ATMOS ENERGY CORPORATION INTRODUCTION
The following discussion should be read in conjunction with the condensed
consolidated financial statements in this Quarterly Report on Form 10-Q and
Management's Discussion and Analysis in our Annual Report on Form 10-K for the
year ended
Cautionary Statement for the Purposes of the Safe Harbor under the Private Securities Litigation Reform Act of 1995
The statements contained in this Quarterly Report on Form 10-Q may contain "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All statements other than statements of historical fact included in this Report are forward-looking statements made in good faith by us and are intended to qualify for the safe harbor from liability established by the Private Securities Litigation Reform Act of 1995. When used in this Report, or any other of our documents or oral presentations, the words "anticipate", "believe", "estimate", "expect", "forecast", "goal", "intend", "objective", "plan", "projection", "seek", "strategy" or similar words are intended to identify forward-looking statements. Such forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from those expressed or implied in the statements relating to our strategy, operations, markets, services, rates, recovery of costs, availability of gas supply and other factors. These risks and uncertainties include the following: federal, state and local regulatory and political trends and decisions, including the impact of rate proceedings before various state regulatory commissions; increased federal regulatory oversight and potential penalties; possible increased federal, state and local regulation of the safety of our operations; the impact of greenhouse gas emissions or other legislation or regulations intended to address climate change; possible significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs; the inherent hazards and risks involved in distributing, transporting and storing natural gas; the availability and accessibility of contracted gas supplies, interstate pipeline and/or storage services; increased competition from energy suppliers and alternative forms of energy; adverse weather conditions; the impact of climate change; the inability to continue to hire, train and retain operational, technical and managerial personnel; increased dependence on technology that may hinder the Company's business if such technologies fail; the threat of cyber-attacks or acts of cyber-terrorism that could disrupt our business operations and information technology systems or result in the loss or exposure of confidential or sensitive customer, employee or Company information; natural disasters, terrorist activities or other events and other risks and uncertainties discussed herein, all of which are difficult to predict and many of which are beyond our control; the capital-intensive nature of our business; our ability to continue to access the credit and capital markets to execute our business strategy; market risks beyond our control affecting our risk management activities, including commodity price volatility, counterparty performance or creditworthiness and interest rate risk; the concentration of our operations inTexas ; the impact of adverse economic conditions on our customers; changes in the availability and price of natural gas; increased costs of providing health care benefits, along with pension and postretirement health care benefits and increased funding requirements; and the outbreak of COVID-19 and its impact on business and economic conditions. Accordingly, while we believe these forward-looking statements to be reasonable, there can be no assurance that they will approximate actual experience or that the expectations derived from them will be realized. Further, we undertake no obligation to update or revise any of our forward-looking statements whether as a result of new information, future events or otherwise.
OVERVIEW
Atmos Energy and our subsidiaries are engaged in the regulated natural gas distribution and pipeline and storage businesses. We distribute natural gas through sales and transportation arrangements to over three million residential, commercial, public authority and industrial customers throughout our six distribution divisions, which atMarch 31, 2022 covered service areas located in eight states. In addition, we transport natural gas for others through our distribution and pipeline systems.
We manage and review our consolidated operations through the following reportable segments:
•The distribution segment is primarily comprised of our regulated natural gas distribution and related sales operations in eight states. •The pipeline and storage segment is comprised primarily of the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations inLouisiana . 27 --------------------------------------------------------------------------------
CRITICAL ACCOUNTING ESTIMATES AND POLICIES
Our condensed consolidated financial statements were prepared in accordance with accounting principles generally accepted inthe United States . Preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses and the related disclosures of contingent assets and liabilities. We based our estimates on historical experience and various other assumptions that we believe to be reasonable under the circumstances. On an ongoing basis, we evaluate our estimates, including those related to the allowance for doubtful accounts, legal and environmental accruals, insurance accruals, pension and postretirement obligations, deferred income taxes and the valuation of goodwill and other long-lived assets. Actual results may differ from such estimates. Our critical accounting policies used in the preparation of our consolidated financial statements are described in our Annual Report on Form 10-K for the fiscal year endedSeptember 30, 2021 and include the following:
•Regulation
•Unbilled revenue •Pension and other postretirement plans •Impairment assessments
Our critical accounting policies are reviewed periodically by the Audit
Committee of our Board of Directors. There were no significant changes to these
critical accounting policies during the six months ended
RESULTS OF OPERATIONS
Executive Summary
Atmos Energy strives to operate our businesses safely and reliably while delivering superior shareholder value. Our commitment to modernizing our natural gas distribution and transmission systems requires a significant level of capital spending. We have the ability to begin recovering a significant portion of these investments timely through rate designs and mechanisms that reduce or eliminate regulatory lag and separate the recovery of our approved rate from customer usage patterns. The execution of our capital spending program, the ability to recover these investments timely and our ability to access the capital markets to satisfy our financing needs are the primary drivers that affect our financial performance. During the six months endedMarch 31, 2022 , we recorded net income of$574.2 million , or$4.24 per diluted share, compared to net income of$514.4 million , or$4.01 per diluted share for the six months endedMarch 31, 2021 . The 12 percent year-over-year increase in net income largely reflects positive rate outcomes driven by safety and reliability spending and customer growth in our distribution segment, offset by higher spending on certain operating and maintenance expenses in both our segments due to the timing of certain activities.
