One Gas, Inc. · NYSE:OGS
One Gas — UBS Utilities & Natural Gas Conference 2017
44 slides from One Gas's conference presentation, Feb 28, 2017
Slide 1: UBS Utilities & Natural Gas Conference
Boston, Mass. | February 28-March 1, 2017 UBS Utilities & Natural Gas Conference
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: Company Overview
Company Overview Key Statistics 72% market share • One of the largest publicly traded natural gas distribution companies 88% market share – 2.2 million customers • 42,700 miles of distribution and transmission pipeline 13% market share • Estimated 2017 average rate base: $3.1 billion* – 41% in Oklah
Slide 4: Competitive Strengths
Competitive Strengths Page 4
Slide 5: Competitive Strengths
Competitive Strengths Sustainable Business • 100% regulated natural gas distribution utility Focused business strategy • One of the largest publicly traded natural gas distributors • 2.2 million customers Significant scale • High percentage of residential customers and fixed charges • More than 70%
Slide 6: Significant Scale: High Percentage of Fixed Charges
Significant Scale High Percentage of Fixed Charges Kansas Oklahoma Texas Total Fixed Charges – Sales 55% 88% 72% 73% customers* Average Annual Heating 4,860 3,264 1,785 - Degree Days – Normal Weather Normalization 100% 100% 100% 100% Kansas Corporation Commission Oklahoma Corporation “Home Rule” wit
Slide 7: Significant Scale: High Percentage of Residential Customers
Significant Scale High Percentage of Residential Customers * * *Based on 2016 annual results Page 7
Slide 8: Proximity to Natural Gas Supply
Proximity to Natural Gas Supply Location Supports Sustainability Topeka • Close proximity to significant natural gas reserves – 101 active rigs in Oklahoma* – 378 active rigs in Texas* – 64% of all rigs in U.S. operating in ONE Gas territories • Leads to competitive natural gas delivered costs: – Co
Slide 9: Natural Gas vs. Electricity
Natural Gas vs. Electricity 3-to-1 Average Advantage Continues in ONE Gas Territories Average retail price of Natural gas price equivalent ONE Gas delivered cost of Natural gas electricity / kWh (1) of electricity / Dth (1) natural gas / Dth (2) advantage ratio (3) Kansas 13.02¢ $38.16 $10.07 3.8x O
Slide 10: Financial Overview
Financial Overview Page 10
Slide 11: 2017 Guidance
2017 Guidance Announced January 17, 2017 • Net income: range of $152-$162 million Operating Income – Driven by the benefit of new rates, normal weather and expense management, partially offset by higher $293 depreciation expense due to capital investments $269 $225 $239 • EPS: range of $2.87 - $3.07
Slide 12: Growing Dividends
Growing Dividends • Dividend increased 20% for 2017 Dividends Declared • Quarterly dividend of 42 cents per $1.68 share, resulting in an annualized $1.40 $1.20 dividend of $1.68 per share* $0.84 • Target dividend payout ratio of 55-65% of net income • Expected average annual dividend growth of 8-10%
Slide 13: Well-defined Capital Investment Plan
Well-defined Capital Investment Plan Safety & Reliability $ millions 2017 CAPEX Guidance $ 255 System Integrity 73% 21% $ $ 72 23 Customer Growth IT/Other 6% $ 350 Total Capital Spending System Integrity Customer Growth IT/Other Page 13
Slide 14: Capital Investment Drives Rate Base Growth
Capital Investment Drives Rate Base Growth Capital Spending Exceeds Depreciation $380/year $350 $350 • Majority of capital expenditures for $302 $307 safety, reliability and efficiency $294 – System integrity and replacements (in millions) – Efficiency • Automated meter reading (75% coverage) • Oper
Slide 15: Capital Expenditures by State
Capital Expenditures By State Oklahoma Kansas Texas $154 $136 $132 $134 $100 $96 $89 $88 $82 $81 $85 $76 (in millions) $64 $68 $63 $51 $57 $44 $47 $41 $35 $29 $21 $24 2014 2015 2016 2017G 2014 2015 2016 2017G 2014 2015 2016 2017G Note: Capital expenditures include accruals and any adjustments in the
Slide 16: 2017 Cash Flow
2017 Cash Flow Sources and Uses $493 $493 Asset removal costs • Dividends and capital Short-term debt and working capital changes $54 expenditures primarily funded by $97 cash flow from operations (in millions) Cash flow from Capital • $700 million revolving credit operations** expenditures facility
