Atmos Energy 10-K 2022-09-30

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)

☑ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended September 30, 2022

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 1-10042

Atmos Energy Corporation

(Exact name of registrant as specified in its charter)

Texas and Virginia 75-1743247

(State or other jurisdiction of (IRS employer

incorporation or organization) identification no.)

1800 Three Lincoln Centre

5430 LBJ Freeway

Dallas, Texas 75240

(Address of principal executive offices) (Zip code)

Registrant’s telephone number, including area code:

(972) 934-9227

Securities registered pursuant to Section 12(b) of the Act:

Table of each class						Trading Symbol			Name of each exchange on which registered
Common stock			No Par Value			ATO			New York Stock Exchange

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes þ No ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No þ

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No ¨

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes þ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and "emerging growth company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer			☑			Accelerated filer			☐			Non-accelerated filer			☐			Smaller reporting company			☐			Emerging growth company			☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. ☑

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No þ

The aggregate market value of the common voting stock held by non-affiliates of the registrant as of the last business day of the registrant’s most recently completed second fiscal quarter, March 31, 2022, was $16,491,263,629.

As of November 7, 2022, the registrant had 140,900,576 shares of common stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of the registrant’s Definitive Proxy Statement to be filed for the Annual Meeting of Shareholders on February 8, 2023 are incorporated by reference into Part III of this report.

TABLE OF CONTENTS

						Page
Glossary of Key Terms						3
			Part I
Item 1.			Business			4
Item 1A.			Risk Factors			14
Item 1B.			Unresolved Staff Comments			19
Item 2.			Properties			19
Item 3.			Legal Proceedings			20
Item 4.			Mine Safety Disclosures			20
			Part II
Item 5.			Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities			20
Item 6.			Selected Financial Data			22
Item 7.			Management’s Discussion and Analysis of Financial Condition and Results of Operations			22
Item 7A.			Quantitative and Qualitative Disclosures About Market Risk			34
Item 8.			Financial Statements and Supplementary Data			35
Item 9.			Changes in and Disagreements With Accountants on Accounting and Financial Disclosure			85
Item 9A.			Controls and Procedures			85
Item 9B.			Other Information			87
			Part III
Item 10.			Directors, Executive Officers and Corporate Governance			87
Item 11.			Executive Compensation			88
Item 12.			Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters			88
Item 13.			Certain Relationships and Related Transactions, and Director Independence			88
Item 14.			Principal Accountant Fees and Services			88
			Part IV
Item 15.			Exhibits and Financial Statement Schedules			88
Item 16.			Form 10-K Summary			93

GLOSSARY OF KEY TERMS

Adjusted diluted net income per share			Non-GAAP measure defined as diluted net income per share before the one-time, non-cash income tax benefit
Adjusted net income			Non-GAAP measure defined as net income before the one-time, non-cash income tax benefit
AFUDC			Allowance for funds used during construction
AOCI			Accumulated Other Comprehensive Income
ARM			Annual Rate Mechanism
ATO			Trading symbol for Atmos Energy Corporation common stock on the NYSE
Bcf			Billion cubic feet
COSO			Committee of Sponsoring Organizations of the Treadway Commission
DARR			Dallas Annual Rate Review
ERISA			Employee Retirement Income Security Act of 1974
FASB			Financial Accounting Standards Board
FERC			Federal Energy Regulatory Commission
GAAP			Generally Accepted Accounting Principles
GRIP			Gas Reliability Infrastructure Program
GSRS			Gas System Reliability Surcharge
LIBOR			London Interbank Offered Rate
LTIP			1998 Long-Term Incentive Plan
Mcf			Thousand cubic feet
MDWQ			Maximum daily withdrawal quantity
Mid-Tex ATM Cities			Represents a coalition of 47 incorporated cities or approximately 10 percent of the Mid-Tex Division's customers.
Mid-Tex Cities			Represents all incorporated cities other than Dallas and Mid-Tex ATM Cities, or approximately 72 percent of the Mid-Tex Division’s customers.
MMcf			Million cubic feet
Moody’s			Moody’s Investor Service, Inc.
NGPA			Natural Gas Policy Act of 1978
NTSB			National Transportation Safety Board
NYSE			New York Stock Exchange
PHMSA			Pipeline and Hazardous Materials Safety Administration
PPA			Pension Protection Act of 2006
PRP			Pipeline Replacement Program
RRC			Railroad Commission of Texas
RRM			Rate Review Mechanism
RSC			Rate Stabilization Clause
S&P			Standard & Poor’s Corporation
SAVE			Steps to Advance Virginia Energy
SEC			United States Securities and Exchange Commission
SIP			System Integrity Program
SIR			System Integrity Rider
SOFR			Secured Overnight Financing Rate
SRF			Stable Rate Filing
SSIR			System Safety and Integrity Rider
TCJA			Tax Cuts and Jobs Act of 2017
WNA			Weather Normalization Adjustment

PART I

The terms “we,” “our,” “us,” “Atmos Energy” and the “Company” refer to Atmos Energy Corporation and its subsidiaries, unless the context suggests otherwise.

Overview and Strategy

Atmos Energy Corporation, headquartered in Dallas, Texas, and incorporated in Texas and Virginia, is the country’s largest natural-gas-only distributor based on number of customers. We safely deliver reliable, affordable, efficient and abundant natural gas through regulated sales and transportation arrangements to approximately 3.3 million residential, commercial, public authority and industrial customers in eight states located primarily in the South. We also operate one of the largest intrastate pipelines in Texas based on miles of pipe.

Atmos Energy's vision is to be the safest provider of natural gas services. We will be recognized for exceptional customer service, for being a great employer and for achieving superior financial results.

Since 2011, our operating strategy has focused on modernizing our business and infrastructure while reducing regulatory lag. This operating strategy supports continued investment in safety, innovation, environmental sustainability and our communities.

Operating Segments

As of September 30, 2022, 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 in Louisiana.

Distribution Segment Overview

The following table summarizes key information about our six regulated natural gas distribution divisions, presented in order of total rate base.

Division						Service Areas						Communities Served						Customer Meters
Mid-Tex						Texas, including the Dallas/Fort Worth Metroplex						550						1,822,036
Kentucky/Mid-States						Kentucky						230						184,547
						Tennessee												162,392
						Virginia												24,898
Louisiana						Louisiana						270						376,515
West Texas						Amarillo, Lubbock, Midland						80						329,378
Mississippi						Mississippi						110						273,934
Colorado-Kansas						Colorado						170						127,565
						Kansas												140,959

We operate in our service areas under terms of non-exclusive franchise agreements granted by the various cities and towns that we serve. At September 30, 2022, we held 1,028 franchises having terms generally ranging from five to 35 years. A significant number of our franchises expire each year, which require renewal prior to the end of their terms. Historically, we have successfully renewed these franchises and believe that we will continue to be able to renew our franchises as they expire.

Revenues in this operating segment are established by regulatory authorities in the states in which we operate. These rates are intended to be sufficient to cover the costs of conducting business, including a reasonable return on invested capital. In addition, we transport natural gas for others through our distribution systems.

Rates established by regulatory authorities often include cost adjustment mechanisms for costs that (i) are subject to significant price fluctuations compared to our other costs, (ii) represent a large component of our cost of service and (iii) are generally outside our control.

