One Gas, Inc. · NYSE:OGS
One Gas — American Gas Association Virtual Investor Meetings 2020
53 slides from One Gas's conference presentation, May 18, 2020
Slide 1: American Gas Association Virtual Investor Meetings
AMERICAN GAS ASSOCIATION VIRTUAL INVESTOR MEETINGS May 18 – 19, 2020
Slide 2: Forward-Looking Statements
Forward-Looking Statements Statements contained in this presentation that include company expectations or predictions should be considered forward-looking statements that are covered by the safe harbor provisions of the Securities Act of 1933 and the Securities and Exchange Act of 1934. It is import
Slide 3: Response to COVID-19
RESPONSE TO COVID-19
Slide 4: Safety & Service – Employees & Customers
Safety & Service – Employees & Customers EMPLOYEES CUSTOMERS • Cross-functional task force supporting COVID-19 • Additional screening questions for service response calls • Nearly one-half of employees working remotely – Service technicians provided with appropriate • Safety protocols established us
Slide 5: COVID-19 Risk Matrix
COVID-19 Risk Matrix ONE Gas management continues to monitor the following risks, among others, for leading indicators and material changes: RISK CURRENT STATUS – AS OF Q1 2020 Liquidity Adequate liquidity available from commercial paper program and revolvers Accounting orders received or expected f
Slide 6: Safety & ESG
SAFETY & ESG G ONE Gas
Slide 7: Safety and ESG (Environmental, Social & Governance)
Safety and ESG (Environmental, Social & Governance) Stewardship at a Glance... SAFETY Safety is our number one core value and the foundation of what we do as a company. ENVIRONMENTAL ONE Gas Corporate Responsibility Report We are thoughtful and proactive in caring for the environment. www.onegas.com
Slide 8: Operating Safely
Operating Safely First Quartile in All 3 AGA Industry Safety Metrics TRIR AMERICAN GAS ASSOCIATION QUARTILE DATA DART AMERICAN GAS ASSOCIATION QUARTILE DATA PVIR AMERICAN GAS ASSOCIATION QUARTILE DATA 4TH 4TH 4TH 3RD 3RD 3RD 2ND 2ND 2ND 1ST 1ST 1ST OGS 2.24 OGS OGS 1.13 1.88 2.70 1.53 1.19 1.26 1.04
Slide 9: ESG – Areas of Focus
ESG – Areas of Focus ENVIRONMENTAL SOCIAL RESPONSIBILITY GOVERNANCE Reduce operational emissions Engage our employees Execute strong governance • Vintage pipe replacement • Top quartile safety engagement practices • Enhanced leak detection technology • Top quartile employee engagement scores • 75% o
Slide 10: Value Creation Strategy
VALUE CREATION STRATEGY G ONE Gas
Slide 11: Sustainable Business Model
Sustainable Business Model • Clear vision, mission, strategy and values-driven culture • 100% regulated natural gas distribution utility Focused Business Strategy • Conservative financial profile (“A” rated) • Committed to Safety and Environmental, Social and Governance (ESG) stewardship • 20+ year
Slide 12: Mission, Vision, Strategy and Core Values
Mission, Vision, Strategy and Core Values Mission – Why we exist Core Values – Our compass SAFETY We deliver natural gas for a better tomorrow We are committed to operating safely and in an environmentally responsible manner. Vision – What we want to be ETHICS To be a premier natural gas distributio
Slide 13: 100% Regulated Natural Gas Utility
100% Regulated Natural Gas Utility One of the largest publicly traded natural gas distribution companies 72% market share • ~ 2.2 million customers • ~ 3,600 employees • ~ 62,340 miles of distribution mains, services and 88% market share transmission pipelines 13% market share Estimated 2020 average
Slide 14: Conservative Financial Profile
Conservative Financial Profile Strong Balance Sheet & Capital Structure Strong Liquidity Position CAPITAL STRUCTURE MARCH 31, 2020 • Cash flow anchored by residential customers • Tier 1 – A1/P1 commercial paper program • Stable credit metrics • Ample liquidity under both 5-year and 364-day Long-term
