INTRODUCTION

The following discussion should be read in conjunction with the summary consolidated financial statements in this Quarterly Report on Form 10-Q and the Management’s Discussion and Analysis in our Annual Report on Form 10-K for the year ended September 30, 2021.

Caution for safe harbor purposes under the Private Securities Litigation Reform Act of 1995

The statements contained in this Quarterly Report on Form 10-Q may contain
"forward-looking statements" within the meaning of Section 27A of the Securities
Act of 1933 and Section 21E of the Securities Exchange Act of 1934. All
statements other than statements of historical fact included in this Report are
forward-looking statements made in good faith by us and are intended to qualify
for the safe harbor from liability established by the Private Securities
Litigation Reform Act of 1995. When used in this Report, or any other of our
documents or oral presentations, the words "anticipate", "believe", "estimate",
"expect", "forecast", "goal", "intend", "objective", "plan", "projection",
"seek", "strategy" or similar words are intended to identify forward-looking
statements. Such forward-looking statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
expressed or implied in the statements relating to our strategy, operations,
markets, services, rates, recovery of costs, availability of gas supply and
other factors. These risks and uncertainties include the following: federal,
state and local regulatory and political trends and decisions, including the
impact of rate proceedings before various state regulatory commissions;
increased federal regulatory oversight and potential penalties; possible
increased federal, state and local regulation of the safety of our operations;
the impact of greenhouse gas emissions or other legislation or regulations
intended to address climate change; possible significant costs and liabilities
resulting from pipeline integrity and other similar programs and related
repairs; the inherent hazards and risks involved in distributing, transporting
and storing natural gas; the availability and accessibility of contracted gas
supplies, interstate pipeline and/or storage services; increased competition
from energy suppliers and alternative forms of energy; adverse weather
conditions; the impact of climate change; the inability to continue to hire,
train and retain operational, technical and managerial personnel; increased
dependence on technology that may hinder the Company's business if such
technologies fail; the threat of cyber-attacks or acts of cyber-terrorism that
could disrupt our business operations and information technology systems or
result in the loss or exposure of confidential or sensitive customer, employee
or Company information; natural disasters, terrorist activities or other events
and other risks and uncertainties discussed herein, all of which are difficult
to predict and many of which are beyond our control; the capital-intensive
nature of our business; our ability to continue to access the credit and capital
markets to execute our business strategy; market risks beyond our control
affecting our risk management activities, including commodity price volatility,
counterparty performance or creditworthiness and interest rate risk; the
concentration of our operations in Texas; the impact of adverse economic
conditions on our customers; changes in the availability and price of natural
gas; increased costs of providing health care benefits, along with pension and
postretirement health care benefits and increased funding requirements; and the
outbreak of COVID-19 and its impact on business and economic conditions.
Accordingly, while we believe these forward-looking statements to be reasonable,
there can be no assurance that they will approximate actual experience or that
the expectations derived from them will be realized. Further, we undertake no
obligation to update or revise any of our forward-looking statements whether as
a result of new information, future events or otherwise.

OVERVIEW

Atmos Energy and our subsidiaries are engaged in the regulated natural gas
distribution and pipeline and storage businesses. We distribute natural gas
through sales and transportation arrangements to over three million residential,
commercial, public authority and industrial customers throughout our six
distribution divisions, which at June 30, 2022 covered service areas located in
eight states. In addition, we transport natural gas for others through our
distribution and pipeline systems.

We manage and review our consolidated operations through the following reportable segments:

•The distribution segment is primarily comprised of our regulated natural gas
distribution and related sales operations in eight states.
•The pipeline and storage segment is comprised primarily of the pipeline and
storage operations of our Atmos Pipeline-Texas division and our natural gas
transmission operations in Louisiana.
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CRITICAL ACCOUNTING ESTIMATES AND POLICIES

Our condensed consolidated financial statements were prepared in accordance with
accounting principles generally accepted in the United States. Preparation of
these financial statements requires us to make estimates and judgments that
affect the reported amounts of assets, liabilities, revenues and expenses and
the related disclosures of contingent assets and liabilities. We based our
estimates on historical experience and various other assumptions that we believe
to be reasonable under the circumstances. On an ongoing basis, we evaluate our
estimates, including those related to the allowance for doubtful accounts, legal
and environmental accruals, insurance accruals, pension and postretirement
obligations, deferred income taxes and the valuation of goodwill and other
long-lived assets. Actual results may differ from such estimates.

Our critical accounting policies used in the preparation of our consolidated
financial statements are described in our Annual Report on Form 10-K for the
fiscal year ended September 30, 2021 and include the following:

•Regulation

•Unbilled revenue
•Pension and other postretirement plans
•Impairment assessments

Our significant accounting policies are reviewed periodically by the Audit Committee of our Board of Directors. There have been no material changes to these critical accounting policies during the nine months ended June 30, 2022.

RESULTS OF OPERATIONS

Summary

Atmos Energy strives to operate our businesses safely and reliably while
delivering superior shareholder value. Our commitment to modernizing our natural
gas distribution and transmission systems requires a significant level of
capital spending. We have the ability to begin recovering a significant portion
of these investments timely through rate designs and mechanisms that reduce or
eliminate regulatory lag and separate the recovery of our approved rate from
customer usage patterns. The execution of our capital spending program, the
ability to recover these investments timely and our ability to access the
capital markets to satisfy our financing needs are the primary drivers that
affect our financial performance.