Purchased gas cost adjustment mechanisms represent a traditional and common form of cost adjustment mechanism. Purchased gas cost adjustment mechanisms provide a method of recovering purchased gas costs on an ongoing basis without filing a rate case because they provide a dollar-for-dollar offset to increases or decreases in the cost of natural gas. Therefore, although substantially all of our distribution operating revenues fluctuate with the cost of gas that we purchase, distribution operating income is generally not affected by fluctuations in the cost of gas.

Additionally, some jurisdictions have performance-based ratemaking adjustments to provide incentives to minimize purchased gas costs through improved storage management and use of financial instruments to reduce volatility in gas costs. Under the performance-based ratemaking adjustments, purchased gas costs savings are shared between the Company and its customers.

Our supply of natural gas is provided by a variety of suppliers, including independent producers and marketers. The gas is delivered into our systems by various pipeline companies, withdrawals of gas from proprietary and contracted storage assets and base load and peaking arrangements, as needed.

Supply arrangements consist of both base load and peaking quantities and are contracted from our suppliers on a firm basis with various terms at market prices. Base load quantities are those that flow at a constant level throughout the month and peaking quantities provide the flexibility to change daily quantities to match increases or decreases in requirements related to weather conditions.

Except for local production purchases, we select our natural gas suppliers through a competitive bidding process by periodically requesting proposals from suppliers. We select these suppliers based on their ability to reliably deliver gas supply to our designated firm pipeline receipt points at the lowest reasonable cost. Major suppliers during fiscal 2022 were ConocoPhillips Company, EnLink Gas Marketing LP, Enterprise Navitas Midstream Midland Basin LLC, EOG Resources, Inc., Hartree Partners, L.P., Sequent Energy Management LLC, Symmetry Energy Solutions, LLC, Targa Gas Marketing LLC, Texla Energy Management, Inc. and Twin Eagle Resource Management, LLC.

The combination of base load and peaking agreements, coupled with the withdrawal of gas held in storage, allows us the flexibility to adjust to changes in weather, which minimizes our need to enter into long-term firm commitments. We estimate our peak-day availability of natural gas supply to be approximately 4.4 Bcf. The peak-day demand for our distribution operations in fiscal 2022 was on February 3, 2022, when sales to customers reached approximately 3.6 Bcf.

Currently, our distribution divisions utilize 38 pipeline transportation companies, both interstate and intrastate, to transport our natural gas. The pipeline transportation agreements are firm and many of them have “pipeline no-notice” storage service, which provides for daily balancing between system requirements and nominated flowing supplies. These agreements have been negotiated with the shortest term necessary while still maintaining our right of first refusal. The natural gas supply for our Mid-Tex Division is delivered primarily by our APT Division.

To maintain our deliveries to high priority customers, we have the ability, and have exercised our right, to interrupt or curtail service to certain customers pursuant to contracts and applicable state regulations or statutes. Our customers’ demand on our system is not necessarily indicative of our ability to meet current or anticipated market demands or immediate delivery requirements because of factors such as the physical limitations of gathering, storage and transmission systems, the duration and severity of cold weather, the availability of gas reserves from our suppliers, the ability to purchase additional supplies on a short-term basis and actions by federal and state regulatory authorities. Interruption and curtailment rights provide us the flexibility to meet the human-needs requirements of our customers on a reliable basis. Priority allocations imposed by federal and state regulatory agencies, as well as other factors beyond our control, may affect our ability to meet the demands of some of our customers.

Pipeline and Storage Segment Overview

Our pipeline and storage segment consists of the pipeline and storage operations of APT and our natural gas transmission operations in Louisiana. APT is one of the largest intrastate pipeline operations in Texas with a heavy concentration in the established natural gas-producing areas of central, northern and eastern Texas, extending into or near the major producing areas of the Barnett Shale, the Texas Gulf Coast and the Permian Basin of West Texas. Through its system, APT provides transportation and storage services to our Mid-Tex Division, other third party local distribution companies, industrial and electric generation customers, marketers and producers. As part of its pipeline operations, APT owns and operates five underground storage reservoirs in Texas.

Revenues earned from transportation and storage services for APT are subject to traditional ratemaking governed by the RRC. Rates are updated through periodic filings made under Texas’ GRIP. GRIP allows us to include in our rate base annually approved capital costs incurred in the prior calendar year provided that we file a complete rate case at least once every five

years; the most recent of which was completed in August 2017. APT’s existing regulatory mechanisms allow certain transportation and storage services to be provided under market-based rates.

Our natural gas transmission operations in Louisiana are comprised of a 21-mile pipeline located in the New Orleans, Louisiana area that is primarily used to aggregate gas supply for our distribution division in Louisiana under a long-term contract and, on a more limited basis, to third parties. The demand fee charged to our Louisiana distribution division for these services is subject to regulatory approval by the Louisiana Public Service Commission. We also manage two asset management plans that serve distribution affiliates of the Company, 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.

Ratemaking Activity

Overview

The method of determining regulated rates varies among the states in which our regulated businesses operate. The regulatory authorities have the responsibility of ensuring that utilities in their jurisdictions operate in the best interests of customers while providing utility companies the opportunity to earn a reasonable return on their investment. Generally, each regulatory authority reviews rate requests and establishes a rate structure intended to generate revenue sufficient to cover the costs of conducting business, including a reasonable return on invested capital.

Our rate strategy focuses on reducing or eliminating regulatory lag, obtaining adequate returns and providing stable, predictable margins, which benefit both our customers and the Company. As a result of our ratemaking efforts in recent years, Atmos Energy has:

• Formula rate mechanisms in place in four states that provide for an annual rate review and adjustment to rates.

• Infrastructure programs in place in all of our states that provide for an annual adjustment to rates for qualifying capital expenditures. Through our annual formula rate mechanisms and infrastructure programs, we have the ability to recover approximately 90 percent of our capital expenditures within six months and substantially all of our capital expenditures within twelve months.

• Authorization in tariffs, statute or commission rules that allows us to defer certain elements of our cost of service such as depreciation, ad valorem taxes and pension costs, until they are included in rates.

• WNA mechanisms in seven states that serve to minimize the effects of weather on approximately 96 percent of our distribution residential and commercial revenues.

• The ability to recover the gas cost portion of bad debts in five states which represents approximately 81 percent of our distribution residential and commercial revenues.

The following table provides a jurisdictional rate summary for our regulated operations as of September 30, 2022. This information is for regulatory purposes only and may not be representative of our actual financial position.