During the six months ended
Capital expenditures for the six months endedMarch 31, 2022 were$1,190.0 million . Over 85 percent was invested to improve the safety and reliability of our distribution and transportation systems, with a significant portion of this investment incurred under regulatory mechanisms that reduce lag to six months or less. During the six months endedMarch 31, 2022 , we completed approximately$1.4 billion of long-term debt and equity financing. As ofMarch 31, 2022 , our equity capitalization was 53.0 percent. Excluding the$2.2 billion of incremental financing issued in conjunction with Winter Storm Uri, our equity capitalization was 60.9 percent. As ofMarch 31, 2022 , we had approximately$3.5 billion in total liquidity, consisting of$582.5 million in cash and cash equivalents,$451.3 million in funds available through equity forward sales agreements and$2,494.4 million in undrawn capacity under our credit facilities.
As a result of our sustained financial performance, our Board of Directors increased the quarterly dividend by 8.8 percent for fiscal 2022.
The following discusses the results of operations for each of our operating segments.
Distribution Segment
The distribution segment is primarily comprised of our regulated natural gas
distribution and related sales operations in eight states. The primary factors
that impact the results of this segment are our ability to earn our authorized
rates of return, competitive factors in the energy industry and economic
conditions in our service areas.
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Our ability to earn our authorized rates of return is based primarily on our
ability to improve the rate design in our various ratemaking jurisdictions to
minimize regulatory lag and, ultimately, separate the recovery of our approved
rates from customer usage patterns. Improving rate design is a long-term process
and is further complicated by the fact that we operate in multiple rate
jurisdictions. Under our current rate design, approximately 70 percent of our
distribution segment revenues are earned through the first six months of the
fiscal year. Additionally, we currently recover approximately 60 percent of our
distribution segment revenue, excluding gas costs, through the base customer
charge, which partially separates the recovery of our approved rate from
customer usage patterns.
Seasonal weather patterns can also affect our distribution operations. However,
the effect of weather that is above or below normal is substantially offset
through weather normalization adjustments, known as WNA, which have been
approved by state regulatory commissions for approximately 96 percent of our
residential and commercial revenues in the following states for the following
time periods:
Kansas , West Texas October - May
Tennessee October - April
Kentucky , Mississippi , Mid-Tex November - April
Louisiana December - March
Virginia January - December
Our distribution operations are also affected by the cost of natural gas. We are
generally able to pass the cost of gas through to our customers without markup
under purchased gas cost adjustment mechanisms; therefore, increases in the cost
of gas are offset by a corresponding increase in revenues. Revenues in our Texas
and Mississippi service areas include franchise fees and gross receipts taxes,
which are calculated as a percentage of revenue (inclusive of gas costs).
Therefore, the amount of these taxes included in revenues is influenced by the
cost of gas and the level of gas sales volumes. We record the associated tax
expense as a component of taxes, other than income.
The cost of gas typically does not have a direct impact on our operating income
because these costs are recovered through our purchased gas cost adjustment
mechanisms. However, higher gas costs may adversely impact our accounts
receivable collections, resulting in higher bad debt expense. This risk is
currently mitigated by rate design that allows us to collect from our customers
the gas cost portion of our bad debt expense on approximately 79 percent of our
residential and commercial revenues. Additionally, higher gas costs may require
us to increase borrowings under our credit facilities, resulting in higher
interest expense. Finally, higher gas costs, as well as competitive factors in
the industry and general economic conditions may cause customers to conserve or,
in the case of industrial consumers, to use alternative energy sources.
