Greetings, welcome to Atmos Energy 2018 fourth quarter call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone requires operator assistance during the conference, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Jennifer Hills, VP, Investor Relations.
Thank you, Dana. Good morning, everyone, thank you for joining us. This call is being webcast live on the internet. Our earnings release and conference call slide presentation are available on our website at atmosenergy.com. As we review these financial results and discuss future expectations, please keep in mind that some of our discussions 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 23 and are more fully described in our SEC filings. Our first speaker is Chris Forsythe, Senior Vice President, CFO of Atmos Energy. Chris.
Thank you, Jennifer, good morning, everyone. We appreciate your interest in Atmos Energy. Yesterday, we reported fiscal 2018 adjusted earnings from continuing operations of $444 million or $4 per diluted share, compared with $382 million or $3.60 per diluted share in the prior year. Adjusted earnings from continuing operations excludes a $159 million or $1.43 per diluted share benefit from the revaluation of our deferred taxes as a result of tax reform. For the fourth quarter, adjusted earnings from continuing operations rose to $46 million, or $0.41 per diluted share, compared with $36 million or $0.34 per diluted share in the prior year period. These results excluded $7 million or $0.06 per diluted share, true up to the one-time benefit from implementing tax reform after the IRS clarified the implementation date of the new capital expensing rules in August.
Our fiscal 2018 results were above the midpoint of our updated guidance range and represent the 16th consecutive year of earnings per share growth. Slides five and six provide details of the year-over-year changes to operating income for each of our segments. I will touch a few on the fiscal year highlights. Contribution margin in our distribution segment rose a net 4.6%, or about $64 million year-over-year. Rate increases, driven by increased capital spending related to safety and reliability improvements, provided an incremental $71 million. About 85% of these increases were in our Texas, Louisiana, Mississippi service areas, in line with their contribution to our portfolio of assets. We also continued to experience solid customer growth. Over the last 12 months, our distribution segment added a net 34,000 customers, a 1.1% increase for the year. Our transportation margins increased 15% year-over-year.
In addition to adding customers to the system, several existing customers, transportation customers, increased their consumption either through plant expansions or increased business activity due to the strong economy. Virtually all this increase occurred in our Kentucky/Mid-States and Texas service areas. Combined, this growth added $17 million in contribution margin for the year. These increases were partially offset by a $51 million decline in revenue due to the implementation of tax reform. This decline was essentially offset by a corresponding decline in income tax expense. Operating expenses rose approximately 10% year-over-year. We increased our pipeline integrity activities and experienced higher line locate expense, surveying and other employee-related costs. Additionally, we incurred $24 million of expenses associated with the planned outage in Northwest Dallas during the second quarter. In our pipeline and storage segment, contribution margin increased a net $51 million or 11.2%.
Revenue increased $74 million from rate activity due to the full year impact of new rates from APT's most recent rate case completed last August, combined with increases associated with two GRIP filings that were approved during the fiscal year. The implementation of tax reform reduced revenues by about $24 million. Operating expenses increased $31 million or 13%. This increase was in line with expectations, with the majority of the increase related to depreciation resulting from higher capital spending. Consolidated capital spending for fiscal 2018 increased 29% to nearly $1.5 billion, which is above our original expectations of $1.3 billion-$1.4 billion. About 85% of our fiscal 2018 spending was dedicated to safety and reliability projects. Early in the fourth quarter, we filed an amended pipe replacement plan for our Mid-Tex division for the remainder of calendar 2018 and outlined plans to accelerate our pipeline replacement activities.
Most of the higher-than-planned spending was incurred in connection with this updated plan. In fiscal 2018, we remained very active from a regulatory perspective. We implemented approximately $80 million in annualized operating income increases in 18 regulatory proceedings. We also completed three proceedings, which should result in annualized operating income increases of $21 million. Rates for these three filings went into effect in October. After taking into account the lower tax expense resulting from tax reform, the net financial impact from rate outcomes completed in fiscal 2018 was consistent with the $120 million-$140 million we anticipated. So far in fiscal 2019, we have completed filings in our Mississippi and Tennessee service areas, resulting in a $2 million increase in annualized operating income. These filings also helped to implement tax reform in these states. Currently, we have six filings in progress seeking about $14 million in annualized operating income.
Slide nine provides additional detail around our regulatory activities for fiscal 2018 and the start of fiscal 2019. Tax reform provided a unique opportunity to reduce customer bills, and we were one of the first utilities in the country to begin flowing back the benefits to our customers. A significant amount of regulatory work this year was focused on reflecting the positive impact of tax reform in customer bills as quickly as possible. In seven of our eight states, we have adjusted rates to reflect the lower 21% statutory rate. Virginia is the only state where we have not yet adjusted rates for tax reform. However, we have a filing in progress that will address, among other things, tax reform, and we have established a regulatory liability effective January 1, 2018, for the difference in the new and former statutory rate.
In three states, we are returning the regulatory liabilities we established effective January 1st to account for the difference between the former 35% statutory rate and the current 21% rate. In six states, we are returning the excess deferred tax liability using provisional amortization periods ranging from 18 to 40 years. These periods will be trued up in future filings once the filing determination is made regarding the allocation of the excess deferred tax liabilities between the protected and non-protected components. The key takeaway from all this tax regulatory activity is that we now have clarity around the implementation of tax reform into customer bills. We now estimate that the annual customer benefit from tax reform, once fully implemented, will be over $125 million per year.
