One Gas, Inc. · NYSE:OGS
One Gas — Investor Presentation (February 2018)
48 slides from One Gas's investor presentation, Feb 28, 2018
Slide 1: Investor Meetings
Boston & New York City | February 26-28, 2018 Investor Meetings
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: Key Statistics
Company Overview Key Statistics • One of the largest publicly traded natural gas distribution companies 72% market share – 2.2 million customers • 42,800 miles of distribution and 88% market share transmission pipeline • Estimated 2018 average rate base: $3.4 billion* 13% market share – 42% in Oklah
Slide 4: Value Creation Strategy
Value Creation Strategy
Slide 5: Sustainable Business
Value Creation Strategy Sustainable Business • Well-defined capital investment plan Focused business strategy • 100% regulated natural gas distribution utility • One of the largest publicly traded natural gas distributors • High percentage of residential customers and fixed charges Significant scale
Slide 6: Well-defined Capital Investment Plan
Focused Business Strategy Well-defined Capital Investment Plan $ millions 2018 Guidance 24% $ 261 System Integrity 70% $ 91 Customer Growth 6% $ 23 Other/IT $ 375 Total Capital Expenditures System Integrity Customer Growth Other/IT Page 6
Slide 7: High Percentage of Residential Customers
Significant Scale High Percentage of Residential Customers * * *Based on 2017 annual results Page 7
Slide 8: High Percentage of Fixed Charges
Significant Scale High Percentage of Fixed Charges Kansas Oklahoma Texas Total Fixed Charges – Sales 54% 88% 66% 71% customers* Average Annual Heating 4,889 3,264 1,785 - Degree Days – Normal Weather Normalization 100% 100% 100% 100% Kansas Corporation Commission Oklahoma Corporation “Home Rule” wit
Slide 9: Location Supports Sustainability
Proximity to Natural Gas Supply Location Supports Sustainability • Close proximity to significant natural gas reserves Topeka – 118 active rigs in Oklahoma* – 479 active rigs in Texas* – 61% of all rigs in U.S. operating in ONE Gas territories* • Leads to competitive natural gas delivered costs: – C
Slide 10: 3-to-1 Average Advantage Continues in ONE Gas Territories
Natural Gas vs. Electricity 3-to-1 Average Advantage Continues in ONE Gas Territories $50 3.7x 4.0 $39.04 $40 2.8x 3.0 $32.77 2.4x $31.01 $30 2.0 $20 $13.77 $10.90 $10.55 1.0 $10 $- - Texas Oklahoma Kansas Natural gas price equivalent of electricity/Dth (1) OGS delivered cost of natural gas/Dth (2)
Slide 11: Financial Objectives
Financial Objectives
Slide 12: 2018 Guidance
2018 Guidance Announced January 16, 2018 • Net income: range of $156-$168 Diluted EPS million $3.50 • EPS: range of $2.96 - $3.20 • Rate base expected to grow an $3.00 $3.08 $3.08 average of approximately 6.0-6.5% per year between 2017-2022 $2.50 $2.65 • Expected average annual EPS growth $2.00 $2.2
Slide 13: Growing Dividends
Growing Dividends Building Shareholder Value • Quarterly dividend of 46 Dividends Declared cents per share, resulting in an annualized dividend of $1.68 $1.84 $1.84 per share* $1.20 $1.40 • Target dividend payout ratio $0.84 of 55-65% of net income • Expected average annual 2014** 2015 2016 2017 201
Slide 14: Capital Spending Exceeds Depreciation
Capital Investment Drives Rate Base Growth Capital Spending Exceeds Depreciation • Majority of capital expenditures for safety, reliability and efficiency – System integrity and replacement $375-$415/year $366 $375 – Efficiency $294 $302 $307 • Automated meter reading (in millions) • Operational eff
Slide 15: Capital Expenditures
Capital Expenditures By State Oklahoma Kansas Texas 2018: 2.3x depreciation 2018: 1.9x depreciation 2018: 3.1x depreciation $161 $155 $136 $132 $134 $116 $106 $105 $98 $85 $89 $88 (in millions) $82 $81 $76 $73 $63 $64 $67 $57 $50 $52 $44 $47 $41 $39 $34 $29 $21 $24 2014 2015 2016 2017 2018G 2014 201
Slide 16: Long-Term Commitment to System Modernization
