Earnings Call Transcript - ATO Q3 2020

Operator, Operator

Hello, and welcome to the Atmos Energy Third Quarter 2020 Earnings Conference Call. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Dan Meziere, Vice President, Investor Relations and Treasurer. Please go ahead, Dan.

Daniel Meziere, Vice President, Investor Relations and Treasurer

Thank you, Kevin. Good morning, everyone, and thank you for joining us today. With me this morning are Kevin Akers, President and Chief Executive Officer; and Chris Forsythe, Senior Vice President and Chief Financial Officer. Our earnings release and conference call slide presentation, which we will reference in our prepared remarks, are available at atmosenergy.com under the Investor Relations tab. Today's presentation also includes references to non-GAAP financial measures. You should refer to the information contained in the slides accompanying today's presentation for definitional information and reconciliations of non-GAAP measures to the closest GAAP financial measure. As we review these financial results and discuss future expectations, please keep in mind that some of our discussion might contain forward-looking statements within the meaning of the Securities Act and the Securities Exchange Act. Our forward-looking statements and projections could differ materially from actual results. The factors that could cause such material differences are outlined on Slide 32 and are more fully described in our SEC filings. With that, I will now turn the call over to Kevin. Kevin?

Kevin Akers, President and CEO

Thank you, Dan, and good morning, everyone. We appreciate you joining us today and your interest in Atmos Energy. I hope you and your families are safe and healthy as we continue to navigate our way through this challenge together. The safety of our employees, our customers and the safety of our communities remain our focus as we continue to deliver safe and reliable natural gas service. Today, over 95% of our employees continue to work remotely as we are doing our part to reduce the spread of the virus, following the CDC guidelines as well as following our safety protocols such as hand washing, practicing social distancing and wearing face coverings. As I've said before, we were early to transition to remote work and we will be very intentional about returning to our offices. We continue listening closely to the health experts and following the data as we go about our daily operations. As I shared last quarter, through the outstanding work of our Risk Management and Compliance Committee, our senior leadership team and all 4,800 Atmos Energy employees, we were well prepared to transition every facet of our business to a remote work environment in mid-March. That level of preparation and agility served us well as we continued executing at the highest levels during the third fiscal quarter. For example, our customer service agents and service technicians continued providing exceptional customer service, as indicated by our customers rating their satisfaction with our agents and technicians at 98%. Our strategic focus on digital bill delivery and payment options is yielding benefits as the percentage of electronic bills issued as of the end of the third quarter increased to 45%. And our electronic methods of payments received, such as bank drafts, credit cards and online banking, increased to 76% of the payments received as of June 30. Through these innovative electronic bill delivery and payment channels, Atmos Energy and our customers are doing our part to conserve environmental resources. For example, on an annual basis, the use of this technology saves approximately 1,300 tons of wood, nearly 6 million pounds of carbon dioxide equivalent, 7 million gallons of water and nearly 400,000 pounds of waste. During the quarter, we deployed mobile wallet, a unique bill delivery platform enabling customers to view and pay their bill and manage their Atmos Energy accounts from Apple Wallet or Google Pay. I also want to highlight the great work of our Safety and Enterprise Services and Operations teams that they are doing in the area of damage prevention, especially given we are just 5 days away from National 811 Day. This work is an integral part of our ongoing commitment to safety and our proactive measures to help raise awareness about third-party excavation damage, which is one of the greatest threats to the safety of distribution systems. Our teams have implemented a damage prevention ambassador program. They've developed social media alerts and other public awareness campaigns, such as postponing nonessential digging during the COVID-19 pandemic. All these efforts support the year-to-date result of a damage rate that is less than the industry average. Using our safety practices and protocols I mentioned earlier, we have continued executing our proven investment strategy and remain on track to meet our capital spending range of $1.85 billion to $1.95 billion. A safely performing distribution and transmission pipeline system work that includes maintenance and compliance activities, pipe replacement, line locating and system inspections. Our fiscal year-to-date consolidated capital spending grew 17% to $1.4 billion, with approximately 88% of our spending being directed towards safety and reliability, all to modernize our system. Finally, our financial position remains very strong. And at the end of June, our liquidity was almost $3 billion, and our balance sheet continues to be very strong.