Slide 17: Five-year Financial Outlook
Five-year Financial Outlook Announced January 2017 • Expected average annual net income growth of 5-7% between 2016 and 2021 – Driven by capital investments and customer growth – Rate base expected to grow an average of approximately 5.0-5.5% per year between 2016-2021 • Expected average annual divi
Slide 18: Investment Grade
Investment Grade Commitment to Investment-Grade Ratings • Strong liquidity position will support capital Capital Structure expenditure and working capital needs As of Dec. 31, 2016 – Stable operating cash flows – $700 million revolving credit facility – Commercial paper program Total Debt • Strong i
Slide 19: Regulatory Overview
Regulatory Overview Page 19
Slide 20: Regulatory Mechanisms
Regulatory Mechanisms Overview • Oklahoma Natural Gas – Performance-based rate structure (PBR) with a targeted ROE band of 9-10 percent that provides for annual rate reviews between rate cases • Kansas Gas Service – Gas System Reliability Surcharge (GSRS) – for incremental safety-related and governm
Slide 21: Return on Equity
Return on Equity Minimize the Gap • Goal: Minimize the gap between allowed and 8.1% 7.6% 7.4% 7.7% actual returns – 2017 ROE estimate: 8.1% – 2016 ROE achieved: 7.7% – 2015 ROE achieved: 7.4% – 2014 ROE achieved: 7.6% 2014 2015 2016 2017G Page 21
Slide 22: Regulatory Filing Timeline
Regulatory Filing Timeline Oklahoma & Kansas Filed general rate case application in July 2015, General rate case application filing in June 2021, new rates approved and effective January 2016 with new rates effective early 2022, if applicable 2015 2016 2017 2018 2019 2020 2021 2022 ONG Performance-b
Slide 23: Projected Rate Base
Projected Rate Base Capital Investment Drives Rate Base Growth 2017 Estimated Rate Base • Projected rate base consists of: Total: $3.1 billion* + Property, plant and equipment + Working capital 27% + Other rate base items +/– 41% – Accumulated deferred income taxes – Accumulated depreciation 32% Okl
Slide 24: Focused Strategy
Focused Strategy Key Takeaways • Well-defined capital investment plan with 70% targeted toward system integrity – Rate base expected to grow an average of 5.0-5.5% per year between 2016-2021 • Increased focus on maintaining or lowering operating expenses to sustainable levels • Minimize gap between
Slide 25: Appendix
Appendix Page 25
Slide 26: Customer and Asset Mix
Customer and Asset Mix Key Statistics as of Dec. 31, 2016 Kansas Gas Service Oklahoma Natural Gas Texas Gas Service Total Average Number of Customers 636,625 865,548 650,017 2,152,190 Average Number of Employees 1,000 1,200 800 3,400* Distribution – Miles 11,600 18,500 10,100 40,200 Transmission – M
Slide 27: Regulatory Constructs
Regulatory Constructs By State Mechanism Oklahoma Kansas Texas* Performance-based rates X Capital investments; safety-related riders X** X X Weather normalization X X X Purchased Gas Adjustment/Cost of Gas riders X X X Energy efficiency/conservation programs X X Pension and Other Post-Retirement Ben
Slide 28: Regulatory Information
Regulatory Information By State as of January 2017 - Authorized Rate Base Rate Base per Authorized Authorized (in millions) Customer Rate of Return on Return Equity Oklahoma Natural Gas¹ $1,202 $1,396 7.31% 9-10% Kansas Gas Service² $925 $1,457 N/A N/A Texas Gas Service¹ $760 $1,177 7.5% 9.6% ¹ The
Slide 29: Authorized Rate Base
Authorized Rate Base Historical by State at Year End Oklahoma¹ Kansas² Texas¹ $1,202 $938 $979 $925 $781 $826 $760 (in millions) $639 $542 2014 2015 2016 2014 2015 2016 2014 2015 2016 ¹ Rate bases presented in this table are those from the last approved rate filings for each jurisdiction. These amou
Slide 30: Oklahoma Natural Gas Rate Case
Oklahoma Natural Gas Rate Case Approved January 6, 2016 Highlights * The initial common equity ratio will be 60.5 percent, unchanged from the original filed request. For each future PBRC filing, the Amount $29.995 million maximum allowed common equity ratio will decrease by 1 percent beginning with
