Atmos Energy Corporation

Greetings and welcome to the Atmos Energy fourth quarter earnings 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 that this conference is being recorded. I will now turn the conference over to our host, Dan Mazur, Vice President of IR and Treasurer. Thank you, sir.

You may begin. Thank you, Diego. 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 the 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 43 and are more fully described in our SEC filings. I will now turn the call over to Chris Forsyth.

Thank you, Dan, and good morning, everyone. We appreciate your interest in Atmos Energy and are happy that you could join us this morning. Yesterday, we reported fiscal 2020 diluted earnings per share of $4.89, compared to diluted earnings per share of $4.35 reported in the prior year. As a reminder, our fiscal 2020 results included a one-time non-cash income tax benefit of $21 million or 17 cents per diluted share that we recognized during the third fiscal quarter related to a legislative change in Kansas that reduced our state deferred tax rate. Excluding this non-recurring benefit, diluted earnings per share for fiscal 2020 was $4.72. This represents the 18th consecutive year of rising earnings per share. In summarizing the year, the pandemic began to impact the economies of the states we serve at the end of our winter heating season. By that time, we had earned 70% of our distribution revenue for fiscal 20. Given the economic uncertainty at that time, we were conservative about the anticipated non-residential load loss for the third and fourth quarter. And we planned to reduce O&M activities during the third and fourth quarters to keep our employees healthy and to align spending with anticipated revenues. Our residential load loss during the last six months of the fiscal year was less severe than we had originally anticipated. And we maintained our O&M spending in the back half of the fiscal year in line with the revised guidance we issued after our second fiscal quarter. As a result, our fiscal 2020 EPS came in at the higher end of our earnings guidance range of $4.58 to $4.73. Taking a closer look, Consolidated operating income rose over 10% to $824 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 $140 million. We also experienced a $14 million increase in distribution operating income, primarily due to customer growth in our mid-tech divisions. During the 12 months ended September 30, our mid-techs division experienced net customer growth of 1.5%. On a consolidated basis, we experienced net customer growth of 1.2% over the same period. We did experience a $6 million reduction in operating income, primarily due to a 13% decline in commercial consumption in our distribution segment during the last six months of the year. We also experienced a $6 million decline in service order revenue, primarily due to the suspension of collection activities since March of this year. In our pipeline and storage segment, we experienced a net $14 million decrease through system revenue. Volumes declined 17% and prices declined 13% due to reduced associated gas reduction in the Permian Basin. Consolidated O&M expense for fiscal 2020 was flat compared to 2019, in line with our expectations. O&M in our distribution segment was about $8 million lower than the prior year, reflecting lower employee, travel and training costs, partially offset by an increase in bad debt expense. Lower spending in our distribution segment was offset by higher spending for system maintenance activities in our pipeline and storage segment, most of which was completed during the first half of the fiscal year. Consolidated capital spending increased 14% to $1.94 billion, with 88% of our spending directed towards investments to modernize the safety, reliability, and environmental performance of our system. With this spending, Our team replaced approximately 845 miles of distribution and transmission pipe and 55,000 service lines across the eight states in which we operate. In fiscal 2020, over 90% of our capital spending began to earn a return within six months of the test period end. We accomplished this by implementing $160 million in annualized operating income increases. And since the end of the fiscal year, We've reached agreement with our regulators to implement an additional $106 million in annualized operating income during our fiscal 2021 first quarter. As of today, we have three filings pending, seeking about $12.5 million. Slides 30 to 42 summarize our regulatory activities. During fiscal 2020, we successfully executed a long-term financing strategy while maintaining the strength of our balance sheet and further enhancing our liquidity positions. we completed over $1.6 billion of long-term debt and equity financing. We fully satisfied our fiscal 20 equity needs through our ATM equity sales program. Under the program, we issued 4.8 million shares under forward agreements for $523 million and settled 6.1 million shares for net proceeds of $624 million. As of September 30th, we had about $345 million remaining under equity forward arrangements. This equity financing complemented the $800 million in long-term debt financing we issued last fall and the $200 million term loan we executed in April. As a result of these financing activities, our equity capitalization was 60% as of September 30th. Additionally, due in part to the addition of $700 million of new credit facility capacity, we finished the fiscal year with approximately $2.6 billion in liquidity, including cash held in escrow under equity foreign arrangements. The strength of our balance sheet and liquidity leaves us well positioned as we move into fiscal 2021. Details of our financing activities, including our equity foreign arrangements, as well as our financial profile can be found in slides 9 through 12. Looking forward, fiscal 21 will represent the 10th year of executing our operating plan to modernize our distribution, transmission, and storage systems. The fundamentals of our operating plan remain the same. Yesterday, we initiated our fiscal 21 earnings per share guidance in the range of $4.90 to $5.10. Consistent with prior years, we expect about two-thirds of our earnings will come from our distribution segment. Over the next five years, we