One Gas, Inc. · NYSE:OGS
One Gas — American Gas Association Financial Forum 2014
39 slides from One Gas's conference presentation, May 19, 2014
Slide 1: American Gas Association Financial Forum
Miami, Fla. | May 19, 2014 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: Key Points
Key Points What We’ll Cover 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 Cre
Slide 5: Competitive Strengths
Competitive Strengths Page 5
Slide 6: Competitive Strengths
Competitive Strengths Sustainable Business Kansas City Topeka 69% market share • Focused business strategy Wichita Tulsa – 100% regulated natural gas distribution utility Oklahoma City 87% market share – Third largest publicly traded natural gas distributor • Significant scale – 2.1 million customer
Slide 7: Significant Scale
Significant Scale High Percentage of Residential Customers Net Sales Margin Customer Count 2013 2013 1% 7% 1% 16% 83% 92% Customer Type Residential Commercial/Industrial Other Page 7
Slide 8: Significant Scale
Significant Scale High Percentage of Fixed Charges Kansas Oklahoma Texas Total Fixed Charges – Sales 51% 83% 70% 69% customers Average Heating 4,860 3,316 1,785 - Degree Days – Normal Weather Normalization 100% 100% 62% 87% Residential Margin 68% 71% 67% 69% Kansas Corporation Commission Oklahoma Co
Slide 9: Proximity to Natural Gas Supply
Proximity to Natural Gas Supply Location Supports Sustainability Kansas Topeka City • Close proximity to significant natural gas reserves Mississippian Wichita Lime • Delivered natural gas costs are comprised primarily of: Granite Wash Tulsa – Cost of the commodity Cana- Oklahoma City Woodford Shale
Slide 10: Regulatory Overview
Regulatory Overview Page 10
Slide 11: Regulatory Mechanisms
Regulatory Mechanisms Overview • Oklahoma Natural Gas – Performance-based rate structure provides annual rate reviews between rate cases to ensure achieved ROE is within the established band of 10-11 percent • Kansas Gas Service – Gas System Reliability Surcharge – for incremental safety-related and
Slide 12: Regulatory Filing Timeline
Regulatory Filing Timeline Oklahoma & Kansas Performance-based rates change filing March 2014, Pending outcome of rate case, performance-based with new rates effective July 2014, if applicable rates change filing anticipated March 2017 2014 2015 2016 2017 2018 ONG General rate case application filin
Slide 13: Regulatory Filing Timeline
Regulatory Filing Timeline Texas • El Paso Service Area – El Paso Annual Rate Review (EPARR) filing annually beginning in April 2014, with new rates effective each August, if applicable – Gas Reliability Infrastructure Program (GRIP) filings in remainder of service area • Other cities also consideri
Slide 14: Regulatory Information
Regulatory Information By State Rate Base Authorized Authorized (in millions) Rate of Return Return on Equity Oklahoma Natural Gas¹ $896 8.535% 10-11% Kansas Gas Service² $770 N/A N/A Texas Gas Service¹ $504 8.55% 10.4% ¹ The rate base, authorized rate of return and authorized return on equity prese
Slide 15: Projected Rate Base
Projected Rate Base By State • Projected rate base consists of: 2014 Rate Base* Total: $2.5 billion + Accumulated capital expenditures + Accumulated working capital + Other rate base items +/– 26% 41% – Accumulated deferred income taxes – Accumulated depreciation 33% Oklahoma Kansas Texas * Estimate
Slide 16: Financial Overview
Financial Overview Page 16
Slide 17: Financial Highlights
Financial Highlights Maintain Conservative Posture • ONE Gas will maintain a conservative financial posture – Prudent capital investment results in steady rate base growth – Financial metrics necessary to maintain strong investment-grade credit ratings – Dividend policy in line with peers • Financin
Slide 18: Balance Sheet
Balance Sheet Commitment to Strong Investment-Grade Ratings • Strong investment-grade credit ratings, consistent with peers – Moody’s: A2 (Stable) – S&P: A- (Stable) • Capital structure – Long-term debt-to-capitalization ratio of 40% – Long-term debt-to-EBITDA of 3.5x – EBIT-to-interest of 4.0x • St
Slide 19: Cash Flow