Chris Forsythe, Senior Vice President and CFO

Thank you, Kevin, and good morning, everyone. Yesterday, we reported fiscal 2020 third quarter diluted earnings per share of $0.96 compared to $0.68 in the prior year quarter. Year-to-date, we reported diluted earnings per share of $4.37 compared to $3.88 in the prior year period. Results for the quarter and year-to-date periods included a one-time noncash income tax benefit of $21 million or $0.17 per diluted share related to a change in our state deferred tax rate resulting from legislation that was passed by the Kansas Legislature in June to eliminate the assessment of state income taxes on regulated utilities operating in the state. As a result of the change in our state deferred tax rate, we reduced our deferred tax liability by $33 million during the fiscal third quarter. We established a $12 million regulatory liability for excess deferred taxes that will be returned to Kansas customers, and we recognize the remaining $21 million as a one-time income tax benefit. Excluding this nonrecurring benefit, diluted earnings per share for the third fiscal quarter was $0.79 and $4.2 year-to-date. Consolidated operating income during the 9 months ended June 30 rose over 10% to $723 million. Rate increases in both our operating segments driven by increased safety and reliability spending totaled $111 million. We also experienced a $10 million increase in distribution operating income, primarily due to customer growth in our Mid-Tex division. During the 12 months ended June 30, our Mid-Tex division experienced net customer growth of 1.6%. On a consolidated basis, we experienced net customer growth of 1.3% over the same period. The impact of COVID-19 did not have a material impact on our year-to-date operating income as we are able to align our O&M spending with a decline in nonresidential customer consumption we experienced during the third quarter. Through the first 9 months of the fiscal year, we earned approximately 85% of our distribution revenues. Additionally, residential revenues comprised approximately 60% of our distribution revenues during the second half of the year. These bills are at their lowest during this time. Finally, we collect a significant portion of our revenues, excluding gas costs, through the base charge, which partially insulates us from volumetric risk. For most of our service territories, the base charge represents the largest portion of a customer's bill by the middle of our third fiscal quarter. For the year-to-date period, we experienced a $7 million reduction in operating income due to lower sales and transportation volumes during the third quarter. We did not identify a meaningful change in residential consumption due to COVID. However, we did experience a 14% decline in nonresidential consumption. We also saw a $3 million decline in service order revenue, primarily due to the suspension of collection activities. Our nonresidential consumption decline was concentrated in our commercial customer class, which declined 18% during the third quarter compared to the prior year quarter. We experienced most of the volumetric decline in our Mid-Tex and Louisiana divisions. During the quarter, we saw commercial consumption climb by as much as 30% compared to the 2-year historical average in certain of our states by mid-May as shelter-in-place orders in our service areas impacted their businesses. However, since that time, we have seen a steady improvement. Through mid-July, commercial customer usage was just 11% below the 2-year average over the same period. Additionally, we experienced a 12% decline in transportation volumes during the third quarter, primarily due to slower economic activity in the Automotive and Metals sectors. These declines in operating income were offset by a $17 million decrease in O&M expense, primarily associated with employee costs for overtime; standby and other costs; lower travel and training costs; and the temporary deferral of pipeline maintenance activities. In our Pipeline and Storage segment, over 80% of APT's revenues are earned from delivery services to our Mid-Tex division and a few other LDCs under a straight fixed variable rate design. The remainder of APT's revenues relates to its 3 system business and other ancillary pipeline services. As a reminder, APT only keeps 25% of revenues earned from these activities under its straight design. During the third quarter, we experienced a net $2.5 million decrease in transportation and other revenue in this segment. APT's quarter-over-quarter through-system volumes declined 19% and prices declined by 30% due to reduced associated gas production in the Permian Basin. Year-to-date, transportation and other revenue declined by less than $1 million. Slides 6 and 7 provide additional details of period-over-period changes to operating income for each of our segments. On the regulatory front, to date, we have implemented $123 million in annual operating income increases. Additionally, we received approval for the four Texas GRIP filings that we voluntarily delayed in March for $23 million. These filings will be implemented on September 1. Currently, we have $141 million of regulatory filings in progress, most of which are scheduled to be implemented during the first quarter of fiscal 2021. Details of these filings can be found on Slides 19 through 29. And other regulatory matters, we have orders in 5 of our 8 states that address the impacts of COVID-19. These orders cover more than 85% of our distribution customers and APT. Generally, these orders allow us to defer net incremental expenses, including bad debt expense and in a few of our states, certain lost revenues due to COVID-19. We are still evaluating these orders. Therefore, we did not record any regulatory assets or liabilities related to COVID-19 as of June 30. Slide 14 summarizes these orders. As of June 30, our balance sheet and liquidity remain strong. Our equity capitalization was 58.8%, and we finished the quarter with approximately $2.9 billion in liquidity, including $750 million in cash between our operating accounts and ATM net proceeds. During the third quarter, we executed new forward sales arrangements for approximately 2.3 million shares with anticipated net proceeds of $234 million. Additionally, we sold approximately 1 million shares for $100 million. Through June 30, we had sold about 3.6 million shares for $359 million. And as of June 30, we had about $547 million in cash available under equity forward arrangements. Yesterday, we reaffirmed our adjusted earnings per share guidance range of $4.58 to $4.73. We now have more clarity around how COVID has and continues to affect our business from a customer perspective and an operational perspective. Based on what we understand today, we now believe earnings per share will be at the upper end of the range. For the fourth quarter, we have assumed similar nonresidential consumption declines that we experienced in the third quarter as several of our states have slowed the pace of reopening their economies. Additionally, we expect fourth quarter O&M to trend similarly to what we experienced during the third quarter. Slides 15 and 16 provide additional details around our guidance. Thanks for your time this morning. I'll now turn the call back over to Kevin for some closing remarks.

