected in our financing needs.

Great. Thank you.

Our next question comes from David Arcaro with Morgan Stanley . Please proceed with your question.

Oh, Hey, good morning, Thanks, so much for taking my question.

I'm 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 are looking at to take just to manage that outlook.

Yeah.

I'll start.

Again, it all begins first with our gas supply team and their ability to go out and get reliable sustainable supply.

Thank Dan for US if you look at the major components of the Bill that's the commodity portion.

If you look at what's driving that upstream today, you're currently just short of 800 total rigs working in the U S. Today about half of that over in the Permian you look at where we sit today at Oaxaca, its $2 and some change right now the forward look on that April out is in the $2.

Range, even on the Nymex you look forward there is a four handle out there. So all to say I think the outlook in current conditions as we kind of work ourselves through.

This heating season forward looks good for the commodity price to mitigate some as well on the customer bill.

Other thing that I think is important for us to think about when it comes to affordability out there are the actions that our team our public affairs team and the scale of our local corporate communications team do day in and day out at the state level and the federal level advocating for.

For Leigh heat funding and state funding for energy assistance agencies out there and just to give you. An example, this year our team was able to help almost 70000 customers gain access to $34 million.

So there's a lot of components that go into it it's being able to secure reliable.

Gas at a reasonable price, it's the ability to get customers the help when they need it. It's also the messaging to customers about what we're seeing.

We released now three communications to our customers advising them of ways that can conserve.

On their energy Bill as well.

Got it thanks for that very helpful and then.

I'm wondering if you could comment on the NTSB report.

That was a 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.

Yeah, well, let the NTSB report stay about shelves were not going to comment on the NTSB report were a party to the investigation, we work closely with them and other parties to the investigation.

Point you to our.

Additional annual report as well Thats filed with NTSB. It outlines all of our safety initiatives.

Findings as well.

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 are for 2023, just as kind of a starting point as to what cash tax rate you're experiencing under the current business yeah.

Yeah.

'twenty two we were at.

Very minimal cash taxpayer, both from a federal and state perspective.

Low double digits, we anticipate that to be.

Similar for fiscal 'twenty, three through 25 and that suddenly or 'twenty six 'twenty seven that's when we expect that four to five year period, when the A&P will kick in.

Perfect. Okay. Thanks, so much.

Yeah.

As a reminder, if you would like to ask a question. Please press star one on your telephone keypad.

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

Hey, good morning team. Thank you for the time or if you guys are well.

Just if I can.

If I could go back to where rich start at the top of the call. The top of the Q&A here I, if I recall back last quarter, you guys said several months on the tax securitization issue.

Can you talk about.

Just what that delay has been and ultimately what hoops needs to be crossed here in terms of bringing this to finality I guess, if theres, probably a lot of administrative considerations a lot of coordination.

With the state here, but just in terms of practically bringing bringing this the securitization deal closed on the 2.2 billion. How do you think about what what's driven a little bit of this this delay ultimately in your level of confidence that you'll be able to get this thing resolved ahead of the March but.

March timeline, which admittedly is well in excess of the next several months.

Yeah, I'll start and then hand, it over to Chris again, we have great confidence in the process that the legislature laid out there.

Railroad Commission has approved and that the <unk> going through now.

I'll now just supporting with questions.

Answers to questions that the groups have we're not sitting at the table or anything like that we're just responding.

To Q&A 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 to Chris anything additional.

I think that's pretty well said, Kevin just as a reminder to our securitization of this nature I think is new for the stage and so they're just making sure all the eyes and all of the all the I's are dotted and t's are crossed.

Got it right. So it's truly sort of administrative and execution in terms of the shift in the timeline.

It seems like it's driven by the state more than you guys.

Yes, absolutely.

Got it excellent. Thank you and then if I can go back to the conversation on O&M as well, obviously a pressure across the across the industry you guys, highlighting it and you're twenty-three numbers.

If I can overlay that with the regulatory strategy as it exists today I mean, if you think about your ability to earn our returns are just accelerate timelines on any kind of regulatory proceedings is that shifting anything at all obviously you have a plethora of associated mechanisms across Europe for a portfolio of utilities.

But can you speak a little bit to the extent to which this is shifting and we're accelerating some timeline for recovery again, obviously this in tandem with your elevated level of spending I'm. Just curious if you can comment on that.

Yeah, Julien I'll start and Chris can add any comments when you look at our mechanisms. Most on mechanisms are annual in nature. So they are all prescribed timelines filing dates.

Orders on the backend of those sort of things those are prescribed we're going to continue to follow those are projects are well laid out as you've seen for a long time now and how we like to go through planning our fiscal year and then the subsequent four years after that to get to our five year plans. The only thing that's moving forward.

<unk> is our safety and reliability investments depending on.

What we see from a need a growth need a compliance need a safety need those sort of things are levers for us to move things forward or backward to meet the growing demand on our customer system or safety on our system.

Yeah, and the one thing I'll add to that too is that with our regulatory strategy. The annual mechanisms smaller increase if you will each year. It also gives us the opportunity to stay in regular contact with our regulatory partners to make sure. They understand what we're doing from a total spend perspective.

So part of the strategy as well as keeping them well informed.

What's going on in our operations, what we're seeing from a safety maintenance and compliance perspective, so that when we do have had the other filing in front of them. They are aware of whats included in that filing.

Got it excellent. Thank you gentlemen, I appreciate it thank.

Thank you. Thank you.

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

We appreciate your interest in Atmos energy and thank you for joining us.

A recording of this call will be available for replay on our website through December 31, 2020 to have a good day.

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

Yeah.

Yeah.

Yes.

Okay.

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