One Gas, Inc. · NYSE:OGS
One Gas — BofA Securities Gas Utility Conference (December 2023)
51 slides from One Gas's conference presentation, Dec 6, 2023
Slide 1: December Investor Update
December Investor Update December 2023 Delivering Reliable & Affordable Energy
Slide 2: Investor Information
Investor Information Contact Information and forward-looking statements Statements contained in this presentation that include or refer to Company expectations, our business outlook, our future plans or predictions relating to any matters should be considered forward-looking statements that are cove
Slide 3: About Us
71% market share, the largest in Kansas About Us ONE Gas, Inc. (NYSE: OGS) is a 100-percent regulated 88% market natural gas utility and is one of the largest natural gas utilities in share, the largest in Oklahoma the United States. ONE Gas provides natural gas distribution services to approximatel
Slide 4: Recent Highlights
Recent Highlights Creating value for a better tomorrow 2024 EPS guidance of We estimate $750 On track to replace Added ~25,000 new $3.70 - $4.00 & 2024-28 million in 2024 capital over 500 miles of customer connections in EPS growth of 4-6% investments transmission, main and the TTM ended 10/31/23 se
Slide 5: Our Strategy
Our Strategy G ONE Gas
Slide 6: Constructing a Foundation for Growth and Long-term Affordability
Constructing a Foundation for Growth and Long-term Affordability Building Operational Capacity Meaningful customer growth positively impacts affordability • Robust backlog of future meter sets • New customer connections have slowed compared to 2022 but are commensurate with 2021 levels • New meter s
Slide 7: Favorable Regional Growth Dynamics
Favorable Regional Growth Dynamics Growing Demand for Natural Gas Provides Long-Term Growth Opportunity Durable residential and commercial development, I-35 corridor anchored to economic growth, is driving system • I-35 corridor fastest expansion growing population in the U.S Strong support for natu
Slide 8: Regional Focus on Economic Development
Regional Focus on Economic Development Attracting large-scale manufacturing Enel North America (Inola, OK) – Announced May 2023 • $1.0 billion solar cell and panel manufacturing plant, largest economic development project in Oklahoma history • 1,800 construction jobs and 1,000 new permanent jobs by
Slide 9: Our Core Values
Our Core Values Our Strategy Safety We are committed to operating safely and in an environmentally responsible manner. Serving Customers Ethics We are accountable to the highest ethical standards and are committed to compliance. Capital Demand Growth Clean Energy Solutions Inclusion & Diversity We e
Slide 10: Sustainable Business Model
Sustainable Business Model 100% regulated natural gas distribution utility Focused Business Strategy Conservative financial profile with investment-grade credit ratings 20+ year vintage pipeline replacement program using risk-based approach Capital Investments Significant organic growth opportunitie
Slide 11: Financial Outlook
Financial Outlook G ONE Gas
Slide 12: Five-Year Financial Guidance: 2024 – 2028
Five-Year Financial Guidance: 2024 – 2028 Overview The Company’s outlook remains anchored by proactive investments in system integrity, pipeline replacement, and durable customer growth rooted in regional economic development. The fundamental shifts in baseline economic conditions which emerged in 2
Slide 13: Current Economic Backdrop
Current Economic Backdrop Full employment, continued deficit spending, and a restrictive Fed The Federal Reserve has rapidly raised interest rates and is working to shrink its balance sheet to rein in decades-high inflation. In the US, the principal economic tension has been between these Fed action
