Published: 2021-11-12 00:00:00 ET

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Atmos Energy Corporation (Atmos Energy or the “Company”) and its subsidiaries are engaged in the regulated natural gas distribution and pipeline and storage businesses. Through our distribution business, we deliver natural gas through sales and transportation arrangements to over three million residential, commercial, public-authority and industrial customers through our six regulated distribution divisions in the service areas described below:

Division						Service Area
Atmos Energy Colorado-Kansas Division						Colorado, Kansas
Atmos Energy Kentucky/Mid-States Division						Kentucky, Tennessee, Virginia(1)
Atmos Energy Louisiana Division						Louisiana
Atmos Energy Mid-Tex Division						Texas, including the Dallas/Fort Worth metropolitan area
Atmos Energy Mississippi Division						Mississippi
Atmos Energy West Texas Division						West Texas

 

(1)Denotes location where we have more limited service areas.

In addition, we transport natural gas for others through our distribution system. Our distribution business is subject to federal and state regulation and/or regulation by local authorities in each of the states in which our distribution divisions operate. Our corporate headquarters and shared-services function are located in Dallas, Texas, and our customer support centers are located in Amarillo and Waco, Texas.

Principles of consolidation — The accompanying consolidated financial statements include the accounts of Atmos Energy Corporation and its wholly-owned subsidiaries. All material intercompany transactions have been eliminated; however, we have not eliminated intercompany profits when such amounts are probable of recovery under the affiliates’ rate regulation process.

Use of estimates — The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. The most significant estimates include the allowance for doubtful accounts, unbilled revenues, contingency accruals, pension and postretirement obligations, deferred income taxes, impairment of long-lived assets, risk management and trading activities, fair value measurements and the valuation of goodwill and other long-lived assets. Actual results could differ from those estimates.

Regulation — Our distribution and pipeline and storage operations are subject to regulation with respect to rates, service, maintenance of accounting records and various other matters by the respective regulatory authorities in the states in which we operate. Our accounting policies recognize the financial effects of the ratemaking and accounting practices and policies of the various regulatory commissions. Accounting principles generally accepted in the United States require cost-based, rate-regulated entities that meet certain criteria to reflect the authorized recovery of costs due to regulatory decisions in their financial statements. As a result, certain costs are permitted to be capitalized rather than expensed because they can be recovered through rates. We record certain costs as regulatory assets when future recovery through customer rates is considered probable. Regulatory liabilities are recorded when it is probable that revenues will be reduced for amounts that will be credited to customers through the ratemaking process. The amounts to be recovered or recognized are based upon historical experience and our understanding of the regulations. Further, regulation may impact the period in which revenues or expenses are recognized.

Substantially all of our regulatory assets are recorded as a component of other current assets and deferred charges and other assets and our regulatory liabilities are recorded as a component of other current liabilities and deferred credits and other

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liabilities. Deferred gas costs are recorded either in other current assets or liabilities and the long-term portion of regulatory excess deferred taxes and regulatory cost of removal obligation are reported separately. Significant regulatory assets and liabilities as of September 30, 2021 and 2020 included the following:

			September 30
			2021						2020
			(In thousands)
Regulatory assets:
Pension and postretirement benefit costs			$	45,922					$	149,089
Infrastructure mechanisms (1)			222,795						183,943
Winter Storm Uri incremental costs (2)			2,100,728						—
Deferred gas costs			66,395						40,593
Regulatory excess deferred taxes (3)			45,370						—
Recoverable loss on reacquired debt			3,789						4,894
Deferred pipeline record collection costs			32,099						29,839
Other			4,343						6,283
			$	2,521,441					$	414,641
Regulatory liabilities:
Regulatory excess deferred taxes (3)			$	705,084					$	718,651
Regulatory cost of removal obligation			541,511						531,096
Deferred gas costs			52,553						19,985
Asset retirement obligation			18,373						20,348
APT annual adjustment mechanism			31,110						57,379
Pension and postretirement benefit costs			56,201						—
Other			19,363						19,554
			$	1,424,195					$	1,367,013

(1)Infrastructure mechanisms in Texas, Louisiana and Tennessee allow for the deferral of all eligible expenses associated with capital expenditures incurred pursuant to these rules, including the recording of interest on the deferred expenses until the next rate proceeding (rate case or annual rate filing), at which time investment and costs would be recovered through base rates.

(2)Includes extraordinary gas costs incurred during Winter Storm Uri and related carrying costs. See Note 9 to the consolidated financial statements for further information. This amount is recorded within other current assets and deferred charges and other assets on the consolidated balance sheet as of September 30, 2021.

(3)Regulatory excess deferred taxes represent changes in our net deferred tax liability related to our cost of service ratemaking due to the enactment of the Tax Cuts and Jobs Act of 2017 (the "TCJA") and a Kansas legislative change enacted in fiscal 2020. See Notes 12 and 14 to the consolidated financial statements for further information.

Revenue recognition

Distribution Revenues

Distribution revenues represent the delivery of natural gas to residential, commercial, industrial and public authority customers at prices based on tariff rates established by regulatory authorities in the states in which we operate. Revenue is recognized and our performance obligation is satisfied over time when natural gas is delivered and simultaneously consumed by our customers. We have elected to use the invoice practical expedient and recognize revenue for volumes delivered that we have the right to invoice our customers. We read meters and bill our customers on a monthly cycle basis. Accordingly, we estimate volumes from the last meter read to the balance sheet date and accrue revenue for gas delivered but not yet billed.

In our Texas and Mississippi jurisdictions, we pay franchise fees and gross receipt taxes to operate in these service areas. These franchise fees and gross receipts taxes are required to be paid regardless of our ability to collect from our customers. Accordingly, we account for these amounts on a gross basis in revenue and we record the associated tax expense as a component of taxes, other than income.

Pipeline and Storage Revenues

Pipeline and storage revenues primarily represent the transportation and storage of natural gas on our APT system and the transmission of natural gas through our 21-mile pipeline in Louisiana. APT provides transportation and storage services to our

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Mid-Tex Division, other third party local distribution companies and certain industrial customers under tariff rates approved by the RRC. APT also provides certain transportation and storage services to industrial and electric generation customers, as well as marketers and producers, under negotiated rates. Our pipeline in Louisiana is primarily used to aggregate gas supply for our Louisiana Division under a long-term contract and on a more limited basis to third parties. The demand fee charged to our Louisiana Division is subject to regulatory approval by the Louisiana Public Service Commission. We also manage two asset management plans with distribution affiliates of the Company at terms that have been approved by the applicable state regulatory commissions. The performance obligations for these transportation customers are satisfied by means of transporting customer-supplied gas to the designated location. Revenue is recognized and our performance obligation is satisfied over time when natural gas is delivered to the customer. Management determined that these arrangements qualify for the invoice practical expedient for recognizing revenue. For demand fee arrangements, revenue is recognized and our performance obligation is satisfied by standing ready to transport natural gas over the period of each individual month.

Alternative Revenue Program Revenues

In our distribution segment, we have weather-normalization adjustment mechanisms that serve to minimize the effects of weather on our residential and commercial revenues. Additionally, APT has a regulatory mechanism that requires that we share with its tariffed customers 75% of the difference between the total non-tariffed revenues earned during a test period and a revenue benchmark of $69.4 million that was established in its most recent rate case. Differences between actual revenues and revenues calculated under these mechanisms adjust the amount billed to customers. These mechanisms are considered to be alternative revenue programs under accounting standards generally accepted in the United States as they are deemed to be contracts between us and our regulator. Accordingly, revenue under these mechanisms are excluded from revenue from contracts with customers.

Purchased gas costs — Rates established by regulatory authorities are adjusted for increases and decreases in our purchased gas costs through purchased gas cost adjustment mechanisms. Purchased gas cost adjustment mechanisms provide gas distribution companies a method of recovering purchased gas costs on an ongoing basis without filing a rate case to address all of their non-gas costs. There is no margin generated through purchased gas cost adjustments, but they provide a dollar-for-dollar offset to increases or decreases in our distribution segment’s gas costs. The effects of these purchased gas cost adjustment mechanisms are recorded as deferred gas costs on our consolidated balance sheets.

Cash and cash equivalents — We consider all highly liquid investments with an original maturity of three months or less to be cash equivalents.

Accounts receivable and allowance for uncollectible accounts — Accounts receivable arise from natural gas sales to residential, commercial, industrial, public authority and other customers. Our accounts receivable balance includes unbilled amounts which represent a customer’s consumption of gas from the date of the last cycle billing through the last day of the month. The receivable balances are short term and generally do not extend beyond one month. To minimize credit risk, we assess the credit worthiness of new customers, require deposits where necessary, assess late fees, pursue collection activities and disconnect service for nonpayment. After disconnection, accounts are written off when deemed uncollectible. At each reporting period, we assess the allowance for uncollectible accounts based on historical experience, current conditions and consideration of expected future conditions. Circumstances which could affect our estimates include, but are not limited to, customer credit issues, the level of natural gas prices, customer deposits and general economic conditions.

Gas stored underground — Our gas stored underground is comprised of natural gas injected into storage to support the winter season withdrawals for our distribution operations. The average cost method is used for all of our distribution operations. Gas in storage that is retained as cushion gas to maintain reservoir pressure is classified as property, plant and equipment and is valued at cost.

Property, plant and equipment — Regulated property, plant and equipment is stated at original cost, net of contributions in aid of construction. The cost of additions includes direct construction costs, payroll related costs (taxes, pensions and other benefits), administrative and general costs and an allowance for funds used during construction (AFUDC). AFUDC represents the capitalizable total cost of funds used to finance the construction of major projects.

The following table details amounts capitalized for the fiscal year ended September 30.

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						2021						2020						2019
Component of AFUDC			Statement of Comprehensive Income Location			(In thousands)
Debt			Interest charges			$	11,414					$	8,436					$	7,643
Equity			Other non-operating income (expense)			32,749						23,493						11,165
						$	44,163					$	31,929					$	18,808

Major renewals, including replacement pipe, and betterments that are recoverable through our regulatory rate base are capitalized while the costs of maintenance and repairs that are not capitalizable are charged to expense as incurred. The costs of large projects are accumulated in construction in progress until the project is completed. When the project is completed, tested and placed in service, the balance is transferred to the regulated plant in service account included in the rate base and depreciation begins.

Regulated property, plant and equipment is depreciated at various rates on a straight-line basis. These rates are approved by our regulatory commissions and are comprised of two components: one based on average service life and one based on cost of removal. Accordingly, we recognize our cost of removal expense as a component of depreciation expense. The related cost of removal accrual is reflected as a regulatory liability on the consolidated balance sheet. At the time property, plant and equipment is retired, removal expenses less salvage, are charged to the regulatory cost of removal accrual. The composite depreciation rate was 3.0 percent, 3.0 percent and 3.1 percent for the fiscal years ended September 30, 2021, 2020 and 2019.

Other property, plant and equipment is stated at cost. Depreciation is generally computed on the straight-line method for financial reporting purposes based upon estimated useful lives.

Asset retirement obligations — We record a liability at fair value for an asset retirement obligation when the legal obligation to retire the asset has been incurred with an offsetting increase to the carrying value of the related asset.

As of September 30, 2021 and 2020, we had asset retirement obligations of $18.4 million and $20.3 million. Additionally, we had $12.8 million and $14.4 million of asset retirement costs recorded as a component of property, plant and equipment that will be depreciated over the remaining life of the underlying associated assets.

We believe we have a legal obligation to retire our natural gas storage facilities. However, we have not recognized an asset retirement obligation associated with our storage facilities because we are not able to determine the settlement date of this obligation as we do not anticipate taking our storage facilities out of service permanently. Therefore, we cannot reasonably estimate the fair value of this obligation.

Impairment of long-lived assets — We evaluate whether events or circumstances have occurred that indicate that other long-lived assets may not be recoverable or that the remaining useful life may warrant revision. When such events or circumstances are present, we assess the recoverability of long-lived assets by determining whether the carrying value will be recovered through the expected future cash flows. In the event the sum of the expected future cash flows resulting from the use of the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded.

Goodwill — We annually evaluate our goodwill balances for impairment during our second fiscal quarter or more frequently as impairment indicators arise. During the second quarter of fiscal 2021, we completed our annual goodwill impairment assessment. We test goodwill for impairment at the reporting unit level on an annual basis and between annual tests if an event occurs or circumstances change that would more likely than not reduce the fair value of the reporting unit. Based on the assessment performed, we determined that our goodwill was not impaired. Although not applicable for the fiscal 2021 analysis, if a qualitative goodwill assessment resulted in impairment indicators, we would then use a present value technique based on discounted cash flows to estimate the fair value of our reporting units. These calculations are dependent on several subjective factors including the timing of future cash flows, future growth rates and the discount rate. An impairment charge is recognized if the carrying value of a reporting unit’s goodwill exceeds its fair value.

Lease accounting — We adopted the provisions of the new lease accounting standard beginning on October 1, 2019. Results for reporting periods beginning on October 1, 2019 are presented under the new lease accounting standard and prior periods are presented under the former lease accounting standard. Upon adoption, we recorded right of use (ROU) assets and lease liabilities within the consolidated balance sheet.

We determine if an arrangement is a lease at the inception of the agreement based on the terms and conditions in the contract. A contract contains a lease if there is an identified asset and we have the right to control the asset. We are the lessee for substantially all of our leasing activities, which primarily includes operating leases for office and warehouse space, tower space, vehicles and heavy equipment used in our operations. We are also a lessee in finance leases for service centers.

