Atmos Energy Corporation

Greetings and welcome to the ATO 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 Mazur, Vice President of Investor Relations and Treasurer. Thank you, sir. You may begin.

Thank you, Maria. Good 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 Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the investor relations tab. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on slide 39 and are more fully described in our SEC file. 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's Veterans Day, I would like to take this opportunity to thank you and to say thank you to those who served in our own forces and approximately to the 300 of our Atmos Energy teammates as part of the nearly 20 million Americans who have 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 will provide some additional color around our financial results later in the call. I will begin today's call with a review of our fiscal 22 accomplishments, provide an update on key pipeline projects, and we'll close with some thoughts about fiscal 23. Our success in fiscal 2022 was once again reflected by the commitment and ongoing effort of all 4,800 Atmos Energy employees. I've said it before and I will say it again. They are the heart and soul of Atmos Energy and provide the foundation for the sustained long-term success of our company. Fiscal 22 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. Over that 11-year period, we invested over $15 billion in modernizing and expanding our natural gas systems, replacing approximately 6,300 miles of distribution pipeline, approximately 440,000 steel service lines, and over 1,200 miles of transmission pipeline. Over that same 11-year period, we added nearly 400,000 customers, including over 62,000 customers during fiscal 22. 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 with an 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 are from various industries, manufacturing, food processing, hospitals, automotive, and distilleries. Our physical 22 capital investment of over $2.4 billion supported the modernization of our distribution and transmission systems through the replacement of 715 miles of distribution pipe, the replacement of more than 47,000 service lines, of which 24,000 were steel service lines, and over 155 miles of transmission pipe. all to further enhance system safety and reliability. Additionally, we installed over 200,000 wireless meter reading devices and now have over 2 million such devices across our system. I want to take this opportunity to highlight and thank our procurement team for their focus, dedication, and continued outstanding efforts to have the necessary materials and resources available for our distribution transmission, and storage projects. Just as they had done throughout the past decade, their strategic planning efforts have us well positioned for continued execution upon our strategy in fiscal 23. 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 23. We continue to coordinate with our vendors and pipe mills as we place our FY24 steel pipe orders. Now I want to provide you an update on a few of our larger Atmos Pipeline Texas projects and highlight their value in safety, reliability, versatility, and supply diversification that they provide APT and its customers. We are nearing the completion of APT's third salt dome cavern project at Bethel, which will provide more than six BCF of additional working gas storage capacity. We began filling the new cavern 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 X 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 X runs from Walhaw to Dallas and is key to providing reliable service to the local distribution companies behind APT system, as well as transportation customers that move gas from Walhaw to Katy. We continue to make good progress with our Line S2 project that has three phases. As a reminder, Line S2 brings supply from the Hainesville and Cotton Valley Shell Place to the east side of the growing Dallas-Fort Worth Metroplex. Phase one of the project replaced 21 miles of 14-inch pipeline with 36-inch pipeline and was placed into service the first quarter of fiscal 2022. And phase two of line S2 will 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 Shell Place East and bring that gas into the growing Dallas-Fort Worth Metroplex. To support the forecasted growth and increase supply diversity to the north of Austin and Williamson County, Texas, we have begun work on a 22-mile, 36-inch line that will connect the southern end of APT's system with the 42-inch Permian Highway line that runs from Wauha to 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 22, 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 bill delivery and payment options 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 22, we provided approximately 260,000 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 in the five key areas of operations, fleet, facilities, gas supply, and customers. Our efforts in fiscal 22 to reduce emissions and our environmental impact included our ongoing distribution and transmission system modernization programs that I mentioned earlier. And at our five APT storage fields, we completed the installation of gas cloud imaging technology. These 360-degree fixed-face cameras will continuously monitor our compression and storage field assets for methane emissions. And if necessary, the technology will send alerts including images to our plant operations employees in addition to text and email alerts. Additionally, in fiscal 22, 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 fleet and facilities perspective, we began transitioning our fleet to gasoline hybrid light duty vehicles and to CNG for our heavy-duty vehicles. Additionally, we are adding CNG refueling stations at our Fort Worth and Round Rock facilities, both of which are scheduled for completion by end of this calendar year. At our corporate data center, we installed a natural gas-powered fuel cell to generate high-efficiency, grid-independent electricity with low emissions. The fuel cells reduced our emissions at the data center by 27%. This is truly another example of how natural gas plays a pivotal role in lowering greenhouse gas emissions while increasing reliability to our critical facility. We have two new service centers that are pending leadership in energy and environmental design or LEED certification. If certified as expected, this would 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 RNG across our system for end use customers. And we are evaluating over 30 opportunities that could further expand the amount of RNG 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 homes use high efficiency, natural gas appliances, rooftop solar panels, and advanced insulation materials to produce more energy than they consume. During fiscal 22, 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&E homes that we have completed in the last 14 months demonstrate the value and vital role natural gas plays in helping customers reduce their carbon footprint in a cost-effective manner. To wrap up fiscal 22, A 4,800 Atmos Energy employees through our Feeling Safe and Thriving Communities initiatives made a difference in the lives of others by supporting schools and students with books, meals, and snacks. We honored our healthcare workers and first responders by supporting more than 140 nonprofits 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 fairs and energy assistance blitzes to support our Share the Warmth program for over 11,000 customers and donated $7 million of financial support. And for 300 local food banks and shelters, the financial and volunteer resources our team 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 fiscal 2022 has us 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 fiscal 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, over to you.