Kevin Akers, President and CEO

Thank you, Chris. Community service is woven into the fabric of Atmos Energy's culture, which we call Atmos Spirit. Our 4,800 employees take pride in fueling safe and thriving communities each and every day. During National Hospital Week in May, we saluted our medical professionals’ heroic efforts by delivering more than 12,000 meals to health care heroes across our 8 state service area. In valuing our strong partnerships with local restaurant owners and chefs across our 1,400 communities, we celebrated Take-Out Tuesday, an initiative that brings support to local restaurants by offering all employees the opportunity to enjoy lunch from their favorite neighborhood restaurant. Along with these enterprise-wide efforts to lift each other up during these uncertain times, we are fueling safe and thriving communities in ways both large and small. By working with school districts, early childhood programs, and nonprofits across our service area to improve the reading proficiency by third grade and to feed hungry children so they can learn and thrive. I'm truly inspired by the many ways our employees come together to give of their time and talent to further support those who need a helping hand. As I said earlier, our robust risk management process has served us extremely well during this pandemic and will continue to guide us as we execute at the highest levels on all facets of our business. Our year-to-date results were in line with our expectations. Our balance sheet is strong, and we have further enhanced our liquidity. Our focus remains the same: the health and safety of our employees, customers, and communities as we execute our proven investment strategy; and continue delivering safe, reliable, affordable, and efficient natural gas to homes, businesses, and industries to fuel our energy needs now and in the future. With that, I'll open it up for questions.

Operator, Operator

Our first question today is coming from Richie Ciciarelli from Bank of America.

Richard Ciciarelli, Analyst

Just curious given some of the deterioration in volumes you've seen on the nonresidential side and, obviously, appreciate the confidence for the back half or the remainder of the year in 2020. But just curious how you're thinking of things beyond that in light of the COVID impacts? And just really considering the fact that you and then really all of your gas LDC peers haven't gotten to experience this through the more meaningful peak winter heating season?