Slide 31: Kansas Gas Service Rate Case
Kansas Gas Service Rate Case Approved November 29, 2016 Highlights* Increase in base rates $15.5 million total increase, $8.1 million net increase (already recovering $7.4 million through GSRS) Operating income impact Approximately $9.1 million in 2017 Other New rates effective January 1, 2017 * Rat
Slide 32: Texas Gas Service
Texas Gas Service Central Texas Consolidated Service Area – Approved November 15, 2016 Highlights Increase in base rates $6.8 million; $3.4 million impact to operating income Return on equity 9.5% Common equity ratio 60.1% Other • Approved consolidation of the South Texas service area with the Centr
Slide 33: Texas Gas Service
Texas Gas Service West Texas Service Area - Approved Settlement Agreement Summary Increase in base rates $8.8 million; $7.6 million impact to operating income Return on equity 9.5% Common equity ratio 60.1% Other • September 2016: Approved consolidation of the El Paso, Dell City and Permian service
Slide 34: Texas Gas Service
Texas Gas Service Other Recent Regulatory Activity Jurisdiction Filing Highlights Status Increase in Rates Effective Base Rates Gulf Coast • Rate case to adjust base rates Approved $2.3 million May 2016 • Consolidate Galveston and South Jefferson County service areas North Texas • Annual COSA filing
Slide 35: Safety and Environment
Safety and Environment Operating Safely and Environmentally Responsibly • Ongoing effort to replace aging assets – Replaced approximately 390 miles of distribution and transmission facilities in 2016 • Replaced approximately 22 miles of cast iron pipe in 2016 – Remaining 48 miles of cast iron pipe e
Slide 36: Customer Growth
Customer Growth Average Customer Count 2,152 2,140 2,127 2,114 2,101 (in thousands) 2012 2013 2014 2015 2016 Page 36
Slide 37: Service Territory Population Growth
Service Territory Population Growth 1.38% CAGR ONE Gas Major Metro U.S. Census County Population 1.2 M Travis County, TX 1.1 M 1M 900,000 El Paso County, TX 800,000 Oklahoma County, OK 700,000 Tulsa County, OK 600,000 Johnson County, KS 500,000 Sedwick County, KS 400,000 300,000 200,000 100,000 0 19
Slide 38: Diverse Employment Mix
Diverse Employment Mix State Employment by Sector* Kansas Oklahoma Texas Construction Mining ¹ Mining ¹ Mining ¹ Construction Other Services 4% 1% 3% 2% 5% 5% Other Services Financial Construction 5% Activities 6% Other Services Trade, 5% Trade, Financial Other Services Financial 6% Services Transpo
Slide 39: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Current Environment CNG Volume • Currently operate 26 fueling stations Dth – in millions accessible to the public, 4 private stations • Currently transporting supply to 64 retail 143 stations supplied 129 stations supplied and 49 private CNG stations 115 stations supplie
Slide 40: Benefits of CNG
Benefits of CNG Use of CNG Increases Load • One vehicle is equivalent to one home • One pickup truck is equivalent to two homes • One refuse truck is equivalent to 13 homes • One transit bus is equivalent to 24 homes • Potential innovations in home-fueling technology Page 40
Slide 41: Cost of Gas
Cost of Gas Passed Through to Customers • Actual costs of the commodity, transportation and storage of natural gas are passed through to customers without markup – Natural gas used in operations is recovered in “Purchased Gas” or “Cost of Gas” riders • Cost of Gas component of bad debts and hedging
Slide 42: Cash Flow From Operations
Cash Flow From Operations Before Changes In Working Capital* 2017 (Millions of dollars) 2016 Change Guidance Net Income $ 153 $ 140 $ 13 Depreciation and amortization 155 144 11 Deferred taxes 73 87 (14) Other 15 16 (1) Cash flow from operations before changes in working capital $ 396 $ 387 $ 9 * Am
Slide 43: Non-GAAP Information
Non-GAAP Information ONE Gas has disclosed in this presentation cash flow from operations before changes in working capital, which is a non-GAAP financial measure. Cash flow from operations before changes in working capital is used as a measure of the company's financial performance. Cash flow from
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