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We record a lease liability and a corresponding ROU asset for all of our leases with a term greater than 12 months. For lease contracts containing renewal and termination options, we include the option period in the lease term when it is reasonably certain the option will be exercised. We most frequently assume renewal options at the inception of the arrangement for our tower and fleet leases, based on our anticipated use of the assets. Real estate leases that contain a renewal option are evaluated on a lease-by-lease basis to determine if the option period should be included in the lease term. Currently, we have not included material renewal options for real estate leases in our ROU asset or lease liability.

The lease liability represents the present value of all lease payments over the lease term. We do not include short-term leases in the calculation of our lease liabilities. The discount rate used to determine the present value of the lease liability is the rate implicit in the lease unless that rate cannot be readily determined. We use the implicit rate stated in the agreement to determine the lease liability for our fleet leases. We use our corporate collateralized incremental borrowing rate as the discount rate for all other lease agreements. This rate is appropriate because we believe it represents the rate we would have incurred to borrow funds to acquire the leased asset over a similar term. We calculated this rate using a combination of inputs, including our current credit rating, quoted market prices of interest rates for our publicly traded unsecured debt, observable market yield curve data for peer companies with a credit rating one notch higher than our current credit rating and the lease term.

The ROU asset represents the right to use the underlying asset for the lease term, and is equal to the lease liability, adjusted for prepaid or accrued lease payments and any lease incentives that have been paid to us or when we are reasonably certain to incur costs equal to or greater than the allowance defined in the contract. We bundle our lease and non-lease components as a single component for all asset classes.

Variable payments included in our leasing arrangements are expensed in the period in which the obligation for these payments is incurred. Variable payments are dependent on usage, output or may vary for other reasons. Most of our variable lease expense is related to tower leases that have escalating payments based on changes to a stated CPI index, and usage of certain office equipment.

We have not provided material residual value guarantees for our leases, nor do our leases contain material restrictions or covenants.

Marketable securities — As of September 30, 2021, we hold marketable securities classified as either equity or debt securities. Changes in fair value of our equity securities are recorded in net income, while debt securities, which are considered available for sale securities, are reported at market value with unrealized gains and losses shown as a component of accumulated other comprehensive income (loss).

We regularly evaluate the performance of our available for sale debt securities on an investment by investment basis for impairment, taking into consideration the securities’ purpose, volatility and current returns. If a determination is made that a security will likely be sold before the recovery of its cost, the related investment is written down to its estimated fair value.

Financial instruments and hedging activities — We use financial instruments to mitigate commodity price risk in our distribution and pipeline and storage segments and to mitigate interest rate risk. The objectives and strategies for using financial instruments have been tailored to our business and are discussed in Note 15 to the consolidated financial statements.

We record all of our financial instruments on the balance sheet at fair value, with the exception of normal purchases and normal sales that are expected to result in physical delivery, with changes in fair value ultimately recorded in the statement of comprehensive income. These financial instruments are reported as risk management assets and liabilities and are classified as current or noncurrent other assets or liabilities based upon the anticipated settlement date of the underlying financial instrument. We record the cash flow impact of our financial instruments in operating cash flows based upon their balance sheet classification.

The timing of when changes in fair value of our financial instruments are recorded in the statement of comprehensive income depends on whether the financial instrument has been designated and qualifies as a part of a hedging relationship or if regulatory rulings require a different accounting treatment. Changes in fair value for financial instruments that do not meet one of these criteria are recognized in the statement of comprehensive income as they occur.

Financial Instruments Associated with Commodity Price Risk

In our distribution segment, the costs associated with and the realized gains and losses arising from the use of financial instruments to mitigate commodity price risk are included in our purchased gas cost adjustment mechanisms in accordance with regulatory requirements. Therefore, changes in the fair value of these financial instruments are initially recorded as a component of deferred gas costs and recognized in the consolidated statements of comprehensive income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue in accordance with accounting principles generally accepted in the United States. Accordingly, there is no earnings impact on our distribution segment as a result of the use of these financial instruments.

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Financial Instruments Associated with Interest Rate Risk

In connection with the planned issuance of long-term debt, we may use financial instruments to manage interest rate risk. We currently manage this risk through the use of forward starting interest rate swaps to fix the Treasury yield component of the interest cost associated with anticipated financings. We designate these financial instruments as cash flow hedges at the time the agreements are executed. Unrealized gains and losses associated with the instruments are recorded as a component of accumulated other comprehensive income (loss). When the instruments settle, the realized gain or loss is recorded as a component of accumulated other comprehensive income (loss) and recognized as a component of interest charges over the life of the related financing arrangement. As of September 30, 2021 and 2020, no cash was required to be held in margin accounts.

Fair Value Measurements — We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We primarily use quoted market prices and other observable market pricing information in valuing our financial assets and liabilities and minimize the use of unobservable pricing inputs in our measurements.

Fair-value estimates also consider our own creditworthiness and the creditworthiness of the counterparties involved. Our counterparties consist primarily of financial institutions and major energy companies. This concentration of counterparties may materially impact our exposure to credit risk resulting from market, economic or regulatory conditions. We seek to minimize counterparty credit risk through an evaluation of their financial condition and credit ratings and the use of collateral requirements under certain circumstances.

Amounts reported at fair value are subject to potentially significant volatility based upon changes in market prices, including, but not limited to, the valuation of the portfolio of our contracts, maturity and settlement of these contracts and newly originated transactions and interest rates, each of which directly affect the estimated fair value of our financial instruments. We believe the market prices and models used to value these financial instruments represent the best information available with respect to closing exchange and over-the-counter quotations, time value and volatility factors underlying the contracts. Values are adjusted to reflect the potential impact of an orderly liquidation of our positions over a reasonable period of time under then current market conditions.

Authoritative accounting literature establishes a fair value hierarchy that prioritizes the inputs used to measure fair value based on observable and unobservable data. The hierarchy categorizes the inputs into three levels, with the highest priority given to unadjusted quoted prices in active markets for identical assets and liabilities (Level 1) and the lowest priority given to unobservable inputs (Level 3). The levels of the hierarchy are described below:

Level 1 — Represents unadjusted quoted prices in active markets for identical assets or liabilities. An active market for the asset or liability is defined as a market in which transactions for the asset or liability occur with sufficient frequency and volume to provide pricing information on an ongoing basis. Prices actively quoted on national exchanges are used to determine the fair value of most of our assets and liabilities recorded on our balance sheet at fair value.

Our Level 1 measurements consist primarily of our debt and equity securities. The Level 1 measurements for investments in the Atmos Energy Corporation Master Retirement Trust (the Master Trust), Supplemental Executive Benefit Plan and postretirement benefit plan consist primarily of exchange-traded financial instruments.

Level 2 — Represents pricing inputs other than quoted prices included in Level 1 that are either directly or indirectly observable for the asset or liability as of the reporting date. These inputs are derived principally from, or corroborated by, observable market data. Our Level 2 measurements primarily consist of non-exchange-traded financial instruments, such as over-the-counter options and swaps and municipal and corporate bonds where market data for pricing is observable. The Level 2 measurements for investments in our Master Trust, Supplemental Executive Benefit Plan and postretirement benefit plan consist primarily of non-exchange traded financial instruments such as corporate bonds and government securities.

Level 3 — Represents generally unobservable pricing inputs which are developed based on the best information available, including our own internal data, in situations where there is little if any market activity for the asset or liability at the measurement date. The pricing inputs utilized reflect what a market participant would use to determine fair value. We currently do not have any Level 3 investments.

Pension and other postretirement plans — Pension and other postretirement plan costs and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets, assumed discount rates and current demographic and actuarial mortality data. Our measurement date is September 30. The assumed discount rate and the expected return are the assumptions that generally have the most significant impact on our pension costs and liabilities. The assumed discount rate, the assumed health care cost trend rate and assumed rates of retirement generally have the most significant impact on our postretirement plan costs and liabilities.

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The discount rate is utilized principally in calculating the actuarial present value of our pension and postretirement obligation and net pension and postretirement cost. When establishing our discount rate, we consider high quality corporate bond rates based on bonds available in the marketplace that are suitable for settling the obligations, changes in those rates from the prior year and the implied discount rate that is derived from matching our projected benefit disbursements with currently available high quality corporate bonds.

The expected long-term rate of return on assets is utilized in calculating the expected return on plan assets component of the annual pension and postretirement plan cost. We estimate the expected return on plan assets by evaluating expected bond returns, equity risk premiums, asset allocations, the effects of active plan management, the impact of periodic plan asset rebalancing and historical performance. We also consider the guidance from our investment advisors when making a final determination of our expected rate of return on assets. To the extent the actual rate of return on assets realized over the course of a year is greater than or less than the assumed rate, that year’s annual pension or postretirement plan cost is not affected. Rather, this gain or loss is amortized over the expected future working lifetime of the plan participants.

The expected return on plan assets is then calculated by applying the expected long-term rate of return on plan assets to the market-related value of the plan assets. The market-related value of our plan assets represents the fair market value of the plan assets, adjusted to smooth out short-term market fluctuations over a five-year period. The use of this calculation will delay the impact of current market fluctuations on the pension expense for the period.

We use a corridor approach to amortize actuarial gains and losses. Under this approach, net gains or losses in excess of ten percent of the larger of the pension benefit obligation or the market-related value of the assets are amortized on a straight-line basis. The period of amortization is the average remaining service of active participants who are expected to receive benefits under the plan.

We estimate the assumed health care cost trend rate used in determining our annual postretirement net cost based upon our actual health care cost experience, the effects of recently enacted legislation and general economic conditions. Our assumed rate of retirement is estimated based upon the annual review of our participant census information as of the measurement date.

We present only the current service cost component of the net benefit cost within operations and maintenance expense in the consolidated statements of comprehensive income. The remaining components of net benefit cost are recorded in other non-operating income (expense) in our consolidated statements of comprehensive income. Only the service cost component of net benefit cost is eligible for capitalization and we continue to capitalize these costs into property, plant and equipment. Additionally, we defer into a regulatory asset the portion of non-service components of net periodic benefit cost that are capitalizable for regulatory purposes.

Income taxes — Income taxes are determined based on the liability method, which results in income tax assets and liabilities arising from temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the financial statements that will result in taxable or deductible amounts in future years. The liability method requires the effect of tax rate changes on accumulated deferred income taxes to be reflected in the period in which the rate change was enacted. The liability method also requires that deferred tax assets be reduced by a valuation allowance unless it is more likely than not that the assets will be realized.

The Company may recognize the tax benefit from uncertain tax positions only if it is at least more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position should be measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon settlement with the taxing authorities. We recognize accrued interest related to unrecognized tax benefits as a component of interest charges. We recognize penalties related to unrecognized tax benefits as a component of miscellaneous income (expense) in accordance with regulatory requirements.

Tax collections — We are allowed to recover from customers revenue-related taxes that are imposed upon us. We record such taxes as operating expenses and record the corresponding customer charges as operating revenues. However, we do collect and remit various other taxes on behalf of various governmental authorities, and we record these amounts in our consolidated balance sheets on a net basis. We do not collect income taxes from our customers on behalf of governmental authorities.

Contingencies — In the normal course of business, we are confronted with issues or events that may result in a contingent liability. These generally relate to lawsuits, claims made by third parties or the action of various regulatory agencies. For such matters, we record liabilities when they are considered probable and estimable, based on currently available facts and our estimates of the ultimate outcome or resolution of the liability in the future. We maintain liability insurance for various risks associated with the operation of our natural gas pipelines and facilities, including for property damage and bodily injury. These liability insurance policies generally require us to be responsible for the first $1.0 million (self-insured retention) of each incident. To the extent a loss contingency exceeds the self-insurance retention, we record an insurance receivable when

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recovery is considered probable. Upon reaching a settlement, the loss contingency is deemed resolved and recorded in accounts payable and accrued liabilities until paid. Loss contingencies and any related insurance recovery receivables reflect our best estimate of these amounts as of the date of this report. Actual results may differ from estimates, depending on actual outcomes or changes in the facts or expectations surrounding each potential exposure.

Subsequent events — Except as noted in Note 6 to the consolidated financial statements regarding the commencement of finance leases, Note 7 to the consolidated financial statements regarding the public offering of senior notes and Note 9 to the consolidated financial statements regarding the most recent update to our securitization filing in the State of Texas, no events occurred subsequent to the balance sheet date that would require recognition or disclosure in the consolidated financial statements.

Recent accounting pronouncements

Accounting pronouncements adopted in fiscal 2021

Effective October 1, 2020, we adopted new accounting guidance that requires credit losses on most financial assets measured at amortized cost and certain other instruments to be measured using an expected credit loss model. Under this model, we estimate credit losses over the entire contractual term of the instrument from the date of initial recognition of that instrument. The new guidance also introduces a new impairment recognition model for available-for-sale debt securities that will require credit losses to be recorded through an allowance account. We adopted the new guidance using a modified retrospective method. The adoption of this standard did not have a material impact on our financial position, results of operations and cash flows and no adjustments were made to October 1, 2020 opening balances as a result of this adoption. As required under the modified retrospective method of adoption, results for the reporting period beginning after October 1, 2020 are presented under Accounting Standards Codification (ASC) 326, while prior period amounts are not adjusted. See Notes 5 and 16 to the consolidated financial statements for further discussion of implementation of the standard.

Accounting pronouncements that will be effective after fiscal 2021

In March 2020, the Financial Accounting Standards Board (FASB) issued optional guidance which will ease the potential burden in accounting for or recognizing the effects of reference rate reform on financial reporting. The amendments provide optional expedients and exceptions for applying U.S. GAAP to contracts, hedging relationships and other transactions affected by the cessation of the London Interbank Offered Rate (LIBOR). The amendments can be elected immediately, as of March 12, 2020, through December 31, 2022. As we implement the cessation of LIBOR into our current contracts and hedging relationships, we expect to elect the optional guidance to ease the potential burden in accounting. We are currently evaluating the potential impact on our financial position, results of operations and cash flows.