Investment Horizon Long-Term Commitment to System Modernization Pipeline Replacement (miles) 2018-2022 Estimate (miles) 2017 281 144 425 2016 259 131 390 750 1,150 2015 245 180 425 2014 352 123 475 ¹ Vintage Replacement Program ² Risk-Mitigation and Government Relocations Pipeline replacement due to
Slide 17: Building a Foundation for Long-term Affordability
Focused on O&M expenses Building a Foundation for Long-term Affordability • Leveraging technology to control O&M Expense* expenses by: $411 – Increasing efficiency and optimizing $397 $400 processes (in millions) – Enhancing value for customers by more user-friendly and efficient websites, and appli
Slide 18: 2018 Cash Flow
2018 Cash Flow Sources and Uses $528 $528 Asset removal costs Financing requirements • Dividends and capital expenditures $148 $56 primarily funded by cash flow from operations (in millions) Capital expenditures • $700 million revolving credit $375 facility Cash flow from operations* $380 Dividends
Slide 19: Commitment to Investment-Grade Ratings
Investment Grade Commitment to Investment-Grade Ratings • Strong liquidity position will support Capital Structure capital expenditure and working capital As of December 31, 2017 needs – Stable operating cash flows – $700 million revolving credit facility – Commercial paper program Long-term Debt 38
Slide 20: Regulatory Update
Regulatory Update
Slide 21: Regulatory Mechanisms
Regulatory Mechanisms Overview • Oklahoma Natural Gas – Performance-based rate structure (PBR) with an 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 government-mand
Slide 22: Tax Cuts and Jobs Act of 2017
Tax Reform Tax Cuts and Jobs Act of 2017 • Oklahoma: On January 9th, the Oklahoma Corporation Commission approved an order directing ONG to record a deferred liability to reflect the reduced federal corporate tax rate, beginning on the effective date of the order. • Kansas: On January 18th, the Kans
Slide 23: Minimize the Gap
Return on Equity Minimize the Gap 7.7% 7.9% • Goal: Minimize the gap between 7.6% 7.4% 7.3% allowed and actual returns – 2018 ROE estimate: 7.3% – 2017 ROE achieved: 7.9% – 2016 ROE achieved: 7.7% – 2015 ROE achieved: 7.4% – 2014 ROE achieved: 7.6% 2014 2015 2016 2017 2018G Page 23
Slide 24: Regulatory Filing Timeline: Oklahoma & Kansas
Regulatory Filing Timeline Oklahoma & Kansas Filed general rate case application in June 2015, new General rate case application filing in June 2021, with rates approved and effective January 2016 new rates effective early 2022, if applicable 2015 2016 2017 2018 2019 2020 2021 2022 ONG Performance-b
Slide 25: Regulatory Filing Timeline: Texas
Regulatory Filing Timeline Texas Jurisdiction Filing Highlights Status Increase in Rates Base Rates Effective Rio Grande Valley • Return on equity: 9.5% Approved $1.9 million October 2017 • Common equity ratio: 61.3% (actual) • $0.9 million impact to operating income • Approval for recovery of actua
Slide 26: Capital Investment Drives Rate Base Growth
Rate Base Capital Investment Drives Rate Base Growth Rate Base 2018 Estimated Rate Base Total: $3.4 billion* $3.4 $3.2 $2.9 28% $2.3 $2.4 42% (in billions) 30% 2014 2015 2016 2017 2018G Oklahoma Kansas Texas * Estimated average rate base; calculation consistent with utility ratemaking in each jurisd
Slide 27: Key Takeaways: Focused Strategy
Key Takeaways Focused Strategy • Well-defined capital investment plan with 70% targeted toward system integrity – Rate base expected to grow an average of 6.0-6.5% per year between 2017-2022 • Focus on controlling operating expenses • Minimize gap between actual and allowed returns – Annual filings
Slide 28: Questions
Questions
Slide 29: Appendix
Appendix
Slide 30: Corporate Structure
Corporate Structure 100% regulated natural gas distribution All debt issued at OGS Division capital structures match Corporation Corporate capital structure Page 30
Slide 31: Customer and Asset Mix