Division						Jurisdiction						Effective Date of Last Rate/GRIP Action						Rate Base (thousands)****(1)						Authorized Rate of Return**(1)**						Authorized Debt/ Equity Ratio**(1)**			Authorized Return on Equity**(1)**
Atmos Pipeline — Texas						Texas						05/18/2022						$3,432,180						8.87%						47/53			11.50%
Colorado-Kansas						Colorado						05/03/2018						134,726						7.55%						44/56			9.45%
						Colorado SSIR						01/01/2022						98,695						7.55%						44/56			9.45%
						Kansas						04/01/2020						242,314						7.03%						44/56			9.10%
						Kansas GSRS						02/01/2022						35,612						7.03%						44/56			9.10%
						Kansas SIP						04/01/2022						5,881						7.03%						44/56			9.10%
Kentucky/Mid-States						Kentucky						05/20/2022						568,506						6.82%						45/55			9.23%
						Kentucky-PRP						10/01/2020						39,368						7.49%						42/58			9.65%
						Tennessee						07/01/2022						447,448						7.53%						39/61			9.80%
						Virginia						04/01/2019						47,827						7.43%						42/58			9.20%
						Virginia-SAVE						10/01/2021						7,466						7.43%						42/58			9.20%
Louisiana						Louisiana						07/01/2022						942,422						7.30%						(4)			(4)
Mid-Tex						Mid-Tex Cities(6)						12/01/2021						4,394,489(5)						7.36%						42/58			9.80%
						Mid-Tex ATM Cities						06/10/2022						5,121,370(5)						7.97%						40/60			9.80%
						Mid-Tex Environs						06/10/2022						5,121,376(5)						7.97%						40/60			9.80%
						Mid-Tex — Dallas						05/25/2022						5,051,984(5)						7.41%						41/59			9.80%
Mississippi						Mississippi(7)						11/01/2021						473,932						7.81%						(4)			(4)
						Mississippi - SIR(7)						11/01/2021						323,695						7.81%						(4)			(4)
West Texas						West Texas Cities(8) (10)						12/01/2021						758,951(9)						7.36%						42/58			9.80%
						West Texas - ALDC						06/11/2022						857,631(9)						7.35%						41/59			(4)
						West Texas - Environs						06/11/2022						855,152(9)						7.97%						40/60			9.80%

Division						Jurisdiction						Bad Debt Rider**(2)**						Formula Rate						Infrastructure Mechanism			Performance Based Rate Program**(3)**						WNA Period
Atmos Pipeline — Texas						Texas						No						Yes						Yes			N/A						N/A
Colorado-Kansas						Colorado						No						No						Yes			No						N/A
						Kansas						Yes						No						Yes			Yes						October-May
Kentucky/Mid-States						Kentucky						Yes						No						Yes			Yes						November-April
						Tennessee						Yes						Yes						Yes			Yes						October-April
						Virginia						Yes						No						Yes			No						January-December
Louisiana						Louisiana						No						Yes						Yes			No						December-March
Mid-Tex Cities						Texas						Yes						Yes						Yes			No						November-April
Mid-Tex — Dallas						Texas						Yes						Yes						Yes			No						November-April
Mississippi						Mississippi						No						Yes						Yes			No						November-April
West Texas						Texas						Yes						Yes						Yes			No						October-May

(1)The rate base, authorized rate of return, authorized debt/equity ratio and authorized return on equity presented in this table are those from the most recent regulatory filing for each jurisdiction. These rate bases, rates of return, debt/equity ratios and returns on equity are not necessarily indicative of current or future rate bases, rates of return or returns on equity.

(2)The bad debt rider allows us to recover from customers the gas cost portion of customer accounts that have been written off.

(3)The performance-based rate program provides incentives to distribution companies to minimize purchased gas costs by allowing the companies and their customers to share the purchased gas costs savings.

(4)A rate base, rate of return, return on equity or debt/equity ratio was not included in the respective state commission’s final decision.

(5)The Mid-Tex rate base represents a “system-wide,” or 100 percent, of the Mid-Tex Division’s rate base.

(6)The Mid-Tex Cities approved the Formula Rate Mechanism filing with rates effective October 1, 2022, which included a rate base of $5,235.0 million, an authorized return of 7.28%, a debt/equity ratio of 42/58 and an authorized ROE of 9.80%.

(7)The Mississippi Public Service Commission approved a settlement at its meeting on October 4, 2022, which included a rate base of $915.6 million and an authorized return of 7.53%. New rates were implemented November 1, 2022.

(8)The West Texas Cities includes all West Texas Division cities except Amarillo, Lubbock, Dalhart and Channing (ALDC).

(9)The West Texas rate base represents a "system-wide," or 100 percent, of the West Texas Division's rate base.

(10)The West Texas Cities approved the Formula Rate Mechanism filing with rates effective October 1, 2022, which included a rate base of $855.3 million, an authorized return of 7.28%, a debt/equity ratio of 42/58 and an authorized ROE of 9.80%.

Although substantial progress has been made in recent years to improve rate design and recovery of investment across our service areas, we are continuing to seek improvements in rate design to address cost variations and pursue tariffs that reduce regulatory lag associated with investments. Further, potential changes in federal energy policy, federal safety regulations and changing economic conditions will necessitate continued vigilance by the Company and our regulators in meeting the challenges presented by these external factors.

Recent Ratemaking Activity

The amounts described in the following sections represent the annual 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 the commission's or other governmental authority's final ruling. Our ratemaking outcomes include the refund (return) 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. The following tables summarize the annualized ratemaking outcomes we implemented in each of the last three fiscal years.

Rate Action						Annual Increase (Decrease) in Operating Income						EDIT Impact						Annual Increase (Decrease) in Operating Income Excluding EDIT
						(In thousands)
2022 Filings:
Annual formula rate mechanisms						$	169,354					$	33,249					$	202,603
Rate case filings						5,938						7,379						13,317
Other ratemaking activity						(370)						—						(370)
Total 2022 Filings						$	174,922					$	40,628					$	215,550
2021 Filings:
Annual formula rate mechanisms						$	181,459					$	39,306					$	220,765
Rate case filings						5,119						1,168						6,287
Other ratemaking activity						(877)						—						(877)
Total 2021 Filings						$	185,701					$	40,474					$	226,175
2020 Filings:
Annual formula rate mechanisms						$	160,857					$	—					$	160,857
Rate case filings						(1,057)						—						(1,057)
Other ratemaking activity						353						—						353
Total 2020 Filings						$	160,153					$	—					$	160,153

The following ratemaking efforts seeking $144.5 million in annual operating income were initiated during fiscal 2022 but had not been completed or implemented as of September 30, 2022:

Division						Rate Action						Jurisdiction						Operating Income Requested
																		(In thousands)
Colorado-Kansas						Rate Case						Colorado						$	7,554
Colorado-Kansas						Rate Case						Kansas						7,989
Kentucky/Mid-States						Infrastructure Mechanism						Virginia (1)						477
Kentucky/Mid-States						Infrastructure Mechanism						Kentucky (2)						1,904
Mid-Tex						Formula Rate Mechanism						Mid-Tex Cities (3)						92,615
Mississippi						Infrastructure Mechanism						Mississippi (4)						10,006
Mississippi						Formula Rate Mechanism						Mississippi (4)						15,700
West Texas						Formula Rate Mechanism						West Texas Cities (5)						8,208
																		$	144,453

(1) On August 12, 2022, the State Corporation Commission of Virginia approved a rate increase of $0.5 million effective October 1, 2022.

(2) On August 12, 2022, the Kentucky Public Service Commission approved a rate increase of $1.9 million effective October 2, 2022, subject to refund.

(3) The Mid-Tex Cities approved a rate increase of $81.4 million, which includes $(0.4) million related to the return of excess deferred income taxes that will be offset by lower income tax expense. New rates were implemented on October 1, 2022.