    As of September 30, 2021, we manage and review our consolidated operations through the following two 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.

Our determination of reportable segments considers the strategic operating units under which we manage sales of various products and services to customers. Although our distribution segment operations are geographically dispersed, they are aggregated and reported as a single segment as each natural gas distribution division has similar economic characteristics. In addition, because the pipeline and storage operations of our Atmos Pipeline-Texas division and our natural gas transmission operations in Louisiana have similar economic characteristics, they have been aggregated and reported as a single segment.

The accounting policies of the segments are the same as those described in the summary of significant accounting policies. We evaluate performance based on net income or loss of the respective operating units. We allocate interest and pension expense to the pipeline and storage segment; however, there is no debt or pension liability recorded on the pipeline and storage segment balance sheet. All material intercompany transactions have been eliminated; however, we have not eliminated intercompany profits when such amounts are probable of recovery under the affiliates’ rate regulation process. Income taxes are allocated to each segment as if each segment’s income taxes were calculated on a separate return basis.

Income statements and capital expenditures by segment are shown in the following tables.

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			Year Ended September 30, 2021
			Distribution						Pipeline and Storage												Eliminations						Consolidated
			(In thousands)
Operating revenues from external parties			$	3,238,753					$	168,737											$	—					$	3,407,490
Intersegment revenues			3,220						468,610												(471,830)						—
Total operating revenues			3,241,973						637,347												(471,830)						3,407,490
Purchased gas cost			1,501,695						1,582												(470,560)						1,032,717
Operation and maintenance expense			501,209						179,080												(1,270)						679,019
Depreciation and amortization expense			345,481						132,496												—						477,977
Taxes, other than income			275,074						37,705												—						312,779
Operating income			618,514						286,484												—						904,998
Other non-operating income (expense)			(20,694)						18,549												—						(2,145)
Interest charges			36,629						46,925												—						83,554
Income before income taxes			561,191						258,108												—						819,299
Income tax expense			115,329						38,407												—						153,736
Net income			$	445,862					$	219,701											$	—					$	665,563
Capital expenditures			$	1,454,195					$	515,345											$	—					$	1,969,540

			Year Ended September 30, 2020
			Distribution						Pipeline and Storage						Eliminations						Consolidated
			(In thousands)
Operating revenues from external parties			$	2,624,251					$	196,886					$	—					$	2,821,137
Intersegment revenues			2,742						412,453						(415,195)						—
Total operating revenues			2,626,993						609,339						(415,195)						2,821,137
Purchased gas cost			1,071,227						1,548						(413,921)						658,854
Operation and maintenance expense			472,760						158,115						(1,274)						629,601
Depreciation and amortization expense			309,582						120,246						—						429,828
Taxes, other than income			245,181						33,574						—						278,755
Operating income			528,243						295,856						—						824,099
Other non-operating income (expense)			(1,265)						8,436						—						7,171
Interest charges			39,634						44,840						—						84,474
Income before income taxes			487,344						259,452						—						746,796
Income tax expense			91,680						53,673						—						145,353
Net income			$	395,664					$	205,779					$	—					$	601,443
Capital expenditures			$	1,466,631					$	469,045					$	—					$	1,935,676

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			Year Ended September 30, 2019
			Distribution						Pipeline and Storage						Eliminations						Consolidated
			(In thousands)
Operating revenues from external parties			$	2,742,824					$	159,024					$	—					$	2,901,848
Intersegment revenues			2,637						408,000						(410,637)						—
Total operating revenues			2,745,461						567,024						(410,637)						2,901,848
Purchased gas cost			1,268,591						(360)						(409,394)						858,837
Operation and maintenance expense			480,222						151,329						(1,243)						630,308
Depreciation and amortization expense			283,697						107,759						—						391,456
Taxes, other than income			242,179						33,010						—						275,189
Operating income			470,772						275,286						—						746,058
Other non-operating income			6,241						1,163						—						7,404
Interest charges			60,031						43,122						—						103,153
Income before income taxes			416,982						233,327						—						650,309
Income tax expense			88,168						50,735						—						138,903
Net income			$	328,814					$	182,592					$	—					$	511,406
Capital expenditures			$	1,274,613					$	418,864					$	—					$	1,693,477

The following table summarizes our revenues from external parties, excluding intersegment revenues, by products and services for the fiscal years ended September 30.

			2021						2020						2019
			(In thousands)
Distribution revenues:
Gas sales revenues:
Residential			$	2,117,272					$	1,717,070					$	1,733,548
Commercial			838,382						654,963						711,284
Industrial			113,171						89,641						118,046
Public authority and other			50,369						42,007						42,613
Total gas sales revenues			3,119,194						2,503,681						2,605,491
Transportation revenues			105,554						97,441						95,629
Other gas revenues			14,005						23,129						41,704
Total distribution revenues			3,238,753						2,624,251						2,742,824
Pipeline and storage revenues			168,737						196,886						159,024
Total operating revenues			$	3,407,490					$	2,821,137					$	2,901,848

Balance sheet information at September 30, 2021 and 2020 by segment is presented in the following tables.

			September 30, 2021
			Distribution						Pipeline and Storage						Eliminations						Consolidated
			(In thousands)
Property, plant and equipment, net			$	11,232,649					$	3,831,321					$	—					$	15,063,970
Total assets			$	18,847,266					$	4,076,844					$	(3,315,448)					$	19,608,662

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We use the two-class method of computing earnings per share because we have participating securities in the form of non-vested restricted stock units with a nonforfeitable right to dividend equivalents, for which vesting is predicated solely on the passage of time. The calculation of earnings per share using the two-class method excludes income attributable to these participating securities from the numerator and excludes the dilutive impact of those shares from the denominator. Basic weighted average shares outstanding is calculated based upon the weighted average number of common shares outstanding during the periods presented. Also, this calculation includes fully vested stock awards that have not yet been issued as common stock. Additionally, the weighted average shares outstanding for diluted EPS includes the incremental effects of the forward sale agreements, discussed in Note 8 to the consolidated financial statements,when the impact is dilutive.

Basic and diluted earnings per share for the fiscal years ended September 30 are calculated as follows:

			2021						2020						2019
			(In thousands, except per share data)
Basic Earnings Per Share
Net Income			$	665,563					$	601,443					$	511,406
Less: Income allocated to participating securities			465						444						416
Net Income available to common shareholders			$	665,098					$	600,999					$	510,990
Basic weighted average shares outstanding			129,779						122,788						117,200
Net Income per share — Basic			$	5.12					$	4.89					$	4.36
Diluted Earnings Per Share
Net Income available to common shareholders			$	665,098					$	600,999					$	510,990
Effect of dilutive shares			—						—						—
Net Income available to common shareholders			$	665,098					$	600,999					$	510,990
Basic weighted average shares outstanding			129,779						122,788						117,200
Dilutive shares			55						84						261
Diluted weighted average shares outstanding			129,834						122,872						117,461
Net Income per share — Diluted			$	5.12					$	4.89					$	4.35

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			Year Ended September 30, 2021
			Distribution						Pipeline and Storage
			(In thousands)
Gas sales revenues:
Residential			$	2,129,704					$	—
Commercial			841,145						—
Industrial			113,091						—
Public authority and other			50,565						—
Total gas sales revenues			3,134,505						—
Transportation revenues			107,822						646,416
Miscellaneous revenues			10,971						14,141
Revenues from contracts with customers			3,253,298						660,557
Alternative revenue program revenues (1)			(13,303)						(23,210)
Other revenues			1,978						—
Total operating revenues			$	3,241,973					$	637,347

			Year Ended September 30, 2020
			Distribution						Pipeline and Storage
Gas sales revenues:
Residential			$	1,704,444					$	—
Commercial			650,396						—
Industrial			89,467						—
Public authority and other			41,339						—
Total gas sales revenues			2,485,646						—
Transportation revenues			99,435						636,819
Miscellaneous revenues			19,085						9,754
Revenues from contracts with customers			2,604,166						646,573
Alternative revenue program revenues (1)			20,856						(37,234)
Other revenues			1,971						—
Total operating revenues			$	2,626,993					$	609,339

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			Year Ended September 30, 2019
			Distribution						Pipeline and Storage
Gas sales revenues:
Residential			$	1,755,229					$	—
Commercial			716,757						—
Industrial			118,060						—
Public authority and other			42,796						—
Total gas sales revenues			2,632,842						—
Transportation revenues			97,495						623,808
Miscellaneous revenues			26,050						8,060
Revenues from contracts with customers			2,756,387						631,868
Alternative revenue program revenues (1)			(12,958)						(64,844)
Other revenues			2,032						—
Total operating revenues			$	2,745,461					$	567,024

(1)In our distribution segment, we have weather-normalization adjustment mechanisms that serve to mitigate the effects of weather on our revenue. Additionally, APT has a regulatory mechanism that requires that we share with its tariffed customers 75% of the difference between the total non-tariffed revenues earned during a test period and a revenue benchmark.

Accounts receivable and allowance for uncollectible accounts

As described in Note 2 to the consolidated financial statements, on October 1, 2020, we adopted new accounting guidance which requires credit losses on our accounts receivable to be measured using an expected credit loss model over the entire contractual term from the date of initial recognition.

Due to the COVID-19 pandemic, in March 2020 we temporarily suspended disconnecting customers for nonpayment and stopped charging late fees. We resumed disconnection activity during the third quarter of fiscal 2021. We are actively working with our customers experiencing financial hardship to offer flexible payment options and directing them to aid agencies for financial assistance. Our allowance for uncollectible accounts reflects the expected impact on our customers’ ability to pay.

Rollforwards of our allowance for uncollectible accounts for the year ended September 30, 2021, 2020 and 2019 are presented in the table below. The allowance excludes the gas cost portion of customers’ bills for approximately 79 percent of our customers as we have the ability to collect these gas costs through our gas cost recovery mechanisms in most of our jurisdictions.

			Allowance for uncollectible accounts
			(In thousands)
Balance, September 30, 2018			$	14,795
Current period provisions			18,106
Write-offs charged against allowance			(19,575)
Recoveries of amounts previously written off			2,573
Balance, September 30, 2019			15,899
Current period provisions			24,796
Write-offs charged against allowance			(12,698)
Recoveries of amounts previously written off			1,952
Balance, September 30, 2020			29,949
Current period provisions			43,807
Write-offs charged against allowance			(11,019)
Recoveries of amounts previously written off			1,734
Balance, September 30, 2021			$	64,471

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We adopted the provisions of the new lease accounting standard beginning on October 1, 2019, using the optional transition method, which allowed us to apply the provisions of the new standard to all leases that existed as of the date of adoption. Therefore, results for reporting periods beginning on October 1, 2019 are presented under the new lease accounting standard and prior periods are presented under the former lease accounting standard.

We are the lessee for substantially all of our leasing activity, which primarily includes operating leases for office and warehouse space, tower space, vehicles and heavy equipment used in our operations. We are also a lessee in finance leases for service centers.

The following table presents our weighted average remaining lease term for our leases.

			September 30, 2021						September 30, 2020
Weighted average remaining lease term (years)
Finance leases			19.0						19.1
Operating leases			10.2						10.6

The following table represents our weighted average discount rate:

			September 30, 2021						September 30, 2020
Weighted average discount rate
Finance leases			5.7		%				8.0		%
Operating leases			2.8		%				2.9		%

Lease costs for the year ended September 30, 2021 and 2020 are presented in the table below. These costs include both amounts recognized in expense and amounts capitalized. For the year ended September 30, 2021 and 2020 we did not have material short-term lease costs or variable lease costs.

									September 30, 2021						September 30, 2020
									(In thousands)
Finance lease cost									$	1,334					$	622
Operating lease cost									42,349						40,887
Total lease cost									$	43,683					$	41,509

Our ROU assets and lease liabilities are presented as follows on the consolidated balance sheets:

			Balance Sheet Classification			September 30, 2021						September 30, 2020
						(In thousands)
Assets
Finance leases			Net Property, Plant and Equipment			$	18,252					$	8,480
Operating leases			Deferred charges and other assets			222,446						227,146
Total right-of-use assets						$	240,698					$	235,626
Liabilities
Current
Finance leases			Current maturities of long-term debt			$	452					$	165
Operating leases			Other current liabilities			37,688						35,716
Noncurrent
Finance leases			Long-term debt			18,287						8,466
Operating leases			Deferred credits and other liabilities			194,745						201,071
Total lease liabilities						$	251,172					$	245,418

Finance leases for two service centers are expected to commence in the first quarter of fiscal 2022 that impact our future lease payments. The total future lease payments for these leases are $46.5 million.

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Other pertinent information related to leases was as follows. During the year ended September 30, 2021 and 2020, amounts paid in cash for our finance leases were not material.

						September 30, 2021						September 30, 2020
						(In thousands)
Cash paid amounts included in the measurement of lease liabilities
Operating cash flows used for operating leases						$	42,013					$	37,758
Right-of-use assets obtained in exchange for lease obligations
Finance leases						$	10,333					$	6,083
Operating leases						$	25,690					$	34,169

Maturities of our lease liabilities as of September 30, 2021 were as follows:

			Total			Finance Leases			Operating Leases
			(In thousands)
2022			$	43,164		$	1,342		$	41,822
2023			38,690			1,365			37,325
2024			32,106			1,388			30,718
2025			23,927			1,411			22,516
2026			18,278			1,435			16,843
Thereafter			144,718			22,868			121,850
Total lease payments			300,883			29,809			271,074
Less: Imputed interest			49,711			11,070			38,641
Total			$	251,172		$	18,739		$	232,433
Reported as of September 30, 2021
Short-term lease liabilities			$	38,140		$	452		$	37,688
Long-term lease liabilities			213,032			18,287			194,745
Total lease liabilities			$	251,172		$	18,739		$	232,433

Disclosures Related to Periods Prior to Adoption of ASC 842

Consolidated lease and rental expense amounted to $40.4 million for fiscal 2019.