Three Months Ended
Financial and operational highlights for our distribution segment for the three
months ended
Three Months Ended March 31
2022 2021 Change
(In thousands, unless otherwise noted)
Operating revenues $ 1,610,546 $ 1,282,674 $ 327,872
Purchased gas cost 993,854 691,147 302,707
Operating expenses 305,389 288,272 17,117
Operating income 311,303 303,255 8,048
Other non-operating income (expense) 549 (760) 1,309
Interest charges 15,157 14,017 1,140
Income before income taxes 296,695 288,478 8,217
Income tax expense 27,844 56,142 (28,298)
Net income $ 268,851 $ 232,336 $ 36,515
Consolidated distribution sales volumes - MMcf 142,218 145,478 (3,260)
Consolidated distribution transportation volumes - MMcf 47,080 45,765 1,315
Total consolidated distribution throughput - MMcf 189,298 191,243 (1,945)
Consolidated distribution average cost of gas per Mcf sold $ 6.99
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Operating income for our distribution segment increased three percent. During
the three months ended March 31, 2022 we refunded $39.9 million more excess
deferred taxes to customers in the distribution segment compared to the prior
year, which reduced operating income year over year and reduced the interim
effective income tax rate for this segment to 9.4% compared to 19.5% in the
prior year. Additional key drivers for the change in operating income include:
•a
•a
•a$6.6 million decrease in other operation and maintenance expense, primarily due to lower bad debt expense and other administrative costs in the current-year quarter. Partially offset by:
•a
•an
•a
The following table shows our operating income by distribution division, in order of total rate base, for the three months endedMarch 31, 2022 and 2021. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for ratemaking purposes. Three Months Ended March 31 2022 2021 Change (In thousands) Mid-Tex$ 155,275 $ 148,649 $ 6,626 Kentucky/Mid-States 36,288 33,248 3,040 Louisiana 29,796 32,572 (2,776) West Texas 31,157 26,199 4,958 Mississippi 37,087 38,143 (1,056) Colorado-Kansas 22,037 20,863 1,174 Other (337) 3,581 (3,918) Total$ 311,303 $ 303,255 $ 8,048
Six Months Ended
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Financial and operational highlights for our distribution segment for the six
months ended
Six Months Ended March 31
2022 2021 Change
(In thousands, unless otherwise noted)
Operating revenues $ 2,582,968 $ 2,159,324 $ 423,644
Purchased gas cost 1,490,653 1,102,219 388,434
Operating expenses 590,515 544,296 46,219
Operating income 501,800 512,809 (11,009)
Other non-operating income 2,465 75 2,390
Interest charges 23,705 24,729 (1,024)
Income before income taxes 480,560 488,155 (7,595)
Income tax expense 32,138 102,127 (69,989)
Net income $ 448,422 $ 386,028 $ 62,394
Consolidated distribution sales volumes - MMcf 211,763 234,339 (22,576)
Consolidated distribution transportation volumes - MMcf 85,677 85,374 303
Total consolidated distribution throughput - MMcf 297,440 319,713 (22,273)
Consolidated distribution average cost of gas per Mcf sold $ 7.04
Operating income for our distribution segment decreased two percent. During the six months endedMarch 31, 2022 we refunded$68.6 million more excess deferred taxes to customers in the distribution segment compared to the prior year, which reduced operating income year over year and reduced the interim effective income tax rate for this segment to 6.7% compared to 20.9% in the prior year. Additional key drivers for the change in operating income include:
•a
•a
Partially offset by:
•a
•a
•a
•a
The following table shows our operating income by distribution division, in
order of total rate base, for the six months ended
Six Months Ended March 31
2022 2021 Change
(In thousands)
Mid-Tex $ 261,633 $ 250,969 $ 10,664
Kentucky/Mid-States 61,826 57,354 4,472
Louisiana 50,950 55,691 (4,741)
West Texas 52,031 46,246 5,785
Mississippi 61,787 62,777 (990)
Colorado-Kansas 24,852 34,093 (9,241)
Other (11,279) 5,679 (16,958)
Total $ 501,800 $ 512,809 $ (11,009) Recent Ratemaking Developments
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The amounts described in the following sections represent the operating income
that was requested or received in each rate filing, which may not necessarily
reflect the stated amount referenced in the final order, as certain operating
costs may have changed as a result of a commission's or other governmental
authority's final ruling. During the first six months of fiscal 2022, we
implemented regulatory proceedings, resulting in a $28.9 million increase in
annual operating income as summarized below. Ratemaking outcomes include the
refund of excess deferred income taxes resulting from previously enacted tax
reform legislation and do not reflect the true economic benefit of the outcomes
because they do not include the corresponding income tax benefit. Excluding
these amounts, our total rate outcomes for ratemaking activities for the six
months ended March 31, 2022 were $72.5 million .