Slide 15: Capital Horizon & Clarity
CAPITAL HORIZON & CLARITY G ONE Gas
Slide 16: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan CAPITAL INVESTMENTS 2020G CAPITAL INVESTMENTS BY STATE (MILLIONS) (MILLIONS) $485-$525/year $470 $475 $442 $418 Kansas Texas $128 $166 $178 $190 $151 $158 Oklahoma $181 2017 2018 2019 2020G 2021-2024 Depreciation Note: Capital investments include capital expendit
Slide 17: Pipeline Replacement
Pipeline Replacement Focusing on Maintaining Safe and Reliable Operations PIPELINE REPLACEMENT (MILES) Average Annual Est. 2020-2024 140 60 170 370 ACCELERATED CAST IRON 2019 4 113 78 2 233 430 REPLACEMENT PROGRAM 2018 21 111 53 5 240 430 COMPLETED IN 2019 2017 23 196 61 1 144 425 2016 22 192 43 2 1
Slide 18: Vintage Pipeline Replacement Program
Vintage Pipeline Replacement Program Replaced an Average of 234 Miles of Vintage Pipe Per Year Since 2014 VINTAGE PIPE AS PORTION OF TOTAL PIPELINE INVENTORY (MILES) All Other Main, Service & Transmission Pipelines Risk-Mitigation & Government 850 1,000 Relocations 2020-2024E 2020-2024E 5,240 4,240
Slide 19: Rate Base Growth
Rate Base Growth AVERAGE RATE BASE* 2020 ESTIMATED AVERAGE RATE BASE* (BILLIONS) TOTAL: $3.91 BILLION $3.91 $3.62 $3.18 $3.36 $2.96 $1.14 billion $1.12 billion $1.65 billion 2016 2017 2018 2019 2020G Kansas Oklahoma Texas * For definition of average rate base, see Appendix Expected average annual gr
Slide 20: Regulatory Construct
REGULATORY CONSTRUCT G ONE Gas
Slide 21: Comprehensive Recovery Mechanisms
Comprehensive Recovery Mechanisms DESCRIPTION KANSAS OKLAHOMA TEXAS Interim capital recovery ✓ ✓ ✓ Weather normalization ✓ ✓ ✓ Purchased gas riders (including gas cost portion of bad debts) ✓ ✓ ✓ Energy efficiency/conservation programs ✓ ✓* Pension and other post-retirement benefits trackers ✓ ✓ ✓ C
Slide 22: Interim Recovery of Capital Investments
Interim Recovery of Capital Investments Annual Filings Oklahoma Natural Gas 2020 CAPITAL RECOVERY TIMING • Performance-based rate change (PBRC) filing for annual rate reviews between rate cases to ensure achieved ROE is within the established band of 9 – 10% 10% Kansas Gas Service • Gas System Relia
Slide 23: Filing Timeline
Filing Timeline Oklahoma & Kansas General rate case application filing by mid-2021, with new rates effective early 2022, if applicable 2019 2020 2021 2022 2023 2024 PBRC filing approved PBRC filing approved PBRC filed February 2020, requesting $11.8 million PBRC filing in March 2023 January 2019, Au
Slide 24: Texas – 2020
Texas – 2020 Central Texas Service Area Borger / • $15.6 million rate case filed for Central Texas and Gulf Skellytown Coast service areas; consolidation with Central Texas service areas and Gulf Coast service areas into a single Central-Gulf service area; new rates expected in the third quarter 202
Slide 25: Cash Flow Stability
CASH FLOW STABILITY G ONE Gas
Slide 26: High Percentage of Residential Customers
High Percentage of Residential Customers 83% Residential 93% Residential 72% of sales NET SALES CUSTOMER margin is MARGIN COUNT (Excludes transportation and other (Excludes transportation) fixed revenues) 17% Non-residential 7% Non-residential Note: Based on 2019 annual results. See non-GAAP informa
Slide 27: Growth in Service Territories
Growth in Service Territories MAJOR METRO POPULATIONS AVERAGE CUSTOMER COUNT (THOUSANDS) (THOUSANDS) 2,127 2,140 2,152 2,166 2,179 2,194 1,300 Austin, TX, 1,247 1,100 640 644 650 657 663 670 900 El Paso, TX, 837 Oklahoma City, OK, 791 853 861 865 871 877 884 700 Tulsa, OK, 648 Overland Park, KS, 598