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Long-term debt

Long-term debt at September 30, 2021 and 2020 consisted of the following:

			2021						2020
			(In thousands)
Unsecured 0.625% Senior Notes, due 2023			$	1,100,000					$	—
Unsecured 3.00% Senior Notes, due 2027			500,000						500,000
Unsecured 2.625% Senior Notes, due 2029			300,000						300,000
Unsecured 1.50% Senior Notes, due 2031			600,000						—
Unsecured 5.95% Senior Notes, due 2034			200,000						200,000
Unsecured 5.50% Senior Notes, due 2041			400,000						400,000
Unsecured 4.15% Senior Notes, due 2043			500,000						500,000
Unsecured 4.125% Senior Notes, due 2044			750,000						750,000
Unsecured 4.30% Senior Notes, due 2048			600,000						600,000
Unsecured 4.125% Senior Notes, due 2049			450,000						450,000
Unsecured 3.375% Senior Notes, due 2049			500,000						500,000
Floating-rate term loan, due April 2022			200,000						200,000
Floating-rate Senior Notes, due 2023			1,100,000						—
Medium term Series A notes, 1995-1, 6.67%, due 2025			10,000						10,000
Unsecured 6.75% Debentures, due 2028			150,000						150,000
Finance lease obligations (see Note 6)			18,739						8,631
Total long-term debt			7,378,739						4,568,631
Less:
Net original issue (premium) / discount on unsecured senior notes and debentures			2,811						583
Debt issuance cost			45,271						36,104
Current maturities			2,400,452						165
			$	4,930,205					$	4,531,779

Maturities of long-term debt, excluding our finance lease obligations, at September 30, 2021 were as follows (in thousands):

2022			$	2,400,000
2023			—
2024			—
2025			10,000
2026			—
Thereafter			4,950,000
			$	7,360,000

On October 1, 2021, we completed a public offering of $600 million of 2.85% senior notes dues 2052, with an effective interest rate of 2.58%, after giving effect to the offering costs and settlement of our interest rate swaps. The net proceeds from the offering, after the underwriting discount and estimated offering expenses, of $589.6 million, will be used for general corporate purposes.

On March 9, 2021, we completed a public offering of $1.1 billion of 0.625% senior notes due 2023, with an effective interest rate of 0.834%, after giving effect to the offering costs, and $1.1 billion floating rate senior notes due 2023 that bear interest at a rate equal to the Three-Month LIBOR rate plus 0.38%. The net proceeds from the offering, after the underwriting discount and offering expenses, of $2.2 billion were used for the payment of unplanned natural gas costs incurred during Winter Storm Uri. The notes are subject to optional redemption at any time on or after September 9, 2021 at a price equal to 100 percent of the principal amount of the notes being redeemed, plus any accrued and unpaid interest thereon, if any, to, but

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excluding, the redemption date. As discussed in Note 9 to the consolidated financial statements, we intend to repay these notes in fiscal 2022 after the expected receipt of securitization funds. As such, we have classified the senior notes as current maturities of long-term debt as of September 30, 2021.

On October 1, 2020, we completed a public offering of $600 million of 1.50% senior notes due 2031, with an effective interest rate of 1.71%, after giving effect to the offering costs and settlement of our interest rate swaps. The net proceeds from the offering, after the underwriting discount and offering expenses, of $592.3 million, were used for general corporate purposes, including the repayment of working capital borrowings pursuant to our commercial paper program and the related settlement of our interest rate swaps.

Short-term Debt

We utilize short-term debt to 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. Our short-term borrowing requirements are driven primarily by construction work in progress and the seasonal nature of the natural gas business.

Our short-term borrowing requirements are satisfied through a combination of a $1.5 billion commercial paper program and four committed revolving credit facilities with third-party lenders that provide $2.5 billion of total working capital funding.

The primary source of our funding is our commercial paper program, which is supported by a five-year unsecured $1.5 billion credit facility that was replaced on March 31, 2021, with a new five-year unsecured $1.5 billion credit facility that expires on March 31, 2026. The new facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a margin ranging from zero to 0.25 percent for base rate advances or a margin ranging from 0.75 percent to 1.25 percent for LIBOR-based advances, based on the Company’s credit ratings. Additionally, the facility contains a $250 million accordion feature, which provides the opportunity to increase the total committed loan to $1.75 billion. At September 30, 2021 and September 30, 2020, there were no amounts outstanding under our commercial paper program.

We had a $600 million 365-day unsecured revolving credit facility, which was replaced on March 31, 2021, with a new $900 million three-year unsecured revolving credit facility. This new facility will be used primarily to provide additional working capital funding. The new facility bears interest at a base rate or at a LIBOR-based rate for the applicable interest period, plus a margin ranging from zero percent to 0.25 percent for base rate advances or a margin ranging from 0.75 percent to 1.25 percent for LIBOR-based advances, based on the Company's credit ratings. Additionally, the facility contains a $100 million accordion feature, which provides the opportunity to increase the total committed loan to $1.0 billion. At September 30, 2021, there were no borrowings outstanding under this facility.

Additionally, we have a $50 million 364-day unsecured facility, which was renewed April 1, 2021 and is used to provide working capital funding. There were no borrowings outstanding under this facility as of September 30, 2021.

Finally, we have a $50 million 364-day unsecured revolving credit facility, which was renewed April 29, 2021 and is used to issue letters of credit and to provide working capital funding. At September 30, 2021, there were no borrowings outstanding under the new facility; however, outstanding letters of credit reduced the total amount available to us to $44.4 million.

Debt Covenants

The availability of funds under these credit facilities is subject to conditions specified in the respective credit agreements, all of which we currently satisfy. These conditions include our compliance with financial covenants and the continued accuracy of representations and warranties contained in these agreements. We are required by the financial covenants in each of these facilities to maintain, at the end of each fiscal quarter, a ratio of total-debt-to-total-capitalization of no greater than 70 percent. At September 30, 2021, our total-debt-to-total-capitalization ratio, as defined, was 49 percent. In addition, both the interest margin and the fee that we pay on unused amounts under each of these facilities are subject to adjustment depending upon our credit ratings.

These credit facilities and our public indentures contain usual and customary covenants for our business, including covenants substantially limiting liens, substantial asset sales and mergers. Additionally, our public debt indentures relating to our senior notes and debentures, as well as certain of our revolving credit agreements, each contain a default provision that is triggered if outstanding indebtedness arising out of any other credit agreements in amounts ranging from in excess of $15 million to in excess of $100 million becomes due by acceleration or is not paid at maturity. We were in compliance with all of our debt covenants as of September 30, 2021. If we were unable to comply with our debt covenants, we would likely be required to repay our outstanding balances on demand, provide additional collateral or take other corrective actions.

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Shelf Registration, At-the-Market Equity Sales Program and Equity Issuances

On June 29, 2021, we filed a shelf registration statement with the Securities and Exchange Commission (SEC) that allows us to issue up to $5.0 billion in common stock and/or debt securities, which expires June 29, 2024. This shelf registration statement replaced our previous shelf registration statement which was filed on February 11, 2020. At September 30, 2021, approximately $4.0 billion of securities remained available for issuance under the shelf registration statement. Following the completion of the $600 million senior unsecured notes offering on October 1, 2021 (see Note 7 to the consolidated financial statements), approximately $3.4 billion of securities remained available for issuance under the shelf registration statement.

On June 29, 2021, we filed a prospectus supplement under the shelf registration statement relating to an at-the-market (ATM) equity sales program (June 2021 ATM) under which we may 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 concurrently with the ATM equity sales program). This ATM equity sales program replaced our previous ATM equity sales program, filed on February 12, 2020 (February 2020 ATM).

During the year ended September 30, 2021, we executed forward sales under the February 2020 ATM and June 2021 ATM equity sales programs with various forward sellers who borrowed and sold 5,866,604 shares of our common stock at an aggregate price of $578.4 million. During the year ended September 30, 2021, we also settled forward sale agreements with respect to 6,130,875 shares that had been borrowed and sold by various forward sellers under the February 2020 ATM for net proceeds of $606.7 million. As of September 30, 2021, $760 million of equity was available for issuance under the June 2021 ATM program. Additionally, we had $302.0 million in available proceeds from outstanding forward sale agreements, as detailed below.

Maturity			Shares Available						Net Proceeds Available (In Thousands)						Forward Price
June 30, 2022			1,681,910						$	166,989					99.29
September 30, 2022			1,389,814						134,995						97.13
Total			3,071,724						$	301,984					98.31

Accumulated Other Comprehensive Income (Loss)

We record deferred gains (losses) in accumulated other comprehensive income (AOCI) related to available-for-sale debt securities and interest rate agreement cash flow hedges. Deferred gains (losses) for our available-for-sale debt securities are recognized in earnings upon settlement, while deferred gains (losses) related to our interest rate agreement cash flow hedges are recognized in earnings as a component of interest charges, as they are amortized. The following tables provide the components of our accumulated other comprehensive income (loss) balances, net of the related tax effects allocated to each component of other comprehensive income (loss).

			Available- for-Sale Securities						Interest Rate Agreement Cash Flow Hedges												Total
			(In thousands)
September 30, 2020			$	238					$	(57,827)											$	(57,589)
Other comprehensive income (loss) before reclassifications			(191)						123,017												122,826
Amounts reclassified from accumulated other comprehensive income			—						4,566												4,566
Net current-period other comprehensive income (loss)			(191)						127,583												127,392
September 30, 2021			$	47					$	69,756											$	69,803

 

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Overview

A historic winter storm impacted supply, market pricing and demand for natural gas in our service territories in mid-February. During this time, the governors of Kansas and Texas each declared a state of emergency, and certain regulatory agencies issued emergency orders that impacted the utility and natural gas industries, including statewide utilities curtailment programs and orders encouraging or requiring jurisdictional natural gas utilities to work to ensure customers were provided with safe and reliable natural gas service.

Due to the historic nature of this winter storm, we experienced unforeseeable and unprecedented market pricing for gas costs, which resulted in aggregated natural gas purchases during the month of February of approximately $2.3 billion. These gas costs were paid by the end of March 2021.

Incremental Financing

As discussed in Note 7 to the consolidated financial statements, on March 9, 2021, we completed a public offering of $2.2 billion in debt securities and the net proceeds from the offering, after the underwriting discount and offering expenses, were used to substantially fund these purchased gas costs. As a result of this unplanned debt issuance, S&P lowered its long-term/short-term credit ratings from A/A-1 to A-/A-2 and placed our ratings under negative outlook. Moody’s reaffirmed its long-term and short-term credit ratings and placed our ratings under negative outlook. These credit rating adjustments and the issuance of unplanned debt did not impact our ability to satisfy our debt covenants.

Regulatory Asset Accounting

Our purchased gas costs are recoverable through purchased gas cost adjustment mechanisms in each state where we operate. Due to the unprecedented level of purchased gas costs incurred during Winter Storm Uri, the Kansas Corporation Commission (KCC) and the Railroad Commission of Texas (RRC) issued orders authorizing natural gas utilities to record a regulatory asset to account for the extraordinary costs associated with the winter storm. Pursuant to these orders, as of September 30, 2021, we have recorded a $2.1 billion regulatory asset for incremental costs, including carrying costs, incurred in Kansas ($89.0 million) and Texas ($2,011.7 million). These costs are subject to review for prudency by each commission and may be adjusted.

Securitization

To minimize the impact on the customer bill by extending the recovery periods for these unprecedented purchased gas costs, the Kansas and Texas State Legislatures each approved securitization legislation during fiscal 2021. The following summarizes the status of the securitization of each state as of the date of this filing.

Kansas

The Kansas securitization legislation, which became effective April 9, 2021, permits a natural gas public utility, in its sole discretion, to apply to the KCC for a financing order for the recovery of qualified extraordinary costs through the issuance of bonds. Within 25 days after a complete application is filed, the KCC shall establish a procedural schedule that requires it to issue a decision on the application within 180 days from the date a complete application was filed. Utilities may apply for a recovery period of up to 32 years.

On September 14, 2021, we filed with the KCC an application to securitize $94.1 million of extraordinary gas costs incurred during Winter Storm Uri. This amount also includes an estimate of penalties, carrying costs and administrative costs

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that we expect to incur in connection with the resolution of this filing. Included in our filing is an allowed deferral of an equity return as part of the recoverable carrying costs. As of September 30, 2021, approximately $2.8 million is capitalized for ratemaking purposes but is not recorded as a regulatory asset on our consolidated balance sheet. We anticipate proceedings to begin in January 2022. Because we intend to securitize these costs and recover over several years, we have recorded the regulatory asset for Kansas as a long-term asset in deferred charges and other assets as of September 30, 2021.

Texas

On June 16, 2021, House Bill 1520 became effective. House Bill 1520 authorizes the RRC to issue a statewide securitization financing order directing the Texas Public Finance authority to issue bonds (customer rate relief bonds) for gas utilities that choose to participate to recover extraordinary costs incurred to secure gas supply and to provide service during Winter Storm Uri, and to restore gas utility systems after that event, thereby providing rate relief to customers by extending the period during which these extraordinary costs would otherwise be recovered and supporting the financial strength and stability of gas utility companies.

The legislation required natural gas utilities seeking to participate in the securitization program to file an application with the RRC and submit extraordinary gas costs incurred during Winter Storm Uri for a prudency review by July 30, 2021. We filed our application with the RRC on July 30, 2021 to securitize $2.0 billion of extraordinary gas costs incurred during Winter Storm Uri. This amount also included an estimate of carrying costs and administrative costs that we expect to incur in connection with the resolution of this filing.