Chris Forsythe, Senior Vice President and CFO

Well, Rich, that's a good question. With the fiscal year-end rapidly coming to a close, we're deep in our planning cycle right now and we're certainly evaluating what's going on in the economies in the 8 states that we serve. And so we're keeping a close eye on that. We're not ready to announce yet what assumptions we're going to put into the fiscal 2021 guidance. As you know, we'll roll that out here in the fall in November. But we are taking a look at that. We're also assessing operationally what we're going to be doing to keep our employees safe and the community safe, and we'll have a better picture and more information to provide in November.

Richard Ciciarelli, Analyst

Got it. And just a follow-up on that a little bit, if I can. Just given the annual true-up mechanisms you have for your O&M efforts, is there any other offsets that you could pursue into next year if the economic recovery is a bit more prolonged?

Chris Forsythe, Senior Vice President and CFO

When you mention offsets, it really comes down to determining what work we can perform while ensuring the safety of our employees and the community. As Kevin highlighted at the start of the call, we are committed to doing our part to help reduce the spread of the virus in the community. We have compliance work that needs to be completed on certain schedules and timelines, and we cannot afford any delays. We'll be evaluating our approach, but we do have some flexibility if we need to adjust our operational and maintenance efforts in response to any potential declines in volume and revenue due to the pandemic.

Operator, Operator

Our next question today is coming from Aga Zmigrodzka from UBS.

Aga Zmigrodzka, Analyst

How should we think about your equity needs for 2021? Is it fair to assume that with the updated forward equity agreements that will be sufficient or should we expect a larger equity offering?

Chris Forsythe, Senior Vice President and CFO

I think we've been pretty consistent now for the last year, 12 to 15 months that the ATM is our preferred method for raising equity. We've got our financing plan out there, and we intend to execute that financing plan in a balanced fashion with both long-term debt and equity. And we'll seek to use the ATM to the best of our ability to meet those equity needs for fiscal 2021 and beyond.

Aga Zmigrodzka, Analyst

What has been an increase in bad debt? And how quickly can you recover those costs for the mechanism that you have in place?

Chris Forsythe, Senior Vice President and CFO

So far, it really hasn't materially impacted us, and there's a couple of things to keep in mind around bad debt and collections. First, in all of our service territories, moratoriums are still in place that prohibit the disconnect or resumption of collection activities. We then need to evaluate what the tone is from the regulatory environment. What's the tone from just the community in terms of those types of activities? Once we do begin to collect or resume collection activities, one, that could be several months down the road. But then number two, we won't see the impact of really bad debt until well beyond the resumption of those activities because it takes a certain number of months for it to work through the process of collection before it ultimately gets written off. So right now, as we sit here today it hasn't had a material impact on our business for fiscal 2020. Certainly, a watch eye and that we're keeping an eye on for fiscal 2021. But we think it's going to be some time before we begin to see those bad debts really begin to rise up. And then number two, when it will ultimately be reflected in rates.

Kevin Akers, President and CEO

Yes. Aga, this is Kevin, I'll just follow-up a little bit on that. In addition, our customer service agents and our customer advocacy team that supports those agents have been for several months now reaching out to customers in all classes, residential, commercial and industrial, about different payment options that exist out there for them, LIHEAP, local health agencies those sort of things. And whether those were outbound calls, letters, some folks allow us to have their e-mail address, getting in contact with it. That way, we've been very proactive in reaching out to customers that appear to be having a tough time paying their bill. And we're going to continue to do that as we move forward and head towards this upcoming heating season.

Aga Zmigrodzka, Analyst

I have a last question. Could you please maybe discuss a little in more detail what are the components of lower O&M? What is short in nature and you could still benefit from that in 4Q? And how much of cost savings you're expecting going forward kind of more sustainable?

Chris Forsythe, Senior Vice President and CFO

Sure.