Customer and Asset Mix Key Statistics as of Dec. 31, 2017 Kansas Gas Service Oklahoma Natural Gas Texas Gas Service Total Average Number of Customers 638,119 871,482 656,480 2,166,081 Average Number of Employees 1,000 1,100 800 3,500* Distribution – Miles 11,400 18,500 10,300 40,200 Transmission – M
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: Regulatory Information by State as of January 2018
Regulatory Information By State as of January 2018 - Authorized Rate Base Rate Base per Authorized Authorized (in millions) Customer Rate of Return on Return Equity Oklahoma Natural Gas¹ $1,257 $1,442 7.31% 9-10% Kansas Gas Service² $947 $1,483 N/A N/A Texas Gas Service¹ $822 $1,252 7.4% 9.6% ¹ The
Slide 34: Authorized Rate Base Historical by State
Authorized Rate Base Historical by State at Year End Oklahoma¹ Kansas² Texas¹ $1,257 $1,202 $938 $979 $925 $947 $781 $826 $822 $760 (in millions) $639 $542 2014 2015 2016 2017 2014 2015 2016 2017 2014 2015 2016 2017 ¹ Rate bases presented in this table are those from the last approved rate filings f
Slide 35: Oklahoma Natural Gas Rate Case
Oklahoma Natural Gas Rate Case New Rates Effective January 2016 Highlights Amount $29.995 million Customer impact $2.96 per month increase for typical residential customer Rate base $1.2 billion Return on equity 9.5% (midpoint of allowed band) Common equity ratio* 60.5% Debt costs 3.95% Other • Cont
Slide 36: Kansas Gas Service Rate Case
Kansas Gas Service Rate Case New Rates Effective January 2017 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
Slide 37: Kansas Gas Service Accounting Authority Order
Kansas Gas Service Accounting Authority Order Highlights Details • The agreement allows Kansas Gas Service to defer manufactured gas plant (MGP) costs for the investigation and remediation at the 12 former MGP sites incurred after January 1, 2017, up to a cap of $15.0 million, net of any related ins
Slide 38: Texas Gas Service: Central Texas New Rates
Texas Gas Service Central Texas Service Area – New Rates Effective November 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 Central Tex
Slide 39: Texas Gas Service: West Texas New Rates
Texas Gas Service West Texas Service Area – New Rates Effective October 2016 Highlights 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 se
Slide 40: Operating Safely and Environmentally Responsibly
Safety and Environment Operating Safely and Environmentally Responsibly • Ongoing effort to replace aging assets – Replaced approximately 425 miles of distribution and transmission facilities in 2017 • Replaced approximately 23 miles of cast iron pipe in 2017 – Remaining 25 miles of cast iron pipe e
Slide 41: Customer Growth
Customer Growth Average Customer Count 2,166 2,152 2,140 2,127 (in thousands) 2,114 2,101 2012 2013 2014 2015 2016 2017 Page 41
Slide 42: State Employment by Sector
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 43: Service Territory Population Growth
Service Territory Population Growth 1.45% CAGR (2000-2017) ONE Gas Major Metro U.S. Census County Population 1,400,000 County 2000 Population 2016 Population % Growth Travis, TX 811,776 1,199,323 48% 1,200,000 El Paso, TX 679,568 837,918 23% Travis County, TX Oklahoma, OK 660,581 782,970 19% Tulsa,
Slide 44: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Current Outlook CNG Volume • Currently operate 27 fueling stations Dth – in millions accessible to the public, 5 private stations 147 stations 143 stations 129 stations supplied supplied • Currently transporting supply to 65 retail supplied 115 stations and 50 private CN
Slide 45: 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 46: Cash Flow From Operations
Cash Flow From Operations Before Changes In Working Capital* 2018 (Millions of dollars) 2017 Change Guidance Net Income $ 162 $ 163 $ (1) Depreciation and amortization 164 152 12 Deferred taxes 41 92 (51) Other 13 16 (3) Cash flow from operations before changes in working capital $ 380 $ 423 $ (43)
Slide 47: 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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