Slide 28: Average Annual Residential Customer Bill
Average Annual Residential Customer Bill Customers are benefiting from AVERAGE ANNUAL RESIDENTIAL CUSTOMER BILL low and stable gas prices $235 $256 $265 Customers began to see $260 $189 impact of tax reform in 2018 $346 $362 $386 $389 $382 Average bill estimated to remain ~$50 per month in 2020 2015
Slide 29: Competitive Advantage
COMPETITIVE ADVANTAGE G ONE Gas
Slide 30: Proximity to Supply
Proximity to Supply Location Supports Sustainability Close proximity to significant natural gas reserves and transportation infrastructure • Results in lower transportation, storage and commodity costs • Multiple supply points allow for reduced operating pressures Net natural gas exports1 • 50% of a
Slide 31: 3.4-to-1 Average Advantage in ONE Gas Territories
3.4-to-1 Average Advantage in ONE Gas Territories Natural Gas Price Advantage Over Electricity KWH EQUIVALENT ELECTRICITY VS. NATURAL GAS DTH EQUIVALENT ELECTRICITY VS. NATURAL GAS 3.9x 3.9x 3.0x 3.0x 3.1x 3.1x 12.67¢ $37.13 11.96¢ $35.05 10.12¢ $29.66 3.93¢ $11.52 3.24¢ 3.23¢ $9.49 $9.46 Texas Okla
Slide 32: Financial Performance & Objectives
FINANCIAL PERFORMANCE & OBJECTIVES
Slide 33: 2020 Guidance Summary
2020 Guidance Summary Initiated Jan. 21, 2020; Affirmed April 27, 2020 • Net income range of $186 ‒ $198 million DILUTED EPS • EPS range of $3.44 ‒ $3.68 per diluted $3.56** share $3.51 $3.25 • Impacts from COVID-19 could result in net $3.08 income and diluted EPS below the midpoint of the guidance
Slide 34: Growing Dividends
Growing Dividends Building Shareholder Value Quarterly Dividend: DIVIDENDS & PAYOUT RATIO • 54 cents per share in 2020* $2.16 $2.00 $1.84 • Target dividend payout ratio of $1.68 $1.40 55 – 65% of net income 57% 61% 57% *Subject to board approval 55% 53% 2016 2017 2018 2019 2020G Expected average ann
Slide 35: Operating Cost Control
Operating Cost Control Building a Foundation for Long-term Affordability Managing expenses: OPERATING COSTS* (MILLIONS) • Leveraging technology $471 $489 $496 $453 $457 • Increasing efficiency and optimizing processes • Making it easier for customers to self- serve 2016 2017 2018 2019 2020G Expected
Slide 36: Return on Equity
Return on Equity Continue to minimize the gap between allowed and actual returns 8.1% 8.3% 8.4%* 7.7% 7.9% Authorized ROE by state: • Oklahoma ‒ 9% to 10% band, with a 9.5% midpoint • Texas ‒ ~ 9.5% weighted average • Kansas ‒ Not stated due to black box 2016 2017 2018 2019 2020G settlement; KGS est
Slide 37: Financing Requirements
Financing Requirements Sources and Uses $591 $591 Dividends and capital expenditures primarily funded by cash flow from Financing Financing requirements requirements operations $174 $174 Capital expenditures and (MILLIONS) asset removal costs ~$850 – $900 million net financing Cash flow from $475 op
Slide 38: Manageable Debt Profile
Manageable Debt Profile Strong Liquidity Position DEBT MATURITIES LIQUIDITY PROFILE (MILLIONS) (MILLIONS) $950 Total $600 $476 Commercial Paper and $400 $700 Credit Letters of Credit 4.658% Facility as of 3/31/2020* $474 Total $300 $300* $224 Credit 4.500% Facility 3.610% 3.610% 2.058% 2.000% $250 3
Slide 39: Key Takeaways
KEY TAKEAWAYS G ONE Gas
Slide 40: Key Takeaways
Key Takeaways Focused Well-defined business capital investment strategy plan Stable Regulatory cash flow construct profile Competitive advantage KEY TAKEAWAYS | 40
Slide 41: Appendix
APPENDIX G ONE Gas
Slide 42: Corporate Structure
Corporate Structure INCORPORATED ENTITY 100% regulated natural gas distribution No levered holding company; all debt issued at OGS Division capital structures match Corporate capital structure APPENDIX | 42
Slide 43: State Statistics