Kevin Akers, President and CEO

Well, I was going to talk about the components and things that we looked at that we could defer going into the period. I'll hand off to Chris to talk to you about the numbers specifically. But there's such things like this right-of-way encroachment, clearing trees, overhang brush, those sort of things, cleanup around GIS data, record digitization, those sort of things. And where we're ahead on certain inspections on our systems right now. Those things that we can move out to a different period, not do away with, not cancel, but move to a different period. Those are the sort of O&M things that we have shifted during the last quarter to 2 quarters and are currently evaluating now what opportunities we have maybe to pick back up some of that and what does that timing look like as we head that into the end of this fiscal year and into next fiscal year. Chris?

Chris Forsythe, Senior Vice President and CFO

Yes. I would like to add that while we are still working remotely, we continue to experience reduced employee travel and entertainment costs, as well as some overtime and standby expenses. We expect this trend to remain consistent as we progress into the fourth quarter. These costs are within our control, allowing us some flexibility regarding their timing and the actual dollars saved. As we plan for 2021, we will provide more details about our operational and maintenance spending levels for that year in November.

Operator, Operator

Our next question today is coming from Insoo Kim from Goldman Sachs.

Insoo Kim, Analyst

A question on just demand trends that you're seeing on a more geographic basis. I know the bulk of your exposure is in Texas, but you do have exposure to a lot of different states. Just which jurisdictions are performing from a demand perspective, better than what you expected and which are a little bit more concerning?

Chris Forsythe, Senior Vice President and CFO

What we're observing overall is that Mid-Tex and Louisiana experienced the most significant drops in volume during the third quarter, around 20%. Other states ranged from a decrease of 9% to 18%. Since mid-May, we've noticed a steady improvement, suggesting that we have reached the lowest point. When I refer to the 11% compared to the two-year historical average, most of our divisions are now within that range. There is still some weakness in Mississippi and Louisiana, but overall, the situation is improving compared to the first half of the third quarter.

Kevin Akers, President and CEO

Yes, Insoo, this is Kevin. The other thing I'd just add is if you go back in, as we did, as we're looking at these volumes, we also look at the unemployment rates. As some of our jurisdictions opened up their phased reopenings and moved into the second and third tiers of those, if you will, we've noticed slight improvements in the unemployment rates in just about every jurisdiction from an April Bureau of Labor Statistics average. If you look at those through the June numbers, almost every one of them has shown some slight improvement. We think that's reflected again back in those states reopenings, commercial, retail, some other businesses, industrials, opening back up, bringing folks back in and picking up some of the business there. So that was a good indicator for us as well.

Insoo Kim, Analyst

Great. In terms of cost contingencies, I think you spoke on it and a couple of people have asked the questions already. But given a little bit stronger-than-expected performance for this year, does it, all else being equal, give you a little bit more contingencies that you could utilize in 2021?

Chris Forsythe, Senior Vice President and CFO

As I mentioned earlier, we are still assessing and finalizing our budget for fiscal 2021. We need to observe our customer behavior, especially in the nonresidential sector, during the fourth quarter before making a definitive decision on how to align our operational and maintenance strategies for 2021. We will provide more details on this in November.

Insoo Kim, Analyst

Got it. Lastly, regarding technology, you mentioned features such as automated customer bill payments. What other technological advancements are you implementing or planning to implement? What kind of efficiencies could you achieve from these efforts?

Kevin Akers, President and CEO

Yes. I'll talk a little bit about that. And the more data, access to data and providing data in a sooner format, in a better format, a consumable format, more in real time, if you will, an example of that is our WMR network. We're now working with our vendor to have real-time cathodic protection pilots on our system. So now it's going on and having manual reads on our system. We can upload those through our network and get those readings off of our pipeline and our distribution system in real time. Now that again, not much from an efficiency standpoint, but it provides continuous monitoring of your system and allows you to identify where you might have a cathodic protection system down sooner rather than later. We continue to roll out our automated leak detection equipment as well. And you heard us talk before about our Locus Map technology that we are in the final stages of rolling out to some of our crews here in the Mid-Tex division, which allows us to gather construction, material information, geolocation positions in real time as we're at these sites and upload those right back into our compliance systems.

