One Gas, Inc. · NYSE:OGS
One Gas — Citi Global Energy & Utilities Conference 2015
36 slides from One Gas's conference presentation, May 12, 2015
Slide 1: Citi Global Energy & Utilities Conference
Boston, Mass. | May 12, 2015 Citi Global Energy & Utilities Conference
Slide 2: Curtis Dinan, Senior Vice President, CFO and Treasurer
Curtis Dinan Senior Vice President, Chief Financial Officer and Treasurer 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 Highlights 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 Creating
Slide 5: Competitive Strengths
Competitive Strengths Sustainable Business • Focused business strategy – 100% regulated natural gas distribution utility – Third largest publicly traded natural gas distributor • Significant scale – 2.1 million customers – High percentage of residential customers and fixed charges • Proximity to nat
Slide 6: Significant Scale: High Percentage of Residential Customers
Significant Scale High Percentage of Residential Customers Net Sales Margin* Customer Count* 2014 2014 1% 7% 1% 16% 83% 92% Customer Type Residential Commercial/Industrial Other * Excludes transportation Page 6
Slide 7: Significant Scale: High Percentage of Fixed Charges
Significant Scale High Percentage of Fixed Charges Kansas Oklahoma Texas Total Fixed Charges – Sales 53% 86% 71% 71% customers¹ Average Annual Heating 4,860 3,317 1,788 - Degree Days – Normal Weather Normalization 100% 100% 62% 89% Kansas Corporation Commission Oklahoma Corporation “Home Rule” with
Slide 8: Proximity to Natural Gas Supply
Proximity to Natural Gas Supply Location Supports Sustainability Kansas Topeka City • Close proximity to significant Mississippian Wichita Lime natural gas reserves Granite Wash Tulsa • Delivered natural gas costs are Cana- Oklahoma City Woodford Shale Woodford comprised primarily of: El Barnett Pas
Slide 9: Regulatory Mechanisms
Regulatory Mechanisms Overview • Oklahoma Natural Gas – Performance-based rate structure with a targeted ROE between 10-11 percent that provides for annual rate reviews between rate cases* • Kansas Gas Service – Gas System Reliability Surcharge – for incremental safety-related and government-mandate
Slide 10: Five-year Financial Outlook
Five-year Financial Outlook Announced December 2014 • Expected average annual net income growth of 5-8% between 2014 and 2019 – Driven by capital investments and customer growth – Rate base expected to grow an average of 5-6% per year between 2014-2019 • Expected average annual dividend growth of 6-
Slide 11: Creating Value for Stakeholders
Creating Value for Stakeholders Strategic Focus • Capital investments targeted toward safety, reliability and efficiency – Approximately 70% of annual forecast – Efficiency projects reduce expenses to sustainable levels • Minimize gap between actual and allowed returns – Annual filings for rate adju
Slide 12: 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 13: Appendix
Appendix Page 13
Slide 14: Company Overview
Company Overview Key Statistics • Third largest publicly traded natural gas distribution company – 2.1 million customers • 42,500 miles of distribution and transmission pipeline • Estimated 2015 average rate base: $2.7 billion* – 42% in Oklahoma – 33% in Kansas – 25% in Texas • ~3,300 employees * Ca
Slide 15: 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 12.21¢ $35.79 $9.97 3.6x Ok
Slide 16: 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 17: Regulatory Filing Timeline
Regulatory Filing Timeline Oklahoma & Kansas General rate case application filing by August 2015, Pending outcome of rate case, performance-based with new rates effective early 2016, if applicable rates filing anticipated March 2018 2015 2016 2017 2018 2019 ONG Pending outcome of rate case, performa
Slide 18: Regulatory Filing Timeline
Regulatory Filing Timeline Texas • El Paso Service Area – El Paso Annual Rate Review (EPARR) filing annually, with new rates effective each August, if applicable • Other cities in service area adopted EPARR – Gas Reliability Infrastructure Program (GRIP) filings in environs • Central Texas Service A
Slide 19: Regulatory Update
Regulatory Update Recent Activity • Oklahoma – August 2014: New rates approved, includes an increase in base rates of approximately $13.7 million and an energy-efficiency program true-up and a utility incentive adjustment of $0.9 million • Kansas – November 2014: Kansas Corporation Commission approv
Slide 20: Opportunity to Narrow the Gap
