One Gas, Inc. · NYSE:OGS
One Gas — American Gas Association Financial Forum 2016
43 slides from One Gas's conference presentation, May 16, 2016
Slide 1: American Gas Association Financial Forum
Naples, Fla. | May 16, 2016 American Gas Association Financial Forum
Slide 2: Pierce Norton, President and Chief Executive Officer
Pierce Norton President and Chief Executive Officer Page 2
Slide 3: 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 4: What We'll Cover
What We’ll Cover Highlights Competitive Strengths – 100% regulated natural gas utility focus – Third largest publicly traded natural gas distributor Financial Overview – Maintain conservative financial posture – Capital investments result in rate base growth Regulatory Overview – Mechanisms and time
Slide 5: Company Overview
Company Overview Key Statistics 72% market share • Third largest publicly traded natural gas distribution company 88% market share – 2.1 million customers • 43,400 miles of distribution and transmission pipeline 14% market share • Estimated 2016 average rate base: $2.9 billion* – 43% in Oklahoma – 3
Slide 6: Competitive Strengths
Competitive Strengths Page 6
Slide 7: 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 8: Significant Scale: High Percentage of Fixed Charges
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 9: Significant Scale: High Percentage of Residential Customers
Significant Scale High Percentage of Residential Customers * * *Based on 2015 annual results Page 9
Slide 10: 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 11: 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 12: Financial Overview
Financial Overview Page 12
Slide 13: 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 14: Well-defined Capital Investment Plan
Well-defined Capital Investment Plan Capital Spending Exceeds Depreciation $302 $305 $287 $294 $280 $15 $23 $27 $13 • Majority of capital expenditures for $243 $19 $5 $34 $3 $41 $62 $65 safety, reliability and efficiency $23 $37 $55 $7 $46 (in millions) – System integrity and replacements $31 – Effi
Slide 15: 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 16: 2016 Cash Flow
2016 Cash Flow Sources and Uses $379 $379 Short-term debt • Target dividend payout ratio of 55- and working $15 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 17: 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 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 March 31, 2016 – Stable operating cash flows – $700 million revolving credit facility – Commercial paper program Long-term debt • Str
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 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 21: 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 22: Kansas Gas Service Rate Case
Kansas Gas Service Rate Case Filed May 2, 2016 Highlights Base rates $35.4 million total increase, $28 million net increase (already recovering $7.4 million through GSRS) Operating income Impact to 2017 as filed: Approximately $30 million Customer impact $4.34 per month increase for average resident
Slide 23: Texas Gas Service Recent Regulatory Activity
Texas Gas Service Recent Regulatory Activity Jurisdiction Filing Highlights Status Amount Rates Effective Galveston/South Jefferson County • Rate case to adjust base rates Approved $2.3 million May 2016 • Consolidate service areas (Gulf Coast) El Paso/Dell City/Permian • Rate case to adjust base rat
Slide 24: Projected Rate Base
Projected Rate Base Capital Investment Drives Rate Base Growth 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% Okl
Slide 25: Opportunity to Narrow the Gap
Opportunity to Narrow the Gap Return on Equity • Goal: Minimize the gap between allowed and 8.0% 7.6% 7.4% 7.6% 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 25
Slide 26: Key Takeaways
Key Takeaways Focused Strategy • Well-defined capital investment plan with 70% targeted toward system integrity – Rate base expected to grow an average of 5% per year between 2015-2020 – Efficiency projects to reduce expenses to sustainable levels • Minimize gap between actual and allowed returns –
Slide 27: Questions
Questions
Slide 28: Appendix
Appendix Page 28
Slide 29: 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 30: 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 31: 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 32: 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 33: Regulatory Information
Regulatory Information By State as of March 31, 2016 - Authorized 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 Th
Slide 34: 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 35: 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 35
Slide 36: 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 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: 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 57 retail 115 stations supplied and 43 private CNG stations • Rebate program in
Slide 39: 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 40: 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 41: 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 42: 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 43: Slide 43
ONE Gas — American Gas Association Financial Forum 2016 on 6ix