Annual Increase (Decrease) in
Rate Action Operating Income
(In thousands)
Annual formula rate mechanisms $ 29,311
Rate case filings -
Other rate activity (370)
$ 28,941
The following ratemaking efforts seeking
Operating Income
Division Rate Action Jurisdiction Requested
(In thousands)
Colorado-Kansas Infrastructure Mechanism Kansas (1) $ 623
Kentucky/Mid-States Rate Case Kentucky (2) 14,394
Kentucky/Mid-States Infrastructure Mechanism Kentucky 3,506
Kentucky/Mid-States Formula Rate Mechanism Tennessee 3,662
Louisiana Formula Rate Mechanism Louisiana 17,650
Mid-Tex Formula Rate Mechanism City of Dallas 13,640
Mid-Tex Infrastructure Mechanism ATM Cities 12,815
Mid-Tex Infrastructure Mechanism Environs 5,646
Mississippi Infrastructure Mechanism Mississippi 10,208
West Texas Infrastructure Mechanism Environs 1,221
Amarillo, Lubbock,
West Texas Infrastructure Mechanism Dalhart and Channing 6,122
West Texas Infrastructure Mechanism WTX Triangle 1,549
$ 91,036
(1) The Kansas Corporation Commission approved the SIP filing on March 31, 2022
with rates effective April 1, 2022 .
(2) Included with the Kentucky rate case filing is the $3.5 million filing
related to the annual Kentucky pipeline replacement program.
Annual Formula Rate Mechanisms
As an instrument to reduce regulatory lag, formula rate mechanisms allow us to refresh our rates on an annual basis without filing a formal rate case. However, these filings still involve discovery by the appropriate regulatory authorities prior to the final determination of rates under these mechanisms. We currently have formula rate mechanisms in ourLouisiana ,Mississippi andTennessee operations and in substantially all the service areas in ourTexas divisions. Additionally, we have specific infrastructure programs in substantially all of our distribution divisions with tariffs in place to permit the investment associated with these programs to have their surcharge rate adjusted annually to recover approved capital costs incurred in a prior test-year period. The following table summarizes our annual formula rate mechanisms by state: 32 -------------------------------------------------------------------------------- Annual Formula Rate Mechanisms State Infrastructure Programs Formula Rate Mechanisms System Safety and Integrity Rider Colorado (SSIR) - Gas System Reliability Surcharge (GSRS), System Integrity Program Kansas (SIP) - Kentucky Pipeline Replacement Program (PRP) - Louisiana (1) Rate Stabilization Clause (RSC) Mississippi System Integrity Rider (SIR) Stable Rate Filing (SRF) Tennessee (1)
Annual Rate Mechanism (ARM)
Gas Reliability Infrastructure Dallas Annual Rate Review (DARR), Rate
Texas Program (GRIP), (1) Review Mechanism (RRM)
Steps to Advance Virginia Energy
Virginia (SAVE) -
(1) Infrastructure mechanisms in Texas , Louisiana and Tennessee allow for the
deferral of all expenses associated with capital expenditures incurred pursuant
to these rules, which primarily consists of interest, depreciation and other
taxes (Texas only), until the next rate proceeding (rate case or annual rate
filing), at which time investment and costs would be recoverable through base
rates.
The following annual formula rate mechanisms were approved during the six months
ended March 31, 2022 :
Increase
(Decrease) in
Annual
Test Year Operating Effective
Division Jurisdiction Ended Income Date
(In thousands)
2022 Filings:
Colorado-Kansas Kansas GSRS 09/30/2021 $ 1,820 02/01/2022
Colorado-Kansas Colorado SSIR 12/31/2022 2,610 01/01/2022
Mid-Tex Mid-Tex Cities RRM (1) 12/31/2020 21,673 12/01/2021
West Texas West Texas Cities RRM (1) 12/31/2020 151 12/01/2021
Mississippi Mississippi - SIR (1) 10/31/2022 8,354 11/01/2021
Mississippi Mississippi - SRF (1) 10/31/2022 (5,624) 11/01/2021
Kentucky/Mid-States Virginia - SAVE 09/30/2022 327 10/01/2021
Total 2022 Filings $ 29,311
(1) The rate change for the RRM and Mississippi filings include $33.9 million
for the Mid-Tex Cities RRM filing, $3.3 million for the West Texas Cities RRM
filing, $2.1 million for the Mississippi SIR filing and $4.3 million for the
Mississippi SRF filing related to the refund of excess deferred income taxes
that will be offset by lower income tax expense. Excluding the amounts related
to the refund of excess deferred taxes, our total rate outcomes for our
formulate rate mechanisms for the six months ended March 31, 2022 were $72.9
million .