Operator, Operator

Our next question today is coming from Ryan Levine from Citi.

Ryan Levine, Analyst

What's the capacity resistance to handle hydrogen? And is that capacity different than the RNG capacity from a constraint standpoint?

Kevin Akers, President and CEO

Yes. Ryan, two separate things there. We know there's a lot of discussion here lately about hydrogen, particularly with some of the things that are going on in Europe right now. And I know some of the dual fuel companies are talking about projects at particular sites, a site-specific hydrogen utilization, if you will. So it's a much different look than if you think about some of the discussion of blending. That's not yet on the near-term horizon. There are studies going on through particular groups associations. GTI even has a group together that's studying opportunities around hydrogen at this point. So that to say, I think, it's early for us to think about, to your question, how does that fit into our current distribution system. There's a lot of things that need to be worked out from a material standpoint, a supply standpoint, a utilization standpoint at the customer premises. So, I think, that's further out for us. It is separate from RNG, whether it comes from landfill or it's captured through digesters. The only challenge there is the BTU content, the quality of the gas. But once you get over that hurdle, it blends right in with the rest of our stream that we're delivering to customers. And as we talked about before with you, we're doing about 5 to 6 Bcf a year of RNG across our system that we're moving, and we continue to look for those opportunities near our system today.

Ryan Levine, Analyst

And then to clarify some of the earlier questions, in terms of contingencies in place to the extent that COVID impacts extend into the winter months. Am I correct in hearing that the key tools that you're looking at are O&M cost management and potentially capital market activity or are there other opportunities that you can pursue in order to adapt to the market conditions?

Chris Forsythe, Senior Vice President and CFO

I believe you’ve made a great point. We are focusing on aligning our operational and maintenance costs with the anticipated revenues for the upcoming fiscal year. We're also aware of the opportunities in the capital markets. As detailed in our 10-Q, we have implemented some hedges for future financing activities over the next few years to take advantage of the current interest rate environment. These aspects are significant opportunities to monitor, and they are certainly factors we are considering as we finalize our plans for fiscal year '21.

Ryan Levine, Analyst

On the capital market activity, given your regulatory construct, would you look to cement those plans in the coming months or could they be phased in over a broader time period, if you were to?

Chris Forsythe, Senior Vice President and CFO

I am not sure I understand your question, Ryan.

Ryan Levine, Analyst

Would you need to refinance debt or raise equity into the calendar year-end given the regulatory constructs in different jurisdictions? Or can you be more patient, if that's an option that you wanted to pursue?

Chris Forsythe, Senior Vice President and CFO

The financing needs of the corporation are outlined on the website, estimated at $5 billion to $6 billion over the current 5-year period from 2020 to 2024. We will provide updates in the fall. These needs are primarily driven by the corporation's cash flow and spending requirements. We will assess the timing and execution of the various financing tools available to us. Additionally, we have already planned for hedges in the fall in anticipation of a debt issuance, which is already forecasted and publicly available.

Operator, Operator

Our next question today is coming from Charles Fishman from Morningstar.

Charles Fishman, Analyst

I had a question on Slide 8, capital spending. Certainly, the 17% increase is terrific. You say you're on target. I guess, I happen to be in the Dallas area over the July 4 weekend and the construction along I-75 is amazing. And I was just wondering if you could provide some color. Is your new construction connections, which, I believe, is not part of the 88% safety and reliability, is that on target as well? Has that been impacted by COVID-19, at least with respect to your plan? And, obviously, my viewing is just a small piece of all your jurisdictions. I wonder if you can maybe provide some color on new construction in your other jurisdictions because, obviously, you don't have as much control over that as you do on the safety and reliability spend.