On November 10, 2021, the RRC issued a Final Determination of the Regulatory Asset (the Final Determination). The Final Determination stipulates that all of our gas and storage costs were prudently incurred. Additionally, the Final Determination permits us to defer, through December 31, 2021 our actual carrying costs associated with the $2.2 billion of incremental financing issued in March 2021 and to recover approximately $0.6 million of our administrative costs.

The statutory deadline for the RRC to issue a Financing Order is March 27, 2022. The Financing Order will be issued to the Texas Public Financing Authority authorizing the issuance of customer rate relief bonds to securitize the aggregated extraordinary costs for all participating utilities within 180 days. The participating utilities, as servicers acting on behalf of the state of the securitization financing, will bill and collect customer rate relief charges from their current and future customers and remit the collections to the state issuer of the securitization financing.

Based on the RRC's procedural schedule, we believe we will receive the securitization funds within twelve months. We will repay the $2.2 billion in public notes issued to finance the incremental gas costs incurred during Winter Storm Uri. Accordingly, we have recorded the regulatory asset for Texas in other current assets and these notes as current maturities of long-term debt as of September 30, 2021.

We have both funded and unfunded noncontributory defined benefit plans that together cover most of our employees. We also maintain post-retirement plans that provide health care benefits to retired employees. Finally, we sponsor a defined contribution plan that covers substantially all employees. These plans are discussed in further detail below.

As a rate regulated entity, most of our net periodic pension and other postretirement benefits costs are recoverable through our rates over a period of up to 15 years. A portion of these costs is capitalized into our rate base or deferred as a regulatory asset or liability. The remaining costs are recorded as a component of operation and maintenance expense or other non-operating expense. Additionally, the amounts that have not yet been recognized in net periodic pension cost that have been recorded as regulatory assets or liabilities are as follows:

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			Defined Benefit Plan						Supplemental Executive Retirement Plans						Postretirement Plans						Total
			(In thousands)
September 30, 2021
Unrecognized prior service (credit) cost			$	(353)					$	—					$	(64,313)					$	(64,666)
Unrecognized actuarial (gain) loss			(3,060)						39,666						(28,141)						8,465
			$	(3,413)					$	39,666					$	(92,454)					$	(56,201)
September 30, 2020
Unrecognized prior service (credit) cost			$	(584)					$	—					$	951					$	367
Unrecognized actuarial loss			78,082						51,045						9,110						138,237
			$	77,498					$	51,045					$	10,061					$	138,604

Defined Benefit Plans

Employee Pension Plan

As of September 30, 2021, we maintained one cash balance defined benefit plan, the Atmos Energy Corporation Pension Account Plan (the Plan). The Plan was established effective January 1999 and covers most of the employees of Atmos Energy that were hired on or before September 30, 2010. Effective October 1, 2010, the plan was closed to new participants. The assets of the Plan are held within the Atmos Energy Corporation Master Retirement Trust (the Master Trust).

Opening account balances were established for participants as of January 1999 equal to the present value of their respective accrued benefits under the pension plans which were previously in effect as of December 31, 1998. The Plan credits an allocation to each participant’s account at the end of each year according to a formula based on the participant’s age, service and total pay (excluding incentive pay). In addition, at the end of each year, a participant’s account is credited with interest on the employee’s prior year account balance. Participants are fully vested in their account balances after three years of service and may choose to receive their account balances as a lump sum or an annuity.

Generally, our funding policy is to contribute annually an amount in accordance with the requirements of the Employee Retirement Income Security Act of 1974, including the funding requirements under the Pension Protection Act of 2006 (PPA). However, additional voluntary contributions are made from time to time as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future.

During fiscal 2021, we contributed $10.0 million in cash to the Plan to achieve a desired level of funding while maximizing the tax deductibility of this payment. During fiscal 2020, we did not make a contribution to the Plan. Based upon market conditions at September 30, 2021, the current funded position of the Plan and the funding requirements under the PPA, we do not anticipate a minimum required contribution for fiscal 2022. However, we may consider whether a voluntary contribution is prudent to maintain certain funding levels.

We make investment decisions and evaluate performance of the assets in the Master Trust on a medium-term horizon of at least three to five years. We also consider our current financial status when making recommendations and decisions regarding the Master Trust’s assets. Finally, we strive to ensure the Master Trust’s assets are appropriately invested to maintain an acceptable level of risk and meet the Master Trust’s long-term asset investment policy adopted by the Board of Directors.

To achieve these objectives, we invest the Master Trust’s assets in equity securities, fixed income securities, interests in commingled pension trust funds, other investment assets and cash and cash equivalents. Investments in equity securities are diversified among the market’s various subsectors in an effort to diversify risk and maximize returns. Fixed income securities are invested in investment grade securities. Cash equivalents are invested in securities that either are short term (less than 180 days) or readily convertible to cash with modest risk.

The following table presents asset allocation information for the Master Trust as of September 30, 2021 and 2020.

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			Targeted Allocation  Range						Actual Allocation September 30
Security Class									2021						2020
Domestic equities			35%-55%						44.5%						45.3%
International equities			10%-20%						16.9%						15.6%
Fixed income			5%-30%						16.0%						17.0%
Company stock			0%-15%						10.6%						13.0%
Other assets			0%-20%						12.0%						9.1%

At September 30, 2021 and 2020, the Plan held 716,700 shares of our common stock which represented 10.6 percent and 13.0 percent of total Plan assets. These shares generated dividend income for the Plan of approximately $1.8 million and $1.6 million during fiscal 2021 and 2020.

Our employee pension plan expenses and liabilities are determined on an actuarial basis and are affected by numerous assumptions and estimates including the market value of plan assets, estimates of the expected return on plan assets and assumed discount rates and demographic data. We review the estimates and assumptions underlying our employee pension plans annually based upon a September 30 measurement date. The development of our assumptions is fully described in our significant accounting policies in Note 2 to the consolidated financial statements. The actuarial assumptions used to determine the pension liability for the Plan was determined as of September 30, 2021 and 2020 and the actuarial assumptions used to determine the net periodic pension cost for the Plan was determined as of September 30, 2020, 2019 and 2018. In October 2021, the Society of Actuaries released its annually-updated mortality improvement scale for pension plans incorporating new assumptions surrounding life expectancies in the United States.  As of September 30, 2021, we updated our assumed mortality rates to incorporate the updated mortality table.

Additional assumptions are presented in the following table:

			Pension Liability												Pension Cost
			2021						2020						2021						2020						2019
Discount rate			2.97		%				2.80		%				2.80		%				3.29		%				4.38		%
Rate of compensation increase			3.50		%				3.50		%				3.50		%				3.50		%				3.50		%
Expected return on plan assets			6.25		%				6.25		%				6.25		%				6.50		%				6.75		%
Interest crediting rate			4.69		%				4.69		%				4.69		%				4.69		%				4.69		%

The following table presents the Plan’s accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2021 and 2020:

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			2021						2020
			(In thousands)
Accumulated benefit obligation			$	558,639					$	565,755
Change in projected benefit obligation:
Benefit obligation at beginning of year			$	604,221					$	577,270
Service cost			17,369						17,551
Interest cost			16,883						19,028
Actuarial (gain) loss			(7,561)						22,898
Benefits paid			(34,883)						(32,526)
Benefit obligation at end of year			596,029						604,221
Change in plan assets:
Fair value of plan assets at beginning of year			528,881						530,109
Actual return on plan assets			92,808						31,298
Employer contributions			10,000						—
Benefits paid			(34,883)						(32,526)
Fair value of plan assets at end of year			596,806						528,881
Reconciliation:
Funded status			777						(75,340)
Unrecognized prior service cost			—						—
Unrecognized net loss			—						—
Net amount recognized			$	777					$	(75,340)

Net periodic pension cost for the Plan for fiscal 2021, 2020 and 2019 is presented in the following table.

			Fiscal Year Ended September 30
			2021						2020						2019
			(In thousands)
Components of net periodic pension cost:
Service cost			$	17,369					$	17,551					$	15,311
Interest cost (1)			16,883						19,028						22,071
Expected return on assets (1)			(27,913)						(28,316)						(28,451)
Amortization of prior service cost (credit) (1)			8,686						(231)						(232)
Recognized actuarial (gain) loss (1)			(231)						9,025						4,201
Net periodic pension cost			$	14,794					$	17,057					$	12,900

(1)    The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements.

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The following tables set forth by level, within the fair value hierarchy, the Plan's assets at fair value as of September 30, 2021 and 2020. As required by authoritative accounting literature, assets are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement. The methods used to determine fair value for the assets held by the Plan are fully described in Note 2 to the consolidated financial statements. Investments in our common/collective trusts and limited partnerships that are measured at net asset value per share equivalent are not classified in the fair value hierarchy. The net asset value amounts presented are intended to reconcile the fair value hierarchy to the total investments. In addition to the assets shown below, the Plan had net accounts receivable of $2.1 million and $0.7 million at September 30, 2021 and 2020, which materially approximates fair value due to the short-term nature of these assets.

			Assets at Fair Value as of September 30, 2021
			Level 1						Level 2						Level 3						Total
			(In thousands)
Investments:
Common stocks			$	239,166					$	—					$	—					$	239,166
Money market funds			—						7,060						—						7,060
Registered investment companies			74,236						—						—						74,236
Government securities:
Mortgage-backed securities			—						14,048						—						14,048
U.S. treasuries			7,483						34						—						7,517
Corporate bonds			—						30,834						—						30,834
Total investments measured at fair value			$	320,885					$	51,976					$	—					372,861
Investments measured at net asset value:
Common/collective trusts (1)																					121,570
Limited partnerships (1)																					100,299
Total investments																					$	594,730

			Assets at Fair Value as of September 30, 2020
			Level 1						Level 2						Level 3						Total
			(In thousands)
Investments:
Common stocks			$	211,244					$	—					$	—					$	211,244
Money market funds			—						6,096						—						6,096
Registered investment companies			29,762						—						—						29,762
Government securities:
Mortgage-backed securities			—						15,230						—						15,230
U.S. treasuries			21,755						36						—						21,791
Corporate bonds			—						52,648						—						52,648
Total investments measured at fair value			$	262,761					$	74,010					$	—					336,771
Investments measured at net asset value:
Common/collective trusts (1)																					122,207
Limited partnerships (1)																					69,176
Total investments																					$	528,154

(1)    The fair value of our common/collective trusts and limited partnerships are measured using the net asset value per share practical expedient. There are no redemption restrictions, redemption notice periods or unfunded commitments for these investments. The redemption frequency is daily.

Supplemental Executive Retirement Plans

We have three nonqualified supplemental plans which provide additional pension, disability and death benefits to our officers, division presidents and certain other employees of the Company.

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The first plan is referred to as the Supplemental Executive Benefits Plan (SEBP) and covers our corporate officers and certain other employees of the Company who were employed on or before August 12, 1998. The SEBP is a defined benefit arrangement which provides a benefit equal to 75 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SEBP.

In August 1998, we adopted the Supplemental Executive Retirement Plan (SERP) (formerly known as the Performance-Based Supplemental Executive Benefits Plan), which covers all corporate officers selected to participate in the plan between August 12, 1998 and August 5, 2009. The SERP is a defined benefit arrangement which provides a benefit equal to 60 percent of covered compensation under which benefits paid from the underlying qualified defined benefit plan are an offset to the benefits under the SERP.

Effective August 5, 2009, we adopted a new defined benefit Supplemental Executive Retirement Plan (the 2009 SERP), for corporate officers or any other employees selected at the discretion of the Board. Under the 2009 SERP, a nominal account has been established for each participant, to which the Company contributes at the end of each calendar year an amount equal to ten percent (25 percent for members of the Management Committee appointed on or after January 1, 2016) of the total of each participant’s base salary and cash incentive compensation earned during each prior calendar year, beginning December 31, 2009. The benefits vest after three years of service and attainment of age 55 and earn interest credits at the same annual rate as the Company’s Pension Account Plan.

Due to the retirement of certain executives of the company during fiscal 2021, we recognized a settlement charge of $9.2 million and paid a $25.7 million lump sum in relation to the retirements.

Similar to our employee pension plans, we review the estimates and assumptions underlying our supplemental plans annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for the supplemental plans were determined as of September 30, 2021 and 2020 and the actuarial assumptions used to determine the net periodic pension cost for the supplemental plans were determined as of September 30, 2020, 2019 and 2018. These assumptions are presented in the following table:

			Pension Liability												Pension Cost
			2021						2020						2021						2020						2019
Discount rate (1)			2.57		%				2.80		%				2.90		%				3.19		%				4.38		%
Rate of compensation increase			3.50		%				3.50		%				3.50		%				3.50		%				3.50		%
Interest crediting rate			4.69		%				4.69		%				4.69		%				4.69		%				4.69		%

 (1)     Reflects a weighted average discount rate for pension cost for fiscal 2021 and 2020 due to the settlements during the year.

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The following table presents the supplemental plans’ accumulated benefit obligation, projected benefit obligation and funded status as of September 30, 2021 and 2020:

			2021						2020
			(In thousands)
Accumulated benefit obligation			$	100,981					$	122,207
Change in projected benefit obligation:
Benefit obligation at beginning of year			$	129,140					$	143,987
Service cost			1,067						1,074
Interest cost			3,180						4,188
Actuarial (gain) loss			1,332						7,386
Benefits paid			(4,720)						(4,766)
Settlements			(25,698)						(22,729)
Benefit obligation at end of year			104,301						129,140
Change in plan assets:
Fair value of plan assets at beginning of year			—						—
Employer contribution			30,418						27,495
Benefits paid			(4,720)						(4,766)
Settlements			(25,698)						(22,729)
Fair value of plan assets at end of year			—						—
Reconciliation:
Funded status			(104,301)						(129,140)
Unrecognized prior service cost			—						—
Unrecognized net loss			—						—
Accrued pension cost			$	(104,301)					$	(129,140)

Assets for the supplemental plans are held in separate rabbi trusts. At September 30, 2021 and 2020, assets held in the rabbi trusts consisted of equity securities of $38.1 million and $41.9 million, which are included in our fair value disclosures in Note 16 to the consolidated financial statements.

