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; 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; failure to attract and retain a qualified workforce; 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; 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; the impact of new cybersecurity compliance requirements; adverse weather conditions; the impact of greenhouse gas emissions or other legislation or regulations intended to address climate change; the impact of climate change; 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; and increased costs of providing health care benefits, along with pension and postretirement health care benefits and increased funding requirements. 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 approximately 3.3 million residential, commercial, public authority and industrial customers throughout our six distribution divisions, which atDecember 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 . 22 --------------------------------------------------------------------------------
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, 2022 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 three months ended
RESULTS OF OPERATIONS Executive SummaryAtmos 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 three months ended
The 9 percent year-over-year increase in net income largely reflects positive rate outcomes driven by safety and reliability spending, offset by higher spending on certain operating expenses in both our segments.
During the three months endedDecember 31, 2022 , we implemented ratemaking regulatory actions which resulted in an increase in annual operating income of$111.8 million . Additionally, as ofDecember 31, 2022 , we had ratemaking efforts in progress seeking a total increase in annual operating income of$18.8 million . Capital expenditures for the three months endedDecember 31, 2022 were$795.7 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 three months endedDecember 31, 2022 , we completed approximately$1.0 billion of long-term debt and equity financing. As ofDecember 31, 2022 , our equity capitalization was 52.9 percent. Excluding the$2.2 billion of incremental financing issued in conjunction with Winter Storm Uri, our equity capitalization was 60.0 percent. As ofDecember 31, 2022 , we had approximately$3.4 billion in total liquidity, consisting of$171.6 million in cash and cash equivalents,$754.9 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 2023.
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.
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
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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 50 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 81 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
2022 2021 Change
(In thousands, unless otherwise noted)
Operating revenues $ 1,440,426 $ 972,422 $ 468,004
Purchased gas cost 881,915 496,799 385,116
Operating expenses 326,755 285,126 41,629
Operating income 231,756 190,497 41,259
Other non-operating income 6,774 1,916 4,858
Interest charges 22,839 8,548 14,291
Income before income taxes 215,691 183,865 31,826
Income tax expense 21,223 4,294 16,929
Net income $ 194,468 $ 179,571 $ 14,897
Consolidated distribution sales volumes - MMcf 100,078 69,545 30,533
Consolidated distribution transportation volumes - MMcf 40,600 38,597 2,003
Total consolidated distribution throughput - MMcf 140,678 108,142 32,536
Consolidated distribution average cost of gas per Mcf sold $ 8.81
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--------------------------------------------------------------------------------Operating income for our distribution segment increased 21.7 percent. Key drivers for the change in operating income include:
•a
•a
•a
Partially offset by:
•a
•a
Interest charges increased
The following table shows our operating income by distribution division, in order of total rate base, for the three months endedDecember 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 December 31 2022 2021 Change (In thousands) Mid-Tex$ 113,928 $ 106,358 $ 7,570 Kentucky/Mid-States 28,185 25,538 2,647 Louisiana 25,348 21,154 4,194 West Texas 21,206 20,874 332 Mississippi 27,049 24,700 2,349 Colorado-Kansas 14,967 2,815 12,152 Other 1,073 (10,942) 12,015 Total$ 231,756 $ 190,497 $ 41,259
Recent Ratemaking Developments
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 three months of fiscal 2023, we implemented, or received approval to implement, regulatory proceedings, resulting in a$111.8 million increase in annual operating income as summarized below. Our ratemaking outcomes include the refund of excess deferred income taxes (EDIT) 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 three months endedDecember 31, 2022 were$112.2 million . Annual Increase in Annual Increase in Operating Income Rate Action Operating Income EDIT Impact Excluding EDIT (In thousands) Annual formula rate mechanisms $ 111,846 $ 342 $ 112,188 Rate case filings - - - Other rate activity - - - $ 111,846 $ 342 $ 112,188 25
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The following ratemaking efforts seeking
Division Rate Action Jurisdiction
Operating Income Requested
(In thousands)
Colorado-Kansas Rate Case Colorado $ 7,554
Colorado-Kansas Rate Case Kansas 7,989
Colorado-Kansas Infrastructure Mechanism Colorado (1) 1,971
Colorado-Kansas Ad Valorem Kansas (2) 1,320
$ 18,834
(1) The Colorado Public Utilities Commission approved the SSIR implementation
at their December 21, 2022 meeting with rates effective January 1, 2023 .
(2) The Kansas Corporation Commission approved the Ad Valorem filing on January
17, 2023 , with rates effective February 1, 2023 .
