One Gas, Inc. · NYSE:OGS
One Gas — Evercore ISI Utility CEO Conference 2015
36 slides from One Gas's conference presentation, Jan 8, 2015
Slide 1: Evercore ISI Utility CEO Conference
Palm Beach, Fla. | January 8-9, 2015 Evercore ISI Utility CEO 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: Key Points
Key Points Highlights Competitive Strengths – 100% regulated natural gas utility focus – Third largest publicly traded natural gas distributor Regulatory Overview – Mechanisms and timelines Financial – Maintain conservative financial posture – Capital investments result in rate base growth Creating
Slide 4: Competitive Strengths
Competitive Strengths Page 4
Slide 5: Competitive Strengths
Competitive Strengths Sustainable Business Kansas City Topeka 69% market share • Focused business strategy Wichita – 100% regulated natural gas distribution utility Tulsa Oklahoma City 87% market share – Third largest publicly traded natural gas distributor • Significant scale – 2.1 million customer
Slide 6: Significant Scale
Significant Scale High Percentage of Residential Customers Net Sales Margin* Customer Count 2013 2013 1% 7% 1% 16% 83% Customer Type 92% Residential Commercial/Industrial Other * Excludes transportation margin Page 6
Slide 7: Significant Scale
Significant Scale High Percentage of Fixed Charges Kansas Oklahoma Texas Total Fixed Charges – Sales 51% 83% 70% 69% customers¹ Average Annual Heating 4,860 3,316 1,785 - Degree Days – Normal Weather Normalization 100% 100% 62% 87% Kansas Corporation Commission Oklahoma Corporation Commission “Home
Slide 8: Proximity to Natural Gas Supply
Proximity to Natural Gas Supply Location Supports Sustainability Kansas Topeka City • Close proximity to significant Mississippian Wichita Lime natural gas reserves Granite Wash Tulsa • Delivered natural gas costs are Cana- Oklahoma City Woodford Shale comprised primarily of: El Woodford Barnett Sha
Slide 9: Regulatory Overview
Regulatory Overview Page 9
Slide 10: Regulatory Mechanisms
Regulatory Mechanisms Overview • Oklahoma Natural Gas – Performance-based rate structure with a targeted ROE between 10-11 percent that provides for annual rate reviews between rate cases • Kansas Gas Service – Gas System Reliability Surcharge – for incremental safety-related and government-mandated
Slide 11: Regulatory Filing Timeline
Regulatory Filing Timeline Oklahoma & Kansas New performance-based rates Pending outcome of rate case, performance-based approved and effective August 2014 rates change filing anticipated March 2017 2014 2015 2016 2017 2018 ONG General rate case application filing in August 2015, with new rates effe
Slide 12: Regulatory Filing Timeline
Regulatory Filing Timeline Texas • El Paso Service Area – El Paso Annual Rate Review (EPARR) filing annually, with new rates effective each August, if applicable – Gas Reliability Infrastructure Program (GRIP) filings in remainder of service area • Other cities also considering EPARR • Central Texas
Slide 13: Regulatory Update
Regulatory Update Recent Activity • Oklahoma – August 2014: New rates approved, includes an increase in base rates of approximately $13.7 million and an energy- efficiency program true-up and a utility incentive adjustment of $0.9 million • Kansas – November 2014: Kansas Corporation Commission appro
Slide 14: Opportunity to Narrow the Gap
Opportunity to Narrow the Gap Return on Equity • Goal: Minimize the gap between allowed and actual returns* – 2015 ROE estimate: 7.4% – 2014 ROE estimate: 7.6% – 2013 ROE achieved: 8.0% – 2012 ROE achieved: 8.3% * ROE calculations are consistent with utility ratemaking in each jurisdiction Page 14
Slide 15: Financial Overview
Financial Overview Page 15
Slide 16: Financial Highlights
Financial Highlights Commitment to Strong Investment-Grade Ratings • Strong investment-grade credit ratings, consistent with peers – Moody’s: A2 (Stable) – S&P: A- (Stable) • Strong liquidity position will support capital expenditure and working capital needs – Stable operating cash flows – $700 mil
Slide 17: 2014 Guidance Increased
2014 Guidance Increased Financial • Net income: increased range to Operating Income $105-$110 million $223 – Colder-than-normal weather $220* $216 – Residential customer growth (in millions) – Lower interest expense $200 – Higher operating costs • Capital expenditures expected at high end of $240-$2
