Greetings, welcome to Atmos Energy's third quarter 2018 earnings conference call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. If anyone should require 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 Jennifer. Thank you. Please go ahead.
Thank you, Brenda. Good morning, everyone, thank you for joining us. This call is being webcast live on the internet. Our earnings release and conference call slides presentations are available on our website at atmosenergy.com. As we review these financial results and discuss further 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 30 and are more fully described in our SEC filings. Our first speaker is Chris Forsythe, Senior Vice President and CFO of Atmos Energy. Chris?
Thank you, Jennifer, good morning, everyone. Yesterday, we reported fiscal 2018 third quarter earnings from continuing operations of $71 million, or $0.64 per diluted share, compared with $71 million, or $0.67 per diluted share in the prior year's third quarter. Year-to-date earnings from continuing operations were $564 million, or $5.09 per diluted share, compared with $347 million or $3.27 per diluted share in the prior year period. Year-to-date results include a $166 million, or $1.49 per diluted share, non-recurring income tax benefit from tax reform. Our third-quarter results were in line with our expectations, with many of the drivers underlying our performance during the first half of the fiscal year continuing into the third quarter.
Operating income in our distribution segment decreased $15 million to about $62 million in the third quarter, largely driven by a $12 million decrease in contribution margin due to the implementation of tax reform. Contribution margin was positively impacted by regulatory actions, which provided an incremental $11 million in contribution margin in the quarter. We continue to experience solid customer growth. Over the last 12 months, our distribution segment added a net 34,000 customers, which represents a 1.1% net customer growth. We also continue to add transportation customers to the system in our Kentucky/Mid-States division. Combined, this growth added nearly $5 million in contribution margin for the quarter. Operating expenses rose approximately 11% quarter-over-quarter. We experienced a planned increase in pipeline integrity activities, higher line locate costs, higher employee-related costs, and increased depreciation and property tax expense resulting from our capital spending.
We also incurred about $1.5 million in trailing expenses associated with the planned Northwest Dallas outage during the second quarter, bringing the total expense associated with the event to approximately $24 million. This particular project has been completed, and we do not anticipate material future expenses associated with this event. Operating income in our pipeline and storage segment decreased by $2 million. Contribution margin increased a net $11 million as we recognized $24 million of incremental margin from APT's rate case completed last August and the approval of two GRIP filings in fiscal 2018. This increase was partially offset by an $8 million reduction in revenues due to the implementation of tax reform. Offsetting the growth in contribution margin was a $13 million increase in operating expenses as a result of higher depreciation related to increased capital expenditures and timing of planned pipeline integrity work.
Consolidated capital spending for fiscal 2018 increased 34% to $1.1 billion, which is in line with our expectations. 85% of our fiscal 2018 spending was focused on improving the safety and reliability of our system. Based on work completed to date and planned for the remainder of the fiscal year, we continue to expect our fiscal 2018 capital spending to approximate $1.4 billion. We remain very active from a regulatory perspective. To date, we have completed 19 filings, which add approximately $81 million in annualized operating income over fiscal 2018 and 2019, inclusive of the effect of tax reform. $71 million of this amount related to APT. We have nine filings pending, seeking about $14 million in annualized operating income in our distribution segment. We anticipate most of these filings will be concluded during the fourth quarter, with rates taking effect during the first quarter of fiscal 2019.
After taking into account the lower tax expense we are incurring, the net financial impact from these regulatory outcomes is consistent with what we were anticipating at the beginning of the fiscal year. Tax reform has been a primary focus of our regulatory team during the third quarter, and we emerged from the quarter with a lot more clarity on how tax reform will be reflected in customer bills. In five of our eight states, we have adjusted rates to reflect the lower 21% rate. In two states, we have started to return the regulatory liabilities reestablished effective January 1st to account for the difference between the former 35% statutory rate and the current 21% statutory rate. In three states, we have started to return excess deferred taxes using provisional amortization periods ranging from 18 to 40 years. These periods will be trued up in future filings.
Looking forward, we expect to begin refunding the regulatory liability and excess deferred taxes for several of our Texas jurisdictions in October. In November, we expect to adjust rates in Mississippi and Tennessee for the full impact of tax reform. We are well on our way to fully implementing tax reform in customer bills. Once fully implemented, we continue to estimate that the annual customer benefit from tax reform will be over $100 million. Slides 24 and 25 summarize the financial impact of tax reform on our fiscal 2018 results and progress we have made to implement tax reform. Our balance sheet remains strong to support our capital spending program and the return of the benefits of tax reform to our customers. As of June 30th, our equity-to-total capitalization was 59%, and we had approximately $1.4 billion of borrowing capacity available under our credit facilities.
As we move through our final quarter of the fiscal year, we remain on track to meet our fiscal 2018 earnings guidance range of $3.85-$4.05 per diluted share, excluding the non-recurring benefit recognized from the implementation of tax reform. The higher-than-anticipated growth and economic activity we saw at the beginning of the year and the anticipated impact of tax reform is materializing as expected. Slide 27 provides selected information underlying our fiscal 2018 guidance. This information has not changed from the prior quarter. Thank you for your time this morning. I'll now turn the call over to President and CEO, Mike Haefner for his closing remarks.