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: 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.
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The following annual formula rate mechanisms were approved during the three
months ended
Increase in
Increase in Annual
Annual Operating
Test Year Operating Income Effective
Division Jurisdiction Ended Income EDIT Impact Excluding EDIT Date
(In thousands)
2023 Filings:
Mississippi Mississippi - SIR 10/31/2023 $ 8,560 $ - $ 8,560 11/01/2022
Mississippi Mississippi - SRF 10/31/2023 12,188 778 12,966 11/01/2022
Kentucky/Mid-States Kentucky PRP (1) 09/30/2023 1,904 - 1,904 10/02/2022
Mid-Tex Mid-Tex Cities RRM 12/31/2021 81,402 (395) 81,007 10/01/2022
West Texas West Texas Cities RRM 12/31/2021 7,315 (41) 7,274 10/01/2022
Kentucky/Mid-States Virginia - SAVE 09/30/2023 477 - 477 10/01/2022
Total 2023 Filings $ 111,846 $ 342 $ 112,188 (1) Rates were implemented on
Rate Case Filings
A rate case is a formal request fromAtmos 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 three months endedDecember 31, 2022 .
Other Ratemaking Activity
The Company had no other ratemaking activity during the three months ended
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.
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The demand fee our Louisiana natural gas transmission pipeline charges to our
Louisiana distribution division increases five percent annually and has been
approved by the Louisiana Public Service Commission until September 30, 2027 .
Three Months Ended
Financial and operational highlights for our pipeline and storage segment for
the three months ended
Three Months Ended
2022 2021 Change
(In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation revenue $ 146,231 $ 127,323 $ 18,908
Third-party transportation revenue 38,079 30,625 7,454
Other revenue 2,319 4,970 (2,651)
Total operating revenues 186,629 162,918 23,711
Total purchased gas cost (858) (3,411) 2,553
Operating expenses 98,057 80,965 17,092
Operating income 89,430 85,364 4,066
Other non-operating income 14,417 6,786 7,631
Interest charges 13,921 11,303 2,618
Income before income taxes 89,926 80,847 9,079
Income tax expense 12,534 11,209 1,325
Net income $ 77,392 $ 69,638 $ 7,754
Gross pipeline transportation volumes - MMcf 206,244 181,468 24,776
Consolidated pipeline transportation volumes - MMcf 142,076 136,067 6,009
Operating income for our pipeline and storage segment increased 4.8 percent. Key drivers for the change in operating income include:
•a
•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 ofDecember 31, 2022 ,$1.4 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 ofDecember 31, 2022 ,$281.9 million of equity was available for issuance under this ATM equity sales program. Additionally, as of 28 --------------------------------------------------------------------------------
The following table summarizes our existing forward starting interest rate swaps as ofDecember 31, 2022 . Planned Debt Issuance Date Amount Hedged Effective Interest Rate (In thousands) Fiscal 2024$ 450,000 1.80 % Fiscal 2025 600,000 1.75 % Fiscal 2026 300,000 2.16 %$ 1,350,000 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 2023. Additionally, we expect to continue to be able to obtain financing upon reasonable terms as necessary. OnMarch 9, 2023 ,$2.2 billion in long-term notes issued to pay for gas costs incurred during Winter Storm Uri will mature. We had anticipated paying off these notes prior to their maturity primarily using net proceeds from aTexas statewide securitization program that was authorized by theTexas Legislature in 2021. We currently anticipate this process will not be completed prior toMarch 9, 2023 . Therefore, we currently anticipate using a combination of a syndicated bank term loan, borrowings on our credit facilities and cash to pay off these notes. The following table presents our capitalization inclusive of short-term debt and the current portion of long-term debt as ofDecember 31, 2022 ,September 30, 2022 andDecember 31, 2021 : December 31, 2022 September 30, 2022 December 31, 2021 (In thousands, except percentages) Short-term debt $ - - % $ 184,967 1.1 % $ - - % Long-term debt (1) 8,753,279 47.1 % 7,962,104 45.3 % 7,956,554 49.0 % Shareholders' equity (2) 9,836,274 52.9 % 9,419,091 53.6 % 8,289,545 51.0 % Total$ 18,589,553 100.0 %$ 17,566,162 100.0 %$ 16,246,099 100.0 % (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 60.0% atDecember 31, 2022 , 61.3% atSeptember 30, 2022 and 59.0% atDecember 31, 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 three
months ended
Three Months Ended
2022 2021 Change
(In thousands)
Total cash provided by (used in)
Operating activities $ 188,900 $ 61,824 $ 127,076
Investing activities (792,511) (679,748) (112,763)
Financing activities 723,654 765,206 (41,552)
Change in cash and cash equivalents 120,043 147,282 (27,239)
Cash and cash equivalents at beginning of period 51,554 116,723 (65,169)
Cash and cash equivalents at end of period $ 171,597 $ 264,005 $ (92,408)
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Cash flows from operating activities
For the three months endedDecember 31, 2022 , we generated cash flow from operating activities of$188.9 million compared with$61.8 million for the three months endedDecember 31, 2021 . Operating cash flow increased$127.1 million primarily due to working capital changes, including the timing of payments for natural gas purchases and deferred gas cost recoveries and the positive effects of successful rate case outcomes achieved in fiscal 2022.
