One Gas, Inc. · NYSE:OGS
One Gas — Evercore ISI Utility CEO Conference 2016
41 slides from One Gas's conference presentation, Jan 7, 2016
Slide 1: Evercore ISI Utility CEO Conference
Phoenix, Ariz. | January 7-8, 2016 Evercore ISI Utility CEO Conference
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
Company Overview Key Statistics 72% market share • Third largest publicly traded natural gas distribution company – 2.1 million customers 87% market share • 42,500 miles of distribution and transmission pipeline 14% market share • Estimated 2015 average rate base: $2.7 billion* – 42% in Oklahoma – 3
Slide 4: Competitive Strengths
Competitive Strengths Page 4
Slide 5: 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 • Located near prolifi
Slide 6: 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 7: 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 7
Slide 8: Proximity to Natural Gas Supply
Proximity to Natural Gas Supply Location Supports Sustainability Kansas Topeka City Mississippian Wichita • Close proximity to significant Lime natural gas reserves Granite Wash Tulsa • Delivered natural gas costs are Cana- Oklahoma City Woodford Shale Woodford comprised primarily of: El Barnett Sha
Slide 9: 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 10: Regulatory Overview
Regulatory Overview Page 10
Slide 11: 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 govern
Slide 12: Regulatory Filing Timeline
Regulatory Filing Timeline Oklahoma & Kansas Filed general rate case application in July 2015, General rate case application filing in June 2021, with new rates effective early 2016* with new rates effective early 2022, if applicable* 2015 2016 2017 2018 2019 2020 2021 2022 ONG Performance-based rat
Slide 13: Regulatory Filing Timeline: Texas
Regulatory Filing Timeline Texas • El Paso Service Area – Rate case expected in 2016 • Central Texas Service Area (includes Austin) – Annual GRIP filings – Rate case required by 2016 • Remainder of Texas – Annual cost of service adjustment filings in six jurisdictions – Annual GRIP filings in two ju
Slide 14: Regulatory Update
Regulatory Update Recent Activity • Oklahoma – November 2015: Joint stipulation and settlement agreement with all parties reached on Nov. 13, 2015, and recommended by the Administrative Law Judge, for an increase in base rates of $29.995 million; if approved by the Oklahoma Corporation Commission (O
Slide 15: Oklahoma Natural Gas Rate Case Status
Regulatory Update Oklahoma Natural Gas Rate Case Status • July 8, 2015 – General rate case application filed – OCC has 180 days to consider the proposed rate changes • Nov. 13, 2015 – Joint stipulation and settlement agreement with all parties reached, and recommended by the Administrative Law Judge
Slide 16: 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 * Estimated ave
Slide 17: 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% Page 17
Slide 18: Financial Overview
Financial Overview Page 18
Slide 19: 2015 Guidance
2015 Guidance Updated October 2015 • Net income: narrowed range to Operating Income $113-$118 million $235 • Operating income midpoint: $225 $220* $235 million $216 • Capital expenditures: ~$300 million $200 • Estimated 2015 average rate base: $2.7 billion** 2011 2012 2013 2014 2015G * Includes $10.
Slide 20: 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 21: Capital Expenditures
Capital Expenditures Capital Spending Exceeds Depreciation $294 $300 $280 $287 • Majority of capital expenditures for safety, $243 reliability and efficiency $208 $219 $195 $180 (in millions) – System integrity and replacements $182 ~70% – Efficiency $132 Automated meter reading (70% coverage) $112
Slide 22: 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 23: Investment Grade
Investment Grade Commitment to Investment-Grade Ratings • Strong liquidity position will support capital Capital Structure expenditure and working capital needs As of September 30, 2015 – Stable operating cash flows – $700 million revolving credit facility – Commercial paper program Long-term debt •
Slide 24: Creating Value for Stakeholders
Creating Value for Stakeholders Page 24
Slide 25: 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 26: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Current Environment Public Fueling Stations • Currently operate 26 fueling stations accessible to the public • Currently transporting supply to 52 retail and 42 private CNG stations • Increased CNG volumes 22% between Q3 2014 and Q3 2015 • Industry – Continued interest i
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: Appendix
Appendix Page 28
Slide 29: 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 29
Slide 30: Diverse Employment Mix
Diverse Employment Mix State Employment by Sector* Kansas Oklahoma Texas Construction Mining ¹ Mining ¹ Mining ¹ Construction 4% Other Services 3% Financial 4% 1% 5% 5% Activities Financial 5% Construction Other Activities Trade, 6% Other Services Services 5% Trade, 6%6% Transportation Other Service
Slide 31: Capital Expenditures By State
Capital Expenditures By State Oklahoma Kansas Texas $136 $130 $126 $123 $100 $90 $91 $86 $82 $79 $74 $75 $76 (in millions) $63 $68 $68 $53 $57 $49 $52 $41 $42 $41 $45 $39 $20 $21 $24 $16 $18 2011 2012 2013 2014 2015G 2011 2012 2013 2014 2015G 2011 2012 2013 2014 2015G Note: Capital expenditures incl
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
Slide 33: Regulatory Information
Regulatory Information By State as of September 30, 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 $639 8.17% 10.4% ¹ The rate base, authorized rate of return and authoriz
Slide 34: 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 35: Safety and Environment
Safety and Environment Operating Safely and Environmentally Responsibly • Ongoing effort to replace aging assets – Replaced approximately 475 miles of distribution and transmission facilities in 2014 • Currently ranked in the top quartile of American Gas Association member companies for safe driving
Slide 36: Customer and Asset Mix
Customer and Asset Mix Key Statistics as of Dec. 31, 2014 Kansas Gas Service Oklahoma Natural Gas Texas Gas Service Total Average Number of Customers 634,128 853,533 639,840 2,127,501 Number of Employees 1,000 1,100 700 3,300* Service Lines – Miles 8,100 5,000 5,200 18,300 Distribution – Miles 12,00
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 and hedging
Slide 38: 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 39: 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 40: Cash Flow From Operations
Cash Flow From Operations Before Changes In Working Capital* Updated Previous (Millions of dollars) 2015 2015 Change Guidance Guidance Net Income $ 116 $ 113 $ 3 Depreciation and amortization 133 135 (2) Deferred taxes 23 (8) 31 Other 10 13 (3) Cash flow from operations before changes in working cap
Slide 41: ONE Gas
G ONE Gas