Thank you, Kevin, and good morning, everyone. As Kevin mentioned, fiscal 22 diluted earnings per share was $5.60, which represents a 9.4% increase over fiscal 21. Our performance reflects the continued execution of our proven strategy of modernizing natural gas distribution, transmission, and storage systems recovering our costs timely, and financing our operations in a balanced manner. We also continue to experience strong customer growth, and we saw a significant improvement in our bad debt expense, both of which offset lower customer consumption and increased O&M spending. Slides four through six provide some detail summarizing our financial performance for the fiscal year. Consolidated operating income increased $220 million from rate adjustments implemented in fiscal 21 and fiscal 22. These adjustments were primarily driven by safety and reliability and system expansion spending. Approximately 68% of this increase is recognized in our distribution segment. We continue to see robust customer growth in our distribution segment, which increased operating income by an additional $15 million. This growth offset a $17 million decrease in consumption, most of which occurred during the second fiscal quarter. Additionally, we experienced a $31 million increase in consolidated O&M expense. O&M, excluding bad debt expense, increased $56 million, primarily driven by increased pipeline maintenance activities in both pro segments and employee-related costs compared with the prior year. This increase is partially offset by a $25 million decrease in bad debt expense as we were able to perform collection activities for a full fiscal year. In comparison, in the prior year, we resumed collection activities late in our third fiscal quarter. This decrease also reflects the exceptional work of our customer service team in assisting customers with their bills. During fiscal 22, we arranged nearly $34 million of funding to help 67,000 customers with their monthly bill. As a result, our bad debt expense in fiscal 22 was in line with our pre-pandemic experience. Finally, reductions in fiscal 22 revenue associated with the refund of excess deferred tax liabilities reduced operating income by approximately $112 million. This reduction was substantially offset by lower income tax expense. Consolidated capital spending increased 24% or $475 million to $2.4 billion, with 88% dedicated to improving the safety and reliability of our system. This increase primarily reflects the increased system modernization, integrity, and expansion spending to meet the growing natural gas demand in our service territories. Approximately 90% of this spending began to earn a return within six months of the test period end. We accomplished this by implementing $216 million in annualized operating income increases, excluding the amortization of access deferred tax liabilities. And since the end of the fiscal year, we have reached agreement with our regulators to implement an additional $112 million in annualized operating income increases during our fiscal 23 first quarter. As of today, we have two filings pending and seeking about $16 million. Slides 29 through 38 summarize our regulatory activities for fiscal 22. During Fiscal 22, we completed over $1.6 billion of long-term debt and equity financing to support our ongoing operations. We fully satisfied our Fiscal 22 equity needs through our ATM Equity Sales Program. As of September 30th, we had about $777 million available under existing equity forward arrangements that will fully satisfy our anticipated Fiscal 23 needs and a portion of our anticipated Fiscal 24 needs. This equity financing complemented the $800 million in long-term debt financing we issued during fiscal 2022. We also continue to make progress in securitization. In Texas, we anticipate receiving $2.0 billion from the Texas Public Financing Authority within the next few months. We'll use the proceeds and available cash on hand to fully retire the $2.2 billion in interim winter storm financing that matures in March of 2023. This will eliminate all of our exposure to floating rate debt. In Kansas, on October 25th, the Kansas Corporation Commission issued a financing order