One Gas, Inc. · NYSE:OGS
One Gas — American Gas Association Financial Forum 2021
62 slides from One Gas's conference presentation, May 19, 2021
Slide 1: Resilient and Reliable Energy For a Better Tomorrow
Resilient and Reliable Energy For a Better Tomorrow AMERICAN GAS ASSOCIATION FINANCIAL FORUM May 19 – 20, 2021
Slide 2: Forward-Looking Statements
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 covered by the safe harbor provisions of the Priv
Slide 3: Value Creation Strategy
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Slide 4: Sustainable Business Model
Sustainable Business Model • Clear vision, mission, strategy and values-driven culture Focused Business Strategy • 100% regulated natural gas distribution utility • Conservative financial profile (investment-grade credit ratings) • 20+ year vintage pipeline replacement program Capital Horizon & Clar
Slide 5: Mission, Vision, Strategy and Core Values
Mission, Vision, Strategy and Core Values Mission – Why we exist Core Values – Our compass SAFETY We deliver natural gas for a better tomorrow We are committed to operating safely and in an environmentally responsible manner. Vision – What we want to be ETHICS To be a premier natural gas distributio
Slide 6: 100% Regulated Natural Gas Utility
100% Regulated Natural Gas Utility One of the largest publicly traded natural gas distribution companies 72% market share • ~ 2.2 million customers • ~ 3,700 employees • ~ 63,300 miles of distribution mains, services and 88% market share transmission pipelines Estimated 2021 average rate base: $4.23
Slide 7: Capital Horizon & Clarity
| CAPITAL HORIZON & CLARITY . : G one cas
Slide 8: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan CAPITAL INVESTMENTS 2021G CAPITAL INVESTMENTS BY STATE (MILLIONS) (MILLIONS) ~$540 $515 $19 $470 $20 $442 $21 $418 $151 $26 $135 $32 $110 Kansas $99 $80 $360 $370 $135 $317 $339 Texas $306 $201 $191* $201 $178 $151 $158 Oklahoma $204 2017 2018 2019 2020 2021G Sys
Slide 9: Rate Base Growth
Rate Base Growth AVERAGE RATE BASE* 2021 ESTIMATED AVERAGE RATE BASE* (BILLIONS) TOTAL: $4.23 BILLION $4.23 $3.91 $3.62 $3.18 $3.36 $1.16 billion $1.32 billion $1.75 billion 2017 2018 2019 2020 2021G Kansas Oklahoma Texas * For definition of average rate base, see Appendix Expected 8% growth from 20
Slide 10: Pipeline Replacement
Pipeline Replacement Focusing on Maintaining Safe and Reliable Operations While Reducing Emissions PIPELINE REPLACEMENT (MILES) ACCELERATED CAST IRON Average Annual Est. 2021-2025 120 60 220 400 REPLACEMENT PROGRAM 2020 130 44 7 289 470 COMPLETED IN 2019 2019 4 113 78 2 233 430 2018 21 111 53 5 240
Slide 11: Vintage Pipeline Replacement Program
Vintage Pipeline Replacement Program Replaced an Average of 244 Miles of Vintage Pipe Per Year Since 2014 VINTAGE PIPE AS PORTION OF TOTAL PIPELINE INVENTORY (MILES) All Other Main, Service & Transmission Pipelines Risk-Mitigation & Government 1,100 Relocations 2021-2025E 900 5,180 4,280 2021-2025E
Slide 12: Regulatory Construct
REGULATORY CONSTRUCT
Slide 13: Comprehensive Regulatory Mechanisms
Comprehensive Regulatory Mechanisms DESCRIPTION KANSAS OKLAHOMA TEXAS Interim capital recovery ✓ ✓ ✓ Weather normalization ✓ ✓ ✓ Purchased gas riders (including gas cost portion of bad debts) ✓ ✓ ✓ Energy efficiency/conservation programs ✓ ✓* Pension and other post-retirement benefits trackers ✓ ✓ ✓
Slide 14: Interim Recovery of Capital Investments