(4) The Mississippi Public Service Commission (MPSC) approved an increase in operating income of $8.6 million for the SIR filing. The MPSC also approved an increase in operating income of $12.2 million for the SRF filing, which includes $0.8 million related to the refund of excess deferred income taxes that will be offset by lower income tax expense. New rates for both filings were implemented November 1, 2022.

(5) The West Texas Cities approved a rate increase of $7.3 million. New rates were implemented on October 1, 2022.

Our recent ratemaking activity is discussed in greater detail below.

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 specific infrastructure programs in 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
Colorado						System Safety and Integrity Rider (SSIR)						—
Kansas						Gas System Reliability Surcharge (GSRS), System Integrity Program (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)
Texas						Gas Reliability Infrastructure Program (GRIP), (1)						Dallas Annual Rate Review (DARR), Rate Review Mechanism (RRM)
Virginia						Steps to Advance Virginia Energy (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 table summarizes our annual formula rate mechanisms with effective dates during the fiscal years ended September 30, 2022, 2021 and 2020:

Division						Jurisdiction						Test Year Ended						Increase (Decrease) in Annual Operating Income						EDIT Impact						Increase (Decrease) in Annual Operating Income Excluding EDIT						Effective Date
																								(In thousands)
2022 Filings:
Kentucky/Mid-States						Tennessee ARM						09/2021						$	2,466					$	—					$	2,466					07/01/2022
Louisiana						Louisiana (1)						12/2021						17,650						(10,389)						7,261						07/01/2022
West Texas						Amarillo, Lubbock, Dalhart and Channing						12/2021						6,122						—						6,122						06/11/2022
West Texas						Triangle						12/2021						1,549						—						1,549						06/11/2022
West Texas						Environs						12/2021						1,221						—						1,221						06/11/2022
Mid-Tex						ATM Cities						12/2021						12,815						—						12,815						06/10/2022
Mid-Tex						Environs						12/2021						5,646						—						5,646						06/10/2022
Mid-Tex						DARR (2)						09/2021						13,201						—						13,201						05/25/2022
Atmos Pipeline - Texas						Texas						12/2021						78,750						—						78,750						05/18/2022
Colorado-Kansas						Kansas SIP						12/2021						623						—						623						04/01/2022
Colorado-Kansas						Kansas GSRS						09/2021						1,820						—						1,820						02/01/2022
Colorado-Kansas						Colorado SSIR						12/2022						2,610						—						2,610						01/01/2022
Mid-Tex						Mid-Tex Cities RRM						12/2020						21,673						33,851						55,524						12/01/2021
West Texas						West Texas Cities RRM						12/2020						151						3,347						3,498						12/01/2021
Mississippi						Mississippi - SIR						10/2022						8,354						2,123						10,477						11/01/2021
Mississippi						Mississippi - SRF						10/2022						(5,624)						4,317						(1,307)						11/01/2021
Kentucky/Mid-States						Virginia - SAVE						09/2022						327						—						327						10/01/2021
Total 2022 Filings																		$	169,354					$	33,249					$	202,603
2021 Filings:
Mid-Tex						Environs						12/2020						$	4,632					$	—					$	4,632					09/01/2021
Louisiana						Louisiana						12/2020						(2,407)						24,192						21,785						07/01/2021
Mid-Tex						ATM Cities (3)						12/2020						11,085						—						11,085						06/11/2021
West Texas						Triangle (3)						12/2020						416						—						416						06/11/2021
West Texas						Environs (3)						12/2020						1,267						—						1,267						06/11/2021
Mid-Tex						DARR (3)						09/2020						1,708						15,114						16,822						06/09/2021
Kentucky/Mid-States						Tennessee ARM						09/2020						10,260						—						10,260						06/01/2021
Atmos Pipeline - Texas						Texas						12/2020						43,868						—						43,868						05/11/2021
Colorado-Kansas						Kansas GSRS						09/2020						1,695						—						1,695						02/01/2021
Colorado-Kansas						Colorado SSIR						12/2021						2,366						—						2,366						01/01/2021
Mid-Tex						Mid-Tex Cities RRM						12/2019						82,645						—						82,645						12/01/2020
West Texas						West Texas Cities RRM						12/2019						5,645						—						5,645						12/01/2020
Mississippi						Mississippi - SIR						10/2021						10,556						—						10,556						11/01/2020
Mississippi						Mississippi - SRF						10/2021						5,856						—						5,856						11/01/2020
Kentucky/Mid-States						Virginia - SAVE						09/2021						305						—						305						10/01/2020
Kentucky/Mid-States						Kentucky PRP						09/2021						1,562						—						1,562						10/01/2020
Total 2021 Filings																		$	181,459					$	39,306					$	220,765

2020 Filings:
Mid-Tex						DARR						09/2019						$	14,746					$	—					$	14,746					09/01/2020
Louisiana						Louisiana						12/2019						14,781						—						14,781						07/01/2020
West Texas						Environs (4)						12/2019						1,031						—						1,031						06/16/2020
Kentucky/Mid-States						Tennessee ARM						05/2019						714						—						714						06/15/2020
Mid-Tex						ATM Cities (4)						12/2019						11,148						—						11,148						06/12/2020
Mid-Tex						Environs (4)						12/2019						4,440						—						4,440						05/20/2020
Atmos Pipeline - Texas						Texas						12/2019						49,251						—						49,251						05/20/2020
West Texas						Amarillo, Lubbock, Dalhart and Channing (4)						12/2019						5,937						—						5,937						04/28/2020
Colorado-Kansas						Colorado SSIR						12/2020						2,082						—						2,082						01/01/2020
Mississippi						Mississippi - SIR						10/2020						7,586						—						7,586						11/01/2019
Mississippi						Mississippi - SRF						10/2020						6,886						—						6,886						11/01/2019
Kentucky/Mid-States						Virginia - SAVE						09/2020						84						—						84						10/01/2019
Kentucky/Mid-States						Kentucky PRP						09/2020						2,912						—						2,912						10/01/2019
Mid-Tex						Mid-Tex RRM Cities						12/2018						34,380						—						34,380						10/01/2019
West Texas						West Texas Cities RRM						12/2018						4,879						—						4,879						10/01/2019
Total 2020 Filings																		$	160,857					$	—					$	160,857

(1) Rates were implemented on July 1, 2022, subject to refund.

(2) The rate increase for this filing was approved based on the effective date herein; however, the new rates were implemented beginning September 1, 2022.

(3) The rate increases for these filings were approved based on the effective dates herein; however, the new rates were implemented beginning September 1, 2021.

(4) The rate increases for our Texas GRIP filings were approved based on the effective date herein; however, the new rates were implemented beginning September 1, 2020.

Rate Case Filings

A rate case is a formal request from Atmos Energy to a regulatory authority to increase rates that are charged to 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 reasonable rate of return to our shareholders and ensure that we continue to safely deliver reliable, reasonably priced natural gas service to our customers.