Rate Case Filings
A rate case is a formal request from Atmos Energy to a regulatory authority to
increase rates that are charged to our customers. Rate cases may also be
initiated when the regulatory authorities request us to justify our rates. This
process is referred to as a "show cause" action. Adequate rates are intended to
provide for recovery of the Company's costs as well as a fair rate of return and
ensure that we continue to deliver reliable, reasonably priced natural gas
service safely to our customers. There was no rate case activity completed
during the six months ended March 31, 2022 .
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Other Ratemaking Activity
The following table summarizes other ratemaking activity during the six months endedMarch 31, 2022 . Decrease in Annual Operating Effective Division Jurisdiction Rate Activity Income Date (In thousands) 2022 Other Rate Activity: Colorado-Kansas Kansas Ad Valorem (1) $ (370) 02/01/2022 Total 2022 Other Rate Activity $ (370) (1) The Ad Valorem filing relates to property taxes that are either over or undercollected compared to the amount included in ourKansas service area's base rate. Pipeline and Storage Segment Our pipeline and storage segment consists of the pipeline and storage operations of our Atmos Pipeline-Texas Division (APT) and our natural gas transmission operations inLouisiana . APT is one of the largest intrastate pipeline operations inTexas with a heavy concentration in the established natural gas producing areas of central, northern and easternTexas , extending into or near the major producing areas of theBarnett Shale , theTexas Gulf Coast and thePermian Basin ofWest Texas . APT provides transportation and storage services to our Mid-Tex Division, other third-party local distribution companies, industrial and electric generation customers, as well as marketers and producers. Over 80 percent of this segment's revenues are derived from these services. As part of its pipeline operations, APT owns and operates five underground storage facilities inTexas . Our natural gas transmission operations inLouisiana are comprised of a 21-mile pipeline located in theNew Orleans, Louisiana area that is primarily used to aggregate gas supply for our distribution division inLouisiana under a long-term contract and, on a more limited basis, to third parties. The demand fee charged to ourLouisiana distribution division for these services is subject to regulatory approval by theLouisiana Public Service Commission . We also manage two asset management plans, which have been approved by applicable state regulatory commissions. Generally, these asset management plans require us to share with our distribution customers a significant portion of the cost savings earned from these arrangements. Our pipeline and storage segment is impacted by seasonal weather patterns, competitive factors in the energy industry and economic conditions in ourTexas andLouisiana service areas. Natural gas prices do not directly impact the results of this segment as revenues are derived from the transportation and storage of natural gas. However, natural gas prices and demand for natural gas could influence the level of drilling activity in the supply areas that we serve, which may influence the level of throughput we may be able to transport on our pipelines. Further, natural gas price differences between the various hubs that we serve inTexas could influence the volumes of gas transported for shippers through ourTexas pipeline system and rates for such transportation.
The results of APT are also significantly impacted by the natural gas requirements of its local distribution company customers. Additionally, its operations may be impacted by the timing of when costs and expenses are incurred and when these costs and expenses are recovered through its tariffs.
APT annually uses GRIP to recover capital costs incurred in the prior calendar year. OnFebruary 11, 2022 , APT made a GRIP filing that covered changes in net property, plant and equipment investments fromJanuary 1, 2021 throughDecember 31, 2021 with a requested increase in operating income of$78.8 million .
Three Months Ended
Financial and operational highlights for our pipeline and storage segment for
the three months ended
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Three Months Ended March 31
2022 2021 Change
(In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation revenue $ 129,162 $ 120,588 $ 8,574
Third-party transportation revenue 32,132 29,508 2,624
Other revenue 2,453 4,072 (1,619)
Total operating revenues 163,747 154,168 9,579
Total purchased gas cost 1,683 113 1,570
Operating expenses 88,235 75,506 12,729
Operating income 73,829 78,549 (4,720)
Other non-operating income 4,664 3,594 1,070
Interest charges 13,771 12,079 1,692
Income before income taxes 64,722 70,064 (5,342)
Income tax expense 8,574 5,646 2,928
Net income $ 56,148 $ 64,418 $ (8,270)
Gross pipeline transportation volumes - MMcf 224,960 222,321 2,639
Consolidated pipeline transportation volumes - MMcf 129,395 130,578 (1,183)
Operating income for our pipeline and storage segment decreased six percent.
