One Gas, Inc. · NYSE:OGS
One Gas — UBS Utilities & Natural Gas Conference 2016
41 slides from One Gas's conference presentation, Mar 1, 2016
Slide 1: UBS Utilities & Natural Gas Conference
Boston, Mass. | March 1, 2016 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 • Third largest publicly traded natural gas distribution company – 2.1 million customers 88% market share • 43,400 miles of distribution and transmission pipeline 14% market share • Estimated 2016 average rate base: $2.9 billion* – 43% in Oklahoma – 3
Slide 4: Customer and Asset Mix
Customer and Asset Mix Key Statistics as of Dec. 31, 2015 Kansas Gas Service Oklahoma Natural Gas Texas Gas Service Total Average Number of Customers 634,977 860,551 644,408 2,139,936 Average Number of Employees 1,000 1,200 800 3,400* Distribution – Miles 12,000 18,300 10,100 40,400 Transmission – M
Slide 5: Competitive Strengths
Competitive Strengths Page 5
Slide 6: Competitive Strengths
Competitive Strengths Sustainable Business • 100% regulated natural gas distribution utility Focused business strategy • Third largest publicly traded natural gas distributor • 2.1 million customers Significant scale • High percentage of residential customers and fixed charges • More than 70% of cus
Slide 7: Significant Scale
Significant Scale High Percentage of Fixed Charges Kansas Oklahoma Texas Total Fixed Charges – Sales 55% 87% 72% 73% customers¹ Average Annual Heating 4,860 3,317 1,785 - Degree Days – Normal Weather Normalization 100% 100% 62% 89% Kansas Corporation Commission Oklahoma Corporation “Home Rule” with
Slide 8: Significant Scale: High Percentage of Residential Customers
Significant Scale High Percentage of Residential Customers Net Sales Margin* Customer Count* 2015 2015 1% 7% 1% 16% 83% 92% Customer Type Residential Commercial/Industrial Other * Excludes transportation Page 8
Slide 9: Proximity to Natural Gas Supply
Proximity to Natural Gas Supply Location Supports Sustainability Topeka • Close proximity to significant natural gas reserves • Delivered natural gas costs are comprised primarily of: – Cost of the commodity – Transportation costs – Storage fees ONE Gas Natural Gas Distribution Areas Natural Gas Bas
Slide 10: 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 12.31¢ $36.08 $9.98 3.6x Ok
Slide 11: Regulatory Overview
Regulatory Overview Page 11
Slide 12: Regulatory Mechanisms
Regulatory Mechanisms Overview • Oklahoma Natural Gas – Performance-based rate structure (PBR) with a targeted ROE between 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 13: 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 14: Regulatory Filing Timeline
Regulatory Filing Timeline Texas • El Paso Service Area – Rate case expected in 2016 • Central Texas Service Area (includes Austin) – Annual GRIP filings – Rate case required in 2016 • Remainder of Texas – Annual cost of service adjustment filings in six jurisdictions – Annual GRIP filings in two ju
Slide 15: Regulatory Update
Regulatory Update Recent Activity • Oklahoma – January 2016: Oklahoma Corporation Commission (OCC) approved an increase in base rates of $29.995 million; new rates effective January 2016 • Kansas – November 2015: Kansas Corporation Commission approved request for interim rate relief under the GSRS r
Slide 16: Oklahoma Natural Gas Rate Case
Regulatory Update Oklahoma Natural Gas Rate Case • July 8, 2015 – General rate case application filed • Nov. 13, 2015 – Joint stipulation and settlement agreement with all parties reached, and recommended by the Administrative Law Judge, for an increase in base rates of $29.995 million • Jan. 6, 201
Slide 17: Projected Rate Base
Projected Rate Base By State 2016 Estimated Rate Base • Projected rate base consists of: Total: $2.9 billion* + Property, plant and equipment + Working capital 26% + Other rate base items +/– 43% – Accumulated deferred income taxes – Accumulated depreciation 31% Oklahoma Kansas Texas * Estimated ave
Slide 18: Opportunity to Narrow the Gap
Opportunity to Narrow the Gap Return on Equity • Goal: Minimize the 8.0% gap between allowed 7.6% 7.4% 7.6% and actual returns – 2016 ROE estimate: 7.6% – 2015 ROE achieved: 7.4% – 2014 ROE achieved: 7.6% – 2013 ROE achieved: 8.0% 2013 2014 2015 2016E Page 18
Slide 19: Financial Overview
Financial Overview Page 19
Slide 20: 2016 Guidance
2016 Guidance Announced January 2016 • Net income: range of Operating Income $127-$137 million $263 $239 – Driven by new rates and customer growth $216 $220* $225 $200 • EPS: range of $2.40 - $2.60 • Operating income midpoint: $263 million • Capital expenditures: $305 million 2011 2012 2013 2014 201
Slide 21: 2016 Cash Flow