Kevin Akers, President and CEO

I'll begin with some insights on the North Texas area as you mentioned, as well as our other jurisdictions. Initially, during the onset of COVID, especially in the first month or so, we did notice a slight decline in the housing market. However, it rebounded quickly. We are conducting virtual home tours, and the availability of homes for sale decreased rapidly. Many individuals, encouraged by the low interest rates, are moving towards new construction. As restrictions eased and phased reopenings occurred, we've seen strong growth in the North Texas market. As noted last year, we're experiencing around 1.5 to 1.6 net customer growth in our system, primarily in the Metroplex area. There was a brief slowdown, but now we're observing a resurgence in the residential market. In other regions, such as outside Nashville in our Franklin territory, we are also witnessing positive residential growth, as well as in the Kansas City area and Olathe. We are working closely with builders, developers, and realtors to leverage the advantages of the current low interest rate environment.

Charles Fishman, Analyst

So as we sit here today in 2021, do you expect customer growth to still be around 1.5%?

Kevin Akers, President and CEO

Yes, I think that's a good indication. As we talk to builders and developers, they are continuing to develop properties and attract people. Currently, we are seeing strong activity in that area. And yes...

Chris Forsythe, Senior Vice President and CFO

I want to mention that another factor contributing to this is home sales. Individuals who already own homes are choosing to remain where they are for understandable reasons. Consequently, those wanting to leave apartment living or urban areas are increasingly moving into new homes and growing markets. This is another element that is boosting our customer growth.

Operator, Operator

Our next question today is coming from Jeremy Tonet from JPMorgan.

Peter Giannuzzi, Analyst

This is Peter asking for Jeremy. I have a quick question regarding the EPS sensitivities you updated. Is the change each quarter strictly based on historical demand for each customer class, or are there other factors you consider when you provide these updates?

Chris Forsythe, Senior Vice President and CFO

Yes. So on Slide 13, we do have the EPS sensitivity that we've updated that for the fourth quarter. So you can see again, on the bottom third or bottom half of the page, the revenue by customer class, residential on down through the nonresidential and then the sensitivities to the right. So that's basically the 1% change relative in the customer volumes in the fourth quarter and kind of how that moves it for us. So in terms of how that compares to the prior year, I mean, that's just a 1% change for each of those customer classes produces that EPS sensitivity.

Peter Giannuzzi, Analyst

Right. Okay. So that information is specific to the last quarter on a stand-alone basis. Just to clarify, the sensitivity you provided during your last call was for the second half of the year, or was it based on a full year?

Chris Forsythe, Senior Vice President and CFO

That was for the back half of the fiscal year. So we'll probably update this slide again in November to provide a better impact or what that 1% looks like on a full fiscal year basis here in November.

Peter Giannuzzi, Analyst

Okay. So, looking at the sensitivities, they are obviously lower for each class compared to what you presented for the second half last quarter. Should we consider the net impact to be similar as we observe recovery across all classes, where residential continues to offset the same amount of drag from the other classes, similar to what we experienced in the third quarter?

Chris Forsythe, Senior Vice President and CFO

I have a few comments regarding the impacts in the fourth quarter. As I mentioned earlier, the effects are less significant now because during the first half of the third quarter, we observed some volumetric influence across all customer classes. However, starting from late May and June until December, we are mainly focused on the base charge component of the bill due to the summer months. It remains to be seen how customers will react moving forward. We have noticed a modest improvement since the lows, which we are monitoring closely. This uncertainty makes it difficult for us to predict future behavior, particularly as some of our reopenings have slowed down. This is why we provided the sensitivities for you to assess.

Operator, Operator

We've reached the end of our question-and-answer session. I'd like to turn the floor back over to management for any further or closing comments.

Daniel Meziere, Vice President, Investor Relations and Treasurer

We appreciate your interest in Atmos Energy, and thank you for joining us. A recording of this call will be available for replay on our website through November 12, 2020. Have a good day.

Operator, Operator

Thank you. That does conclude today's teleconference and everyone, you may disconnect your lines at this time, and have a wonderful day. We thank you for your participation today.