Opportunity to Narrow the Gap Return on Equity • Goal: Minimize the gap between allowed and actual returns* – 2015 ROE estimate: 7.4% – 2014 ROE achieved: 7.6% – 2013 ROE achieved: 8.0% – 2012 ROE achieved: 8.3% * ROE calculations are consistent with utility ratemaking in each jurisdiction Page 20
Slide 21: Projected Rate Base
Projected Rate Base By State 2015 Estimated Rate Base • Projected rate base consists of: Total: $2.7 billion* + Property, plant and equipment + Working capital 25% +/– + Other rate base items 42% – Accumulated deferred income taxes – Accumulated depreciation 33% Oklahoma Kansas Texas * Calculation c
Slide 22: Financial Highlights
Financial Highlights Commitment to Strong Investment-Grade Ratings • Strong liquidity position will support capital Capital Structure expenditure and working capital needs As of March 31, 2015 – Stable operating cash flows – $700 million revolving credit facility – Commercial paper program Long-term
Slide 23: 2015 Cash Flow
2015 Cash Flow Sources and Uses • Target dividend payout ratio of 55- $365 $365 65% of net income Short-term debt and working capital changes • Capital expenditures primarily $112 (in millions) funded by cash flow from Capital expenditures operations Cash flow from $300 • Dividend of 30 cents per sh
Slide 24: 2015 Guidance
2015 Guidance Announced December 2014 • Net income: range of $108-$118 million Operating Income – Earnings growth driven by new rates and customer $233 growth $225 – Higher depreciation driven by capital investments $220* $216 – Higher pension costs driven by lower discount rate and asset returns $2
Slide 25: Capital Expenditures
Capital Expenditures Capital Spending Exceeds Depreciation $297 $300 $280 $287 • Majority of capital expenditures for safety, $243 reliability and efficiency $184 $213 $195 (in millions) – System integrity and replacements $219 $182 71% – Efficiency $132 • Automated meter reading (70% coverage) $112
Slide 26: Capital Expenditures By State
Capital Expenditures By State Oklahoma Kansas Texas $136 $133 $126 $123 $100 $86 $90 $83 $85 $82 $78 (in millions) $74 $75 $62 $68 $68 $53 $57 $49 $52 $41 $42 $41 $45 $39 $21 $25 $16 $18 $20 2011 2012 2013 2014 2015G 2011 2012 2013 2014 2015G 2011 2012 2013 2014 2015G Note: Capital expenditures incl
Slide 27: Regulatory Information
Regulatory Information By State as of Mar. 31, 2015 Rate Base Authorized Authorized (in millions) Rate of Return Return on Equity Oklahoma Natural Gas¹ $979 8.535% 10-11% Kansas Gas Service² $808 N/A N/A Texas Gas Service¹ $612 8.14% 10.4% ¹ The rate base, authorized rate of return and authorized re
Slide 28: Authorized Rate Base
Authorized Rate Base Historical by State Oklahoma¹ Kansas² Texas¹ CAGR 5.8% CAGR 1.6% CAGR 16.9% $938 $896 $843 $793 $764 $770 $781 $744 (in millions) $542 $504 $416 $339 2011 2012 2013 2014 2011 2012 2013 2014 2011 2012 2013 2014 ¹ Rate bases presented in this table are those from the last approved
Slide 29: Customer and Asset Mix
Customer and Asset Mix Key Statistics as of Dec. 31, 2014 Kansas Oklahoma Texas Total Average Number of Customers 634,128 853,533 639,840 2,127,501 Number of Employees 1,000 1,100 700 3,300* Miles of Service Lines 8,100 5,000 5,200 18,300 Distribution – Miles 12,000 18,200 9,600 39,800 Transmission
Slide 30: 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 31: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Current Environment • Currently operate 26 fueling stations • Benefits accessible to the public – Use of CNG increases load • Currently providing supply to 49 retail and 39 • One vehicle is equivalent to one home private CNG stations • One pickup truck is equivalent to t
Slide 32: Diverse Employment Mix
Diverse Employment Mix State Employment by Sector* Kansas Oklahoma Texas Mining/Logging Mining/Logging Mining/Logging Construction Other Services Financial 1% Construction 4% 3% 4% 5% Activities 5% 5% Financial Construction Trade, Activities 6% Other Transportation 5% Trade, 6% Government Services &
Slide 33: Customer Growth
Customer Growth Projected 2015 Customer Growth ~ 0.5% to 1% Average Customer Count 2,127 2,114 2,101 2,090 (in thousands) 2011 2012 2013 2014 Page 33
Slide 34: 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 35: Cash Flow From Operations
Cash Flow From Operations Before Changes In Working Capital* 2015 2014 (Millions of dollars) Change Guidance Actual Net Income $ 113 $ 110 $ 3 Depreciation and amortization 135 126 9 Deferred taxes (8) 50 (58) Other 13 14 (1) Cash flow from operations before changes in working capital $ 253 $ 300 $
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