anticipate earnings per share will grow 6% to 8% per year. By fiscal 25, we anticipate earnings per share to be in the range of $6.30 to $6.70. From a revenue perspective, we have assumed no material changes to our residential revenue as a result of COVID-19. However, we continue to remain cautious about our non-residential revenue due to the continued economic uncertainty and the fact that we are now heading into the winter heating season. Although it is difficult to precisely estimate the potential load loss that we might experience, we perform multiple sensitivity scenarios as we consider the fiscal 21 earnings for share guidance. Slide 18 summarizes our key distribution segment revenue attributes. and provides EPS sensitivities for the full fiscal year for each 1% change in sales volumes by customer class. And as you're aware, the performance of our pipeline storage segment is predominantly driven by APT. As a reminder, over 80% of APT's revenues are earned from delivery services to LDCs, including our mid-tech division, under a straight fixed variable rate design. The remainder of APT's revenues relates to a through-system business and other ancillary pipeline services. APT only keeps 25% of the difference between actual revenues earned from these activities and the approved $69 million benchmark in its rate design. Our Fiscal 21 guidance reflects current market conditions for the small portion of APT's business. From an O&M perspective, we have assumed that we will execute our normal O&M program as we continue to focus on compliance-based activities that address system safety. These activities include enhanced league surveys, pipeline integrity work, work to address FIMS' new integrity management rules that became effective July 1, 2020, and continue records establishment and retention. Similar to fiscal 20, we do have some flexibility around the timing of this O&M spending, which could help us align spending with potential changes to revenue. As we continue to focus on safely operating our system, we continue to assume O&M deflation of 3% to 3.5% annually through fiscal 25. Additional details can be found on slides 16 and 17. Fiscal 21 capital spending is expected to rise about 7.5% and is expected to range from $2 to $2.2 billion. Approximately 85% of the spending will be dedicated to safety and reliability spending, which will also reduce methane emissions from our system. Approximately 73% of the spending will be allocated to our distribution segment. Over 90% of our consolidated capital spending is expected to begin earning a return within six months of the test period end. Continued spending, persistent replacement, and modernization will be the primary driver for the anticipated increase in capital spending, net income, and earnings per share through fiscal 25. As you can see on slide 21, we anticipate capital spending to increase about 7 to 8 percent per year off of fiscal 2020 spend levels for a total of $11 to $12 billion over the next five years. This should support rate-based growth in about 12 to 14 percent per year. This translates into an estimated rate base of $19 to $20 billion in fiscal 25, up from about $11 billion at the end of fiscal 2020, as you can see on slide 22. Annual filing mechanisms will be the primary means to which we recover our capital spending. These mechanisms enable us to more efficiently deploy capital and generate the returns necessary to attract the capital we need to finance our investments. And these mechanisms produce a smaller impact to customer bills, while providing the regular rate adjustments that support our ongoing system modernization efforts. We have assumed no material changes to these mechanisms through fiscal 25. In fiscal 2021, we anticipate completing filings for $195 million to $215 million in annualized regulatory outcomes that will impact fiscal years 2021 and 2022. Moving to slide 24, the library of financial performance in fiscal 2020, Yesterday, Atmos Energy's board of directors approved a 148th consecutive quarterly cash dividend. The indicated dividend for fiscal 2021 is $2.50, an 8.7% increase over fiscal 2020. We continue to expect dividends per share to grow in line with earnings per share over the next five years, and we will continue to target a payout ratio of approximately 50% as it strikes the right balance between using funds to invest in the modernization of our system and providing a reasonable return to our shareholders who support our operating plans with their investments. This five-year plan also continues the financing strategy we've been executing over the last few years. It balances the interest of our customers and our investors while preserving strong credit metrics that minimize the cost of financing. Based upon our spending assumptions, we anticipate the need to raise between $6.5 and $7.5 billion in incremental long-term financing over the next five years. The strength of our balance sheet enables us to continue to use a prudent mix of long-term debt and equity in order to maintain a balanced capital structure with a targeted equity to total capitalization ratio ranging from 50% to 60% inclusive of short-term debt. This strategy is summarized in slide 25, and consistent with prior year plans, our financing plan has fully reflected in our earnings per share guidance through fiscal 2055. In October, we complete a $600 million 10-year senior note issuance with a coupon of 1.5%. As a result, our overall weighted average cost of debt as of October 1, 2020, stands at 3.94%. And our debt profile remains very manageable with a weighted average maturity of 19 years. From an equity perspective, the equity forwards we executed during fiscal 20 will satisfy a significant portion of our expected equity needs for fiscal 21. We expect to raise the remaining equity needs for Fiscal 21 through our ATM program. To recap, 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 support our ability to grow earnings per share in dividends at 6% to 8% annually through Fiscal 2025. And as you can see on slide 26, The execution of this plan will also keep customer bills affordable, which will help us sustain this plan for the long term. Thank you for your time this morning. I will now turn the call over to Kevin for his remarks. Kevin?