Slide 14: Federal Funds Rate Futures
Federal Funds Rate Futures Consensus rate expectations have moved meaningfully higher this year 11.01.2022 Peak Fed Funds rate of 4.70% expected in March 2023 with cuts in 2H23 producing a 1Q24 rate expectation of roughly 4.00%, declining to 3.00% by 1Q25. 05.01.2023 Peak Fed Funds rate of 5.25% exp
Slide 15: Modeling Assumptions
Modeling Assumptions Given heightened market volatility and consensus rate forecasts which have shifted dramatically over the past two years, we believe there is value in sharing the following modeling assumptions: • A gradual contraction in the Commercial Paper 10-year rate spread over the course o
Slide 16: Financing Requirements
Financing Requirements Retaining Balance Sheet Strength Dividends and capital investments primarily funded by cash flow from operations of approximately $525 - $575 million1 – Expected 2024 short- and long-term financing need of $350 - $375 million, exclusive of two first-quarter maturities: $300 mi
Slide 17: Five-Year Financial Highlights
Five-Year Financial Highlights Investing in a Growing System Capital Investments & Rate Base Average Annual Growth Rates • Capital investments of approximately • Based off 2023 guidance midpoint $4.25 billion • Net income growth of 7 – 9% – $3.0 billion investment in system integrity and - In additi
Slide 18: 2024 Guidance Summary
2024 Guidance Summary* Managing near-term impacts while preserving long-term opportunities Earnings and Dividends Outlook • Net income for 2024 in a range of $214 - $231 million • EPS range of $3.70 - $4.00 per diluted share • Anticipate dividend growth of 1% to 2% in 2024, subject to board approval
Slide 19: Capital Investments
Capital. —|—'5-=) — = Investments = G ONE Gas
Slide 20: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan Investments ~3x Depreciation CAPITAL INVESTMENTS 2024G CAPITAL INVESTMENTS BY STATE (MILLIONS) ~$750 (MILLIONS) $7252 $26 $658 $25 $32 $172 $175 $5151 $542 $21 $177 $20 $552 Kansas $525 $135 $138 Texas $169 $449 $288 $383 $360 $234 $252 $202 $216 $191 Oklahoma $2
Slide 21: Rate Base
Rate Base ~8% Growth Expected in 2024 AVERAGE RATE BASE1 2024G AVERAGE RATE BASE1 (BILLIONS) BY STATE TOTAL: $5.55 BILLION $5.55 $5.15 $4.69 $4.25 $3.91 $1.41 billion $1.79 billion $2.35 billion 2020 2021 2022 2023G 2024G Kansas Oklahoma Texas 1 See Appendix for definition CAPITAL INVESTMENTS | 21
Slide 22: Capital Investments
Capital Investments KANSAS OKLAHOMA TEXAS 2023G: 2.4X DEPRECIATION 2023G: 3.0X DEPRECIATION 2023G: 4.0X DEPRECIATION $293 $288 $286 $257 $253 $242 $215 $198 $186 $188 $188 $169 $159 $139 (MILLIONS) $129 $63 $69 $93 $100 $48 $53 $83 $82 $88 $44 $72 $75 $78 $76 $68 2020 2021 2022 2023G 2024G 2020 2021
Slide 23: Regulatory Update
Regulatory Update
Slide 24: Comprehensive Regulatory Mechanisms
Comprehensive Regulatory Mechanisms KEY MECHANISMS: KANSAS OKLAHOMA TEXAS Central- Gulf Dec. 2026 West-North Dec. 2028 General Rate Case Filing Deadline Dec. 2025 June 2027 Rio Grande Dec. 2029 Valley Interim capital recovery GSRS PBRC GRIP, COSA Weather normalization ✓ ✓ ✓ Purchased gas riders (inc
Slide 25: Oklahoma Natural Gas
Oklahoma Natural Gas PBRC settlement approved July 2023 Performance-based rate change (PBRC) interim filing for annual rate reviews between full rate cases 2023 PBRC – EFFECTIVE DATE JULY 2023 File PBRC annually in March, rate case filing as needed. Next rate case Incremental Revenue Recovery $26.3
Slide 26: Kansas Gas Service
Kansas Gas Service GSRS approved November, rates effective Dec. 1, 2023 Gas System Reliability Surcharge (GSRS) for investments in safety- related projects (includes physical and cyber security) and government-mandated relocations made between rate cases File GSRS Annually in 2023 GSRS – EFFECTIVE D