During the three months ended March 31, 2022 , we refunded $3.4 million more in
excess deferred taxes to pipeline and storage customers compared to the prior
year, which reduced operating income quarter over quarter. Additional drivers
for the change in operating income include:
•a
Partially offset by:
•a
•a
Six Months Ended
Financial and operational highlights for our pipeline and storage segment for
the six months ended
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Six Months Ended March 31
2022 2021 Change
(In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation revenue $ 256,485 $ 245,849 $ 10,636
Third-party transportation revenue 62,757 60,329 2,428
Other revenue 7,423 7,703 (280)
Total operating revenues 326,665 313,881 12,784
Total purchased gas cost (1,728) (1,131) (597)
Operating expenses 169,200 147,177 22,023
Operating income 159,193 167,835 (8,642)
Other non-operating income 11,450 8,831 2,619
Interest charges 25,074 23,377 1,697
Income before income taxes 145,569 153,289 (7,720)
Income tax expense 19,783 24,885 (5,102)
Net income $ 125,786 $ 128,404 $ (2,618)
Gross pipeline transportation volumes - MMcf 406,428 427,186 (20,758)
Consolidated pipeline transportation volumes - MMcf 265,462 275,165 (9,703)
Operating income for our pipeline and storage segment decreased five percent.
During the six months ended March 31, 2022 , we refunded $13.3 million more in
excess deferred taxes to pipeline and storage customers compared to the prior
year, which reduced operating income year over year and reduced the interim
effective income tax rate for this segment to 13.6% compared to 16.2% in the
prior year. Additional drivers for the change in operating income include:
•a
Partially offset by:
•a
•a
•a
Liquidity and Capital Resources
The liquidity required to fund our working capital, capital expenditures and other cash needs is provided from a combination of internally generated cash flows and external debt and equity financing. Additionally, we have a$1.5 billion commercial paper program and four committed revolving credit facilities with$2.5 billion in total availability from third-party lenders. The commercial paper program and credit facilities provide cost-effective, short-term financing until it can be replaced with a balance of long-term debt and equity financing that achieves the Company's desired capital structure with an equity-to-total-capitalization ratio between 50% and 60%, inclusive of long-term and short-term debt. Additionally, we have various uncommitted trade credit lines with our gas suppliers that we utilize to purchase natural gas on a monthly basis. We have a shelf registration statement on file with theSecurities and Exchange Commission (SEC) that allows us to issue up to$5.0 billion in common stock and/or debt securities. As of the date of this report,$2.2 billion of securities were available for issuance under the shelf registration statement, which expiresJune 29, 2024 . We also have an at-the-market (ATM) equity sales program that allows us to issue and sell shares of our common stock up to an aggregate offering price of$1.0 billion (including shares of common stock that may be sold pursuant to forward sale agreements entered into in connection with the ATM equity sales program), which expiresJune 29, 2024 . As ofMarch 31, 2022 ,$1.0 billion of equity was available for issuance under this ATM equity sales program. Additionally, as ofMarch 31, 2022 , we had$451.3 million in proceeds from executed forward sale agreements available throughSeptember 29, 2023 . Additional details are summarized in Note 7 to the unaudited condensed consolidated financial statements. 36 -------------------------------------------------------------------------------- The liquidity provided by these sources is expected to be sufficient to fund the Company's working capital needs and capital expenditure program for the remainder of fiscal year 2022. Additionally, we expect to continue to be able to obtain financing upon reasonable terms as necessary. The following table presents our capitalization inclusive of short-term debt and the current portion of long-term debt as ofMarch 31, 2022 ,September 30, 2021 andMarch 31, 2021 : March 31, 2022 September 30, 2021 March 31, 2021 (In thousands, except percentages)
Short-term debt $ - - % $ - - % $ - - % Long-term debt (1) 7,958,999 47.0 % 7,330,657 48.1 % 7,316,581 48.3 % Shareholders' equity (2) 8,983,231 53.0 % 7,906,889 51.9 % 7,820,925 51.7 % Total$ 16,942,230 100.0 %$ 15,237,546 100.0 %$ 15,137,506 100.0 % (1) Inclusive of our finance leases. (2) Excluding the$2.2 billion of incremental financing issued to pay for the purchased gas costs incurred during Winter Storm Uri, our equity capitalization ratio was 60.9% atMarch 31, 2022 and 60.6% atSeptember 30, 2021 .