The following table summarizes our recent rate case activity during the fiscal years ended September 30, 2022, 2021 and 2020:

Division						State						Increase (Decrease) in Annual Operating Income						EDIT Impact						Increase (Decrease) in Annual Operating Income Excluding EDIT						Effective Date
																		(In thousands)
2022 Rate Case Filings:
Kentucky/Mid-States						Kentucky (1)						$	5,938					$	7,379					$	13,317					05/20/2022
Total 2022 Rate Case Filings												$	5,938					$	7,379					$	13,317
2021 Rate Case Filings:
West Texas (ALDC)						Texas						$	5,119					$	1,168					$	6,287					06/01/2021
Total 2021 Rate Case Filings												$	5,119					$	1,168					$	6,287
2020 Rate Case Filings:
West Texas (Triangle)						Texas						$	(808)					$	—					$	(808)					04/21/2020
Colorado-Kansas						Kansas						(249)						—						(249)						04/01/2020
Total 2020 Rate Case Filings												$	(1,057)					$	—					$	(1,057)

(1) The rate case outcome for Kentucky is inclusive of the fiscal 2022 pipeline replacement program.

Other Ratemaking Activity

The following table summarizes other ratemaking activity during the fiscal years ended September 30, 2022, 2021 and 2020:

Division						Jurisdiction						Rate Activity						Increase (Decrease) in Annual Operating Income						Effective Date
																		(In thousands)
2022 Other Rate Activity:
Colorado-Kansas						Kansas						Ad Valorem (1)						$	(370)					02/01/2022
Total 2022 Other Rate Activity																		$	(370)
2021 Other Rate Activity:
Colorado-Kansas						Kansas						Ad Valorem (1)						$	(877)					02/01/2021
Total 2021 Other Rate Activity																		$	(877)
2020 Other Rate Activity:
Colorado-Kansas						Kansas						Ad-Valorem (1)						$	353					02/01/2020
Total 2020 Other Rate Activity																		$	353

(1)The Ad Valorem filing relates to property taxes that are either over or undercollected compared to the amount included in our Kansas service area's base rates.

Other Regulation

We are regulated by various state or local public utility authorities. We are also subject to regulation by the United States Department of Transportation with respect to safety requirements in the operation and maintenance of our transmission and distribution facilities. In addition, our operations are also subject to various state and federal laws regulating environmental matters. From time to time, we receive inquiries regarding various environmental matters. We believe that our properties and operations comply with, and are operated in conformity with, applicable safety and environmental statutes and regulations. There are no administrative or judicial proceedings arising under environmental quality statutes pending or known to be contemplated by governmental agencies which would have a material adverse effect on us or our operations. The Pipeline and Hazardous Materials Safety Administration (PHMSA), within the U.S. Department of Transportation, develops and enforces regulations for the safe, reliable and environmentally sound operation of the pipeline transportation system. The PHMSA pipeline safety statutes provide for states to assume safety authority over intrastate natural transmission and distribution gas pipelines. State pipeline safety programs are responsible for adopting and enforcing the federal and state pipeline safety regulations for intrastate natural gas transmission and distribution pipelines.

The Federal Energy Regulatory Commission (FERC) allows, pursuant to Section 311 of the Natural Gas Policy Act (NGPA), gas transportation services through our APT assets “on behalf of” interstate pipelines or local distribution companies served by interstate pipelines, without subjecting these assets to the jurisdiction of the FERC under the NGPA. Additionally, the FERC has regulatory authority over the use and release of interstate pipeline and storage capacity. The FERC also has authority to detect and prevent market manipulation and to enforce compliance with FERC’s other rules, policies and orders by companies engaged in the sale, purchase, transportation or storage of natural gas in interstate commerce. We have taken what we believe are the necessary and appropriate steps to comply with these regulations.

The SEC and the Commodities Futures Trading Commission, pursuant to the Dodd–Frank Act, established numerous regulations relating to U.S. financial markets. We enacted procedures and modified existing business practices and contractual arrangements to comply with such regulations. There are, however, some rulemaking proceedings that have not yet been finalized, including those relating to capital and margin rules for (non–cleared) swaps. We do not expect these rules to directly impact our business practices or collateral requirements. However, depending on the substance of these final rules, in addition to certain international regulatory requirements still under development that are similar to Dodd–Frank, our swap counterparties could be subject to additional and potentially significant capitalization requirements. These regulations could motivate counterparties to increase our collateral requirements or cash postings.

Competition

Although our regulated distribution operations are not currently in significant direct competition with any other distributors of natural gas to residential and commercial customers within our service areas, we do compete with other natural gas suppliers and suppliers of alternative fuels for sales to industrial customers. We compete in all aspects of our business with alternative energy sources, including, in particular, electricity. Electric utilities offer electricity as a rival energy source and compete for the space heating, water heating and cooking markets. Promotional incentives, improved equipment efficiencies

and promotional rates all contribute to the acceptability of electrical equipment. The principal means to compete against alternative fuels is lower prices, and natural gas historically has maintained its price advantage in the residential, commercial and industrial markets.

Our pipeline and storage operations have historically faced competition from other existing intrastate pipelines seeking to provide or arrange transportation, storage and other services for customers. In the last few years, several new pipelines have been completed, which has increased the level of competition in this segment of our business.

Employees

The Corporate Responsibility, Sustainability, and Safety Committee of the Board of Directors oversees matters relating to equal employment opportunities, diversity, and inclusion; human workplace rights; employee health and safety; and the Company’s vision, values, and culture. It oversees the Company's policies, practices and procedures relating to sustainability to support the alignment of the Company's sustainability strategy with the Company's corporate strategy.

Part of our vision is to create a culture that respects and appreciates diversity. For this reason, we strive to have a workforce that reflects the communities we serve. At September 30, 2022, we had 4,791 employees, substantially unchanged from last year. We monitor our workforce data on a calendar year basis. As of December 31, 2021, 61 percent of our employees worked in field roles and 39 percent worked in support/shared services roles. No employees are subject to a collective bargaining agreement.

To recruit and hire individuals with a variety of skills, talents, backgrounds and experiences, we value and cultivate our strong relationships with hundreds of community and diversity outreach sources. We also target jobs fairs including those focused on minority, veteran and women candidates and partner with local colleges and universities to identify and recruit qualified applicants in each of the cities and towns we serve. Over the last five calendar years, we hired over 2,000 employees. Our culture is also reflected in our employee benefits. The physical, mental and financial health of our employees and their families is a top priority for the Company, which is why we have a strong, competitive benefits program to help employees and their families manage and protect their health, wealth and time.

We perform succession planning annually to ensure that we develop and sustain a strong bench of talent capable of performing at the highest levels. Not only is talent identified, but potential paths of development are discussed to ensure that employees have an opportunity to build their skills and are well-prepared for future roles. The strength of our succession planning process is evident through our long history of promoting our leaders from within the organization.

Available Information

Our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K and other reports, and amendments to those reports, and other forms that we file with or furnish to the Securities and Exchange Commission (SEC) at their website, www.sec.gov, are also available free of charge at our website, www.atmosenergy.com/company/publications-and-sec-filings, as soon as reasonably practicable, after we electronically file these reports with, or furnish these

reports to, the SEC. We will also provide copies of these reports free of charge upon request to Shareholder Relations at the address and telephone number appearing below:

Shareholder Relations

Atmos Energy Corporation

P.O. Box 650205

Dallas, Texas 75265-0205

972-855-3729

Corporate Governance

In accordance with and pursuant to relevant related rules and regulations of the SEC as well as corporate governance-related listing standards of the New York Stock Exchange (NYSE), the Board of Directors of the Company has established and periodically updated our Corporate Governance Guidelines and Code of Conduct, which is applicable to all directors, officers and employees of the Company. In addition, in accordance with and pursuant to such NYSE listing standards, our Chief Executive Officer during fiscal 2022, John K. Akers, certified to the New York Stock Exchange that he was not aware of any violations by the Company of NYSE corporate governance listing standards. The Board of Directors also annually reviews and updates, if necessary, the charters for each of its Audit, Human Resources, Nominating and Corporate Governance and Corporate Responsibility, Sustainability and Safety Committees. All of the foregoing documents are posted on our website at www.atmosenergy.com/company/corporate-responsiblity-reports. We will also provide copies of all corporate governance documents free of charge upon request to Shareholder Relations at the address listed above.