Net periodic pension cost for the supplemental plans for fiscal 2021, 2020 and 2019 is presented in the following table.

			Fiscal Year Ended September 30
			2021						2020						2019
			(In thousands)
Components of net periodic pension cost:
Service cost			$	1,067					$	1,074					$	869
Interest cost (1)			3,180						4,188						5,127
Recognized actuarial loss (1)			3,560						3,945						2,227
Settlements (1)			9,151						9,180						—
Net periodic pension cost			$	16,958					$	18,387					$	8,223

(1)    The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements.

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Estimated Future Benefit Payments

The following benefit payments for our defined benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years:

			Pension Plan						Supplemental Plans
			(In thousands)
2022			$	39,020					$	4,925
2023			39,624						11,384
2024			40,314						4,496
2025			41,085						39,769
2026			42,053						5,665
2027-2031			203,461						22,079

Postretirement Benefits

We sponsor the Retiree Medical Plan for Retirees and Disabled Employees of Atmos Energy Corporation (the Atmos Retiree Medical Plan). This plan provides medical and prescription drug protection to all qualified participants based on their date of retirement. The Atmos Retiree Medical Plan provides different levels of benefits depending on the level of coverage chosen by the participants and the terms of predecessor plans; however, we generally pay 80 percent of the projected net claims and administrative costs and participants pay the remaining 20 percent. Effective January 1, 2015, for employees who had not met the participation requirements by September 30, 2009, the contribution rates for the Company are limited to a three percent cost increase in claims and administrative costs each year, with the participant responsible for the additional costs.

Generally, our funding policy is to contribute annually an amount in accordance with the requirements of ERISA. However, additional voluntary contributions are made annually as considered necessary. Contributions are intended to provide not only for benefits attributed to service to date but also for those expected to be earned in the future. We expect to contribute between $15 million and $25 million to our postretirement benefits plan during fiscal 2022.

We maintain a formal investment policy with respect to the assets in our postretirement benefits plan to ensure the assets funding the postretirement benefit plan are appropriately invested to maintain an acceptable level of risk. We also consider our current financial status when making recommendations and decisions regarding the postretirement benefits plan.

We currently invest the assets funding our postretirement benefit plan in diversified investment funds which consist of common stocks, preferred stocks and fixed income securities. The diversified investment funds may invest up to 75 percent of assets in common stocks and convertible securities. The following table presents asset allocation information for the postretirement benefit plan assets as of September 30, 2021 and 2020.

			Actual Allocation September 30
Security Class			2021						2020
Diversified investment funds			97.9%						97.4%
Cash and cash equivalents			2.1%						2.6%

Similar to our employee pension and supplemental plans, we review the estimates and assumptions underlying our postretirement benefit plan annually based upon a September 30 measurement date using the same techniques as our employee pension plans. The actuarial assumptions used to determine the pension liability for our postretirement plan were determined as of September 30, 2021 and 2020 and the actuarial assumptions used to determine the net periodic pension cost for the postretirement plan were determined as of September 30, 2020, 2019 and 2018.

Effective January 1, 2022, the Retiree Medical Plan for Retirees and Disabled Employees will be amended. The amendments remove the three percent cost increase limitation and change the post-65 retiree coverage to Via Benefits with an Atmos Energy funded Health Reimbursement Account. Eligible post-65 retirees and post-65 spouses will be eligible to enroll in benefits provided by Via Benefits, including those that previously deferred or declined retiree coverage. The amendments were approved by the Atmos Energy Board of Directors in May 2021 and the changes were communicated to participants beginning on July 31, 2021. These amendments to the Retiree Medical Plan for Retirees and Disabled Employees have been included in the actuarial assumptions used to determine the pension liability and net periodic for the postretirement plan as of September 30, 2020.

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The assumptions are presented in the following table:

			Postretirement Liability												Postretirement Cost
			2021						2020						2021						2020						2019
Discount rate			3.01		%				2.80		%				2.80		%				3.29		%				4.38		%
Expected return on plan assets			4.94		%				4.94		%				4.94		%				5.14		%				5.33		%
Initial trend rate			6.25		%				6.25		%				6.25		%				6.25		%				6.50		%
Ultimate trend rate			5.00		%				5.00		%				5.00		%				5.00		%				5.00		%
Ultimate trend reached in			2027						2026						2026						2025						2022

The following table presents the postretirement plan’s benefit obligation and funded status as of September 30, 2021 and 2020:

			2021						2020
			(In thousands)
Change in benefit obligation:
Benefit obligation at beginning of year			$	370,678					$	316,033
Service cost			11,000						13,466
Interest cost			15,372						10,612
Plan participants’ contributions			5,648						5,849
Actuarial (gain) loss			6,800						43,412
Benefits paid			(19,610)						(18,694)
Plan amendments			(34,732)						—
Benefit obligation at end of year			355,156						370,678
Change in plan assets:
Fair value of plan assets at beginning of year			208,245						201,901
Actual return on plan assets			53,335						2,356
Employer contributions			20,581						16,833
Plan participants’ contributions			5,648						5,849
Benefits paid			(19,610)						(18,694)
Fair value of plan assets at end of year			268,199						208,245
Reconciliation:
Funded status			(86,957)						(162,433)
Unrecognized transition obligation			—						—
Unrecognized prior service cost			—						—
Unrecognized net loss			—						—
Accrued postretirement cost			$	(86,957)					$	(162,433)

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Net periodic postretirement cost for fiscal 2021, 2020 and 2019 is presented in the following table.

			Fiscal Year Ended September 30
			2021						2020						2019
			(In thousands)
Components of net periodic postretirement cost:
Service cost			$	11,000					$	13,466					$	10,810
Interest cost (1)			15,372						10,612						11,839
Expected return on assets (1)			(10,455)						(10,499)						(10,659)
Amortization of transition obligation (1)			—						—						—
Amortization of prior service cost (1)			30,533						173						173
Recognized actuarial gain (1)			1,172						(1,337)						(8,178)
Net periodic postretirement cost			$	47,622					$	12,415					$	3,985

(1)    The components of net periodic cost other than the service cost component are included in the line item other non-operating income (expense) in the consolidated statements of comprehensive income or are capitalized on the consolidated balance sheets as a regulatory asset or liability, as described in Note 2 to the consolidated financial statements.

We are currently recovering other postretirement benefits costs through our regulated rates in substantially all of our service areas under accrual accounting as prescribed by accounting principles generally accepted in the United States. Other postretirement benefits costs have been specifically addressed in rate orders in each jurisdiction served by our Kentucky/Mid-States, West Texas, Mid-Tex and Mississippi Divisions as well as our Kansas jurisdiction and APT or have been included in a rate case and not disallowed. Management believes that this accounting method is appropriate and will continue to seek rate recovery of accrual-based expenses in its ratemaking jurisdictions that have not yet approved the recovery of these expenses.

The following tables set forth by level, within the fair value hierarchy, the Retiree Medical Plan’s assets at fair value as of September 30, 2021 and 2020. The methods used to determine fair value for the assets held by the Retiree Medical Plan are fully described in Note 2 to the consolidated financial statements.

			Assets at Fair Value as of September 30, 2021
			Level 1						Level 2						Level 3						Total
			(In thousands)
Investments:
Money market funds			$	—					$	5,527					$	—					$	5,527
Registered investment companies			262,672						—						—						262,672
Total investments measured at fair value			$	262,672					$	5,527					$	—					$	268,199

 

			Assets at Fair Value as of September 30, 2020
			Level 1						Level 2						Level 3						Total
			(In thousands)
Investments:
Money market funds			$	—					$	5,525					$	—					$	5,525
Registered investment companies			202,720						—						—						202,720
Total investments measured at fair value			$	202,720					$	5,525					$	—					$	208,245

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Estimated Future Benefit Payments

The following benefit payments paid by us, retirees and prescription drug subsidy payments for our postretirement benefit plans, which reflect expected future service, as appropriate, are expected to be paid in the following fiscal years. Company payments for fiscal 2021 include contributions to our postretirement plan trusts.

						Company Payments						Retiree Payments						Subsidy Payments						Total Postretirement Benefits
						(In thousands)
2022						$	17,701					$	2,490					$	—					$	20,191
2023						18,031						2,465						—						20,496
2024						18,341						2,404						—						20,745
2025						18,981						2,425						—						21,406
2026						19,414						2,395						—						21,809
2027-2031						100,312						10,641						—						110,953

Defined Contribution Plan

The Atmos Energy Corporation Retirement Savings Plan and Trust (the Retirement Savings Plan) covers substantially all employees and is subject to the provisions of Section 401(k) of the Internal Revenue Code. Effective January 1, 2007, employees automatically become participants of the Retirement Savings Plan on the date of employment. Participants may elect a salary reduction up to a maximum of 65 percent of eligible compensation, as defined by the Plan, not to exceed the maximum allowed by the Internal Revenue Service. New participants are automatically enrolled in the Plan at a contribution rate of four percent of eligible compensation, from which they may opt out. We match 100 percent of a participant’s contributions, limited to four percent of the participant’s salary. Prior to January 1, 2021, participants were eligible to receive matching contributions after completing one year of service, in which they are immediately vested. Effective January 1, 2021, participants are eligible to receive matching contributions immediately upon enrollment in the Retirement Savings Plan. This matching contribution vests after completing one year of service. Participants are also permitted to take out a loan against their accounts subject to certain restrictions. Employees hired on or after October 1, 2010 participate in the enhanced plan in which participants receive a fixed annual contribution of four percent of eligible earnings to their Retirement Savings Plan account. Participants will continue to be eligible for company matching contributions of up to four percent of their eligible earnings and will be fully vested in the fixed annual contribution after three years of service.

Matching and fixed annual contributions to the Retirement Savings Plan are expensed as incurred and amounted to $20.6 million, $17.9 million and $16.7 million for fiscal years 2021, 2020 and 2019. At September 30, 2021 and 2020, the Retirement Savings Plan held 1.9 percent and 2.2 percent of our outstanding common stock.

Stock-Based Compensation Plans

Total stock-based compensation cost was $24.1 million, $21.1 million and $23.9 million for the fiscal years ended September 30, 2021, 2020 and 2019. Of this amount, $12.9 million, $11.6 million and $12.8 million was capitalized.

1998 Long-Term Incentive Plan

We have the 1998 Long-Term Incentive Plan (LTIP), which provides a comprehensive, long-term incentive compensation plan providing for discretionary awards of incentive stock options, non-qualified stock options, stock appreciation rights, bonus stock, time-lapse restricted stock, time-lapse restricted stock units, performance-based restricted stock units and stock units to certain employees and non-employee directors of the Company and our subsidiaries. The objectives of this plan include attracting and retaining the best available personnel, providing for additional performance incentives and promoting our success by providing employees with the opportunity to acquire common stock.

We are authorized to grant awards up to a maximum cumulative amount of 11.2 million shares of common stock under this plan subject to certain adjustment provisions. As of September 30, 2021, non-qualified stock options, bonus stock, time-lapse restricted stock, time-lapse restricted stock units, performance-based restricted stock units and stock units had been issued under this plan, and 1.1 million shares are available for future issuance.

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Restricted Stock Units Award Grants

As noted above, the LTIP provides for discretionary awards of restricted stock units to help attract, retain and reward employees of Atmos Energy and its subsidiaries. Certain of these awards vest based upon the passage of time and other awards vest based upon the passage of time and the achievement of specified performance targets. The fair value of the awards granted is based on the market price of our stock at the date of grant. We estimate forfeitures using our historical forfeiture rate. The associated expense is recognized ratably over the vesting period. We use authorized and unissued shares to meet share requirements for the vesting of restricted stock units.

Employees who are granted time-lapse restricted stock units under our LTIP have a nonforfeitable right to dividend equivalents that are paid at the same rate and at the same time at which they are paid on shares of stock without restrictions. Time-lapse restricted stock units contain only a service condition that the employee recipients render continuous services to the Company for a period of three years from the date of grant, except for accelerated vesting in the event of death, disability, change of control of the Company or termination without cause (with certain exceptions). There are no performance conditions required to be met for employees to be vested in time-lapse restricted stock units.

Employees who are granted performance-based restricted stock units under our LTIP have a forfeitable right to dividend equivalents that accrue at the same rate at which they are paid on shares of stock without restrictions. Dividend equivalents on the performance-based restricted stock units are paid either in cash or in the form of shares upon the vesting of the award. Performance-based restricted stock units contain a service condition that the employee recipients render continuous services to the Company for a period of three years from the beginning of the applicable three-year performance period, except for accelerated vesting in the event of death, disability, change of control of the Company or termination without cause (with certain exceptions) and a performance condition based on a cumulative earnings per share target amount.

The following summarizes information regarding the restricted stock units granted under the plan during the fiscal years ended September 30, 2021, 2020 and 2019:

			2021												2020												2019
			Number of Restricted Units						Weighted Average Grant-Date Fair Value						Number of Restricted Units						Weighted Average Grant-Date Fair Value						Number of Restricted Units						Weighted Average Grant-Date Fair Value
Nonvested at beginning of year			443,279						$	99.28					503,072						$	91.66					538,592						$	80.91
Granted			223,954						102.68						199,985						102.34						241,472						98.25
Vested			(271,435)						97.44						(242,975)						85.66						(269,347)						76.71
Forfeited			(17,671)						101.48						(16,803)						96.87						(7,645)						86.37
Nonvested at end of year			378,127						$	102.45					443,279						$	99.28					503,072						$	91.66

As of September 30, 2021, there was $13.8 million of total unrecognized compensation cost related to nonvested restricted stock units granted under the LTIP. That cost is expected to be recognized over a weighted average period of 1.7 years. The fair value of restricted stock vested during the fiscal years ended September 30, 2021, 2020 and 2019 was $26.3 million, $20.7 million and $20.5 million.