2016 Cash Flow Sources and Uses $379 $379 • Target dividend payout ratio of 55- Short-term debt $15 and working 65% of net income capital changes • Capital expenditures primarily Cash flow from (in millions) Capital funded by cash flow from operations** expenditures operations $364 $305 • Dividend o
Slide 22: Capital Expenditures
Capital Expenditures Capital Spending Exceeds Depreciation $302 $305 $287 $294 $280 • Majority of capital expenditures for $243 $217 safety, reliability and efficiency $212 $219 $195 $180 (in millions) – System integrity and replacements $182 71% – Efficiency $140 Automated meter reading (75% covera
Slide 23: Capital Expenditures by State
Capital Expenditures By State Oklahoma Kansas Texas $136 $132 $133 $126 $123 $100 $90 $89 $90 $82 $82 $86 $81 $74 $75 $76 (in millions) $63 $65 $68 $68 $53 $57 $49 $52 $44 $48 $41 $42 $39 $41 $24 $27 $18 $20 $21 $16 2011 2012 2013 2014 2015 2016G 2011 2012 2013 2014 2015 2016G 2011 2012 2013 2014 20
Slide 24: Five-year Financial Outlook
Five-year Financial Outlook Updated January 2016 • Expected average annual net income growth of 5-8% between 2015 and 2020 – Driven by capital investments and customer growth – Rate base expected to grow an average of approximately 5% per year between 2015-2020 • Reflects the impact of bonus depreci
Slide 25: Investment Grade
Investment Grade Commitment to Investment-Grade Ratings • Strong liquidity position will support capital Capital Structure expenditure and working capital needs As of December 31, 2015 – Stable operating cash flows – $700 million revolving credit facility – Commercial paper program Long-term debt •
Slide 26: Creating Value for Stakeholders
Creating Value for Stakeholders Page 26
Slide 27: Creating Value for Stakeholders: Strategic Focus
Creating Value for Stakeholders Strategic Focus • Capital investments targeted toward safety, reliability and efficiency – Approximately 70% of annual forecast – Efficiency projects reduce expenses to sustainable levels • Minimize gap between actual and allowed returns – Annual filings for rate adju
Slide 28: 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 129 stations supplied • Currently transporting supply to 56 retail 115 stations supplied and 43 private CNG stations • Rebate program in
Slide 29: 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 • Incremental margins from CNG demand could mitigate residential rate increases, en
Slide 30: Summary
Summary Key Investment Considerations Focused business strategy – 100% regulated natural gas distribution utility Constructive regulatory environment – Multiple mechanisms and riders Significant scale – 2.1 million customers – High percentage of residential customers and fixed charges Conservative f
Slide 31: Appendix
Appendix Page 31
Slide 32: Customer Growth
Customer Growth Projected 2016 Customer Growth ~ 0.25% to 0.75% Average Customer Count 2,140 2,127 2,114 2,101 (in thousands) 2,090 2011 2012 2013 2014 2015 Page 32
Slide 33: Diverse Employment Mix
Diverse Employment Mix State Employment by Sector* Kansas Oklahoma Texas Mining ¹ Mining ¹ Construction Mining ¹ Construction Other Services 5% 1% 3% 2% 5% 5% Other Services Financial Construction 5% Activities 6% Trade, 5% Trade, Financial Other Services Financial Other Services Transportation Tran
Slide 34: 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 35: Regulatory Information
Regulatory Information By State as of Jan. 6, 2016 Rate Base Rate Base per Authorized Authorized (in millions) Customer Rate of Return on Return Equity Oklahoma Natural Gas¹ $1,201 $1,396 7.31% 9-10% Kansas Gas Service² $826 $1,301 N/A N/A Texas Gas Service¹ $639 $992 8.17% 10.4% ¹ The rate base, au
Slide 36: Authorized Rate Base
Authorized Rate Base Historical by State at Year End Oklahoma¹ Kansas² Texas¹ CAGR 5.4% CAGR 2.6% CAGR 17.2% $938 $979 $896 $843 $826 $793 $781 $744 $764 $770 $639 (in millions) $542 $504 $416 $339 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 2011 2012 2013 2014 2015 ¹ Rate bases presented in t
Slide 37: Safety and Environment
Safety and Environment Operating Safely and Environmentally Responsibly • Ongoing effort to replace aging assets – Replaced approximately 425 miles of distribution and transmission facilities in 2015 – Replaced approximately 22 miles of cast iron pipe in 2015 – Remaining 70 miles of cast iron pipe e
Slide 38: 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 39: 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
Slide 40: Cash Flow From Operations
Cash Flow From Operations Before Changes In Working Capital* 2016 2015 (Millions of dollars) Change Guidance Actual Net Income $ 132 $ 119 $ 13 Depreciation and amortization 142 133 9 Deferred taxes 77 64 13 Other 13 14 (1) Cash flow from operations before changes in working capital $ 364 $ 330 $ 34
Slide 41: ONE Gas
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