During the nine months ended June 30, 2022, we recorded net income of $702.8
million, or $5.12 per diluted share, compared to net income of $616.8 million,
or $4.77 per diluted share for the nine months ended June 30, 2021.

The 14 percent year-over-year increase in net income largely reflects positive
rate outcomes driven by safety and reliability spending and customer growth in
our distribution segment, offset by higher spending on certain operating and
maintenance expenses in both our segments.

During the nine months ended June 30, 2022, we implemented ratemaking regulatory
actions which resulted in an increase in annual operating income of $154.9
million. Excluding the impact of the refund of excess deferred income taxes
resulting from previously enacted tax reform legislation, our total rate
outcomes were $205.9 million for the nine months ended June 30, 2022.
Additionally, as of June 30, 2022, we had ratemaking efforts in progress seeking
a total increase in annual operating income of $132.6 million.

Capital expenditures for the nine months ended June 30, 2022 were $1.7 billion.
Over 85 percent was invested to improve the safety and reliability of our
distribution and transportation systems, with a significant portion of this
investment incurred under regulatory mechanisms that reduce lag to six months or
less.

During the nine months ended June 30, 2022, we completed approximately $1.5
billion of long-term debt and equity financing. As of June 30, 2022, our equity
capitalization was 53.8 percent. Excluding the $2.2 billion of incremental
financing issued in conjunction with Winter Storm Uri, our equity capitalization
was 61.7 percent. As of June 30, 2022, we had approximately $3.5 billion in
total liquidity, consisting of $328.1 million in cash and cash equivalents,
$700.9 million in funds available through equity forward sales agreements and
$2,494.4 million in undrawn capacity under our credit facilities.

Thanks to our strong financial performance, our Board of Directors increased the quarterly dividend by 8.8% for fiscal year 2022.

The following text presents the results of operations for each of our operating segments.

Retail Sector

The distribution segment is primarily comprised of our regulated natural gas
distribution and related sales operations in eight states. The primary factors
that impact the results of this segment are our ability to earn our authorized
rates of return, competitive factors in the energy industry and economic
conditions in our service areas.
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Our ability to earn our authorized rates of return is based primarily on our
ability to improve the rate design in our various ratemaking jurisdictions to
minimize regulatory lag and, ultimately, separate the recovery of our approved
rates from customer usage patterns. Improving rate design is a long-term process
and is further complicated by the fact that we operate in multiple rate
jurisdictions. Under our current rate design, approximately 70 percent of our
distribution segment revenues are earned through the first six months of the
fiscal year. Additionally, we currently recover approximately 60 percent of our
distribution segment revenue, excluding gas costs, through the base customer
charge, which partially separates the recovery of our approved rate from
customer usage patterns.

Seasonal weather patterns can also affect our distribution operations. However,
the effect of weather that is above or below normal is substantially offset
through weather normalization adjustments, known as WNA, which have been
approved by state regulatory commissions for approximately 96 percent of our
residential and commercial revenues in the following states for the following
time periods:

Kansas, West Texas               October - May
Tennessee                        October - April
Kentucky, Mississippi, Mid-Tex   November - April
Louisiana                        December - March
Virginia                         January - December


Our distribution operations are also affected by the cost of natural gas. We are
generally able to pass the cost of gas through to our customers without markup
under purchased gas cost adjustment mechanisms; therefore, increases in the cost
of gas are offset by a corresponding increase in revenues. Revenues in our Texas
and Mississippi service areas include franchise fees and gross receipts taxes,
which are calculated as a percentage of revenue (inclusive of gas costs).
Therefore, the amount of these taxes included in revenues is influenced by the
cost of gas and the level of gas sales volumes. We record the associated tax
expense as a component of taxes, other than income.

The cost of gas typically does not have a direct impact on our operating income
because these costs are recovered through our purchased gas cost adjustment
mechanisms.  However, higher gas costs may adversely impact our accounts
receivable collections, resulting in higher bad debt expense.  This risk is
currently mitigated by rate design that allows us to collect from our customers
the gas cost portion of our bad debt expense on approximately 79 percent of our
residential and commercial revenues.  Additionally, higher gas costs may require
us to increase borrowings under our credit facilities, resulting in higher
interest expense.  Finally, higher gas costs, as well as competitive factors in
the industry and general economic conditions may cause customers to conserve or,
in the case of industrial consumers, to use alternative energy sources.

Three months completed June 30, 2022 compared to the three months ended June 30, 2021

Financial and operational highlights of our distribution segment for the three months ended June 30, 2022 and 2021 are shown below.