Our financial and operating results are subject to a number of risk factors, many of which are not within our control. Investors should carefully consider the following discussion of risk factors as well as other information appearing in this report. These factors include the following, which are organized by category:

Regulatory and Legislative Risks

We are subject to federal, state and local regulations that affect our operations and financial results.

We are subject to regulatory oversight from various federal, state and local regulatory authorities in the eight states that we serve. Therefore, our returns are continuously monitored and are subject to challenge for their reasonableness by the appropriate regulatory authorities or other third-party intervenors. In the normal course of business, as a regulated entity, we often need to place assets in service and establish historical test periods before rate cases that seek to adjust our allowed returns to recover that investment can be filed. Further, the regulatory review process can be lengthy in the context of traditional ratemaking. Because of this process, we suffer the negative financial effects of having placed assets in service without the benefit of rate relief, which is commonly referred to as “regulatory lag.”

Regulatory authorities in the states we serve have approved various infrastructure and annual rate adjustment mechanisms to effectively reduce the regulatory lag inherent in the ratemaking process. Regulatory lag could significantly increase if the regulatory authorities modify or terminate these rate mechanisms. The regulatory process also involves the risk that regulatory authorities may (i) review our purchases of natural gas and adjust the amount of our gas costs that we pass through to our customers or (ii) limit or disallow the costs we may have incurred from our cost of service that can be recovered from customers.

We are also subject to laws, regulations and other legal requirements enacted or adopted by federal, state and local governmental authorities relating to protection of the environment and health and safety matters, including those that govern discharges of substances into the air and water, the management and disposal of hazardous substances and waste, the clean-up of contaminated sites, groundwater quality and availability, plant and wildlife protection, as well as work practices related to employee health and safety. Environmental legislation also requires that our facilities, sites and other properties associated with our operations be operated, maintained, abandoned and reclaimed to the satisfaction of applicable regulatory authorities. Failure to comply with these laws, regulations, permits and licenses may expose us to fines, penalties or interruptions in our operations that could be significant to our financial results. In addition, existing environmental regulations may be revised or our operations may become subject to new regulations.

Some of our operations are subject to increased federal regulatory oversight that could affect our operations and financial results.

FERC has regulatory authority over some of our operations, including the use and release of interstate pipeline and storage capacity. FERC has adopted rules designed to prevent market power abuse and market manipulation and to promote compliance with FERC’s other rules, policies and orders by companies engaged in the sale, purchase, transportation or storage of natural

gas in interstate commerce. These rules carry increased penalties for violations. Although we have taken steps to structure current and future transactions to comply with applicable current FERC regulations, changes in FERC regulations or their interpretation by FERC or additional regulations issued by FERC in the future could also adversely affect our business, financial condition or financial results.

We may experience increased federal, state and local regulation of the safety of our operations.

The safety and protection of the public, our customers and our employees is our top priority. We constantly monitor and maintain our pipeline and distribution systems to ensure that natural gas is delivered safely, reliably and efficiently through our network of more than 75,000 miles of distribution and transmission lines. As in recent years, natural gas distribution and pipeline companies are continuing to encounter increasing federal, state and local oversight of the safety of their operations. Although we believe these are costs ultimately recoverable through our rates, the costs of complying with new laws and regulations may have at least a short-term adverse impact on our operating costs and financial results.

Operational Risks

We may incur significant costs and liabilities resulting from pipeline integrity and other similar programs and related repairs.

PHMSA requires pipeline operators to develop integrity management programs to comprehensively evaluate certain areas along their pipelines and to take additional measures to protect pipeline segments located in “high consequence areas” where a leak or rupture could potentially do the most harm. As a pipeline operator, the Company is required to:

• perform ongoing assessments of pipeline integrity;

• identify and characterize applicable threats to pipeline segments that could impact a “high consequence area”;

• improve data collection, integration and analysis;

• repair and remediate the pipeline as necessary; and

• implement preventative and mitigating actions.

The Company incurs significant costs associated with its compliance with existing PHMSA and comparable state regulations. Although we believe these are costs ultimately recoverable through our rates, the costs of complying with new laws and regulations may have at least a short-term adverse impact on our operating costs and financial results. For example, the adoption of new regulations requiring more comprehensive or stringent safety standards could require installation of new or modified safety controls, new capital projects, or accelerated maintenance programs, all of which could require a potentially significant increase in operating costs.

Distributing, transporting and storing natural gas involve risks that may result in accidents and additional operating costs.

Our operations involve a number of hazards and operating risks inherent in storing and transporting natural gas that could affect the public safety and reliability of our distribution system. While Atmos Energy, with the support from each of its regulatory commissions, is accelerating the replacement of pipeline infrastructure, operating issues such as leaks, accidents, equipment problems and incidents, including explosions and fire, could result in legal liability, repair and remediation costs, increased operating costs, significant increased capital expenditures, regulatory fines and penalties and other costs and a loss of customer confidence. We maintain liability and property insurance coverage in place for many of these hazards and risks. However, because some of our transmission pipeline and storage facilities are near or are in populated areas, any loss of human life or adverse financial results resulting from such events could be large. If these events were not fully covered by our general liability and property insurance, which policies are subject to certain limits and deductibles, our operations or financial results could be adversely affected.

If contracted gas supplies, interstate pipeline and/or storage services are not available or delivered in a timely manner, our ability to meet our customers’ natural gas requirements may be impaired and our financial condition may be adversely affected.

In order to meet our customers’ annual and seasonal natural gas demands, we must obtain a sufficient supply of natural gas, interstate pipeline capacity and storage capacity. If we are unable to obtain these, either from our suppliers’ inability to deliver the contracted commodity or the inability to secure replacement quantities, our financial condition and results of operations may be adversely affected. If a substantial disruption to or reduction in interstate natural gas pipelines’ transmission and storage capacity occurred due to operational failures or disruptions, legislative or regulatory actions, hurricanes, tornadoes, floods, extreme cold weather, terrorist or cyber-attacks or acts of war, our operations or financial results could be adversely affected.

Our operations are subject to increased competition.

In residential and commercial customer markets, our distribution operations compete with other energy products, such as electricity and propane. Our primary product competition is with electricity for heating, water heating and cooking. Increases in the price of natural gas could negatively impact our competitive position by decreasing the price benefits of natural gas to the consumer. This could adversely impact our business if our customer growth slows or if our customers further conserve their use of gas, resulting in reduced gas purchases and customer billings.