Thank you, Chris, and good morning, everyone. We appreciate you joining us today and your interest in Atmos Energy. Our success in fiscal 2020 reflects the talent and dedication of our 4,700 employees. I've said it before and I will say it again today. that they are the heart and soul of Atmos Energy and provide the foundation for the sustained long-term success of our company. I'm extremely proud of their commitment to keep our 3.2 million customers, our 1,400 communities, themselves and their families healthy and safe. I'd also like to take this opportunity to thank our state regulatory commissions, our many peer companies, our state gas associations, as well as the American Gas Association for their assistance and support during these challenging times. Our robust risk management process has served us extremely well during this pandemic and will continue to guide us as we navigate our way forward. As I've shared previously through the outstanding work of our Risk Management and Compliance Committee and our senior leadership team, all 4,700 Atmos Energy employees were well prepared when we transitioned to a digital work environment. As you can see in our fiscal year operating and financial performance, Our team has proven their ability to execute at the highest levels on all facets of our business. Our move to digital work environment in March provided opportunities for us to leverage new tools to virtually connect with one another. One of the areas I want to highlight today is technical training. To date, we have trained over 900 employees utilizing a virtual format designed by our workforce development and curriculum design teams. This has created exciting possibilities for us as this training is a critical part of our vision of being the safest provider of natural gas services. We play a vital role in every community we serve through our safe delivery of natural gas service. Also important is our time, our talent, and our resources invested in bringing out the best in our communities so they can thrive. For example, during September, that's Hunger Action Month, We joined forces with hundreds of local school districts, food banks, and other essential organizations that provide breakfast, lunch, snacks, and healthy meals that all children need to grow, develop, and succeed. Additionally, we provided resources that help students read on level by third grade. Furthermore, during our annual week of giving in September, our employees generously pledge nearly $900,000 in donations to benefit No Kid Hungry, United Way, and the Salvation Army. Atmos Energy will match our employee pledges to further support the important work these agencies do every day. We also donated $1 million to more than 100 local energy assistant agencies and nonprofit organizations to help customers stay warm this winter or weatherize their homes. As Chris mentioned, over the next five years, we plan to invest $11 to $12 billion with 88% of that capital spending focused on safety and reliability investments identified by our risk-based capital allocation strategy that includes replacing industry-identified materials such as bare steel, vintage plastic, and cast iron. Our Atmos Pipeline Texas investments, in addition to safety and reliability, will continue to focus on serving a growing demand, particularly in North Texas. And as Chris mentioned earlier, our mid-techs division had a 1.5% net customer growth this past year. As you can see on slide 19, we anticipate our capital spending plan over the next five years will support the replacement of 5,000 to 6,000 miles of distribution and transmission pipe, or about 6% to 8% of our total system. Included in this amount is the replacement of the remaining cast iron pipe in our system and replacement of all bare steel main outside of our mid-techs division. We also plan to replace between 100,000 and 150,000 steel service lines, which is expected to reduce our inventory between 20 to 25%. This level of replacement work is expected to reduce methane emissions from our system by 15 to 20% over the next five years. On the technology side, as part of our wireless operations network, We anticipate 75% of our system will be equipped with wireless meter reading at the end of fiscal year 2025. Additionally, through this network, we are testing the ability to wirelessly receive cathodic protection monitoring data from across our distribution and transmission systems. In addition to modernizing our systems, we have been focusing on other ways to further reduce our carbon footprint. We categorize our environmental focus into five areas, gas supply, operations, fleet, facilities, and customers. For example, under gas supply is RNG. Today, as you've heard us say before, we transport approximately 5 BCF across our system, which is about 2% of our distribution sales volumes. We have identified several opportunities to increase the amount of RNG on our systems. For example, we have just signed an interconnect agreement with a renewables company for an additional level of RNG from three dairy facilities. Although it is too soon to commit to how much RNG can ultimately be transported on our system, we will be working with regulators and all stakeholders to help develop frameworks for commercial viable RNG solutions to support our customers and improve the environment. Additionally, under the category of facilities, We have 13 leadership in energy and environmental design or LEED certified facilities and have four additional LEED certified facilities planned. Of these 13 LEED facilities, four are certified gold and seven are certified silver. LEED is a globally recognized green building certification rating system developed by the U.S. Green Building Council. that provides third-party verification of efficiency and emissions reductions. For example, our annual water use at these facilities is reduced 50 to 60 percent, and our carbon dioxide equivalent emissions are reduced approximately 600 metric tons per year. In closing, the long-term fundamentals of our strategy remain the same, and as you just heard, our employees continue to execute at the highest levels and provide the foundation for the sustained long-term success of our company. Our strategy is supported by the fact that we operate in constructive jurisdictions, and several of our markets continue to have long, strong-term growth potential, most notably in the DFW Metroplex, the fourth largest metropolitan area in the country. 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 energy needs now and in the future. We appreciate your time this morning and your interest in Atmos Energy, and we'll now take any questions that you may have.