                                                                             Three Months Ended June 30
                                                                     2022                  2021              Change
                                                                       (In thousands, unless otherwise noted)
Operating revenues                                             $      773,311          $ 558,750          $ 214,561
Purchased gas cost                                                    390,559            202,050            188,509

Operating expenses                                                    316,693            288,577             28,116
Operating income                                                       66,059             68,123             (2,064)
Other non-operating income                                              6,708              1,060              5,648
Interest charges                                                       12,341              8,540              3,801
Income before income taxes                                             60,426             60,643               (217)

Income tax expense                                                      3,025              7,354             (4,329)
Net income                                                     $       57,401          $  53,289          $   4,112
Consolidated distribution sales volumes - MMcf                         44,954             41,352              3,602
Consolidated distribution transportation volumes - MMcf                34,360             34,776               (416)
Total consolidated distribution throughput - MMcf                      79,314             76,128              3,186

Average consolidated gas distribution cost per Mcf sold $8.69 $4.89 $3.80

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Operating income for our distribution segment decreased three percent. Increased
refunds of excess deferred taxes to customers decreased period-over-period
operating income by $20.8 million and reduced the interim effective income tax
rate for this segment to 5.0% compared to 12.1% in the prior year period.
Additional key drivers for the change in operating income include:

•a $30.5 million increase in price adjustments, mainly in our Mid-Tex and Louisiane divisions.

•a $3.3 million increase in consumption, net of our weather normalization adjustments (WNA)

•a $2.6 million increase in the number of customers, mainly in our Mid-Tex division.

•a $1.8 million decrease in other operation and maintenance expense, primarily
due to lower bad debt expense and other administrative costs in the current-year
quarter.

Partially offset by:

•a $13.7 million increased depreciation expense and property taxes associated with increased capital investment.

•a $5.0 million increased system maintenance and related activities.

The following table shows our operating income by distribution division, in order of total rate base, for the three months ended June 30, 2022 and 2021. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for pricing purposes.

                             Three Months Ended June 30
                          2022           2021         Change
                                   (In thousands)
Mid-Tex               $   30,574      $ 33,135      $ (2,561)
Kentucky/Mid-States       13,715        11,773         1,942
Louisiana                 10,892        11,027          (135)
West Texas                 1,876         5,118        (3,242)
Mississippi                4,932         5,365          (433)
Colorado-Kansas            3,335         2,517           818
Other                        735          (812)        1,547
Total                 $   66,059      $ 68,123      $ (2,064)



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Nine month period ended June 30, 2022 compared to the nine months ended June 30, 2021

Financial and operational highlights of our distribution segment for the nine months ended June 30, 2022 and 2021 are shown below.

                                                                               Nine Months Ended June 30
                                                                      2022                   2021               Change
                                                                         (In thousands, unless otherwise noted)
Operating revenues                                             $     3,356,279          $ 2,718,074          $ 638,205
Purchased gas cost                                                   1,881,212            1,304,269            576,943

Operating expenses                                                     907,208              832,873             74,335
Operating income                                                       567,859              580,932            (13,073)
Other non-operating income                                               9,173                1,135              8,038
Interest charges                                                        36,046               33,269              2,777
Income before income taxes                                             540,986              548,798             (7,812)

Income tax expense                                                      35,163              109,481            (74,318)
Net income                                                     $       505,823          $   439,317          $  66,506
Consolidated distribution sales volumes - MMcf                         256,717              275,691            (18,974)
Consolidated distribution transportation volumes - MMcf                120,037              120,150               (113)
Total consolidated distribution throughput - MMcf                      376,754              395,841            (19,087)

Average consolidated gas distribution cost per Mcf sold $7.33 $4.73 $2.60


Operating income for our distribution segment decreased two percent. Increased
refunds of excess deferred taxes to customers decreased period-over-period
operating income by $89.5 million and reduced the interim effective income tax
rate for this segment to 6.5% compared to 19.9% in the prior year period.
Additional key drivers for the change in operating income include:

•a $122.6 million increase in price adjustments, mainly in our Mid-Tex, West Texas and divisions of Louisiana.

•a $13.2 million increase in the number of customers, mainly in our Mid-Tex division.

Partially offset by:

•a $34.8 million increased depreciation expense and property taxes associated with increased capital investment.

•a $13.1 million lower consumption, net of WNA, mainly due to lower residential consumption during the second fiscal quarter.

•a $12.3 million increased system maintenance and related activities.

•a $2.9 million increase in other operating and maintenance expenses, mainly due to employee costs, insurance premiums and other administrative costs, partially offset by a decrease in bad debts in the current year.

The following table shows our operating income by distribution division, in order of total rate base, for the nine months ended June 30, 2022 and 2021. The presentation of our distribution operating income is included for financial reporting purposes and may not be appropriate for pricing purposes.

                              Nine Months Ended June 30
                         2022           2021          Change
                                   (In thousands)
Mid-Tex               $ 292,207      $ 284,104      $   8,103
Kentucky/Mid-States      75,541         69,127          6,414
Louisiana                61,842         66,718         (4,876)
West Texas               53,907         51,364          2,543
Mississippi              66,719         68,142         (1,423)
Colorado-Kansas          28,187         36,610         (8,423)
Other                   (10,544)         4,867        (15,411)
Total                 $ 567,859      $ 580,932      $ (13,073)



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Recent developments in pricing

The amounts described in the following sections represent the operating income
that was requested or received in each rate filing, which may not necessarily
reflect the stated amount referenced in the final order, as certain operating
costs may have changed as a result of a commission's or other governmental
authority's final ruling. During the first nine months of fiscal 2022, we
implemented, or received approval to implement, regulatory proceedings,
resulting in a $76.1 million increase in annual operating income as summarized
below. Our ratemaking outcomes include the refund of excess deferred income
taxes (EDIT) resulting from previously enacted tax reform legislation and do not
reflect the true economic benefit of the outcomes because they do not include
the corresponding income tax benefit. Excluding these amounts, our total rate
outcomes for ratemaking activities for the nine months ended June 30, 2022 were
$127.1 million.

