Q1 2024 Summary
Published Jan 10, 2025, 5:10 PM UTC- Atmos Energy is maintaining strong organic growth, achieving close to 2% or above, particularly in the Mid-Tex division, supported by a favorable rate construct that allows them to earn on 90% of investments in 6 months and 99% in 12 months.
- The company effectively manages expenses, maintaining O&M increases within their target range of 3% to 3.5%, despite inflationary pressures, and remains comfortable with this guidance.
- Sustained investment in infrastructure over 12 years has enhanced system reliability, allowing Atmos Energy to perform exceptionally during severe winter storms, demonstrating the company's commitment to service and industry leadership.
- Atmos Energy's property tax benefit is temporary and will be returned to customers over the next 2.5 years, potentially inflating short-term earnings but not contributing to sustainable long-term growth.
- An incident under investigation by the National Transportation Safety Board resulted in a fatality, which could lead to regulatory scrutiny, legal liabilities, and increased safety-related expenses.
- Management expressed caution regarding operating margins and operating and maintenance expenses, suggesting potential cost pressures ahead despite the property tax benefit.
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Property Tax Impact on EPS
Q: How does the property tax impact affect EPS guidance?
A: Management stated that the property tax impact for the full fiscal year is expected to be between $20 million and $22 million pretax, translating to $0.09 to $0.11 per share after tax. This impact is reflected in the current EPS guidance, though it was not included in previous guidance. They are evaluating margins and O&M needs during the winter and will provide a more thorough update later in the fiscal year. -
Equity Needs for FY 2025
Q: How much equity remains to be issued for 2025?
A: Management indicated they still have a ways to go in meeting their equity needs for FY 2025. While they have fully priced their 2024 equity needs, they cannot specify precisely how much has been priced for 2025 due to legal reasons. They plan to stay ahead of equity needs through their ATM program throughout this fiscal year in preparation for FY 2025. -
Operations & Maintenance Costs and Inflation
Q: Can you hold the line on O&M costs amid inflation?
A: Management reaffirmed their O&M growth range of 3% to 3.5%. They are evaluating opportunities for compliance work and remain comfortable with the range provided, given the ongoing system reliability efforts and recent winter storm performance. -
M&A Strategy
Q: What's your stance on LDC M&A opportunities?
A: The company is focused on organic growth and system modernization. They continue to grow at close to or above 2%, particularly in the Mid-Tex division. With a rate construct allowing them to earn on 90% of investment in 6 months and 99% in 12 months, they find it hard to see any deal that could compete with their existing growth and regulatory framework. -
Fort Worth Incident Update
Q: What's the status of the Fort Worth incident?
A: The site has been turned over to the owners, who are now in charge of debris removal. Management stated that their system has been tested and was not involved in the incident. -
Upcoming Rate Cases
Q: Any major issues expected in upcoming rate cases?
A: Management expects the upcoming general rate cases in West Texas and Mid-Tex to be straightforward, with nothing contentious or unusual. These filings are part of their grid mechanism in Texas, requiring updates after five consecutive filings to refresh equity capitalization and ROEs. Filings are planned for later this calendar year. -
System Performance in Winter Storm
Q: How did your system perform during the recent winter storm?
A: Management expressed pride in their performance during the historic winter storm, noting that they continued to serve customers reliably. Their sustained investment in infrastructure over 12 years enabled them to handle the increased demand. Natural gas consumption set a record at 174 Bcf nationwide during that week. -
Growth and Customer Additions
Q: What are your expectations for customer growth?
A: Conversations with builders and developers suggest that construction activity will pick up in the spring. An anticipated 1 million additional people are projected to come to the Metroplex by 2028. Housing inventory is low, around 2 months, prompting builders to meet the demand. They continue to see diversified growth, adding 11 industrial customers in the previous quarter. -
Bad Debt Expense Impact
Q: What's the status of the bad debt expense impact?
A: The company recognized a $14 million impact related to bad debt expense for this fiscal year. This was anticipated and reflected in their original guidance. -
Legislative Developments
Q: Any legislative proposals that might impact you?
A: Management stated that it's still very early in the legislative sessions, which have just begun in some jurisdictions. They will continue to monitor any developments but had no specific bills to report at this time. -
Pipeline Classification Changes
Q: Are any jurisdictions reclassifying pipelines?
A: Management is not seeing any jurisdictions looking to re-rate pipelines from transmission to distribution. They believe such decisions are based on federal and state regulations and are business decisions.