Thank you. At this time, we'll be conducting our question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in a question queue. You may press the star key followed by the number 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 poll for questions. Our first question comes from Insoo Kim with Goldman Sachs. Please state your question.

Good morning and thank you. My first question is on your 2021 guidance. 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

Good morning, NC. This is Chris. Like I said earlier, we did a number of different sensitivities, and rather than debating it with individuals, we thought by putting the sensitivities out that you see in slide 18 would provide folks with the data that they can do to make some assumptions around what they want to think about the non-residential road loss. But As I said, we ran multiple scenarios, and we feel like our guidance is reflective of those various scenarios. I also do want to point out that we've assumed a full O&M program this year, and to the extent that we need to pull levers a little bit to align spending with revenues as well as keeping our employees safe, that opportunity exists for us as well.

Got it. And just on top of that, what markets are you seeing the greatest risk to demand as we enter into the winter months?

I mean, when we look at our markets, you know, in the back half of the year, Louisiana and Mississippi, or excuse me, Mid-Tex, were the two that saw most of the commercial decline that I commented on earlier. But, you know, right now we have 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'll just have to continue to watch and see. I think it's also going to be contingent upon how the virus spreads, how states may respond to containing the spreads, protecting the citizenry, and also balancing the needs of the economy.

Understood. And then in Looking at the longer-term guidance, you guys have been so consistent historically in giving the 6% to 8% EPS, achieving most of the times at the up or even above the upper end of that. When we look at the five-year CAGRs through 2025 off of the 2020 actuals, it does imply a CAGR that's around 6.5%, a little bit less than the CAGRs that we've been calculating in prior years. how much of this is you being more just conservative versus, you know, some law of large numbers kicking in terms of how much capex you're able to do or, you know, the financing plans that you currently have in place?