authorizing us to securitize $118 million in gas and other costs over a 7- to 10-year period. We anticipate completing the securitization process by the end of our second fiscal quarter. As a result of these financing activities, our equity capitalization at the end of fiscal year, excluding the $2.2 billion in winter storm financing, was 61.3%. Additionally, we finished the fiscal year with approximately $3.1 billion of available liquidity. In October, we issued $800 million of long-term debt through two tranches. The first tranche was a $500 million 30-year senior note with a coupon of 5.75%. We had financially hedged this tranche and received $197 million upon settlement of the forward-starting interest rate swap, which reduced the effective rate to 4.5%. Second tranche was a $300 million 10-year senior note with a coupon of 5.45%. Because we have already satisfied our fiscal 23 equity needs through our ATM program, this transaction completed our anticipated fiscal 23 financing activities. Details of our financing activities and our financial profile can be found on slides 9 through 12. Finally, we finished the fiscal year with a very well-funded pension plan. Based on the current funded position of the plan, and the funding requirements in the Pension Protection Act of 2006, we do not anticipate the need to make a minimum required contribution during fiscal 23. In addition to addressing our fiscal 23 financing needs, during the fourth quarter of fiscal 22, we've also been preparing to ensure supply reliability and competitive natural gas prices for our customers for the upcoming winter heating season. Our gas supply team has done an outstanding job preparing for the upcoming winter heating season. Our proprietary and contracted storage is over 96% full. Additionally, we have physically and financially hedged 23% of our expected winter purchase requirements. Through the use of storage and physical and financial hedges, we have stabilized prices for just under half of our normal winter usage in the mid-$5 range. The remainder of our anticipated gas supply needs will be satisfied through a combination of baseload purchases at first-of-month prices, peaking contracts, and storage purchases when needed. Today, we have transportation capacity of 38 pipelines across our eight state footprint, which provides our team access to a wide variety of liquidity trading and producing bases. Further, a significant portion of our gas supply needs will continue to be sourced from WAHA, which has traditionally traded below NYMEX and Henry Hub pricing. As a reminder, all prudently incurred gas costs were covered through purchase gas cost mechanisms generally over 12 months. This calculation generally involves a weighted average approach, which helps to smooth the impact on customer bills. Additionally, as a reminder, we have the opportunity to recover the gas cost portion of bad debt expense through our purchase gas cost mechanisms in five states, which covers approximately 81% of our distribution customer base. Finally, we continue to actively communicate with our customers about how they can mitigate the potential impact of higher gas prices to energy conservation and how we can help by offering installment plans and budget building plans and locating energy assistance agencies. Looking forward, yesterday we initiated our Fiscal 23 earnings for short guidance in the range of $5.90 to $6.10. Consistent with prior years, we expect about two-thirds of our earnings will come from our distribution segment. Details surrounding our Fiscal 23 guidance can be found on slides 20 and 21. Fiscal 23 capital spending is expected to approximate $2.7 billion. Over 85% of this spending is expected to begin earning at return within six months of the test period end. Substantially, all this increase will be incurred in our distribution segment to support our system modernization efforts. Spending in our pipeline storage segment is expected to be in line with fiscal 22 levels and is expected to represent approximately one-third of our consolidated capital spending in fiscal 23. And yesterday, Atmos Energy's board of directors approved a 156th consecutive quarterly cash dividend. The indicated annual dividend for fiscal 23 is $2.96. 