Other Plans

Direct Stock Purchase Plan

We maintain a Direct Stock Purchase Plan, open to all investors, which allows participants to have all or part of their cash dividends paid quarterly in additional shares of our common stock. The minimum initial investment required to join the plan is $1,250. Direct Stock Purchase Plan participants may purchase additional shares of our common stock as often as weekly with voluntary cash payments of at least $25, up to an annual maximum of $100,000.

Equity Incentive and Deferred Compensation Plan for Non-Employee Directors

We have an Equity Incentive and Deferred Compensation Plan for Non–Employee Directors, which provides non-employee directors of Atmos Energy with the opportunity to defer receipt, until retirement, of compensation for services rendered to the Company and invest deferred compensation into either a cash account or a stock account.

Other Discretionary Compensation Plans

We have an annual incentive program covering substantially all employees to give each employee an opportunity to share in our financial success based on the achievement of key performance measures considered critical to achieving business

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The following tables provide additional information regarding the composition of certain financial statement captions.

Balance Sheet

Accounts receivable

Accounts receivable was comprised of the following at September 30, 2021 and 2020:

			September 30
			2021						2020
			(In thousands)
Billed accounts receivable			$	218,219					$	140,259
Unbilled revenue			97,417						80,699
Contributions in aid of construction receivable			18,984						19,821
Insurance receivable			53,779						4,731
Other accounts receivable			19,039						15,034
Total accounts receivable			407,438						260,544
Less: allowance for uncollectible accounts			(64,471)						(29,949)
Net accounts receivable			$	342,967					$	230,595

Other current assets

Other current assets as of September 30, 2021 and 2020 were comprised of the following accounts.

			September 30
			2021						2020
			(In thousands)
Deferred gas costs			$	66,395					$	40,593
Winter Storm Uri incremental costs (1)			2,011,719						—
Prepaid expenses			48,766						40,340
Materials and supplies			15,581						6,829
Assets from risk management activities			55,073						5,687
Other			3,375						14,456
Total			$	2,200,909					$	107,905

(1)    Includes $2,003.7 million of gas purchases and $8.0 million of carrying costs that were deferred pursuant to regulatory orders. See Note 9 to the consolidated financial statements for additional details.

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Property, plant and equipment

Property, plant and equipment was comprised of the following as of September 30, 2021 and 2020:

			September 30
			2021						2020
			(In thousands)
Storage plant			$	539,972					$	530,985
Transmission plant			3,725,347						3,459,765
Distribution plant			12,085,654						10,680,495
General plant			868,962						829,624
Intangible plant			38,612						38,297
			17,258,547						15,539,166
Construction in progress			626,551						418,055
			17,885,098						15,957,221
Less: accumulated depreciation and amortization			(2,821,128)						(2,601,874)
Net property, plant and equipment (1)			$	15,063,970					$	13,355,347

    

(1)     Net property, plant and equipment includes plant acquisition adjustments of $(28.5) million and $(37.8) million at September 30, 2021 and 2020.

Deferred charges and other assets

Deferred charges and other assets as of September 30, 2021 and 2020 were comprised of the following accounts.

			September 30
			2021						2020
			(In thousands)
Marketable securities			$	108,071					$	103,952
Regulatory assets (See Note 2)			351,843						371,707
Operating lease right of use assets (See Note 6)			222,446						227,146
Winter Storm Uri incremental costs (1)			89,009						—
Assets from risk management activities			175,613						74,991
Other			27,738						23,374
Total			$	974,720					$	801,170

(1)    Includes $76.7 million of gas purchases and $12.3 million of carrying costs that were deferred pursuant to regulatory orders. See Note 9 to the consolidated financial statements for additional details.

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Accounts payable and accrued liabilities

Accounts payable and accrued liabilities as of September 30, 2021 and 2020 were comprised of the following accounts.

			September 30
			2021						2020
			(In thousands)
Trade accounts payable			$	224,873					$	141,075
Accrued gas payable			100,699						42,054
Accrued liabilities			97,650						52,646
Total			$	423,222					$	235,775

Other current liabilities

Other current liabilities as of September 30, 2021 and 2020 were comprised of the following accounts.

 

			September 30
			2021						2020
			(In thousands)
Customer credit balances and deposits			$	49,722					$	56,485
Accrued employee costs			50,517						48,057
Deferred gas costs			52,553						19,985
Operating lease liabilities (See Note 6)			37,688						35,716
Accrued interest			55,164						53,554
Liabilities from risk management activities			5,269						2,015
Taxes payable			160,986						148,292
Pension and postretirement liabilities			4,863						29,609
Regulatory cost of removal obligation			72,823						73,908
APT annual adjustment mechanism			22,694						43,893
Regulatory excess deferred taxes (See Note 14)			155,857						20,887
Other			18,545						14,060
Total			$	686,681					$	546,461

Deferred credits and other liabilities

Deferred credits and other liabilities as of September 30, 2021 and 2020 were comprised of the following accounts.

			September 30
			2021						2020
			(In thousands)
Pension and post retirement liabilities			$	185,617					$	337,303
Operating lease liabilities (See Note 6)			194,745						201,071
Customer advances for construction			9,879						10,060
Other regulatory liabilities (See Note 2)			75,506						17,838
Asset retirement obligation			18,373						20,348
APT annual adjustment mechanism			8,416						13,486
Unrecognized tax benefits			32,792						30,921
Other			12,161						11,101
Total			$	537,489					$	642,128

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Statement of Comprehensive Income

Other non-operating income (expense)

Other non-operating income (expense) for the fiscal years ended September 30, 2021, 2020 and 2019 were comprised of the following accounts.

			Year Ended September 30
			2021						2020						2019
			(In thousands)
Equity component of AFUDC			$	32,749					$	23,493					$	11,165
Performance-based rate program			6,362						6,771						6,737
Pension and other postretirement non-service credit (cost)			(19,238)						(3,189)						3,016
Interest income			2,144						2,932						4,160
Community support spending			(14,460)						(11,728)						(4,771)
Miscellaneous			(9,702)						(11,108)						(12,903)
Total			$	(2,145)					$	7,171					$	7,404

Statement of Cash Flows

Supplemental disclosures of cash flow information for the fiscal years ended September 30, 2021, 2020 and 2019 were as follows:

			Year Ended September 30
			2021						2020						2019
			(In thousands)
Cash Paid (Received) During The Period For:
Interest (1)			$	207,555					$	194,993					$	184,852
Income taxes			$	8,199					$	(3,071)					$	11,467
Non-Cash Transactions:
Capital expenditures included in current liabilities			$	184,786					$	113,365					$	149,993

(1)    Cash paid during the period for interest, net of amounts capitalized was $81.9 million, $82.3 million and $91.3 million for the fiscal years ended September 30, 2021, 2020 and 2019.

Litigation and Environmental Matters

In the normal course of business, we are subject to various legal and regulatory proceedings. For such matters, we record liabilities when they are considered probable and estimable, based on currently available facts, our historical experience and our estimates of the ultimate outcome or resolution of the liability in the future. While the outcome of these proceedings is uncertain and a loss in excess of the amount we have accrued is possible though not reasonably estimable, it is the opinion of management that any amounts exceeding the accruals will not have a material adverse impact on our financial position, results of operations or cash flows.

The National Transportation Safety Board (NTSB) held a public meeting on January 12, 2021 to determine the probable cause of the incident that occurred at a Dallas, Texas residence on February 23, 2018 that resulted in one fatality and injuries to four other residents. At the meeting, the Board deliberated and voted on proposed findings of fact, a probable cause statement, and safety recommendations. On February 8, 2021, the NTSB issued its final report that included an Executive Summary, Findings, Probable Cause, and Recommendations. Also on February 8, 2021, safety recommendations letters were distributed to recommendation recipients, including Atmos Energy. Atmos Energy timely provided a written response on May 7, 2021. Following the release of the NTSB’s final report, the Railroad Commission of Texas (RRC) completed its safety evaluation related to the same incident finding four alleged violations and initiated an enforcement proceeding to pursue administrative penalties totaling $1.6 million. Atmos Energy is working with the RRC to resolve the alleged violations and satisfy the administrative penalties.

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The NTSB is investigating a worksite accident that occurred in Farmersville, Texas on June 28, 2021 that resulted in two fatalities and injuries to two others. Together with the Railroad Commission of Texas and the Pipeline and Hazardous Materials Safety Administration, Atmos Energy is a party to the investigation and in that capacity is working closely with all parties to help determine the cause of this incident. On July 16, 2021 and July 28, 2021, two civil actions were filed in Dallas, Texas against Atmos Energy and one of its contractors in response to the accident.

We are a party to various other litigation and environmental-related matters or claims that have arisen in the ordinary course of our business. While the results of such litigation and response actions to such environmental-related matters or claims cannot be predicted with certainty, we continue to believe the final outcome of such litigation and matters or claims will not have a material adverse effect on our financial condition, results of operations or cash flows.

Purchase Commitments

Our distribution divisions maintain supply contracts with several vendors that generally cover a period of up to one year. Commitments for estimated base gas volumes are established under these contracts on a monthly basis at contractually negotiated prices. Commitments for incremental daily purchases are made as necessary during the month in accordance with the terms of the individual contract.

Our Mid-Tex Division also maintains a limited number of long-term supply contracts to ensure a reliable source of gas for our customers in its service area, which obligate it to purchase specified volumes at prices under contracts indexed to natural gas trading hubs or fixed price contracts. At September 30, 2021, we were committed to purchase 32.4 Bcf within one year and 12.9 Bcf within two to three years under indexed contracts. At September 30, 2021, we were committed to purchase 11.9 Bcf within one year under fixed price contracts ranging from $1.86 to $7.03 per Mcf. Purchases under these contracts totaled $149.4 million, $58.5 million and $50.8 million for 2021, 2020 and 2019.

Rate Regulatory Proceedings

As of September 30, 2021, routine rate regulatory proceedings were in progress in some of our service areas, which are discussed in further detail above in the Business — Ratemaking Activity section.

Income Tax Expense

The components of income tax expense from continuing operations for 2021, 2020 and 2019 were as follows:

			2021						2020						2019
			(In thousands)
Current
Federal			$	—					$	—					$	—
State			252						14,193						8,412
Deferred
Federal			128,867						143,039						113,331
State (1)			24,617						(11,879)						17,160
Income tax expense			$	153,736					$	145,353					$	138,903

(1)    Includes a non-cash income tax benefit of $21.0 million in fiscal 2020 resulting from the remeasurement of the rate at which state deferred taxes will reverse in the future as discussed below.

Reconciliations of the provision for income taxes computed at the statutory rate to the reported provisions for income taxes from continuing operations for 2021, 2020 and 2019 are set forth below:

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			2021						2020						2019
			(In thousands)
Tax at statutory rate (1)			$	172,053					$	156,827					$	136,565
Common stock dividends deductible for tax reporting			(1,372)						(1,419)						(1,460)
State taxes (net of federal benefit)			19,647						22,791						20,202
Amortization of excess deferred taxes			(45,382)						(16,125)						(14,085)
Remeasurement due to state deferred tax rate change			—						(20,962)						—
Other, net			8,790						4,241						(2,319)
Income tax expense			$	153,736					$	145,353					$	138,903

(1)    Tax expense is calculated at the statutory federal income tax rate of 21.0% for the years ended September 30, 2021, 2020 and 2019.

Deferred income taxes reflect the tax effect of differences between the basis of assets and liabilities for book and tax purposes. The tax effect of temporary differences that gave rise to significant components of the deferred tax liabilities and deferred tax assets at September 30, 2021 and 2020 are presented below:

			2021						2020
			(In thousands)
Deferred tax assets:
Employee benefit plans			$	64,316					$	66,991
Interest rate swaps			—						16,719
Net operating loss carryforwards			911,424						476,507
Charitable and other credit carryforwards			7,712						8,712
Regulatory excess deferred tax			148,200						161,565
Lease asset			52,138						53,118
Other			33,591						20,424
Total deferred tax assets			1,217,381						804,036
Valuation allowance			(663)						(1,102)
Net deferred tax assets			1,216,718						802,934
Deferred tax liabilities:
Difference in net book value and net tax value of assets (1)			(2,258,264)						(2,138,966)
Gas cost adjustments			(26,413)						(23,209)
Winter Storm Uri regulatory asset			(471,025)						—
Lease liability			(52,138)						(53,118)
Rate deferral adjustment			(47,445)						(21,945)
Interest rate agreements			(20,156)						—
Other			(47,086)						(22,265)
Total deferred tax liabilities			(2,922,527)						(2,259,503)
Net deferred tax liabilities			$	(1,705,809)					$	(1,456,569)
Deferred credits for rate regulated entities			$	4,181					$	2,537

(1) Includes $129.0 million of deferred tax liability related to goodwill as of September 30, 2021 and 2020.

We deduct our purchased gas costs for federal income tax purposes in the period they are paid. As a result of impacts from Winter Storm Uri, we recorded a $471.0 million (tax effected) increase in our deferred tax liability and an increase in our net operating loss carryforward as of September 30, 2021. At September 30, 2021, we had $850.2 million (tax effected) of federal net operating loss carryforwards. The federal net operating loss carryforwards are available to offset future taxable income. Net operating loss carryforwards incurred prior to December 22, 2017 will begin to expire in 2029. The Company also has $6.0 million in charitable contribution carryforwards to offset future taxable income. The Company’s charitable contribution carryforwards expiration period begins in fiscal 2022.