Yeah, 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 non-residential load loss as we go into the winter season. If you go back to the kind of the 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.

Yep, understood. And just one more, at what point do you think, and is this in consideration when you look over at this new Fiverr timeframe in creating potentially a whole co-structure to help you guys create additional financing capacity?

Yeah, the holding company structure, we get that question from time to time. We like the transparency that our current structure provides for our 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 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 the system to make it perform more safely, more reliably, and more environmentally responsible.

Got it. Thank you so much.

Okay. Thank you, Insu.

Our next question comes from Steven Bird with Morgan Stanley. Please state your question.

Hey, good morning.

Hey, good morning.

Good morning. 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-based 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-based and EPS growth.

As we've talked about before, Stephen, that large delta largely reflects the financing plan that we've assumed over the next five years. And we certainly believe that certainly over the next five years that we can continue to operate financing the corporation in a balanced fashion using a proven mix of long-term debt and equity. The strength of the balance sheet is that is important, as we saw earlier this year with the shock to the markets, the ability to access the commercial paper markets. We really didn't have much material impact as a result of the strength of that balance sheet, and it also gave us the opportunity to further enhance the liquidity by $700 million because we did have that equity capitalization in place.

Understood. Yeah, that balance sheet, your consumer 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?

Well, Stephen, this is Kevin. Let me start with and take us back to, as Chris and I said earlier, over the next five years, we plan to invest $11 to $12 billion in And you know our rate construct very well. Within six months, we start earning on 90% of that and 99% by the end of 12 months. So that's where we're going to continue to focus right there. That's our strength. We've proven that over the last decade or so that we can execute at that level. It's a very understandable story for our employees, for our investors, and for our regulators to follow. And I think everybody is focused. working hard now around the regulations at the state and federal level to meet compliance. So I think through our associations, through our peer group meetings and everything else, I think our industry is at the top of its game right now and its ability to operate and deliver safe, reliable natural gas service every day.

Understood. 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 and in some cases your proximity to sort of pure hydrogen infrastructure nearby. And I was just curious your latest thoughts on sort of, you know, the cost to be able to accommodate green hydrogen, you know, 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. I know that's fairly broad, but just curious your thoughts on that.

Sure. As we said before, too, we are certainly plugged into and watching all the projects that are coming online, particularly here, those in the States. As you're aware, most of those are what I would call single-point source or their particular turbine or a particular smaller-scale project here or there, not anything on a wide distribution or transmission level. We're also watching very closely what's going on in Europe, particularly in Germany right now. There are several projects. on a little bit larger scale, if you will, of blending and delivering that hydrogen. So we're staying plugged in to the American Gas Association, to the Gas Technology Research Institute, and other associations to continue to monitor those projects so we can take a look at such things as you just mentioned. What is the appropriate blending rate? How and where do you do that? What's the impact? on the infrastructure, the steel of those systems, and the burners on the end-use equipment, those sort of things. So we're plugged in. We're continuing to monitor that, and we'll continue to stay in touch with those groups and, as necessary, continue our evaluation of our systems and what that may look like for a longer term.

That makes sense. That's all I had. Thank you. Thank you, Steven.

Our next question comes from Richie Ciccarelli with Bank of America. Please see your question.

Hey, good morning. How are you all doing? Good.

Good morning, Richie.

Doing well. Appreciate you taking my question here. Just wanted to follow up a bit on Stephen's question, if I could. You obviously have a robust CapEx plan in front of you, but there are a few players in the space looking to divest some LDC assets. Some are adjacent to your service territory. And just given where your multiple is relative to those peers, it would seem like an acquisition could be quite accretive. So just curious how you guys are thinking about the strategic landscape.

Exactly. As I said before, we're focused on that 11 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 see 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.

Yeah, that's very helpful. Focus on the organic profile here. And then just separately on the equity needs remaining for 2021, I think you've executed on roughly 345 million in equity forwards. So is the remaining amount through the ATM program, is it roughly in the $270 to $300 million range?

That's a pretty good assumption.