                                                                                                    Annual Increase
                                                 Annual Increase                                     (Decrease) in
                                                  (Decrease) in                                    Operating Income
Rate Action                                     Operating Income            EDIT Impact             Excluding EDIT
                                                                           (In thousands)
Annual formula rate mechanisms                $           70,488          $      43,638          $          114,126
Rate case filings                                          5,938                  7,379                      13,317
Other rate activity                                         (370)                     -                        (370)
                                              $           76,056          $      51,017          $          127,073

The following pricing efforts aimed at $132.6 million increase in annual operating income were in progress at the June 30, 2022:

                                                                                                                              Operating Income
Division                                   Rate Action                                    Jurisdiction                            Requested
                                                                                                                               (In thousands)

Kentucky/Mid-States                        Infrastructure Mechanism                       Virginia                          $              477
Kentucky/Mid-States                        Formula Rate Mechanism                         Tennessee (1)                                  3,662
Louisiana                                  Formula Rate Mechanism                         Louisiana (2)                                 17,650

Mid-Tex                                    Formula Rate Mechanism                         Mid-Tex Cities                                92,615

Mississippi                                Infrastructure Mechanism                       Mississippi                                   10,006

West Texas                                 Formula Rate Mechanism          
              West Texas Cities                              8,208

                                                                                                                            $          132,618


(1)  The Tennessee Public Utility Commission approved the ARM filing on June 20,
2022 for an increase in operating income of $2.5 million with rates effective
July 1, 2022.
(2)  The Company implemented the requested amount, subject to refund, on July 1,
2022 and anticipates resolving the RSC filing during the fourth quarter of
fiscal 2022.

Annual Formula Rate Mechanisms

As an instrument to reduce regulatory lag, formula rate mechanisms allow us to
refresh our rates on an annual basis without filing a formal rate case. However,
these filings still involve discovery by the appropriate regulatory authorities
prior to the final determination of rates under these mechanisms. We currently
have formula rate mechanisms in our Louisiana, Mississippi and Tennessee
operations and in substantially all the service areas in our Texas divisions.
Additionally, we have specific infrastructure programs in substantially all of
our distribution divisions with tariffs in place to permit the investment
associated with these programs to have their surcharge rate adjusted annually to
recover approved capital costs incurred in a prior test-year period. The
following table summarizes our annual formula rate mechanisms by state:
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                                                             Annual Formula Rate Mechanisms
State                             Infrastructure Programs                                 Formula Rate Mechanisms

                            System Safety and Integrity Rider
Colorado                    (SSIR)                                              -
                            Gas System Reliability Surcharge
                            (GSRS), System Integrity Program
Kansas                      (SIP)                                               -
Kentucky                    Pipeline Replacement Program (PRP)                  -
Louisiana                   (1)                                                 Rate Stabilization Clause (RSC)
Mississippi                 System Integrity Rider (SIR)                        Stable Rate Filing (SRF)
Tennessee                   (1)                                             

Annual Rate Mechanism (ARM)

                            Gas Reliability Infrastructure                      Dallas Annual Rate Review (DARR), Rate
Texas                       Program (GRIP), (1)                                 Review Mechanism (RRM)
                            Steps to Advance Virginia Energy
Virginia                    (SAVE)                                              -



(1)  Infrastructure mechanisms in Texas, Louisiana and Tennessee allow for the
deferral of all expenses associated with capital expenditures incurred pursuant
to these rules, which primarily consists of interest, depreciation and other
taxes (Texas only), until the next rate proceeding (rate case or annual rate
filing), at which time investment and costs would be recoverable through base
rates.

The following annual formula rate mechanisms have been approved during the nine months ended June 30, 2022:

                                                                                                                                    Increase
                                                                                        Increase                                 (Decrease) in
                                                                                      (Decrease) in                                  Annual
                                                                                         Annual                                    Operating
                                                                  Test Year             Operating                                    Income              Effective
Division                              Jurisdiction                  Ended                Income              EDIT Impact         Excluding EDIT            Date
                                                                                                           (In thousands)
2022 Filings:

                                 Amarillo, Lubbock,
West Texas                       Dalhart and Channing              

31/12/2021 $6,122 $- $6,122

            06/11/2022
West Texas                       Triangle                           12/31/2021              1,549                     -                1,549               06/11/2022
West Texas                       Environs                           12/31/2021              1,221                     -                1,221               06/11/2022
Mid-Tex                          ATM Cities                         12/31/2021             12,815                     -               12,815               06/10/2022
Mid-Tex                          Environs                           12/31/2021              5,646                     -                5,646               06/10/2022
Mid-Tex                          DARR (1)                           09/30/2021             13,201                     -               13,201               05/25/2022

Colorado-Kansas                  Kansas SIP                         12/31/2021                623                     -                  623               04/01/2022
Colorado-Kansas                  Kansas GSRS                        09/30/2021              1,820                     -                1,820               02/01/2022
Colorado-Kansas                  Colorado SSIR                      12/31/2022              2,610                     -                2,610               01/01/2022
Mid-Tex                          Mid-Tex Cities RRM                 12/31/2020             21,673                33,851               55,524               12/01/2021
West Texas                       West Texas Cities RRM              12/31/2020                151                 3,347                3,498               12/01/2021
Mississippi                      Mississippi - SIR                  10/31/2022              8,354                 2,123               10,477               11/01/2021
Mississippi                      Mississippi - SRF                  10/31/2022             (5,624)                4,317               (1,307)              11/01/2021
Kentucky/Mid-States              Virginia - SAVE                    09/30/2022                327                     -                  327               10/01/2021

Total 2022 Filings                                                                   $     70,488          $     43,638          $   114,126

(1) The rate increase for this filing was approved based on the effective date hereof; however, the new rates will be applied from September 1, 2022.