In the case of industrial customers, such as manufacturing plants, adverse economic conditions, including higher gas costs, could cause these customers to use alternative sources of energy, such as electricity, or bypass our systems in favor of special competitive contracts with lower per-unit costs. Our pipeline and storage operations historically have faced limited competition from other existing intrastate pipelines and gas marketers seeking to provide or arrange transportation, storage and other services for customers. However, in the last few years, several new pipelines have been completed, which has increased the level of competition in this segment of our business.

Failure to attract and retain a qualified workforce could adversely affect our results of operations.

The competition for talent has become increasingly intense and we may experience increased employee turnover due to a tightening labor market. If we are unable to recruit and retain an appropriately qualified workforce, the Company could encounter operating challenges primarily due to a loss of institutional knowledge and expertise, errors due to inexperience, or the lengthy time period typically required to adequately train replacement personnel. In addition, higher costs could result from loss of productivity, increased safety compliance issues, or cost of contract labor.

Additionally, our ability to operate is contingent on maintaining a healthy workforce and a safe working environment. As a provider of essential services, we have an obligation to provide natural gas services to customers. Incidents of COVID-19 or any other future pandemic in our workforce could challenge the availability of our workforce which could threaten the continuity of our business operations.

Natural disasters, terrorist activities or other significant events could adversely affect our operations or financial results.

Natural disasters are always a threat to our assets and operations. In addition, the threat of terrorist activities could lead to increased economic instability and volatility in the price of natural gas that could affect our operations. Also, companies in our industry may face a heightened risk of exposure to actual acts of terrorism, which could subject our operations to increased risks. As a result, the availability of insurance covering such risks may become more limited, which could increase the risk that an event could adversely affect our operations or financial results.

Technology and Cybersecurity Risks

Increased dependence on technology may hinder the Company’s business operations and adversely affect its financial condition and results of operations if such technologies fail.

Over the last several years, the Company has implemented or acquired a variety of technological tools including both Company-owned information technology and technological services provided by outside parties. These tools and systems support critical functions including scheduling and dispatching of service technicians, automated meter reading systems, customer care and billing, operational plant logistics, management reporting and external financial reporting. The failure of these or other similarly important technologies, or the Company’s inability to have these technologies supported, updated, expanded, or integrated into other technologies, could hinder its business operations and adversely impact its financial condition and results of operations.

Although the Company has, when possible, developed alternative sources of technology and built redundancy into its computer networks and tools, there can be no assurance that these efforts would protect against all potential issues related to the loss of any such technologies.

Cyber-attacks or acts of cyber-terrorism 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.

Our business operations and information technology systems may be vulnerable to an attack by individuals or organizations intending to disrupt our business operations and information technology systems, even though the Company has implemented policies, procedures and controls to prevent and detect these activities. We use our information technology systems to manage our distribution and intrastate pipeline and storage operations and other business processes. Disruption of those systems could adversely impact our ability to safely deliver natural gas to our customers, operate our pipeline and storage systems or serve our customers timely. Accordingly, if such an attack or act of terrorism were to occur, our operations and financial results could be adversely affected.

In addition, we use our information technology systems to protect confidential or sensitive customer, employee and Company information developed and maintained in the normal course of our business. Any attack on such systems that would

result in the unauthorized release of customer, employee or other confidential or sensitive data could have a material adverse effect on our business reputation, increase our costs and expose us to additional material legal claims and liability. Even though we have insurance coverage in place for many of these cyber-related risks, if such an attack or act of terrorism were to occur, our operations and financial results could be adversely affected to the extent not fully covered by such insurance coverage.

Compliance with and changes in cybersecurity requirements have a cost and operational impact on our business, and failure to comply with such laws and regulations could adversely impact our reputation, results of operations, financial condition and/or cash flows.

As cyber-attacks are becoming more sophisticated, U.S. government warnings have indicated that critical infrastructure assets, including pipeline infrastructure, may be specifically targeted by certain groups. In 2021, the Transportation Security Administration (TSA) announced two new security directives in response to a ransomware attack on the Colonial Pipeline that occurred earlier in the year. These directives require critical pipeline owners to comply with mandatory reporting measures, designate a cybersecurity coordinator, provide vulnerability assessments, and ensure compliance with certain cybersecurity requirements. Such directives or other requirements may require expenditure of significant additional resources to respond to cyber-attacks, to continue to modify or enhance protective measures, or to assess, investigate and remediate any critical infrastructure security vulnerabilities. Any failure to comply with such government regulations or failure in our cybersecurity protective measures may result in enforcement actions that may have a material adverse effect on our business, results of operations and financial condition. In addition, there is no certainty that costs incurred related to securing against threats will be recovered through rates.

Climate Risks

Adverse weather conditions could affect our operations or financial results.

We have weather-normalized rates for approximately 96 percent of our residential and commercial revenues in our distribution operations, which substantially mitigates the adverse effects of warmer-than-normal weather for meters in those service areas. However, there is no assurance that we will continue to receive such regulatory protection from adverse weather in our rates in the future. The loss of such weather-normalized rates could have an adverse effect on our operations and financial results. In addition, our operating results may continue to vary somewhat with the actual temperatures during the winter heating season. Additionally, sustained cold weather could challenge our ability to adequately meet customer demand in our operations.

Greenhouse gas emissions or other legislation or regulations intended to address climate change could increase our operating costs, adversely affecting our financial results, growth, cash flows and results of operations.

Six of the eight states in which we operate have passed legislation to block attempts by local governments to limit the types of energy available to customers. However, federal, regional and/or state legislative and/or regulatory initiatives may attempt to control or limit the causes of climate change, including greenhouse gas emissions, such as carbon dioxide and methane. Such laws or regulations could impose costs tied to greenhouse gas emissions, operational requirements or restrictions, or additional charges to fund energy efficiency activities. They could also provide a cost advantage to alternative energy sources, impose costs or restrictions on end users of natural gas, or result in other costs or requirements, such as costs associated with the adoption of new infrastructure and technology to respond to new mandates. The focus on climate change could adversely impact the reputation of fossil fuel products or services. The occurrence of the foregoing events could put upward pressure on the cost of natural gas relative to other energy sources, increase our costs and the prices we charge to customers, reduce the demand for natural gas or cause fuel switching to other energy sources, and impact the competitive position of natural gas and the ability to serve new or existing customers, adversely affecting our business, results of operations and cash flows.

The operations and financial results of the Company could be adversely impacted as a result of climate change.

As climate change occurs, our businesses could be adversely impacted. To the extent climate change results in temperatures that differ materially from temperatures we are currently experiencing, financial results could be adversely affected through lower gas volumes and revenues. Climate change could also cause shifts in population, including customers moving away from our service territories.

It could also result in more frequent and more severe weather events, such as hurricanes and tornadoes, which could increase our costs to repair damaged facilities and restore service to our customers or impact the cost of gas. If we were unable to deliver natural gas to our customers, our financial results would be impacted by lost revenues, and we generally would have to seek approval from regulators to recover restoration costs. To the extent we would be unable to recover those costs, or if higher rates resulting from our recovery of such costs would result in reduced demand for our services, our future business, financial condition or financial results could be adversely impacted.

Financial, Economic and Market Risks

Our growth in the future may be limited by the nature of our business, which requires extensive capital spending.