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 three months endedDecember 31, 2022 , cash used for investing activities was$792.5 million compared to$679.7 million for the three months endedDecember 31, 2021 . Capital spending increased$111.5 million , which was primarily the result of a$105.3 million increase in our pipeline and storage segment due to increased spending for pipeline system safety and reliability inTexas .
Cash flows from financing activities
For the three months ended
In the three months endedDecember 31, 2022 , we received approximately$1.0 billion in net proceeds from the issuance of long-term debt and equity. We completed a public offering of$500 million of 5.75% senior notes due fiscal 2053 and$300 million of 5.45% senior notes due fiscal 2033, and received net proceeds from the offering, after the underwriting discount and offering expenses, of$789.4 million . Additionally, during the three months endedDecember 31, 2022 , we settled 2,114,488 shares that had been sold on a forward basis for net proceeds of$220.0 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 three months endedDecember 31, 2021 , we received approximately$0.9 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 . Additionally, during the three months endedDecember 31, 2021 , we settled 2,689,327 shares that had been sold on a forward basis for net proceeds of$261.9 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. The following table summarizes our share issuances for the three months endedDecember 31, 2022 and 2021: Three Months Ended December 31 2022 2021 Shares issued: Direct Stock Purchase Plan 16,142 20,983 1998 Long-Term Incentive Plan 111,953
275,212
Retirement Savings Plan and Trust 16,580 19,805 Equity Issuance 2,114,488 2,689,327 Total shares issued 2,259,163 3,005,327 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). In
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S&P Moody's
Senior unsecured long-term debt A- A1
Short-term debt A-2 P-1
Outlook Stable 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 is AAA 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.
Debt Covenants
We were in compliance with all of our debt covenants as ofDecember 31, 2022 . Our debt covenants are described in greater detail in Note 6 to the unaudited condensed consolidated financial statements.
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 three months endedDecember 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 months ended
Three Months Ended
2022 2021
(In thousands)
Fair value of contracts at beginning of period $ 377,862 $ 225,417
Contracts realized/settled 6,322 22,601
Fair value of new contracts (1,693) 1,184
Other changes in value (6,675) (129,284)
Fair value of contracts at end of period 375,816 119,918
Netting of cash collateral - -
Cash collateral and fair value of contracts at period end
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 $ 100,646 $ 275,170 $ - $ - $ 375,816
Prices based on models and other
valuation methods - - - - -
Total Fair Value $ 100,646 $ 275,170 $ - $ - $ 375,816
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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 months endedDecember 31, 2022 and 2021.
Distribution Sales and Statistical Data
Three Months Ended December 31
2022 2021
METERS IN SERVICE, end of period
Residential 3,167,556 3,120,873
Commercial 282,644 282,155
Industrial 1,644 1,653
Public authority and other 8,162 8,248
Total meters 3,460,006 3,412,929
INVENTORY STORAGE BALANCE - Bcf 63.7 70.5
SALES VOLUMES - MMcf (1)
Gas sales volumes
Residential 58,540 37,834
Commercial 30,508 23,008
Industrial 8,908 7,073
Public authority and other 2,122 1,630
Total gas sales volumes 100,078 69,545
Transportation volumes 42,444 40,315
Total throughput 142,522 109,860
Pipeline and Storage Operations Sales and Statistical Data
Three Months Ended December 31
2022 2021
CUSTOMERS, end of period
Industrial 95 95
Other 209 202
Total 304 297
INVENTORY STORAGE BALANCE - Bcf 1.1 1.4
PIPELINE TRANSPORTATION VOLUMES - MMcf (1) 206,244 181,468 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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