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The Company also has $61.2 million (tax effected) of state net operating loss carryforwards (net of $16.2 million of federal effects) and $1.7 million of state tax credits carryforwards (net of $0.5 million of federal effects). Depending on the jurisdiction in which the state net operating loss was generated, the carryforwards expiration period begins in fiscal 2023.

We believe it is more likely than not that the benefit from certain state net operating loss carryforwards and state credit carryforwards will not be realized. Due to the uncertainty of realizing a benefit from the deferred tax asset recorded for the carryforwards, a valuation allowance of $0.7 million was established for the year ended September 30, 2021.

At September 30, 2021, we had recorded liabilities associated with unrecognized tax benefits totaling $32.8 million. The following table reconciles the beginning and ending balance of our unrecognized tax benefits:

			2021						2020						2019
			(In thousands)
Unrecognized tax benefits - beginning balance			$	30,921					$	27,716					$	26,203
Increase (decrease) resulting from prior period tax positions			671						(26)						(923)
Increase resulting from current period tax positions			1,200						3,231						2,436
Unrecognized tax benefits - ending balance			32,792						30,921						27,716
Less: deferred federal and state income tax benefits			(6,886)						(6,493)						(5,820)
Total unrecognized tax benefits that, if recognized, would impact the effective income tax rate as of the end of the year			$	25,906					$	24,428					$	21,896

The Company recognizes interest accrued related to unrecognized tax benefits in interest expense and penalties included within interest charges in our consolidated statements of comprehensive income. During the years ended September 30, 2021, 2020 and 2019, the Company recognized approximately $1.4 million, $0.7 million and $2.2 million in interest and penalties. The Company had approximately $10.4 million, $8.2 million and $7.9 million for the payment of interest and penalties accrued at September 30, 2021, 2020 and 2019.

We file income tax returns in the U.S. federal jurisdiction as well as in various states where we have operations. We have concluded substantially all U.S. federal income tax matters through fiscal year 2009 and concluded substantially all Texas income tax matters through fiscal year 2010.

Regulatory Excess Deferred Taxes

Regulatory excess net deferred taxes represent changes in our net deferred tax liability related to our cost of service ratemaking due to the enactment of the Tax Cuts and Jobs Act of 2017 (the TCJA) and a Kansas legislative change enacted in fiscal 2020. As of September 30, 2021 and September 30, 2020, $155.9 million and $20.9 million is recorded in other current liabilities. This amount has increased during fiscal 2021 due to regulatory approvals received during the fiscal year that shortened the refund period in certain of our jurisdictions. As a result, our effective income tax rate decreased to 18.8% for the fiscal year ended September 30, 2021. Our effective income tax rate in the prior year period was 19.5%, which reflected the income tax benefit recognized upon enactment of the new Kansas legislation.

Currently, the regulatory excess net deferred tax liability is being returned over various periods. Of this amount, $532.3 million, is being returned to customers over 35 - 60 months. An additional $115.3 million is being returned to customers on a provisional basis over 15 - 69 years until our regulators establish the final refund periods. The refund of the remaining $12.1 million will be addressed in our next rate proceeding.

We currently use financial instruments to mitigate commodity price risk and interest rate risk. Our financial instruments do not contain any credit-risk-related or other contingent features that could cause accelerated payments when our financial instruments are in net liability positions.

Commodity Risk Management Activities

Our purchased gas cost adjustment mechanisms essentially insulate our distribution segment from commodity price risk; however, our customers are exposed to the effects of volatile natural gas prices. We manage this exposure through a combination of physical storage, fixed-price forward contracts and financial instruments, primarily over-the-counter swap and option contracts, in an effort to minimize the impact of natural gas price volatility on our customers during the winter heating season.

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In jurisdictions where we are permitted to mitigate commodity price risk through financial instruments, the relevant regulatory authorities may establish the level of heating season gas purchases that can be hedged. Our distribution gas supply department is responsible for executing this segment’s commodity risk management activities in conformity with regulatory requirements. Historically, if the regulatory authority does not establish this level, we seek to hedge between 25 and 50 percent of anticipated heating season gas purchases using financial instruments. For the 2020-2021 heating season (generally October through March), in the jurisdictions where we are permitted to utilize financial instruments, we hedged approximately 39 percent, or approximately 15.8 Bcf of the winter flowing gas requirements at a weighted average cost of approximately $2.86 per Mcf. We have not designated these financial instruments as hedges for accounting purposes.

Interest Rate Risk Management Activities

We manage interest rate risk by periodically entering into financial instruments to effectively fix the Treasury yield component of the interest cost associated with anticipated financings.

In fiscal 2021, we entered into forward starting interest rate swaps to effectively fix the Treasury yield component associated with $1.4 billion of planned issuances of senior unsecured notes. These swaps were designated as cash flow hedges at the time the agreements were executed.

In September 2021, we settled forward starting interest rate swaps with a notional amount of $600 million and received $62.2 million. On October 1, 2021, the notes were issued as planned.

Quantitative Disclosures Related to Financial Instruments

The following tables present detailed information concerning the impact of financial instruments on our consolidated balance sheet and statements of comprehensive income.

As of September 30, 2021, our financial instruments were comprised of both long and short commodity positions. A long position is a contract to purchase the commodity, while a short position is a contract to sell the commodity. As of September 30, 2021, we had 23,737 MMcf of net long commodity contracts outstanding. These contracts have not been designated as hedges.

Financial Instruments on the Balance Sheet

The following tables present the fair value and balance sheet classification of our financial instruments as of September 30, 2021 and 2020. As discussed in Note 2 to the consolidated financial statements, we report our financial instruments as risk management assets and liabilities, each of which is classified as current or noncurrent based upon the anticipated settlement date of the underlying financial instrument. The gross amounts of recognized assets and liabilities are netted within our consolidated balance sheets to the extent that we have netting arrangements with the counterparties. However, as of September 30, 2021 and 2020, no gross amounts and no cash collateral were netted within our consolidated balance sheet.

			Balance Sheet Location						Assets						Liabilities
									(In thousands)
September 30, 2021
Designated As Hedges:
Interest rate contracts			Deferred charges and other assets / Deferred credits and other liabilities						$	169,469					$	—
Total									169,469						—
Not Designated As Hedges:
Commodity contracts			Other current assets / Other current liabilities						55,073						(5,269)
Commodity contracts			Deferred charges and other assets / Deferred credits and other liabilities						6,144						—
Total									61,217						(5,269)
Gross / Net Financial Instruments									$	230,686					$	(5,269)

 

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			Balance Sheet Location						Assets						Liabilities
									(In thousands)
September 30, 2020
Designated As Hedges:
Interest rate contracts			Deferred charges and other assets / Deferred credits and other liabilities						$	73,055					$	—
Total									73,055						—
Not Designated As Hedges:
Commodity contracts			Other current assets / Other current liabilities						5,687						(2,015)
Commodity contracts			Deferred charges and other assets / Deferred credits and other liabilities						1,936						—
Total									7,623						(2,015)
Gross / Net Financial Instruments									$	80,678					$	(2,015)

Impact of Financial Instruments on the Statement of Comprehensive Income

Cash Flow Hedges

As discussed above, our distribution segment has interest rate agreements, which we designate as cash flow hedges at the time the agreements were executed. The net loss on settled interest rate agreements reclassified from AOCI into interest charges on our consolidated statements of comprehensive income for the years ended September 30, 2021, 2020 and 2019 was $5.9 million, $5.5 million and $3.9 million.

The following table summarizes the gains and losses arising from hedging transactions that were recognized as a component of other comprehensive income (loss), net of taxes, for the years ended September 30, 2021 and 2020.

			Fiscal Year Ended September 30
			2021						2020
			(In thousands)
Increase in fair value:
Interest rate agreements			$	123,017					$	53,241
Recognition of losses in earnings due to settlements:
Interest rate agreements			4,566						3,647
Total other comprehensive income from hedging, net of tax			$	127,583					$	56,888

Deferred gains (losses) recorded in AOCI associated with our interest rate agreements are recognized in earnings as they are amortized over the terms of the underlying debt instruments. As of September 30, 2021, we had $61.7 million of net realized losses in AOCI associated with our interest rate agreements. The following amounts, net of deferred taxes, represent the expected recognition in earnings of the deferred net losses recorded in AOCI associated with our interest rate agreements, based upon the fair values of these agreements at the date of settlement. The remaining amortization periods for these settled amounts extend through fiscal 2052. However, the table below does not include the expected recognition in earnings of our outstanding interest rate agreements as those financial instruments have not yet settled.

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						Interest Rate Agreements
						(In thousands)
2022						$	(2,959)
2023						(2,959)
2024						(2,959)
2025						(2,959)
2026						(2,959)
Thereafter						(46,919)
Total						$	(61,714)

Financial Instruments Not Designated as Hedges

As discussed above, commodity contracts which are used in our distribution segment are not designated as hedges. However, there is no earnings impact on our distribution segment as a result of the use of these financial instruments because the gains and losses arising from the use of these financial instruments are recognized in the consolidated statements of comprehensive income as a component of purchased gas cost when the related costs are recovered through our rates and recognized in revenue. Accordingly, the impact of these financial instruments is excluded from this presentation.

We report certain assets and liabilities at fair value, which is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). We record cash and cash equivalents, accounts receivable and accounts payable at carrying value, which substantially approximates fair value due to the short-term nature of these assets and liabilities. For other financial assets and liabilities, we primarily use quoted market prices and other observable market pricing information to minimize the use of unobservable pricing inputs in our measurements when determining fair value. The methods used to determine fair value for our assets and liabilities are fully described in Note 2 to the consolidated financial statements.

Fair value measurements also apply to the valuation of our pension and post-retirement plan assets. The fair value of these assets is presented in Note 10 to the consolidated financial statements.

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Quantitative Disclosures

Financial Instruments

The classification of our fair value measurements requires judgment regarding the degree to which market data are observable or corroborated by observable market data. The following tables summarize, by level within the fair value hierarchy, our assets and liabilities that were accounted for at fair value on a recurring basis as of September 30, 2021 and 2020. As required under authoritative accounting literature, assets and liabilities are categorized in their entirety based on the lowest level of input that is significant to the fair value measurement.

			Quoted Prices in Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)(1)						Significant Other Unobservable Inputs (Level 3)						Netting and Cash Collateral						September 30, 2021
			(In thousands)
Assets:
Financial instruments			$	—					$	230,686					$	—					$	—					$	230,686
Debt and equity securities
Registered investment companies			35,175						—						—						—						35,175
Bond mutual funds			34,298						—						—						—						34,298
Bonds (2)			—						35,655						—						—						35,655
Money market funds			—						2,943						—						—						2,943
Total debt and equity securities			69,473						38,598						—						—						108,071
Total assets			$	69,473					$	269,284					$	—					$	—					$	338,757
Liabilities:
Financial instruments			$	—					$	5,269					$	—					$	—					$	5,269

			Quoted Prices in Active Markets (Level 1)						Significant Other Observable Inputs (Level 2)(1)						Significant Other Unobservable Inputs (Level 3)						Netting and Cash Collateral						September 30, 2020
			(In thousands)
Assets:
Financial instruments			$	—					$	80,678					$	—					$	—					$	80,678
Debt and equity securities
Registered investment companies			37,831						—						—						—						37,831
Bond mutual funds			29,166						—						—						—						29,166
Bonds (2)			—						32,900						—						—						32,900
Money market funds			—						4,055						—						—						4,055
Total debt and equity securities			66,997						36,955						—						—						103,952
Total assets			$	66,997					$	117,633					$	—					$	—					$	184,630
Liabilities:
Financial instruments			$	—					$	2,015					$	—					$	—					$	2,015

 

(1)Our Level 2 measurements consist of over-the-counter options and swaps, which are valued using a market-based approach in which observable market prices are adjusted for criteria specific to each instrument, such as the strike price, notional amount or basis differences, municipal and corporate bonds, which are valued based on the most recent available quoted market prices and money market funds which are valued at cost.

(2)Our investments in bonds are considered available-for-sale debt securities in accordance with current accounting guidance.

Debt and equity securities are comprised of our available-for-sale debt securities and our equity securities. As described further in Note 2 to the consolidated financial statements, we adopted ASC 326 effective October 1, 2020. In accordance with the new guidance, we evaluate the performance of our available-for-sale debt securities on an investment by investment basis for impairment, taking into consideration the investment’s purpose, volatility, current returns and any intent to sell the security. As of September 30, 2021, no allowance for credit losses was recorded for our available-for-sale debt securities. At

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September 30, 2021 and 2020, the amortized cost of our available-for-sale debt securities was $35.6 million and $32.6 million. At September 30, 2021 we maintained investments in bonds that have contractual maturity dates ranging from October 2021 through September 2024.

Other Fair Value Measures

In addition to the financial instruments above, we have several financial and nonfinancial assets and liabilities subject to fair value measures. These financial assets and liabilities include cash and cash equivalents, accounts receivable, accounts payable, finance leases and debt, which are recorded at carrying value. The nonfinancial assets and liabilities include asset retirement obligations and pension and post-retirement plan assets. For cash and cash equivalents, accounts receivable, accounts payable and finance leases we consider carrying value to materially approximate fair value due to the short-term nature of these assets and liabilities.

Our long-term debt is recorded at carrying value. The fair value of our long-term debt, excluding finance leases, is determined using third party market value quotations, which are considered Level 1 fair value measurements for debt instruments with a recent, observable trade or Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The following table presents the carrying value and fair value of our long-term debt, excluding finances leases, debt issuance costs and original issue premium or discount, as of September 30, 2021:

			September 30, 2021
			(In thousands)
Carrying Amount			$	7,360,000
Fair Value			$	8,086,136

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