8.8% increase over fiscal 22. Slide 19 summarizes the key themes underlying our fiscal 23 five-year plan. In short, these themes are very consistent with what we have been presenting over the last several five-year plans. Over the next five years, we anticipate earnings will grow annually at 6% to 8%. By fiscal 27, we anticipate earnings per share to be in the range of $7.65 to $8.05. We also anticipate dividends per share to increase annually in line with earnings per share. Continued spending for system replacement, modernization, and expansion will be the primary driver for the anticipated increase in capital spending, net income, and earnings per share through fiscal 27. This plan anticipates total capital spending of approximately $15 billion. This level of spending will continue to support rate-based growth of about 11% to 13% per year, which translates into an estimated rate base of approximately $25 billion in fiscal 2027, up from $14 billion at the end of fiscal 22. From an O&M perspective, we will continue to focus on compliance-based activities that address system safety. For fiscal 23, we anticipate O&M to range from $700 million to $720 million, and we have assumed O&M inflation of 3% to 3.5% annually through fiscal 2027 off of FY22 levels. In addition to the spending plans I outlined, we have assumed approximately $435 million in excess deferred tax refunds over the next five years. We anticipate about 65% of this amount will be refunded during fiscal 23 and fiscal 24. As a result, we expect our effective income tax rate in fiscal 23 to range between 10 and 12%. We've also planned for becoming a material cash taxpayer in the back half of the five-year plan because of 15% corporate minimum tax that was included in the Inflation Reduction Act that was passed this past August. We've continued to finance our operations in a balanced fashion, using a combination of long-term debt and equity to preserve the strength of our balance sheet. Excluding securitization, we anticipate the need to raise between $8.5 and $9.5 billion in incremental long-term financing over the next five years. As I mentioned earlier, We have already satisfied $1.5 billion of this anticipated need. Strength for a balance sheet enables us to use a proven mix of long-term debt and equity financing to target a 50% to 60% equity capitalization ratio, inclusive of short-term debt. This financing plan has been fully reflected in our earnings for sure guidance through Fiscal 27. To mitigate interest rate risk associated with our anticipated long-term debt financing needs beyond Fiscal 23, We currently have about $1.35 billion in forward-starting interest rate swaps to effectively fix the treasury component of our total cost of financing at rates ranging from 1.5% to 2.2%. Additionally, as I mentioned a few minutes ago, once we repay the interim winter storm financing, we will have no floating rate debt, which further mitigates interest rate risk. See slide 12 for details. And our debt profile remains very manageable with a weighted average maturity of 18 years and a weighted average cost of debt of about 3.78%, excluding the $2.2 billion in incremental financing related to Winter Storm URI and no material refinancing needs until fiscal 27. From an equity perspective, utilizing our ATM program is our preferred method for raising equity. As I mentioned earlier, the equity forwards we executed during fiscal 22 has fully satisfied our anticipated fiscal 23 equity needs and a portion of our fiscal 24 needs. The execution of this plan to modernize our system through discipline cap spending, timely recovery of those investments through our various regulatory mechanisms, and balanced long-term financing, all supports our ability to grow earnings per share and dividends 6% to 8% annually through fiscal 27. And as you can see in slides 25 through 27, The execution of this plan will also keep our customer bills very competitive from a cost perspective compared with other common utility bills in the customer household. Thank you for the time this morning. I will now turn the call back over to Kevin for his closing remarks. Kevin?