Slide 27: Texas Gas Service
Texas Gas Service Central-Gulf GRIP took effect June 2023 Gas Reliability Infrastructure Program (GRIP) for capital investments made between rate cases CENTRAL-GULF 2023 GRIP FILING File GRIP Annually in $11.5 million annual revenue increase Incremental Surcharge Revenue approved February, rate case
Slide 28: Texas Gas Service
Texas Gas Service West-North GRIP effective June 2023 Gas Reliability Infrastructure Program (GRIP) for capital investments made between rate cases WEST-NORTH 2023 GRIP FILING File GRIP Annually in $7.3 million annual revenue increased 1st Quarter, rate case Incremental Surcharge Revenue approved fi
Slide 29: Texas Gas Service
Texas Gas Service Rio Grande Valley Rate Case filed in June 2023 General Rate Case to recover costs incurred in providing natural gas services to operate and maintain its distribution system RIO GRANDE VALLEY 2023 RATE CASE FILING Annual rate filing in $9.8 million annual revenue request, April. Rat
Slide 30: Cash Flow Stability
Cash Flow Stability G ONE Gas
Slide 31: 2.5-to-1 Average Advantage in ONE Gas Territories
2.5-to-1 Average Advantage in ONE Gas Territories 3 Natural Gas Price Advantage Over Electricity KWH EQUIVALENT ELECTRICITY VS. NATURAL GAS 14.20¢ 13.46¢ 12.70¢ 2.2x advantage3 2.5x advantage3 2.9x advantage3 6.22¢ 5.04¢ 4.86¢ Texas Oklahoma Kansas ¹ Avg. retail price of electricity/kWh ² ONE Gas de
Slide 32: Average Annual Residential Customer Bill
Average Annual Residential Customer Bill AVERAGE MONTHLY Cash Flow Stability RESIDENTIAL CUSTOMER BILL • ~93% of customers are residential $81 • ~70% of revenue less the cost of gas $75 $70 * is fixed charges $60 $58 Gas Prices Trending Lower in 2024 $55 $54 $43 $50 $51 $50 $35 $28 $46 • Assumes ~$5
Slide 33: Clean Energy Solutions
Clean Energy Solutions G ONE Gas
Slide 34: Clean Energy Solutions
Clean Energy Solutions CLEAN ENERGY is achieved through: 1) Reducing Scope 1 emissions 2) Advancing energy efficiency 3) Supporting RNG as an alternative energy source 4) Developing green tariffs 5) Participating in alternative fuels research and application - Partnering with: H2@Scale, Clean Hydrog
Slide 35: Emissions Reduction Pay Metric
Emissions Reduction Pay Metric Incentive program tied to emissions goal • Updated short-term incentive (STI) metrics include one financial metric and four operational metrics focused on safety. • New STI metric for 2023 is tied to our emissions reduction goal, which is driven by our pipeline replace
Slide 36: Emissions Reduction Strategy
Emissions Reduction Strategy Aligned with overall strategy • Tightening our system – Pipeline replacement and protection replaces higher emitting pipe with lower-emitting pipe – Advanced leak detection reduces time leaks are active • Reducing customer gas usage – Expansion of energy efficiency progr
Slide 37: Emissions Reduction Beyond Pipeline Replacement
Emissions Reduction Beyond Pipeline Replacement Supporting reductions in Scope 1 emissions through: • Third-party pipeline damage prevention • Advanced leak detection technology • Reduction of vented or flared methane releases from pipeline maintenance • Use of CNG for fleet vehicles Supporting deve
Slide 38: ESG Ratings & Company Recognition
ESG Ratings & Company Recognition Enhanced disclosures in 2022 ESG Report • Full alignment with SASB • Following TCFD recommendations • Disclosure of Scope 1 and 2 emissions RATING ORGANIZATION 2023 2022 Published additional governance documents and reports MSCI AA AA • Statement on Human Rights (20
Slide 39: Appendix
Appendix G ONE Gas
Slide 40: Corporate Structure and State Figures
