8-KRegulation FD

ATMOS ENERGY CORP 8-K Report, Regulation FD Disclosure (Feb 20, 2018)

Filed February 20, 2018For Securities:ATO

Summary

Atmos Energy Corp. (ATO) filed an 8-K on February 20, 2018, disclosing significant regulatory settlements impacting its Dallas operations and other Texas divisions. A key development is the resolution of a Statement of Intent with the City of Dallas, which will result in an annual operating income decrease of $5.1 million, primarily due to incorporating the new 21% federal income tax rate from the Tax Cuts and Jobs Act (TCJA) into customer bills. New rates in Dallas took effect on February 15, 2018, establishing an authorized return on equity of 9.8% for future rate reviews. Furthermore, Atmos Energy has reached an agreement in principle with approximately 70% of its customers in the Mid-Tex and West Texas Divisions to modify their annual Rate Review Mechanism (RRM). Similar to the Dallas settlement, this includes rate reductions reflecting the lower federal income tax rate, an authorized ROE of 9.8%, and specific capital structure and test period parameters. The company is also in discussions with remaining cities and the Railroad Commission of Texas regarding rate adjustments. These regulatory outcomes are expected to support the company's fiscal 2018 earnings guidance and its long-term EPS growth targets.

Key Highlights

  • 1Settlement reached with the City of Dallas resolving a Statement of Intent (SOI) filed in August 2017.
  • 2Annual operating income expected to decrease by $5.1 million due to regulatory settlements.
  • 3New federal statutory income tax rate of 21% (Tax Cuts and Jobs Act) will be incorporated into customer bills.
  • 4Authorized return on equity (ROE) set at 9.8% for future rate reviews in Dallas and modified Mid-Tex/West Texas agreements.
  • 5Agreement in principle reached with approximately 70% of customers in Mid-Tex and West Texas Divisions to modify their Rate Review Mechanism (RRM).
  • 6Adjustments to rates in Dallas effective February 15, 2018; Mid-Tex/West Texas effective mid-March 2018.
  • 7The regulatory outcomes are expected to support the company's previously issued fiscal 2018 earnings guidance and EPS growth targets.

Frequently Asked Questions

The settlement with the City of Dallas will result in an annual decrease in operating income of $5.1 million. This reduction is mainly to pass on the benefits of the lower 21% federal corporate income tax rate enacted by the Tax Cuts and Jobs Act (TCJA) to customers.

The TCJA lowered the federal corporate income tax rate to 21%. Atmos Energy is incorporating this lower rate into customer bills through regulatory mechanisms, leading to rate reductions in its service territories. This also involves addressing deferred tax liabilities.

The modified RRM includes rate reductions to reflect the 21% federal income tax rate, an authorized return on equity (ROE) of 9.8%, a capital structure with equity limited to 58%, and a specific test period ending December 31 for rate implementation the following October 1. This agreement is subject to regulatory approval.

The company states that the actual and anticipated outcomes from these regulatory developments are expected to support its most recent fiscal 2018 earnings guidance of $3.85 - $4.05 per share, excluding a one-time tax benefit, and its ability to continue growing earnings per share between six and eight percent annually.