Cash Flow 2014 Sources and Uses • Target dividend payout ratio of 55- 65% of net income $321 $321 Short-term debt: $25 • 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 $263 operations
Slide 20: Operating Income
Operating Income Opportunity to Narrow the Gap • Goal: Minimize the gap between $220** allowed and actual returns* $216 $217 – 2014 ROE estimate: 7.4% – 2013 ROE achieved: 8.0% (in millions) – 2012 ROE achieved: 8.3% $200 2011 2012 2013 2014G *ROE calculations are consistent with utility ratemaking
Slide 21: 2014 Guidance
2014 Guidance • Net income: range of $95-$105 million • Operating income midpoint: $217 million • Cash flows from operations midpoint: $236 million • Dividend of 28 cents per share per quarter • Capital expenditures expected at higher end of $240-$285 million range Page 21
Slide 22: Five-year Financial Outlook
Five-year Financial Outlook • Expected average annual net income growth of 4-6% between 2014- 2018 – Driven by regulatory filings – Rate base expected to grow an average of 5-6% per year between 2013-2018 • Expected average annual dividend growth of 5% between 2014-2018 – Target dividend payout rati
Slide 23: Capital Expenditures
Capital Expenditures Capital Spending Exceeds Depreciation $280 $287 • Majority of capital expenditures for safety, $263* $243 reliability and efficiency – System integrity and replacements $219 $195 (in millions) $182 $186 – Efficiency • Automated meter reading (64% coverage) $120 $112 $112 • Opera
Slide 24: Creating value for stakeholders
Creating value for stakeholders Page 24
Slide 25: Creating Value for Stakeholders
Creating Value for Stakeholders Identify and Pursue Growth Opportunities • Capital investments targeted toward safety, reliability and efficiency – Results in steady rate base growth – Efficiency projects reduce expenses to sustainable levels • Minimize gap between actual and allowed returns – Conti
Slide 26: 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 39 retail and 31 • One vehicle is equivalent to one home private CNG stations • One pickup truck is equivalent to t
Slide 27: 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 28: Questions
Questions
Slide 29: Appendix
Appendix Page 29
Slide 30: 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 31: 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 32: Capital Expenditures
Capital Expenditures By State Oklahoma Kansas Texas $126 $123 $114 $100 $86 $90 $75 (in millions) $74 $75 $74 $68 $68 $53 $57 $49 $52 $41 $42 $39 $42 $18 $20 $21 $16 2011 2012 2013 2014G 2011 2012 2013 2014G 2011 2012 2013 2014G Depreciation Page 32
Slide 33: 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 34: Heating Degree Days
Heating Degree Days First Quarter 2014 Three months ended March 31, Variance to Variance to Normal 2014 2013 Normal (%) Last Year (%) Oklahoma Natural Gas 1,803 2,142 1,901 18.8 12.7 Kansas Gas Service 2,502 2,879 2,570 15.1 12.0 Texas Gas Service 997 984 1,053 (1.3) (6.6) Total 5,302 6,005 5,524 13
Slide 35: Heating Degree Days
Heating Degree Days Annual Year ended December 31, Variance to Variance to Normal 2013 2012 Normal (%) Last Year (%) Oklahoma Natural Gas 3,316 3,848 2,721 16.0 41.4 Kansas Gas Service 4,860 5,246 3,796 7.9 38.2 Texas Gas Service 1,785 1,985 1,514 11.2 31.1 Total 9,961 11,079 8,031 11.2 40.0 Page 35
Slide 36: Stable Economic Environment
Stable Economic Environment High-Quality Service Territories • Unemployment rate below national average – 2013: 29% below national average • Population growth above national average – 2013: 32% above national average Unemployment Rate (%) Population Growth (%) 12.0 1.5 1.2 1.0 1.0 1.0 1.0 1.0 1.0 1.
Slide 37: 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 38: Non-GAAP Reconciliations
Non-GAAP Reconciliations ONE Gas has disclosed in this presentation targeted long-term debt-to-EBITDA and EBIT-to-interest ratios, which are calculated using amounts disclosed in our financial statements in accordance with generally accepted accounting principles (GAAP) and EBITDA and EBIT amounts t
Slide 39: Slide 39
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