Cash Flows
Our internally generated funds may change in the future due to a number of factors, some of which we cannot control. These factors include regulatory changes, the price for our services, demand for such products and services, margin requirements resulting from significant changes in commodity prices, operational risks and other factors.
Cash flows from operating, investing and financing activities for the six months
ended
Six Months Ended March 31
2022 2021 Change
(In thousands)
Total cash provided by (used in)
Operating activities $ 640,484 $ (1,402,246) $ 2,042,730
Investing activities (1,181,969) (846,063) (335,906)
Financing activities 1,007,257 3,092,812 (2,085,555)
Change in cash and cash equivalents 465,772 844,503 (378,731)
Cash and cash equivalents at beginning of period 116,723 20,808 95,915
Cash and cash equivalents at end of period $ 582,495 Cash flows from operating activities
For the six months endedMarch 31, 2022 , we generated cash flow from operating activities of$640.5 million compared with$1.4 billion of cash flows used from operating activities for the six months endedMarch 31, 2021 . Excluding the$2.1 billion incurred in the prior-year period for gas costs incurred during Winter Storm Uri, operating cash flow decreased$50.8 million primarily due to an$81.9 million refund of excess deferred tax liabilities and the timing of gas cost recoveries, partially offset by the positive effects of successful rate case outcomes achieved in fiscal 2021.
Cash flows from investing activities
Our capital expenditures are primarily used to improve the safety and reliability of our distribution and transmission system through pipeline replacement and system modernization and to enhance and expand our system to meet customer needs. Over the last three fiscal years, approximately 88 percent of our capital spending has been committed to improving the safety and reliability of our system. For the six months endedMarch 31, 2022 , cash used for investing activities was$1,182.0 million compared to$846.1 million for the six months endedMarch 31, 2021 . Capital spending increased$344.3 million . Capital spending in our distribution segment increased$197.7 million , primarily as a result of increased system modernization and customer growth spending. Capital spending in our pipeline and storage segment increased$146.6 million primarily due to increased spending for pipeline system safety and reliability inTexas .
Cash flows from financing activities
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For the six months ended
In the six months endedMarch 31, 2022 , we received$1.4 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of$600 million of 2.85% senior notes due 2052 and received net proceeds from the offering, after the underwriting discount and offering expenses, of$589.8 million . We also completed a public offering of$200 million of 2.625% senior notes due 2029, and received net proceeds of$200.8 million that were used to repay our$200 million floating-rate term loan. Additionally, during the six months endedMarch 31, 2022 , we settled 6,162,269 shares that had been sold on a forward basis for net proceeds of$594.3 million . The net proceeds were used primarily to support capital spending and for other general corporate purposes.
Cash dividends increased due to an 8.8 percent increase in our dividend rate and an increase in shares outstanding.
In the six months endedMarch 31, 2021 , we received$3.3 billion in net proceeds from the issuance of long-term debt and equity. The net proceeds were used primarily for the payment of natural gas costs incurred during Winter Storm Uri, to support capital spending and for other general corporate purposes. Cash dividends increased due to a 8.7 percent increase in our dividend rate and an increase in shares outstanding. The following table summarizes our share issuances for the six months endedMarch 31, 2022 and 2021: Six Months Ended March 31 2022 2021 Shares issued: Direct Stock Purchase Plan 37,435 42,249 1998 Long-Term Incentive Plan 353,044 160,488 Retirement Savings Plan and Trust 39,527 44,226 Equity Issuance 6,162,269 4,537,669 Total shares issued 6,592,275 4,784,632 Credit Ratings Our credit ratings directly affect our ability to obtain short-term and long-term financing, in addition to the cost of such financing. In determining our credit ratings, the rating agencies consider a number of quantitative factors, including but not limited to, debt to total capitalization, operating cash flow relative to outstanding debt, operating cash flow coverage of interest and pension liabilities. In addition, the rating agencies consider qualitative factors such as consistency of our earnings over time, the quality of our management and business strategy, the risks associated with our businesses and the regulatory structures that govern our rates in the states where we operate. Our debt is rated by two rating agencies: Standard & Poor's Corporation (S&P) and Moody's Investors Service (Moody's). As ofMarch 31, 2022 , our outlook and current debt ratings, which are all considered investment grade are as follows: S&P Moody's Senior unsecured long-term debt A- A1 Short-term debt A-2 P-1 Outlook Negative Stable A significant degradation in our operating performance or a significant reduction in our liquidity caused by more limited access to the private and public credit markets as a result of deteriorating global or national financial and credit conditions could trigger a negative change in our ratings outlook or even a reduction in our credit ratings by the two credit rating agencies. This would mean more limited access to the private and public credit markets and an increase in the costs of such borrowings. A credit rating is not a recommendation to buy, sell or hold securities. The highest investment grade credit rating isAAA for S&P and Aaa for Moody's. The lowest investment grade credit rating is BBB- for S&P and Baa3 for Moody's. Our credit ratings may be revised or withdrawn at any time by the rating agencies, and each rating should be evaluated independently of any other rating. There can be no assurance that a rating will remain in effect for any given period of time or that a rating will not be lowered, or withdrawn entirely, by a rating agency if, in its judgment, circumstances so warrant. 38 --------------------------------------------------------------------------------
Debt Covenants
We were in compliance with all of our debt covenants as of
Contractual Obligations and Commercial Commitments
Except as noted in Note 10 to the unaudited condensed consolidated financial statements, there were no significant changes in our contractual obligations and commercial commitments during the six months endedMarch 31, 2022 .