Slide 18: 2014 Cash Flow
2014 Cash Flow Sources and Uses • Target dividend payout ratio of 55- 65% of net income $329 $329 Short-term debt: $35 • Capital expenditures primarily Cash funded by cash flow from $60 (in millions) operations Capital expenditures • Dividend of 28 cents per share per Cash flow from $285* operations
Slide 19: 2015 Guidance
2015 Guidance Issued December 2014 • Net income: range of $108-$118 million Operating Income – Earnings growth driven by new rates and customer growth $233 – Separation costs in 2014 – Higher depreciation driven by capital investments $223 $220* – Higher pension costs driven by lower discount rate a
Slide 20: Five-year Financial Outlook
Five-year Financial Outlook Updated December 2014 • Expected average annual net income growth of 5-8% comparing 2014 earnings guidance with 2019 – Driven by capital investments and customer growth – Rate base expected to grow an average of 5-6% per year between 2014-2019 • Expected average annual di
Slide 21: Capital Expenditures
Capital Expenditures Capital Spending Exceeds Depreciation $300 $280 $287 $285* • Majority of capital expenditures for safety, $243 reliability and efficiency $213 – System integrity and replacements $219 $195 $172 (in millions) $182 – Efficiency • Automated meter reading (64% coverage) $132 $112 $1
Slide 22: Creating value for stakeholders
Creating value for stakeholders Page 22
Slide 23: Creating Value for Stakeholders
Creating Value for Stakeholders Identify and Pursue Growth Opportunities • 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 – Ann
Slide 24: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Current Environment • Currently operate 27 fueling stations • Benefits accessible to the public – Use of CNG increases load • Currently providing supply to 45 retail and 36 • One vehicle is equivalent to one home private CNG stations • One pickup truck is equivalent to t
Slide 25: 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 26: Appendix
Appendix Page 26
Slide 27: Customer and Asset Mix
Customer and Asset Mix Key Statistics as of Dec. 31, 2013 Kansas Oklahoma Texas Total Average Number of Customers 632,638 847,023 634,251 2,113,912 Number of Employees 1,000 1,100 700 3,100* Miles of Service Lines 8,000 4,600 5,700 18,300 Distribution – Miles 11,400 18,200 9,600 39,200 Transmission
Slide 28: Projected Rate Base
Projected Rate Base By State 2014 Rate Base* • Projected rate base consists of: Total: $2.5 billion** + Property, plant and equipment + Working capital 25% + Other rate base items +/– 42% – Accumulated deferred income taxes – Accumulated depreciation 33% Oklahoma Kansas Texas * Estimated average rat
Slide 29: Regulatory Information
Regulatory Information By State as of Sept. 30, 2014 Rate Base Authorized Authorized (in millions) Rate of Return Return on Equity Oklahoma Natural Gas¹ $938 8.535% 10-11% Kansas Gas Service² $781 N/A N/A Texas Gas Service¹ $542 8.55% 10.4% ¹ The rate base, authorized rate of return and authorized r
Slide 30: Authorized Rate Base
Authorized Rate Base Historical by State Oklahoma¹ Kansas² Texas¹ CAGR 6.3% CAGR 1.7% CAGR 21.9% $896 $843 $793 $744 $764 $770 (in millions) $504 $416 $339 2011 2012 2013 2011 2012 2013 2011 2012 2013 ¹ Rate bases presented in this table are those from the last approved rate filings for each jurisdi
Slide 31: Capital Expenditures
Capital Expenditures By State Oklahoma Kansas Texas $133 $126 $123 $127 $100 $86 $90 $85 $82 $79 $79 $74 $75 (in millions) $62 $68 $68 $53 $57 $49 $52 $41 $42 $42 $45 $39 $21 $25 $16 $18 $20 2011 2012 2013 2014G* 2015G 2011 2012 2013 2014G* 2015G 2011 2012 2013 2014G* 2015G * 2014G: Expected at high
Slide 32: 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 33: 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 is included
Slide 34: 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 35: Cash Flow From Operations
Cash Flow From Operations Before Changes In Working Capital* Updated 2015 (Millions of dollars) 2014 Change Guidance Guidance Net Income $ 113 $ 107 $ 6 Depreciation and amortization 135 127 8 Non-cash pension and other benefit costs 31 24 7 Asset removal costs (49) (41) (8) Other 10 17 (7) Cash flo
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