Corporate Structure and State Figures INCORPORATED ENTITY 100% regulated natural gas distribution No levered holding company; all debt issued by ONE Gas, Inc.* Division capital structures match Corporate capital structure KEY FIGURES: Average Number of Customers 656,000 924,000 700,000 Distribution
Slide 41: Authorized Rate Base
Authorized Rate Base KANSAS1,2 OKLAHOMA2 TEXAS2 $2,067 $1,854 (MILLIONS) $1,616 $1,726 $1,475 $1,510 $1,261 $1,339 $1,239 $1,366 $1,068 $1,133 $1,197 $1,047 $986 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 2019 2020 2021 2022 2023 1 Kansas Gas Service’s most recent rate case, approved in Febru
Slide 42: Rate Base Definition
Rate Base Definition Authorized Rate Base $4.92 billion (effective Dec. 1, 2023) • Includes capital investments authorized in most recent rate cases and interim filings • Excludes any capital investments since last approved rate cases or filings 2024 Estimated Average Rate Base $5.55 billion • Avera
Slide 43: Approved Regulatory Filings
Approved Regulatory Filings Annual Filings Approximately 90% of capital expenditures are subject to annual rate filings EFFECTIVE DATE PRE-TAX RATE BASE EQUITY RETURN ON DIVISION JURISDICTION OF LAST RATE OF (MILLIONS) RATIO EQUITY ACTION1 RETURN Oklahoma Natural Gas2 Oklahoma July 2023 $2,067 8.94%
Slide 44: Regulatory Construct
Regulatory Construct Governance KANSAS OKLAHOMA TEXAS “Home Rule” with three jurisdictions; Texas Kansas Corporation Commission Oklahoma Corporation Commission Railroad Commission has appellate authority Appointed by the governor to four-year staggered Railroad Commission elected to six-year Elected
Slide 45: ESG Highlights
ESG Highlights Environmental Vintage Pipe Renewable Natural Innovation & End-Use Conservation Replacement Gas Technology • Reduce emissions through • Provide CNG fueling • Expand energy • Facilitate customer access to • Engage and evaluate new Strategy vintage pipeline replacement for fleet and tran
Slide 46: Strategy Progress
ESG Highlights Social & Governance Community Governance Employee Engagement Customer Care Investment Practices • Support employees through physical, • Improve customer experience through • ONE Gas Foundation and • Maintain best practices in social emotional and financial programs innovation and tech
Slide 47: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Key Statistics • 43% of OGS’ light-duty fleet consists of CNG-capable CNG VOLUME vehicles (DTH – MILLIONS) • Operating 27 fueling stations accessible to the public, 9 151 stations 150 stations 145 stations 147 stations supplied private stations supplied 151 stations supp
Slide 48: Renewable Natural Gas (RNG)
Renewable Natural Gas (RNG) Strong market potential • Access to ~175 Bcf of annual production feedstock within service territory and increasing developer engagement Competitive interconnection operating costs • Interconnects to OGS allow for lower development costs compared with connections to high-
Slide 49: Hydrogen Technology and Innovation
Hydrogen Technology and Innovation Collaborating on research and strategic projects Alliance with GTI on the viability for increased hydrogen integration – The project will identify hydrogen transportation fueling opportunities with potential for use in fleet operations, particularly for heavy-duty
Slide 50: Non-GAAP Reconciliation
Non-GAAP Reconciliation Cash Flow From Operations Before Changes in Working Capital 2024 (MILLIONS) GUIDANCE* Net income $ 223 Depreciation and amortization 267 Deferred taxes 32 Other 23 Cash flow from operations before changes in working capital $ 545 * Amounts shown are estimated midpoints as con
Slide 51: 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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