Thank you, Chris. As you heard this morning, we have taken several steps to mitigate execution risk in fiscal 23. 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 23. Our gas supply team has us well positioned for the upcoming heating season. And as Chris noted, our fiscal year 23 financing costs are known, and we have hedged a significant portion of our financing needs beyond FY23. I'm very excited about the direction and long-term sustainability of Atmos Energy. The foundation has been set with a proven safety-driven, accompanied with organic growth that yields to 8% fully regulated earnings per share. Commensurate dividend per share growth supported by a strong financial profile. Additionally, we operate in a diversified and growing jurisdictional footprint that is supportive of our natural gas investment and 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 5,000 to 6,000 miles of distribution and transmission pipe for about 6% of our total system. We also plan to replace between 120,000 and 170,000 steel service lines, which is expected to reduce our inventory by approximately 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, businesses, and industries to fuel our energy needs now and in the future. We appreciate your time this morning and now we'll open the call for questions.

Thank you. We will now 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 that 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 poll for questions. Our first question is from Richard Sunderland with JP Morgan. Please proceed with your question.

Hi, 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 the 3% and 3.5% 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 customer bill impacts overall?

Yeah, I'll start and then hand it over to Chris. As we've moved out of the pandemic and moving forward, we continue to work with our vendors, our contractors, our We've got long-term contracts in place. Some of those have been updated to reflect inflationary costs here recently. All of those are included in the numbers that we've laid out in the 23 and the five-year plan there. Additionally, such things as line locating, leak survey, we've incurred some additional costs there. But again, all within the parameters laid out there, and we think we have ourselves well-positioned, 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 fold into reducing that O&M as well and trying to keep costs tamping down on a going forward basis. So, Chris, any additional thoughts?

Yeah, the only other thing that, Kevin, I would add is, and, Rich, you've heard us talk about this before the last couple of years in terms of leverage. You know, we are, you know, a lot of this on-demand 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 are not a just-in-time safety or compliance company. So we're looking forward in 23 to kind of staying ahead of the curve, if you will, on those types of activities. So if there is, in fact, a need to pull in a lever, as Kevin alluded to again, we have that opportunity. So that's really what's driving it. There is really no, you know, anything new or different in the underlying activities. We're just seeing higher activities across the entire system, as Kevin mentioned, line locating, We continue to do enhanced league survey activities, but we're also seeing a limit of cost increases through inflation as well.

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

Yeah, we continue to have conversations with our contractors and service providers as well. Right now, I think we're well positioned. I don't want to try and peer 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. Just to quickly switch gears, several months until Texas securitization proceeds, if I heard you correctly in the script, just any color on the process from here and what you're watching for on this front?

Yeah, Richard, we're obviously in close contact with the Texas Public Financing Authority. There's a lot of questions that we and all the participating utilities are having, and the process is moving along as quickly as they can. I said, you know, within the next few months. So, we were hoping for the end of the calendar year to potentially slip into early 2023. But again, we're working diligently alongside our other participating utilities and the TPFA to get this wrapped up as quickly as possible.

Understood. Thank you for the time today.

Thank you.

Thank you.

Our next question is from Gabe Marine with . Please proceed with your question.

Hey, good morning, everyone. I'm just wondering if you can 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, whether you think you're going to be in that maybe 1.5% to 2% annual range from a customer growth standpoint?

No, thank you. Obviously, the existing housing market with the increased interest rates, we've seen some slowdown across our service territory potentially. for that, but the new home market, according to our builders, our 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 we anticipate some decrease as we head into the first part of the year, some of that giving just wintertime 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 months ago, some of the data they're putting out, the Metroplex in particular is experiencing pre-pandemic job growth with new hires exceeding 100,000 annually. The Austin area as well is seeing about 40,000 annual job growth. Unemployment in our service territories continues to remain low. And again, our builders and developers have a backlog of folks wanting qualified and ready to purchase homes. So good news to hear that our service territory, even with the The inflationary environment we're currently in continue to see strong job growth, strong economic growth, and our builders and developers are able to keep up with that demand.