Risk Management Activities
In our distribution and pipeline and storage segments, we use a combination of physical storage, fixed physical contracts and fixed financial contracts to reduce our exposure to unusually large winter-period gas price increases. Additionally, we manage interest rate risk by periodically entering into financial instruments to effectively fix theTreasury yield component of the interest cost associated with anticipated financings. The following table shows the components of the change in fair value of our financial instruments for the three and six months endedMarch 31, 2022 and 2021: Three Months Ended March 31 Six Months Ended March 31 2022 2021 2022 2021
(In thousands)
Fair value of contracts at beginning of period
8,883 (365) 31,484 967
Fair value of new contracts 532 239 1,716 326
Other changes in value 153,067 178,667 23,783 247,140
Fair value of contracts at end of period 282,400 327,096 282,400 327,096
Netting of cash collateral - - - -
Cash collateral and fair value of contracts at
period end $ 282,400
The fair value of our financial instruments at
Fair
Value of Contracts at
Maturity in Years
Total
Less Greater Fair
Source of Fair Value Than 1 1-3 4-5 Than 5 Value
(In thousands)
Prices actively quoted $ 126,779 $ 138,398 $ 17,223 $ - $ 282,400
Prices based on models and other
valuation methods - - - - -
Total Fair Value $ 126,779 $ 138,398 $ 17,223 $ - $ 282,400
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OPERATING STATISTICS AND OTHER INFORMATION
The following tables present certain operating statistics for our distribution and pipeline and storage segments for the three and six months endedMarch 31, 2022 and 2021.
Distribution Sales and Statistical Data
Three Months Ended March 31 Six Months Ended March 31
2022 2021 2022 2021
METERS IN SERVICE, end of period
Residential 3,130,505 3,087,890 3,130,505 3,087,890
Commercial 282,527 282,313 282,527 282,313
Industrial 1,642 1,668 1,642 1,668
Public authority and other 8,226 8,282 8,226 8,282
Total meters 3,422,900 3,380,153 3,422,900 3,380,153
INVENTORY STORAGE BALANCE - Bcf 32.9 28.4 32.9 28.4
SALES VOLUMES - MMcf (1)
Gas sales volumes
Residential 87,101 91,034 124,935 144,564
Commercial 43,287 43,639 66,295 70,326
Industrial 8,787 7,739 15,860 14,390
Public authority and other 3,043 3,066 4,673 5,059
Total gas sales volumes 142,218 145,478 211,763 234,339
Transportation volumes 49,175 47,740 89,490 89,025
Total throughput 191,393 193,218 301,253 323,364
Pipeline and Storage Operations Sales and Statistical Data
Three Months Ended March 31 Six Months Ended March 31
2022 2021 2022 2021
CUSTOMERS, end of period
Industrial 96 92 96 92
Other 201 215 201 215
Total 297 307 297 307
INVENTORY STORAGE BALANCE - Bcf 0.4 0.1 0.4 0.1
PIPELINE TRANSPORTATION VOLUMES - MMcf (1) 224,960 222,321 406,428 427,186
Note to preceding tables:
(1)Sales and transportation volumes reflect segment operations, including intercompany sales and transportation amounts.
RECENT ACCOUNTING DEVELOPMENTS
Recent accounting developments and their impact on our financial position, results of operations and cash flows are described in Note 2 to the unaudited condensed consolidated financial statements.
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