Pricing case filings

A rate case is a formal request from Atmos Energy to a regulatory authority to
increase rates that are charged to our customers. Rate cases may also be
initiated when the regulatory authorities request us to justify our rates. This
process is referred to as a "show cause" action. Adequate rates are intended to
provide for recovery of the Company's costs as well as a fair rate of return and
ensure that we continue to deliver reliable, reasonably priced natural gas
service safely to our customers.
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The following table summarizes the rate cases completed during the nine months ended June 30, 2022.

                                                                                                                  Increase
                                                                       Increase                                   in Annual
                                                                      in Annual                                   Operating
                                                                      Operating                                    Income                Effective
Division                                          State                 Income             EDIT Impact         Excluding EDIT              Date
                                                                                          (In thousands)
2022 Rate Case Filings:

Kentucky/Mid-States                         Kentucky (1)            $     5,938          $      7,379          $     13,317                 05/20/2022

Total 2022 Rate Case Filings                                        $     5,938          $      7,379          $     13,317


(1) The outcome of the tariff case for Kentucky includes the fiscal year 2022 pipeline replacement program.

Other Ratemaking Activity

The following table summarizes other ratemaking activity during the nine months
ended June 30, 2022.
                                                                                                                Decrease in
                                                                                                                   Annual
                                                                                                                 Operating                Effective
Division                                                  Jurisdiction               Rate Activity                 Income                    Date
                                                                                                               (In thousands)
2022 Other Rate Activity:
Colorado-Kansas                                        Kansas                    Ad Valorem (1)              $          (370)                 02/01/2022
Total 2022 Other Rate Activity                                                                               $          (370)


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


Pipeline and Storage Segment

Our pipeline and storage segment consists of the pipeline and storage operations
of our Atmos Pipeline-Texas Division (APT) and our natural gas transmission
operations in Louisiana. APT is one of the largest intrastate pipeline
operations in Texas with a heavy concentration in the established natural gas
producing areas of central, northern and eastern Texas, extending into or near
the major producing areas of the Barnett Shale, the Texas Gulf Coast and the
Permian Basin of West Texas. APT provides transportation and storage services to
our Mid-Tex Division, other third-party local distribution companies, industrial
and electric generation customers, as well as marketers and producers. Over 80
percent of this segment's revenues are derived from these services. As part of
its pipeline operations, APT owns and operates five underground storage
facilities in Texas.

Our natural gas transmission operations in Louisiana are comprised of a 21-mile
pipeline located in the New Orleans, Louisiana area that is primarily used to
aggregate gas supply for our distribution division in Louisiana under a
long-term contract and, on a more limited basis, to third parties. The demand
fee charged to our Louisiana distribution division for these services is subject
to regulatory approval by the Louisiana Public Service Commission. We also
manage two asset management plans, which have been approved by applicable state
regulatory commissions. Generally, these asset management plans require us to
share with our distribution customers a significant portion of the cost savings
earned from these arrangements.

Our pipeline and storage segment is impacted by seasonal weather patterns,
competitive factors in the energy industry and economic conditions in our Texas
and Louisiana service areas. Natural gas prices do not directly impact the
results of this segment as revenues are derived from the transportation and
storage of natural gas. However, natural gas prices and demand for natural gas
could influence the level of drilling activity in the supply areas that we
serve, which may influence the level of throughput we may be able to transport
on our pipelines. Further, natural gas price differences between the various
hubs that we serve in Texas could influence the volumes of gas transported for
shippers through our Texas pipeline system and rates for such transportation.

APT’s results are also strongly impacted by the natural gas needs of its ELD customers. In addition, its operations may be affected by when costs and expenses are incurred and when those costs and expenses are recovered through its rates.

APT annually uses GRIP to recover capital costs incurred in the prior calendar
year. On February 11, 2022, APT made a GRIP filing that covered changes in net
property, plant and equipment investments from January 1, 2021 through December
31, 2021 with a requested increase in operating income of $78.8 million. On May
18, 2022, the Texas Railroad Commission approved the Company's GRIP filing.


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Three months completed June 30, 2022 compared to the three months ended June 30, 2021

Financial and operational highlights for our pipeline and storage segment for the three months ended June 30, 2022 and 2021 are shown below.