Interim Recovery of Capital Investments Annual Filings • Oklahoma Natural Gas 2021E CAPITAL RECOVERY TIMING – Performance-based rate change (PBRC) filing for annual rate reviews between rate cases to ensure achieved ROE is within the established band of 9 – 10% 7% • Kansas Gas Service – Gas System R
Slide 15: Filing Timeline
Filing Timeline Oklahoma & Kansas General rate case application filing on or before June 30, 2021, with new rates effective early 2022, if applicable 2020 2021 2022 2023 2024 2025 PBRC filing approved July 2020, Pending outcome of rate Pending outcome of rate $9.7 million increase; new rates case, P
Slide 16: Texas Filings – 2021
Texas Filings – 2021 • Central-Gulf Service Area – $10.7 million GRIP filed in February 2021; new rates expected to be effective in June 2021 • West Texas Service Area – $9.7 million GRIP filed in March 2021; new rates expected to be effective in July 2021 • Rio Grande Valley Service Area – $4.6 mil
Slide 17: Winter Storm Uri
WINTER STORM URI
Slide 18: Financial Impact and Response
Financial Impact and Response Additional Liquidity Secured Extraordinary Costs Incurred Sources of Liquidity As of March 31, 2021 • ~ $2.0 billion extraordinary costs (gas purchases and related financing and operational costs) deferred as a • Revolving Credit Facility1 regulatory asset as of March 3
Slide 19: Securitization Update
Securitization Update Winter Storm Uri Financing KANSAS OKLAHOMA TEXAS HB 1520 permitting the Texas Public A bill permitting the Oklahoma A bill permitting individual utilities to Finance Authority (TPFA) to issue Development Finance Authority (ODFA) Status issue securitized bonds was signed into se
Slide 20: Cash Flow Stability
| CASH FLOW STABILITY G ONE Gas
Slide 21: High Percentage of Residential Customers
High Percentage of Residential Customers 83% Residential 92% Residential 72% of sales NET SALES CUSTOMER margin is MARGIN COUNT fixed (Excludes transportation and other (Excludes transportation) revenues) 17% Non-residential 8% Non-residential Note: Based on 2020 annual results. Net Sales Margin is
Slide 22: Growth in Service Territories
Growth in Service Territories POPULATION GROWTH IN LARGEST AREAS SERVED AVERAGE CUSTOMER COUNT (THOUSANDS) (THOUSANDS) 2,152 2,166 2,179 2,194 2,220 2,400 Austin-Round Rock- 2,200 Georgetown, TX MSA, 2,295 680 2,000 650 657 663 670 1,800 1,600 Oklahoma City, OK MSA, 1,400 871 877 884 895 1,425 865 1
Slide 23: Average Annual Residential Customer Bill
Average Annual Residential Customer Bill AVERAGE ANNUAL RESIDENTIAL CUSTOMER BILL • Over the past 5 years, customers have benefitted from low and stable gas prices $235 $256 $265 • Customers began to see impact $177 $189 of federal tax reform in 2018 and elimination of Kansas state income taxes in 2
Slide 24: Financial Performance & Objectives
FINANCIAL PERFORMANCE & OBJECTIVES
Slide 25: 2021 Guidance Summary
2021 Guidance Summary Initiated Jan. 19, 2021 • Net income range of $198 ‒ $210 DILUTED EPS & NET INCOME million $3.80** • EPS range of $3.68 ‒ $3.92 per $3.68 diluted share $3.51 • Estimated average rate base* of $3.25 $4.23 billion $3.08 $204** $196 – Includes $540 million in capital investments $
Slide 26: Growing Dividends
Growing Dividends Building Shareholder Value • Quarterly Dividend* DIVIDENDS & PAYOUT RATIO – 58 cents per share in 2021 $2.32* $2.16 $2.00 $1.84 • Target annual payout ratio $1.68 61%** 59% – 55 – 65% of net income 57% 57% 55% 2017 2018 2019 2020 2021G 7.4% increase over 2020 * Subject to board app
Slide 27: Operating Cost Control