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

Sure, yeah. Well, Gabe, and all the credit goes to Dan Azir and his treasurer team for locking in those rates, and we had the opportunity. We continue to look for opportunities to hedge interest rates. Obviously, in a rising price environment right now, or rate environment, excuse me, it's challenging, but it's something that we will continue to look at, certainly month in and month out, as we continue to watch where the Fed is going with rate increases. With respect to the corporate minimum tax, That cash need and, therefore, the related financing is already assumed in the current five-year plan. We're expecting that tax to hit sometime in the next four to five years. The size of the impact is still a little bit TBD as we look at where the final rules are on depreciation, how repairs are handled, 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.

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're 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, secureable supply. I think, Dan, for us, if you look at the major components of the bill, that's the commodity portion. 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 Waha, it's $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's 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. The 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 our local corporate communications team do day in and day out at the state level and the federal level advocating for LIHEAP 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 70,000 customers gain access to $34 million. So, you know, 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 release now three communications to our customers advising them of ways they can conserve on their energy bill as well.

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

Yeah, we'll let the NTSB report stand by itself. We're not going to comment on the NTSB report. We're a party to the investigation. We work closely with them and other parties to the investigation. I'll point you to our operational and report as well that's 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 or for 2023, just as kind of a starting point as to what cash tax rate you're experiencing under the current business?

Yeah, in fiscal 22, we were, I've got to say, a very minimal cash taxpayer, both from a federal and state perspective, very low double digits. We anticipate that to be Similar for fiscal 23 through 25, and I said, you know, 26, 27, that's when we inspect, you know, that four- to five-year period when the A&T will kick in.

Perfect. Okay, thanks so much. Thank you.

As a reminder, if you would like to ask a question, please press star 1 on your telephone keypad. Our next question comes from Julian Dumoulin-Smith with Bank of America. Please proceed with your question.

Hey, good morning, team.

Thank you for the time.

Hope you guys are well. Just if I could go back to where Rich started at the top of the Q&A here. 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 need to be crossed here in terms of bringing this to finality? I get that there's probably a lot of administrative considerations, a lot of coordination with the state here, but just in terms of practically bringing this securitization to a close on the $2.2 billion, how do you think about what's driven a little bit of this delay ultimately and your level of confidence that you'll be able to get this thing resolved ahead of the 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 that the Railroad Commission has approved and that the TPFA is going through now. Our role now is just supporting with questions, answers to questions that the groups have. We're not sitting at the table or anything like that. We are just responding. to Q&A, information requests, that sort of thing at this point. So, again, remain very confident in the process and the ability of the teams to get the answers they need to move forward. So, Chris, anything additional?

I think that's pretty well said, Kevin. And just as a reminder, too, a securitization of this nature, I think, is new for the state. And so they're just making sure all the I's are dotted and all the T's are crossed.

Got it, right. So it's truly sort of administrative in execution in terms of this shift in timeline, it seems like, and 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 pressure across the industry, you guys highlighting it in your 23 numbers. If I can overlay that with the regulatory strategy as it exists today, I mean, As you think about your ability to earn your returns and just accelerate timelines on any kind of regulatory proceedings here, is that shifting anything at all? Obviously, you have a plethora of associated mechanisms across your portfolio of utilities. But can you speak a little bit to the extent to which this is shifting and or accelerating some 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, again, Jillian, I'll start, and Chris can add any comments. You look at our mechanisms, most stone mechanisms are annual in nature. So they're on prescribed timelines, filing dates, orders on the back end of those sort of things. Those are prescribed. We're going to continue to follow those. Our projects are well laid out, as you've seen, you know, 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 or backward 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 systems.

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

Got it. Excellent. Thank you, gentlemen. Appreciate it.

Thank you.

Thank you.

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

Thank you. 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 31st of 2022. Have a good day.

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