                                                                             Three Months Ended June 30
                                                                     2022                  2021             Change
                                                                       (In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation revenue                     $      144,970          $ 126,022          $ 18,948
Third-party transportation revenue                                     35,939             33,565             2,374

Other revenue                                                           2,503              3,400              (897)
Total operating revenues                                              183,412            162,987            20,425
Total purchased gas cost                                               (1,347)               691            (2,038)

Operating expenses                                                     96,231             97,029              (798)
Operating income                                                       88,528             65,267            23,261
Other non-operating income                                              6,555              4,827             1,728
Interest charges                                                       13,849             12,422             1,427
Income before income taxes                                             81,234             57,672            23,562

Income tax expense                                                     10,088              8,550             1,538
Net income                                                     $       71,146          $  49,122          $ 22,024
Gross pipeline transportation volumes - MMcf                          175,117            187,408           (12,291)
Consolidated pipeline transportation volumes - MMcf                   146,422            153,166            (6,744)


Operating profit for our pipeline and storage segment increased by 36%. The main factors for the variation in operating income include:

•a $21.0 million increase due to rate adjustments from the GRIP filings approved
in May 2021 and 2022. The increase in rates was driven by increased safety and
reliability spending.

•a $6.1 million decrease in system maintenance expenses mainly due to timing of expenses.

Partially offset by:

•a $4.5 million increased depreciation and property tax expenses associated with increased capital investments.

Nine month period ended June 30, 2022 compared to the nine months ended June 30, 2021

Financial and operational highlights for our pipeline and storage segment for the nine months ended June 30, 2022 and 2021 are shown below.

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                                                                             Nine Months Ended June 30
                                                                     2022                  2021             Change
                                                                       (In thousands, unless otherwise noted)
Mid-Tex / Affiliate transportation revenue                     $      401,455          $ 371,871          $ 29,584
Third-party transportation revenue                                     98,696             93,894             4,802
Other revenue                                                           9,926             11,103            (1,177)
Total operating revenues                                              510,077            476,868            33,209
Total purchased gas cost                                               (3,075)              (440)           (2,635)

Operating expenses                                                    265,431            244,206            21,225
Operating income                                                      247,721            233,102            14,619
Other non-operating income                                             18,005             13,658             4,347
Interest charges                                                       38,923             35,799             3,124
Income before income taxes                                            226,803            210,961            15,842

Income tax expense                                                     29,871             33,435            (3,564)
Net income                                                     $      196,932          $ 177,526          $ 19,406
Gross pipeline transportation volumes - MMcf                          581,545            614,594           (33,049)
Consolidated pipeline transportation volumes - MMcf                   411,884            428,331           (16,447)


Operating income for our pipeline and storage segment increased six percent.
Increased refunds of excess deferred taxes to customers decreased
period-over-period operating income by $13.3 million and reduced the interim
effective income tax rate for this segment to 13.2% compared to 15.8% in the
prior year period. Additional drivers for the change in operating income
include:

•a $49.4 million increase due to rate adjustments from the GRIP filings approved
in May 2021 and 2022. The increase in rates was driven by increased safety and
reliability spending.

Partially offset by:

•a $7.3 million increased system maintenance expenses mainly due to hydrostatic testing expenses.

•a $2.4 million net decrease in APT’s business in the system, primarily related to lower volumes due to increased competing takeout capacity in the Permian Basin and tighter regional spreads.

•a $11.1 million increased depreciation expense and property taxes associated with increased capital investment.

Cash and capital resources

The liquidity required to fund our working capital, capital expenditures and
other cash needs is provided from a combination of internally generated cash
flows and external debt and equity financing. Additionally, we have a $1.5
billion commercial paper program and four committed revolving credit facilities
with $2.5 billion in total availability from third-party lenders. The commercial
paper program and credit facilities provide cost-effective, short-term financing
until it can be replaced with a balance of long-term debt and equity financing
that achieves the Company's desired capital structure with an
equity-to-total-capitalization ratio between 50% and 60%, inclusive of long-term
and short-term debt. Additionally, we have various uncommitted trade credit
lines with our gas suppliers that we utilize to purchase natural gas on a
monthly basis.

We have a shelf registration statement on file with the Securities and Exchange
Commission (SEC) that allows us to issue up to $5.0 billion in common stock
and/or debt securities. As of the date of this report, $2.2 billion of
securities were available for issuance under the shelf registration statement,
which expires June 29, 2024.

We also have an at-the-market (ATM) equity sales program that allows us to issue
and sell shares of our common stock up to an aggregate offering price of $1.0
billion (including shares of common stock that may be sold pursuant to forward
sale agreements entered into in connection with the ATM equity sales program),
which expires June 29, 2024. As of June 30, 2022, $663.0 million of equity was
available for issuance under this ATM equity sales program. Additionally, as of
June 30, 2022, we had $700.9 million in proceeds from executed forward sale
agreements available through December 29, 2023. Additional details are
summarized in Note 7 to the unaudited condensed consolidated financial
statements.
                                       37
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The liquidity provided by these sources is expected to be sufficient to fund the
Company's working capital needs and capital expenditure program for the
remainder of fiscal year 2022. Additionally, we expect to continue to be able to
obtain financing upon reasonable terms as necessary.

The following table presents our capitalization inclusive of short-term debt and
the current portion of long-term debt as of June 30, 2022, September 30, 2021
and June 30, 2021:


                                             June 30, 2022                             September 30, 2021                              June 30, 2021
                                                                               (In thousands, except percentages)
Short-term debt                   $          -                   -  %       $                -                   -  %       $          -                   -  %
Long-term debt (1)                   7,960,594                46.2  %                7,330,657                48.1  %          7,328,947                48.5  %
Shareholders' equity (2)             9,268,171                53.8  %                7,906,889                51.9  %          7,773,758                51.5  %
Total                             $ 17,228,765               100.0  %       $       15,237,546               100.0  %       $ 15,102,705               100.0  %


(1)   Inclusive of our finance leases.
(2)   Excluding the $2.2 billion of incremental financing issued to pay for the
purchased gas costs incurred during Winter Storm Uri, our equity capitalization
ratio was 61.7% at June 30, 2022 and 60.6% at September 30, 2021.