Operating Cost Control Building a Foundation for Long-term Affordability OPERATING COSTS* • Managing expenses: (MILLIONS) $509 – Leveraging technology $471 $489 $494 $457 – Increasing efficiency and optimizing processes – Making it easier for customers to self- serve Expected average annual operatin
Slide 28: Return on Equity
Return on Equity • Continue to minimize the gap Earned ROE between allowed and actual 8.3% 8.6% 7.9% 8.1% 8.1%* returns • Authorized ROE by state: – Oklahoma ‒ 9% to 10% band, with a 9.5% midpoint – Texas ‒ ~ 9.5% weighted average – Kansas ‒ Not stated due to black box settlement; Kansas Gas Service
Slide 29: Financing Requirements
Financing Requirements Excluding Winter Storm Uri Financing • Dividends and capital $665 $665 Financing investments primarily funded Financing requirements Financing by cash flow from operations requirements $210 requirements $210$174 Capital • ~$1 billion net financing needs expenditures and (MILLI
Slide 30: Long-term Debt Profile
Long-term Debt Profile as of March 31, 2021 SENIOR DEBT MATURITIES (MILLIONS) $1,800 $1,000 0.850% $1,000 $700 $600 $800 1.100% $400 3.610% Floating $300 3ML+61bps 4.658% $300 2.000% 4.500% 3.610% 2023 2024 2030 2044 2048 Long-term debt exclusive of Winter Storm Uri financing Long-term debt associat
Slide 31: Competitive Advantage
\ COMPETITIVE ADVANTAGE G ONE Gas
Slide 32: Proximity to Supply
Proximity to Supply Location Supports Sustainability • Close proximity to significant MAIN NORTH AMERICAN GAS BASINS 3 SHALE PLAYS IN OGS SERVICE AREAS natural gas reserves and transportation infrastructure – Results in lower transportation, storage and commodity costs – Multiple supply points allow
Slide 33: 3.7-to-1 Average Advantage in ONE Gas Territories
3.7-to-1 Average Advantage in ONE Gas Territories Natural Gas Price Advantage Over Electricity KWH EQUIVALENT ELECTRICITY VS. NATURAL GAS 4.2x 3.5x 3.5x 12.73¢ 11.96¢ 9.97¢ 2.86¢ 3.42¢ 3.00¢ Oklahoma Texas Kansas ¹ Avg. retail price of electricity/kWh ² ONE Gas delivered cost of natural gas/kWh ³ Na
Slide 34: U.S. Energy Consumption 2005 to 2020
U.S. Energy Consumption 2005 to 2020 Lawrence Livermore National Laboratory SOURCE of U.S. ENERGY CONSUMPTION • On average, the U.S. has (QUADS) consumed ~100 quads of energy 2005 2020 CHANGE every year (quad = quadrillion Btu) Solar 0.1 1.3 1.2 • Since 2005, natural gas (+39%) Nuclear 8.1 8.3 0.2 h
Slide 35: The Crucial Role of Hydrocarbons
The Crucial Role of Hydrocarbons Hydrocarbons provide a competitive and COMMON USES OF NGL COMPONENTS* strategic advantage for the U.S. Natural Gas Liquids Typical Use economically and geopolitically – Low energy costs have boosted domestic Polyethylene, PVC & other Ethane plastics manufacturing and
Slide 36: Safety & ESG
SAFETY & ESG
Slide 37: Operating Safely
Operating Safely TRIR AGA QUARTILE DATA DART AGA QUARTILE DATA PVIR AGA QUARTILE DATA 1.26 2.70 1.53 1.19 1.04 1.02 0.46 0.25 1.75 0.68 0.43 0.28 1.80 1.75 1.76 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 1ST 2ND 3RD 4TH OGS 1ST 2ND 3RD 4TH OGS 1ST 2ND 3RD 4TH OGS Tota
Slide 38: Moving Toward a Clean Energy Future
Moving Toward a Clean Energy Future Vintage Pipe Renewable Innovation & End-Use Conservation Disclosures Replacement Natural Gas Technology • Reduce emissions through • Expand • Provide CNG • Optimize existing • Identify & invest in • Align with SASB, GRI, vintage pipeline energy fueling for fleet p
Slide 39: Renewable Natural Gas Technology and Innovation
