Atmos Energy Corp. (ATO)

Atmos Energy is a natural gas-only distributor, headquartered in Dallas and incorporated in Texas and Virginia. It delivers natural gas through regulated sales and transportation arrangements to approximately 3.4 million residential, commercial, public authority and industrial customers in eight states located primarily in the South, and it also operates one of the largest intrastate pipelines in Texas measured by miles of pipe. It had 5,487 employees at the end of its financial year on 30 September 2025, none of whom have chosen to work under a collective bargaining agreement, and as of the most recent available data 62 percent worked in field roles and 38 percent in support and shared services. It has two reportable segments: distribution, and pipeline and storage.

Distribution

The distribution segment is the regulated natural gas distribution and related sales operations in eight states, run through six divisions. Mid-Tex, the largest by rate base, serves 1,830,387 customer meters across 550 communities in Texas including the Dallas and Fort Worth metroplex. Kentucky/Mid-States serves 176,494 meters in Kentucky, 163,667 in Tennessee and 23,836 in Virginia across 220 communities. Louisiana serves 360,589 meters across 270 communities, West Texas 316,036 meters across 80 communities including Amarillo, Lubbock and Midland, Mississippi 249,562 meters across 110 communities, and Colorado-Kansas 130,890 meters in Colorado and 140,542 in Kansas across 170 communities.

The company operates in these areas under non-exclusive franchise agreements granted by the cities and towns it serves, holding 1,010 franchises at the year end with terms generally ranging from five to 35 years. A number expire each year and require renewal. It also transports natural gas for others through its distribution systems.

How the rates work

Rates are set by the regulatory authorities in each state and are intended to cover the costs of conducting business including a reasonable return on invested capital. Those rates typically include cost adjustment mechanisms for costs that swing sharply, form a large part of the cost of service, and are generally outside the company's control. The purchased gas cost adjustment mechanism is the common form: it recovers purchased gas costs on an ongoing basis without a rate case by giving a dollar-for-dollar offset to increases or decreases in the cost of gas. So although substantially all distribution operating revenues move with the cost of the gas purchased, distribution operating income is generally not affected by those swings. Some jurisdictions also have performance-based adjustments that reward minimising purchased gas costs through better storage management and the use of financial instruments, with the savings shared between the company and its customers.

Buying and moving the gas

Supply comes from a variety of suppliers including independent producers and marketers, delivered into the systems by various pipeline companies, by withdrawals from proprietary and contracted storage, and through base load and peaking arrangements. Base load quantities flow at a constant level through the month while peaking quantities give the flexibility to change daily volumes as weather shifts requirements. Except for local production purchases, suppliers are selected through a competitive bidding process, chosen on their ability to reliably deliver to designated firm pipeline receipt points at the lowest reasonable cost.

Peak-day availability of supply is estimated at approximately 5.4 Bcf, against a peak-day demand for the distribution operations in the 2025 financial year of approximately 4.2 Bcf, reached on 19 February 2025. The distribution divisions use 33 interstate and intrastate pipeline transportation companies, under firm agreements many of which carry no-notice storage service allowing daily balancing between system requirements and nominated flowing supplies. The gas for the Mid-Tex division is delivered primarily by the company's own Texas pipeline division.

The company can interrupt or curtail service to certain customers under its contracts and applicable state rules, and has done so, in order to maintain deliveries to high priority customers. The filing notes that customer demand on the system is not necessarily indicative of its ability to meet current or anticipated demand, because of factors including the physical limits of gathering, storage and transmission systems, the duration and severity of cold weather, the availability of gas reserves from suppliers, and actions by regulators.

Pipeline and storage

The regulated pipeline and storage operations of Atmos Pipeline-Texas plus natural gas transmission in Louisiana. The Texas pipeline is described as one of the largest intrastate pipeline operations in the state, concentrated in the established gas-producing areas of central, northern and eastern Texas and extending into or near the Barnett Shale, the Texas Gulf Coast and the Permian Basin of West Texas. It provides transportation and storage services to the company's own Mid-Tex division and to third-party local distribution companies, industrial and electric generation customers, marketers and producers, and it owns and operates five underground storage facilities in Texas.

Its transportation and storage rates fall under traditional ratemaking by the Texas Railroad Commission, updated through periodic filings under a state mechanism that allows approved capital costs from the prior calendar year into the rate base annually provided a complete rate case is filed at least every five years, the most recent completed in December 2023. Certain transportation and storage services are provided at market-based rates.

The Louisiana transmission operation is a 21-mile pipeline in the New Orleans area, used primarily to aggregate gas supply for the company's Louisiana distribution division under a long-term contract and, on a more limited basis, for third parties. The demand fee charged to the Louisiana distribution division is subject to approval by the Louisiana Public Service Commission. The company also manages two asset management plans serving its own distribution affiliates, approved by the relevant state commissions, and the filing says these plans generally require it to share with its distribution customers a significant portion of the cost savings earned from them.

From Atmos Energy's annual report on Form 10-K for the year ended 30 September 2025. The filing