State Statistics As of December 31, 2019 KANSAS OKLAHOMA TEXAS GAS TOTAL GAS SERVICE NATURAL GAS SERVICE Average Number of Customers 639,956 883,985 669,985 2,193,926 Distribution – Miles* 11,500 18,900 10,400 40,800 Transmission – Miles* 1,500 700 300 2,500 Fixed Charges – Sales customers** 55% 86%
Slide 44: Capital Expenditures with Asset Removal Costs
Capital Expenditures with Asset Removal Costs KANSAS OKLAHOMA TEXAS 2020: 1.9X DEPRECIATION 2020: 2.3X DEPRECIATION 2020: 3.9X DEPRECIATION $191 $180 $181 * $173 $166 * $156 $149 $136 $126 $128 * $123 $123 $122 $105 $106 (MILLIONS) $74 $78 $64 $67 $64 $67 $69 $47 $50 $52 $40 $43 $34 $37 $29 2016 201
Slide 45: Authorized Rate Base
Authorized Rate Base KANSAS1 OKLAHOMA2 TEXAS2 3 $1,475 $1,407 $1,202 $1,257 $1,033 $1,068 $986 $947 $979 $925 $895 $826 $822 $745 $639 (MILLIONS) 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 2015 2016 2017 2018 2019 1 KGS’ most recent rate case, approved in February 2019, was settled without a
Slide 46: Rate Base Definition
Rate Base Definition Authorized Rate Base $3.53 billion (as of Q1 2020) • Includes capital investments authorized in most recent rate case and interim filings • Does not include any capital investments since last approved rate case or filings 2020 Estimated Average Rate Base $3.91 billion • Average
Slide 47: Regulatory Construct
Regulatory Construct Governance KANSAS OKLAHOMA TEXAS “Home Rule” with six jurisdictions; Texas Kansas Corporation Commission Oklahoma Corporation Commission Railroad Commission has appellate authority Appointed by the governor to four-year Railroad Commission elected to six-year Elected to six-year
Slide 48: Oklahoma Natural Gas
Oklahoma Natural Gas Recent Regulatory Activity 2020 PBRC – FILED FEBRUARY 2020 Amount Requested $11.8 million rate increase Customer Impact $1.11 per month increase (for typical residential customer) Rate Base $1,616 million Return on Equity 9.5% (midpoint of allowed band) Common Equity Ratio* 56%
Slide 49: Texas Gas Service
Texas Gas Service Recent Regulatory Activity CENTRAL TEXAS/GULF COAST SERVICE AREAS WEST TEXAS SERVICE AREA GRIP – GENERAL RATE CASE HIGHLIGHTS – FILED 2019 FILED MARCH 2020 Base Rates $15.6 million increase Incremental Revenue $4.7 million increase Operating Income $12.4 million Capital Expenditure
Slide 50: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Key Statistics Currently operate 27 fueling stations CNG VOLUME accessible to the public, 6 private stations (DTH – MILLIONS) 151 stations 150 stations supplied supplied 147 stations 143 stations Currently transporting supply to 67 retail and 129 stations supplied suppli
Slide 51: Non-GAAP Information
Non-GAAP Information ONE Gas has disclosed in this presentation cash flow from operations before changes in working capital and net margin, which are non-GAAP financial measures. Cash flow from operations before changes in working capital is used as a measure of the company's financial performance.
Slide 52: Non-GAAP Reconciliation
Non-GAAP Reconciliation Cash Flow From Operations Before Changes in Working Capital 2020 (MILLIONS) GUIDANCE* Net Income $ 192 Depreciation and amortization 190 Deferred taxes 20 Other 15 Cash flow from operations before changes in working capital $ 417 * Amounts shown are midpoints of ranges provid
Slide 53: Non-GAAP Reconciliation
Non-GAAP Reconciliation Net Margin (MILLIONS) 2019 Total revenues $ 1,652.7 Cost of natural gas 687.9 Net margin $ 964.8 (MILLIONS) 2019 Natural gas sales Residential $ 681.0 Commercial and industrial 131.5 Wholesale and public authority 7.7 Net margin on natural gas sales $ 820.2 Transportation rev
ONE Gas — American Gas Association Virtual Investor Meetings 2020 on 6ix