Renewable Natural Gas Technology and Innovation Current Initiatives RNG ANAEROBIC DIGESTION PRODUCTION • Potential impact of RNG – Identified wastewater and landfill sources within ONE Gas’ service territory which, if captured, have the potential for achieving net zero methane emissions – More work
Slide 40: Hydrogen Technology and Innovation
Hydrogen Technology and Innovation Looking to the Future • Established two hydrogen working groups: • Stakeholder in “Demonstration and – Exploring technical matters Framework for H2@Scale in • Engineering Texas and Beyond” • Policies and procedures – U.S. Department of • System integrity implicatio
Slide 41: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Key Statistics • Over half of OGS’ light-duty fleet consists of CNG- CNG VOLUME capable vehicles (DTH – MILLIONS) 151 stations • Operating 27 fueling stations accessible to the supplied 150 stations 147 stations supplied 151 stations public, 6 private stations 143 statio
Slide 42: Social Responsibility & Governance
Social Responsibility & Governance SOCIAL RESPONSIBILITY CORPORATE GOVERNANCE Engage our employees Uphold strong governance • Employee engagement improved for the sixth consecutive year, placing OGS practices in the top 20% of Gallup’s company database • 75% of directors are independent • Support em
Slide 43: Appendix
LEY APPENDIX NG) _ G one Gas
Slide 44: COVID-19 Update
COVID-19 Update As of March 31, 2021 EMPLOYEES CUSTOMERS • COVID-19 related employee absences have not • Customer disconnections generally suspended significantly impacted operations mid-March 2020 through April 2021, when • Cross-functional task force supporting COVID-19 disconnects were resumed in
Slide 45: Corporate Structure
Corporate Structure 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 APPENDIX | 45
Slide 46: State Statistics
State Statistics As of Dec. 31, 2020 KANSAS OKLAHOMA TEXAS GAS TOTAL GAS SERVICE NATURAL GAS SERVICE Average Number of Customers 645,049 894,227 680,181 2,219,457 Distribution – Miles* 11,600 19,000 10,600 41,200 Transmission – Miles* 1,500 700 300 2,500 Fixed Charges – Sales customers** 55% 87% 70%
Slide 47: Capital Expenditures Including Asset Removal Costs
Capital Expenditures Including Asset Removal Costs KANSAS OKLAHOMA TEXAS 2021: 1.9X DEPRECIATION 2021: 2.5X DEPRECIATION 2021: 4.2X DEPRECIATION $198 $204 $201 $191 $188 $180 $173 $156 $135 $136 $123 $126 $123 $129 $122 (MILLIONS) $76 $81 $68 $72 $69 $74 $64 $67 $50 $52 $44 $48 $34 $37 $40 2017 2018
Slide 48: Authorized Rate Base
Authorized Rate Base KANSAS1 OKLAHOMA2 $1,616 TEXAS2 $1,475 $1,407 $1,202 $1,257 $1,133 $1,033 $1,068 $986 $1,047 $925 $947 $895 $822 $745 (MILLIONS) 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 2016 2017 2018 2019 2020 1 Kansas Gas Service’s most recent rate case, approved in February 2019, wa
Slide 49: Rate Base Definition
Rate Base Definition Authorized Rate Base $3.80 billion (as of March 31, 2021) • Includes capital investments authorized in most recent rate cases and interim filings • Excludes any capital investments since last approved rate cases or filings 2021 Estimated Average Rate Base $4.23 billion • Average
Slide 50: Regulatory Construct
Regulatory Construct Governance KANSAS OKLAHOMA TEXAS “Home Rule” with five 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 51: Recent Regulatory Activity
Recent Regulatory Activity EFFECTIVE RATE RETURN RATE OF EQUITY DIVISION JURISDICTION DATE OF BASE2 ON RETURN2 RATIO2 LAST ACTION1 (MILLIONS) EQUITY2 Oklahoma Natural Gas Oklahoma June 2020 $1,616 7.06% 56% 9.50% Kansas Gas Service3 Kansas December 2020 $1,133 8.60% N/A 9.30% Texas Gas Service Centr