Chris, thank you very much for that great update on the quarter. Thank all of you for joining us this morning. As you can see from our third quarter results, we remain very focused and on track to meet our fiscal 2018 targets, driven primarily by our proactive pipe replacement and system modernization investments. Our commitment to safety is paramount. From 2011 to 2017, we invested approximately $6 billion in replacing aging infrastructure and modernizing our system. Between fiscal 2018 and fiscal 2022, we plan to spend an additional $8 billion, with the rate of capital investment growing approximately 11% per year on average. Over 80% of this spending will be focused on safety and reliability investments as it has been in the past.
Our very dedicated employees are the reason for our continued success as we fulfill our safety and service commitments to our customers and the communities where we live and work. We constantly strive to become the safest provider of natural gas services through our investments, not only in our infrastructure, but also in our employees, in the technology and business processes used to maintain and operate our system, and in public safety awareness. For example, training hours in 2018 increased approximately 10% year over year, with the majority of that training at our world-class Charles Vaughan training center going towards technical skills development and safety. Since third-party damage is the number one cause of leaks in our system, we continue to raise public awareness through pipeline safety efforts. These efforts are paying off.
Reported injuries for employees are down 17% year over year. Our fiscal 2018 damage rate is below the industry average and has been reduced approximately 20% over the past six years, while our line locate requests have increased by 50% over that same period. We continue to see strong economic development. We're very fortunate to serve some of the fastest-growing regions in the country. The Dallas-Fort Worth Metroplex alone is projected to add 1.5 million households or over four million people over the next 30 years. We stand ready to serve our communities as this demand grows. Our proven organic growth strategy, driven by necessary safety and reliability investments, along with consistent customer growth, provides a very long time horizon of infrastructure investment needs ahead.
Even with the significant investments we've made, the low and stable natural gas price environment has helped keep customers' bills very affordable. Our proactive approach to ensure customers receive the benefit of the lower federal tax rate has made customers' bills an even better value. Our regulators understand the need to increase the pace of pipeline replacement. The various annual rate review mechanisms and infrastructure mechanisms provide transparency for those regulators to annually review the progress we're making to modernize our system, while also providing the opportunity we need to earn reasonable returns that our investors require to provide the financial resources we need to sustain our efforts. We remain confident that all these factors will continue to provide a reasonable return to our investors through earnings per share and dividend growth in the 6%-8% range each year.
We're focused on the long run and the long-term sustainability of our business. We're dedicated to all of our stakeholders. In closing, I'd like to thank our employees for their outstanding efforts. They strive to find ways to improve every day to deliver safe, reliable, affordable, and exceptional natural gas service to our 3.2 million customers that 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 and executing our capital spending program focused on modernizing our system. Our employees have a strong belief in striving to do the right thing without seeking recognition or awards. It's this attitude that drives our success. Recently, Atmos Energy was named the 2018 Most Trusted Utility Brand in the South. This distinction would not have been possible without the hard work and dedication of our employees.
Thanks to each of you for what you do every day for Atmos Energy. We appreciate your time this morning. Now we'll take any questions that you may have. Back to you, Brenda.
Thank you. Ladies and gentlemen, if you'd like to ask a question at this time, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd 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. That is star one to ask a question at this time. Our first question comes from the line of Dennis Coleman with Bank of America.
Dennis, good morning.
Good morning. Good morning, all. A couple quick ones for me. We still have the guidance of $3.85-$4.05. Now we're down to one quarter to go. I wonder if you might just talk about what gets you to the higher end of that range or lower end of that range.
Yeah, I think, Dennis, as was stressed. Good morning. As we look into the fourth quarter, we've got some planned pipeline integrity work, particularly on APT's Line X. That's a big project that started in early July. That's a variable. Right now, with where we see things as of today, we're projected to be somewhere in the middle of that guidance range at this point.
Okay. A couple more detailed questions. In the Distribution Segment, OpEx and tax expense were a little higher than our estimate. I wonder if there's anything particular, I know you did talk a little bit about this on slide five, any additional comments you might make there?
On OpEx, I think you're just seeing some timing, particularly around some employee costs. We had some key executives retire a year ago, so the settlement charges showed up in the third quarter. Not that material, but that was one item that did flow through. With respect to tax expense, are you talking property taxes or are you talking-
Taxes, not income taxes.
Property taxes, we're adjusting our estimates or our property tax. We're mostly on a calendar basis, so as we're working through the valuation process with the property tax teams in the various municipalities, we just make adjustments to the year and what we think our full calendar year expense is going to be.
Got it. Okay. That's helpful. Thanks very much.
Sure.
Thank you. Once again, as a reminder, you may press star one to ask a question at this time. A confirmation tone will indicate that your line is in the question queue, and you may press star two to remove your question from the queue. That is star one to ask a question at this time. This concludes today's question and answer session. I'd like to turn the floor back over to management.
Thank you, Brenda. This concludes our call. A recording of this call is available for replay on our website through November 8th, 2018. We appreciate your interest in Atmos Energy, thank you for joining us. Goodbye.