Cash flow

Our internally generated funds may change in the future due to a number of factors, some of which we cannot control. These factors include regulatory changes, the price of our services, demand for these products and services, margin requirements resulting from significant changes in commodity prices, operational risks and other factors.

Cash flow from operating, investing and financing activities for the nine months ended June 30, 2022 and 2021 are shown below.

Nine month period ended June 30th

                                                                 2022                  2021                 Change
                                                                                  (In thousands)
Total cash provided by (used in)
Operating activities                                        $    929,316          $ (1,158,467)         $ 2,087,783
Investing activities                                          (1,714,569)           (1,352,317)            (362,252)
Financing activities                                             996,605             3,014,597           (2,017,992)
Change in cash and cash equivalents                              211,352               503,813             (292,461)
Cash and cash equivalents at beginning of period                 116,723                20,808               95,915
Cash and cash equivalents at end of period                  $    328,075    

$524,621 ($196,546)

Cash flow from operating activities

For the nine months ended June 30, 2022, we generated cash flow from operating
activities of $929.3 million compared with $1.2 billion of cash flows used from
operating activities for the nine months ended June 30, 2021. Excluding the $2.1
billion incurred in the prior-year period for gas costs incurred during Winter
Storm Uri, operating cash flow decreased $0.8 million primarily due to a $102.8
million refund of excess deferred tax liabilities, mostly offset by the timing
of gas cost recoveries and the positive effects of successful rate case outcomes
achieved in fiscal 2021.

Cash flow from investing activities

Our capital expenditures are primarily used to improve the safety and
reliability of our distribution and transmission system through pipeline
replacement and system modernization and to enhance and expand our system to
meet customer needs. Over the last three fiscal years, approximately 88 percent
of our capital spending has been committed to improving the safety and
reliability of our system.

For the nine months ended June 30, 2022, cash used for investing activities was
$1,714.6 million compared to $1,352.3 million for the nine months ended June 30,
2021. Capital spending increased $368.1 million. Capital spending in our
distribution segment increased $216.5 million, primarily as a result of
increased system modernization and customer growth spending. Capital spending in
our pipeline and storage segment increased $151.6 million primarily due to
increased spending for pipeline system safety and reliability in Texas.


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Cash flow from financing activities

For the nine months ended June 30, 2022our fundraising activities provided $1.0 billion cash compared to $3.0 billion cash from financing activities during the prior year period.

In the nine months ended June 30, 2022, we received $1.5 billion in net proceeds
from the issuance of long-term debt and equity. We completed a public offering
of $600 million of 2.85% senior notes due 2052 and received net proceeds from
the offering, after the underwriting discount and offering expenses, of $589.8
million. We also completed a public offering of $200 million of 2.625% senior
notes due 2029, and received net proceeds of $200.8 million that were used to
repay our $200 million floating-rate term loan. Additionally, during the nine
months ended June 30, 2022, we settled 6,932,722 shares that had been sold on a
forward basis for net proceeds of $675.3 million. The net proceeds were used
primarily to support capital spending and for other general corporate purposes.

Cash dividends increased due to an 8.8% increase in our dividend yield and an increase in the number of shares outstanding.

In the nine months ended June 30, 2021, we received $3.3 billion in net proceeds
from the issuance of long-term debt and equity. The net proceeds were used
primarily for the payment of natural gas costs incurred during Winter Storm Uri,
to support capital spending and for other general corporate purposes. Cash
dividends increased due to an 8.7 percent increase in our dividend rate and an
increase in shares outstanding.

The following table summarizes our share issuances for the nine months ended
June 30, 2022 and 2021:

                                             Nine Months Ended June 30
                                         2022                        2021
Shares issued:
Direct Stock Purchase Plan              52,907                      61,561
1998 Long-Term Incentive Plan          427,819                     241,340
Retirement Savings Plan and Trust       55,554                      63,992

Equity Issuance                      6,932,722                   4,537,669
Total shares issued                  7,469,002                   4,904,562


Credit Ratings

Our credit ratings directly affect our ability to obtain short-term and
long-term financing, in addition to the cost of such financing. In determining
our credit ratings, the rating agencies consider a number of quantitative
factors, including but not limited to, debt to total capitalization, operating
cash flow relative to outstanding debt, operating cash flow coverage of interest
and pension liabilities. In addition, the rating agencies consider qualitative
factors such as consistency of our earnings over time, the quality of our
management and business strategy, the risks associated with our businesses and
the regulatory structures that govern our rates in the states where we operate.

Our debt is rated by two rating agencies: Standard & Poor's Corporation (S&P)
and Moody's Investors Service (Moody's). As of June 30, 2022, our outlook and
current debt ratings, which are all considered investment grade are as follows:

                                                       S&P              Moody's
              Senior unsecured long-term debt           A-                A1
              Short-term debt                          A-2                P-1
              Outlook                                Negative           Stable


A significant degradation in our operating performance or a significant
reduction in our liquidity caused by more limited access to the private and
public credit markets as a result of deteriorating global or national financial
and credit conditions could trigger a negative change in our ratings outlook or
even a reduction in our credit ratings by the two credit rating agencies. This
would mean more limited access to the private and public credit markets and an
increase in the costs of such borrowings.