Okay, thanks. And then just last one on the O&M front, just in response to what you were talking about with INSU earlier on the levers there, should we think about that basically that you can offset and keep O and M flat, uh, relative to this year if, uh, sales, um, figures don't come in where you, you expect?

Yeah, I think we'll just have to see how the year unfolds, Richie. I mean, first and foremost, we still have to maintain, uh, compliance, uh, throughout, uh, the entire system. And, uh, we don't want to achieve compliance, you know, just by, uh, 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, you know, we do have just general inflation, as everybody does, and 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 will, to the extent that we need to adjust, we'll update at the appropriate time.

All right, great. That's all I had. Thanks a lot.

Thank you.

Thank you. And just a reminder, to ask a question, press star 1 on your telephone keypad. To remove your question from the queue, press the star key, followed by the number 2 on your telephone keypad. Our next question comes from Charles Fishman with Morningstar. Please state your question.

Good morning. Slide 19. Were you 5,000 to 6,000 miles of pipe replacement over the next five 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 do we look at post-2025?

Charles, this is Kevin. We have a runway right now in steel service lines at about a 15 to 20 year rate. So you look at that, that'll get us down about five years off of that. Like it says there, about a 22% reduction. And then we've got about the same timeframe on industry identified. So we'll have a little over a decade or so left. And let's keep in mind, that's at today's regulation, right? And what I mean by that, rules are always updated on types of equipment, various materials. And in addition, we've now gotten into this this past decade of the system modernization where previous years under the old rate construct, if you will, people would stay out, invest at smaller levels, and try and work back through O&M reductions to do that. that model has long since gone. You have got to continue to invest in your system to keep it modernized, to keep the equipment up, and leverage technology when and where you can. So, you know, I think these are at the current regulations, the current identified materials, but also you've got to keep this other construct in mind of wanting to keep your system as up-to-date as possible, right? 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 a year 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 the municipalities you serve, the regulators?

Well, I don't know if that's quite stated as an argument. I think it's our investment strategy. And, again, I think when you look at the household bill there, that's the lowest bill in the household today for our customers. And you compare today's price that we have on the sheet and that $4.50 to $5.50 range, you're talking about equivalent of somewhere around $11, $12 gas. when you compare that to the equivalent electric side. So if you convert that over, you're looking at about six, seven, eight, nine cents on the electric side. So I think we're continuing to be affordable at this investment progress that we're making. We continue to do it on an annual basis, so we send the right signals there. And obviously that paired with the production and the basis and where prices set today are certainly a help for us as well.

Yeah. Continuing on that affordability question, You know, 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 it is – let me ask you this. How are you – 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 system? new home or new apartment?

Absolutely. You just heard us talk about the organic growth, particularly here in the Metroplex area. In addition, the territories we serve in Middle Tennessee and around our Lake of Kansas area continue to show good growth as well there. Our market share continues to be strong. When you look at what the Metroplex is and how it's continued to grow here. I think we've got a good long horizon of customers wanting and demanding our natural gas product, as you've seen from those percentage increases there. And as you said, we haven't seen that electrification discussion, that push yet. We continue to talk with our customers. We continue to survey our customers, and they like the value the product brings. And at the price, as I said today, at the $4.50 to $5.50 range, that equates, you know, again, to 10, 11 cent a kilowatt electric rate. And you show me, you know, somewhere where people are getting that today. So, you know, I think we continue to remain competitive and continue to have strong market share.

Well, I would think, Kevin, with the, you know, with respect to these electrification mandates, the amount of energy that you as a gas utility deliver on the coldest day, the electric utilities would be hard-pressed to come up with that. It's a huge increase in their capacity. Is that correct?

Yeah, 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, it's going to be even more challenging. But, you know, as you've heard me probably say before, right now, you know, the population of the U.S. is about 330, 335 million and due to head toward 360 million by 2030. That's adding a Texas, you know, 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. And as the fourth largest proven reserve country in the world, I don't know why we wouldn't 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've We view it that the industry serves 70, 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.

Okay, very helpful. That's all I have. Thank you.

Thank you. There are no further questions at this time. I'll turn it back to management for closing remarks.

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.

Thank you. This concludes today's conference on Parties May Disconnect. Have a great day.