Slide 52: Kansas Gas Service
Kansas Gas Service Recent Regulatory Activity 2020 GSRS – NEW RATES EFFECTIVE DECEMBER 2020 Incremental Surcharge Revenue $7.5 million annual revenue Capital Expenditures $73.2 million Pre-Tax Carrying Charge 8.6%; Kansas Gas Service estimates ROE embedded in GSRS pre-tax carrying charge is ~9.3% Cu
Slide 53: Oklahoma Natural Gas
Oklahoma Natural Gas Recent Regulatory Activity 2020 PBRC – NEW RATES EFFECTIVE JUNE 2020 Amount Requested $9.7 million rate increase Customer Impact $0.90 per month increase (for typical residential customer) Rate Base $1,616 million Return on Equity 9.5% (midpoint of allowed band) Common Equity Ra
Slide 54: Texas Gas Service
Texas Gas Service Recent Regulatory Activity CENTRAL-GULF SERVICE AREA GRIP – FILED WEST TEXAS SERVICE AREA GRIP – FEBRUARY 2021 FILED MARCH 2021 Incremental Revenue $10.7 million increase Incremental Revenue $9.7 million increase Capital Expenditures $97 million Capital Expenditures $80 million Pre
Slide 55: Economic Snapshot – Austin
Economic Snapshot – Austin NET MIGRATION OF U.S. 50 LARGEST METROS PER 10,000 POPULATION, 2010-2019 AUSTIN 1,600 UNEMPLOYMENT RATES BY METRO AREA • #1 fastest growing major NOT SEASONALLY ADJUSTED, AS OF MARCH 2021 Domestic International metro in the U.S. 1 1,200 National Average: 6.0% • #3 best-per
Slide 56: Economic Snapshot – El Paso
Economic Snapshot – El Paso 2020-2021 BUSINESS ANNOUNCEMENTS Company Employees • #1 exporting state for the Wiwynn (2021) Unknown UNEMPLOYMENT RATES BY METRO AREA 19th consecutive year1 Everest Rehabilitation Hospital expansion (2021) ~120 NOT SEASONALLY ADJUSTED, AS OF MARCH 2021 Eastlake Marketpla
Slide 57: Economic Snapshot – Oklahoma City
Economic Snapshot – Oklahoma City NET MIGRATION OF U.S. 50 LARGEST METROS 1,600 2020-2021 NEW BUSINESSES/EXPANSIONS PER 10,000 POPULATION, 2010-2019 • 14th fastest growing major Company Description Jobs Domestic International metro in the U.S. (+1.1%)1 1,200 Created 800 Corken (2021) Expansion ~120
Slide 58: Economic Snapshot – Tulsa
Economic Snapshot – Tulsa UNEMPLOYMENT RATES BY METRO AREA MAJOR EMPLOYERS BY INDUSTRY NOT SEASONALLY ADJUSTED AS OF MARCH 2021 National Average: 6.0% Industry 1,000+ Employees • #5 top metro for job Tulsa 4.2% creation (Site Selection Unemployment rate (%) Aerospace & Magazine, 2019) 4.8 to 4.8 Def
Slide 59: U.S. Energy Flowchart
U.S. Energy Flowchart APPENDIX | 59
Slide 60: Non-GAAP Information
Non-GAAP Information ONE Gas has disclosed in this presentation cash flow from operations before changes in working capital and net margin, which are non-GAAP financial measures. Cash flow from operations before changes in working capital is used as a measure of the company's financial performance.
Slide 61: Non-GAAP Reconciliation
Non-GAAP Reconciliation Cash Flow From Operations Before Changes in Working Capital 2021 (MILLIONS) GUIDANCE* Net income $ 204 Depreciation and amortization 206 Deferred taxes 35 Other 10 Cash flow from operations before changes in working capital $ 455 * Amounts shown are estimated midpoints as con
Slide 62: Non-GAAP Reconciliation
Non-GAAP Reconciliation Net Margin (MILLIONS) 2020 Total revenues $ 1,530.3 Cost of natural gas 537.4 Net margin $ 992.9 (MILLIONS) 2020 Natural gas sales Residential $ 711.1 Commercial and industrial 132.8 Other 7.9 Net margin on natural gas sales (net sales margin) $ 851.8 Transportation revenues
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