Slides 20 and 21 summarize the financial impact of tax reform on our fiscal 2018 results and the progress we have made to implement tax reform in our rates. Our balance sheet remains strong, supporting our capital spending program and return of benefits of tax reform to our customers. As of September 30, 2018, our equity to total capitalization was 57%, a 400 basis point increase from one year ago. The increase largely reflects the equity offering we completed last November and the recognition of the one-time benefit from tax reform. We had approximately $1 billion of borrowing capacity available under our credit facilities at fiscal year-end. On October 4th of 2018, we completed a successful $600 million, 30-year public debt issuance at an all-in interest rate of 4.37%. The proceeds were used to pay down outstanding commercial paper.
In light of our financial performance in 2018, yesterday, Atmos Energy's board of directors approved our 140th consecutive quarterly cash dividend and raised the dividend to an indicated annual rate in fiscal 2019 of $2.10 per share, an 8.2% increase over fiscal 2018. As we look forward to fiscal 2019, we expect earnings per share to be in the range of $4.20 to $4.35 per diluted share, and capital spending to range between $1.65 billion and $1.75 billion. The primary driver for the anticipated increase in capital spending, net income, and earnings per share is our continued acceleration of spending for system replacement and modernization. We will provide additional detail on our financial outlook for fiscal 2019 and will roll forward our five-year plan through fiscal 2023 at our investor meeting in New York next Tuesday, November 13th. That meeting will also be webcasted on our website.
I will now turn the call over to Mike for some closing remarks.
Thank you, Chris, for that great update. As you can see from our fiscal 2018 results, it was another successful year where we met our financial targets driven by our proactive pipe replacement and system modernization investments. This year was not without its challenges. The tragic event that occurred in February continues to weigh heavily on our hearts as our leaders and employees continue to dedicate themselves to all aspects of safety. The unprecedented system performance we experienced in Northwest Dallas further reinforced our strategy of closely monitoring potential threats that may impact the integrity of our system and also accelerating the replacement of aging infrastructure. The effort to replace 24 miles of distribution main and service lines serving 2,400 customers in Northwest Dallas, which would normally take one year, was completed safely in three weeks.
We saw the very best from our employees, our contractor partners, and the affected customers during that difficult period. We learned new information about our system performance under various environmental operating conditions. With the support of our regulators, we're working to incorporate these findings into our risk models, our policies, and our procedures. As Chris mentioned, during the fourth quarter, we announced plans to further accelerate our pipe replacement activities in our Mid-Tex division. We're on track to double the work crews dedicated to pipe replacement activity in Dallas by the end of this calendar year. This increase is in addition to the 40 crews added earlier in the year following the planned outage.
With these additional crews, we intend, among other things, to perform an entire system replacement of a significant portion of Northwest Dallas by the end of 2019 and to eliminate cast iron from the Mid-Tex distribution system by 2021. We are committed to operating safely and reliably while we continue to modernize our natural gas distribution and transmission system. Across our eight states in fiscal year 2018, our team completed more than 6,500 capital projects, replacing more than 725 miles of distribution pipe, more than 150 miles of transmission pipe, and 54,000 service lines, a significant accomplishment that was in line with expectations for transmission and above our expectations in distribution. Modernization of our system is a long-term effort. We have a proven track record of managing and growing these investments in a measured, safe, and responsible manner.
All of these investments have delivered significant benefits to our customers, to the communities, the economy in the states we operate, and to our investors. We continue to have the support of regulators who understand the need to modernize and replace aging infrastructure. We have mechanisms in place that enable us to begin recovering on 85% of our capital investments within six months of the test year-end and 99% within 12 months. This enables us to more efficiently deploy capital and generate returns necessary to attract new capital needed to finance our investment. We have a very strong management team that's supported by an engaged board of directors. Last week, we announced that Sean Donohue and Diana Walters have been elected to our board of directors effective November 1, 2018.
Sean and Di bring deep experience in the management of public and private enterprises, will provide great value and thought diversity to our board. We look forward to their leadership. Yesterday, we announced the promotion of Kevin Akers to Executive Vice President. In addition to his current responsibilities, which include pipeline safety, customer service, supply chain management, facilities, and our business process and change management area, he'll now assume responsibility over the company's pipeline and storage operations or Atmos Pipeline-Texas, that previously reported to me. Kevin's broad company and industry experience will serve him well as a member of our management team as he continues to expand his involvement in the development and execution of the company's operating and financial strategies. Next week at our investor meeting, we'll present our updated five-year plans for fiscal 2023.
Joining me will be Kevin, as well as David Park, our Senior Vice President of Utility Operations, and Chris Forsythe. Our strategy remains unchanged. We remain committed to meeting our goal of being the safest natural gas provider. We'll continue to focus our investments on infrastructure modernization, system fortification, customer growth, and deploying technology that can improve safety, drive efficiencies, and support scale. These investments will enhance the value of our rate base, which is expected to support continued earnings per share growth of 6%-8% per year. In closing, I'd like to thank our employees for their outstanding efforts. They strive to find ways to improve every single day to deliver safe, reliable, affordable, and exceptional natural gas service to our 3.2 million customers we serve in over 1,400 communities in our eight-state footprint.
They come to work every day focused on safety while providing excellent customer service, closely monitoring and maintaining our system, and executing our capital spend program. We appreciate your interest in Atmos Energy. We appreciate your time this morning. Now we'll take any questions that you may have. Dana?
At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment please while we poll for questions. Once again, that is star 1 if you would like to ask a question. There are no questions at this time. I'd like to turn the call back over to Jennifer Hills for any closing remarks.
Great. Thank you, Dana. Thank you everyone for joining us this morning. A recording of this call is available for replay on our website through February sixth, two thousand nineteen. We appreciate your interest in Atmos Energy, and thank you for joining us. Goodbye.