Variable Interest Entity

12 Months Ended

Sep. 30, 2024

Organization, Consolidation and Presentation of Financial Statements [Abstract]

In 2021, the Kansas State Legislature enacted securitization legislation, which permitted a natural gas public utility, in its sole discretion, to apply to the Kansas Corporation Commission (KCC) for a financing order for the recovery of qualified extraordinary costs through the issuance of bonds. In September 2021, we filed with the KCC an application to securitize extraordinary gas costs incurred during Winter Storm Uri, which was approved in October 2022.

Atmos Energy Kansas Securitization I, LLC (AEK), a special-purpose entity wholly owned by Atmos Energy, was formed for the purpose of issuing securitized bonds to recover extraordinary costs incurred during Winter Storm Uri. In June 2023, AEK completed a public offering of $95 million of 5.155% Series 2023-A Senior Secured Securitized Utility Tariff Bonds with a term of 10 years and semi-annual payments of principal and interest. The net proceeds from the offering, after the underwriting discount and offering expenses, of $93.7 million were primarily used to purchase the Securitized Utility Tariff Property from Atmos Energy for $92.3 million. The bonds are governed by an indenture between AEK and the indenture trustee. The indenture contains certain covenants that restrict AEK's ability to sell, transfer, convey, exchange or otherwise dispose of its assets. AEK's assets cannot be used to settle Atmos Energy's obligations, and the holders of the Securitized Utility Tariff Bonds have no recourse against Atmos Energy.

Because AEK's equity at risk is less than 1% of its total assets, it is considered to be a variable interest entity. Atmos Energy has the power to direct the most significant financial and operating activities of AEK, including billing, collections and remittance of customer cash receipts to enable AEK to service the principal and interest payments due under the Securitized Utility Tariff Bonds. Atmos Energy also has the obligation to absorb losses and rights to receive returns from AEK. Therefore, Atmos Energy is the primary beneficiary of AEK, and as a result, AEK is included in the consolidated financial statements of Atmos Energy. No gain or loss was recognized upon initial consolidation.

The Securitized Utility Tariff Property that was acquired by AEK is classified as a securitized intangible asset on our consolidated balance sheets. This securitized intangible asset will be amortized over 10 years, the estimated period needed to collect the required amounts from Atmos Energy's customers to service the Securitized Utility Tariff Bonds, with a remaining weighted average amortization period of 4.63 years as of September 30, 2024. The amortization expense related to the securitized intangible asset is included in depreciation and amortization expense in our consolidated statements of comprehensive income.

The following table summarizes the impact of AEK on our consolidated balance sheets, for the periods indicated:


	September 30, 2024		September 30, 2023
	(In thousands)
Restricted cash and cash equivalents	$	1,516	$	3,844
Other current assets	$	3	$	11
Securitized intangible asset, net	$	82,844	$	92,202
Accrued interest	$	365	$	1,374
Current maturities of securitized long-term debt	$	8,207	$	9,922
Securitized long-term debt	$	76,871	$	85,078

The following table summarizes the impact of AEK on our consolidated statements of comprehensive income, for the periods indicated:


	Year Ended September 30
	2024		2023
	(In thousands)
Operating revenues	$	13,660	$	2,743
Operation and maintenance expense	(427)		—
Amortization expense	(8,715)		(1,398)
Interest expense, net	(4,518)		(1,345)
Income before income taxes	$	—	$	—

The following table summarizes the maturities of the securitized long-term debt and the amortization expense related to the securitized intangible asset expected to be recognized in our consolidated statements of comprehensive income:


	Maturities of Securitized Long-Term Debt		Amortization Expense of Securitized Intangible Asset
For the fiscal year ending:	(In thousands)
2025	$	8,207	$	8,090
2026	8,635		8,512
2027	9,086		8,957
2028	9,561		9,424
2029	10,060		9,916
Thereafter	39,529		37,945
Total	$	85,078	$	82,844

The securitized long-term debt is recorded at carrying value. The fair value of the securitized long-term debt is determined using third party market value quotations, which are considered Level 2 fair value measurements for debt instruments where fair value is determined using the most recent available quoted market price. The carrying value and fair value of the securitized long-term debt as of September 30, 2024 is $85.1 million and $87.8 million.