A credit rating is not a recommendation to buy, sell or hold securities. The
highest investment grade credit rating is AAA for S&P and Aaa for Moody's. The
lowest investment grade credit rating is BBB- for S&P and Baa3 for Moody's. Our
credit ratings may be revised or withdrawn at any time by the rating agencies,
and each rating should be evaluated independently of any other rating. There can
be no assurance that a rating will remain in effect for any given period of time
or that a rating will not be lowered, or withdrawn entirely, by a rating agency
if, in its judgment, circumstances so warrant.
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Debt commitments

We complied with all of our covenants at June 30, 2022. Our covenants are further described in Note 6 to the unaudited condensed consolidated financial statements.

Contractual obligations and commercial commitments

Except as noted in Note 10 to the unaudited condensed consolidated financial
statements, there were no significant changes in our contractual obligations and
commercial commitments during the nine months ended June 30, 2022.

Risk management activities

In our distribution and pipeline and storage segments, we use a combination of
physical storage, fixed physical contracts and fixed financial contracts to
reduce our exposure to unusually large winter-period gas price increases.
Additionally, we manage interest rate risk by periodically entering into
financial instruments to effectively fix the Treasury yield component of the
interest cost associated with anticipated financings.

The following table shows the components of the change in fair value of our
financial instruments for the three and nine months ended June 30, 2022 and
2021:

                                                         Three Months Ended June 30                 Nine Months Ended June 30
                                                          2022                  2021                 2022                  2021
                                                                           

(In thousands) Fair value of contracts at the beginning of the period $282,400 $327,096 $225,417 $78,663
Contracts completed/settled

                                    (260)                13                  31,224                980
Fair value of new contracts                                  1,834              4,030                   3,550              4,356
Other changes in value                                     203,985            (97,622)                227,768            149,518
Fair value of contracts at end of period                   487,959            233,517                 487,959            233,517
Netting of cash collateral                                       -                  -                       -                  -
Cash collateral and fair value of contracts at
period end                                          $      487,959          

$233,517 $487,959 $233,517

The fair value of our financial instruments at June 30, 2022 is presented below by period and by source of fair value:

                                                                  Fair 

Value of contracts at June 30, 2022

                                                                    Maturity in Years
                                                                                                                          Total
                                               Less                                                   Greater              Fair
Source of Fair Value                          Than 1               1-3                4-5              Than 5             Value
                                                                               (In thousands)
Prices actively quoted                    $   186,643          $ 246,826          $ 54,490          $       -          $ 487,959
Prices based on models and other
valuation methods                                   -                  -                 -                  -                  -
Total Fair Value                          $   186,643          $ 246,826          $ 54,490          $       -          $ 487,959


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OPERATING STATISTICS AND OTHER INFORMATION

The following tables present certain operating statistics for our distribution
and pipeline and storage segments for the three and nine months ended June 30,
2022 and 2021.

Distribution sales and statistical data

                                                              Three Months Ended June 30                                 Nine Months Ended June 30
                                                          2022                            2021                      2022                            2021
METERS IN SERVICE, end of period
Residential                                             3,138,790                      3,095,895                  3,138,790                      3,095,895
Commercial                                                281,839                        281,628                    281,839                        281,628
Industrial                                                  1,643                          1,664                      1,643                          1,664
Public authority and other                                  8,204                          8,264                      8,204                          8,264
Total meters                                            3,430,476                      3,387,451                  3,430,476                      3,387,451

INVENTORY STORAGE BALANCE - Bcf                              49.4                           46.4                       49.4                           46.4
SALES VOLUMES - MMcf (1)
Gas sales volumes
Residential                                                19,760                         17,590                    144,695                        162,154
Commercial                                                 17,012                         16,233                     83,307                         86,559
Industrial                                                  6,988                          6,260                     22,848                         20,650
Public authority and other                                  1,194                          1,269                      5,867                          6,328
Total gas sales volumes                                    44,954                         41,352                    256,717                        275,691
Transportation volumes                                     36,503                         36,679                    125,993                        125,704
Total throughput                                           81,457                         78,031                    382,710                        401,395

Pipeline and Storage Operations Sales and Statistical Data

                                                             Three Months Ended June 30                               Nine Months Ended June 30
                                                         2022                           2021                     2022                           2021
CUSTOMERS, end of period
Industrial                                                    96                            95                        96                            95
Other                                                        197                           202                       197                           202
Total                                                        293                           297                       293                           297

INVENTORY STORAGE BALANCE - Bcf                              0.7                           0.4                       0.7                           0.4
PIPELINE TRANSPORTATION VOLUMES - MMcf (1)               175,117                       187,408                   581,545                       614,594


Note to preceding tables:

(1) Sales and transportation volumes reflect segment transactions, including intercompany sales and transportation amounts.

RECENT ACCOUNTING DEVELOPMENTS

Recent accounting developments and their impact on our financial condition, results of operations and cash flows are described in Note 2 to the unaudited condensed consolidated financial statements.

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