Our operations are capital-intensive. We must make significant capital expenditures on a long-term basis to modernize our distribution and transmission system and to comply with the safety rules and regulations issued by the regulatory authorities responsible for the service areas we operate. In addition, we must continually build new capacity to serve the growing needs of the communities we serve. The magnitude of these expenditures may be affected by a number of factors, including new regulations, the general state of the economy and weather.

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. The cost and availability of borrowing funds from third party lenders or issuing equity is dependent on the liquidity of the credit markets, interest rates and other market conditions. This in turn may limit the amount of funds we can invest in our infrastructure.

The Company is dependent on continued access to the credit and capital markets to execute our business strategy.

Our long-term debt is currently rated as “investment grade” by Standard & Poor’s Corporation and Moody’s Investors Service, Inc. Similar to most companies, we rely upon access to both short-term and long-term credit and capital markets to satisfy our liquidity requirements. If adverse credit conditions were to cause a significant limitation on our access to the private credit and public capital markets, we could see a reduction in our liquidity. A significant reduction in our liquidity could in turn trigger a negative change in our ratings outlook or even a reduction in our credit ratings by one or more of the credit rating agencies. Such a downgrade could further limit our access to private credit and/or public capital markets and increase our costs of borrowing.

While we believe we can meet our capital requirements from our operations and the sources of financing available to us, we can provide no assurance that we will continue to be able to do so in the future, especially if the market price of natural gas increases significantly. The future effects on our business, liquidity and financial results of a deterioration of current conditions in the credit and capital markets could be material and adverse to us, both in the ways described above or in other ways that we do not currently anticipate.

We are exposed to market risks that are beyond our control, which could adversely affect our financial results.

We are subject to market risks beyond our control, including (i) commodity price volatility caused by market supply and demand dynamics, counterparty performance or counterparty creditworthiness and (ii) interest rate risk. We are generally insulated from commodity price risk through our purchased gas cost mechanisms. With respect to interest rate risk, increases in interest rates could adversely affect our future financial results to the extent that we do not recover our actual interest expense in our rates.

The concentration of our operations in the State of Texas exposes our operations and financial results to economic conditions, weather patterns and regulatory decisions in Texas.

Approximately 70 percent of our consolidated operations are located in the State of Texas. This concentration of our business in Texas means that our operations and financial results may be significantly affected by changes in the Texas economy in general, weather patterns and regulatory decisions by state and local regulatory authorities in Texas.

A deterioration in economic conditions could adversely affect our customers and negatively impact our financial results.

Any adverse changes in economic conditions in the states in which we operate could adversely affect the financial resources of many domestic households. As a result, our customers could seek to use less gas and it may be more difficult for them to pay their gas bills. This would likely lead to slower collections and higher than normal levels of accounts receivable. This, in turn, could increase our financing requirements. Additionally, should economic conditions deteriorate, our industrial customers could seek alternative energy sources, which could result in lower transportation volumes.

Increased gas costs could adversely impact our customer base and customer collections and increase our level of indebtedness.

Rapid increases in the costs of purchased gas would cause us to experience a significant increase in short-term or long-term debt. We must pay suppliers for gas when it is purchased, which can be significantly in advance of when these costs may be recovered through the collection of monthly customer bills for gas delivered. Increases in purchased gas costs also slow our natural gas distribution collections as customers are more likely to delay the payment of their gas bills, leading to higher than normal accounts receivable. This could result in higher short-term debt levels, greater collection efforts and increased bad debt expense.

The costs of providing health care benefits, pension and postretirement health care benefits and related funding requirements may increase substantially.

We provide health care benefits, a cash-balance pension plan and postretirement health care benefits to eligible full-time employees. The costs of providing health care benefits to our employees could significantly increase over time due to rapidly increasing health care inflation, and any future legislative changes related to the provision of health care benefits. The impact of additional costs which are likely to be passed on to the Company is difficult to measure at this time.

The costs of providing a cash-balance pension plan to eligible full-time employees prior to 2011 and postretirement health care benefits to eligible full-time employees and related funding requirements could be influenced by changes in the market value of the assets funding our pension and postretirement health care plans. Any significant declines in the value of these investments due to sustained declines in equity markets or a reduction in bond yields could increase the costs of our pension and postretirement health care plans and related funding requirements in the future. Further, our costs of providing such benefits and related funding requirements are also subject to a number of factors, including (i) changing demographics, including longer life expectancy of beneficiaries and an expected increase in the number of eligible former employees over the next five to ten years; (ii) various actuarial calculations and assumptions which may differ materially from actual results due primarily to changing market and economic conditions, including changes in interest rates, and higher or lower withdrawal rates; and (iii) future government regulation.

The costs to the Company of providing these benefits and related funding requirements could also increase materially in the future, should there be a material reduction in the amount of the recovery of these costs through our rates or should significant delays develop in the timing of the recovery of such costs, which could adversely affect our financial results.

Not applicable.

Distribution, transmission and related assets

At September 30, 2022, in our distribution segment, we owned an aggregate of 73,243 miles of underground distribution and transmission mains throughout our distribution systems. These mains are located on easements or rights-of-way. We maintain our mains through a program of continuous inspection and repair and believe that our system of mains is in good condition. Through our pipeline and storage segment we also owned 5,652 miles of gas transmission lines.

Storage Assets

We own underground gas storage facilities in several states to supplement the supply of natural gas in periods of peak demand. The following table summarizes certain information regarding our underground gas storage facilities at September 30, 2022:

State						Usable Capacity (Mcf)						Cushion Gas (Mcf)****(1)						Total Capacity (Mcf)						Maximum Daily Delivery Capability (Mcf)
Distribution Segment
Kentucky						7,956,991						9,562,283						17,519,274						146,660
Kansas						3,239,000						2,300,000						5,539,000						32,000
Mississippi						1,907,571						2,442,917						4,350,488						29,136
Total						13,103,562						14,305,200						27,408,762						207,796
Pipeline and Storage Segment
Texas						46,083,549						15,878,025						61,961,574						1,710,000
Louisiana						411,040						256,900						667,940						56,000
Total						46,494,589						16,134,925						62,629,514						1,766,000
Total						59,598,151						30,440,125						90,038,276						1,973,796

(1)Cushion gas represents the volume of gas that must be retained in a facility to maintain reservoir pressure.

Additionally, we contract for storage service in underground storage facilities on many of the interstate and intrastate pipelines serving us to supplement our proprietary storage capacity. The following table summarizes our contracted storage capacity at September 30, 2022:

Segment						Division/Company						Maximum Storage Quantity (MMBtu)						Maximum Daily Withdrawal Quantity (MDWQ)****(1)
Distribution Segment
						Colorado-Kansas Division						6,343,728						147,965
						Kentucky/Mid-States Division						8,175,103						226,320
						Louisiana Division						2,594,875						177,765
						Mid-Tex Division						6,000,000						230,000
						Mississippi Division						5,299,536						202,764
						West Texas Division						5,000,000						161,000
Total												33,413,242						1,145,814
Pipeline and Storage Segment
						Trans Louisiana Gas Pipeline, Inc.						1,000,000						47,500
Total Contracted Storage Capacity												34,413,242						1,193,314

(1)Maximum daily withdrawal quantity (MDWQ) amounts will fluctuate depending upon the season and the month. Unless otherwise noted, MDWQ amounts represent the MDWQ amounts as of November 1, which is the beginning of the winter heating season.