One Gas, Inc. · NYSE:OGS
One Gas — American Gas Association Financial Forum 2015
42 slides from One Gas's conference presentation, May 18, 2015
Slide 1: American Gas Association Financial Forum
Palm Desert, Calif. | May 18, 2015 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 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: 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 • Estimated 2015 average rate base: 14% market share $2.7 billion* – 42% 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 • Located near prolifi
Slide 8: 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 9: 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 9
Slide 10: 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 comprised primarily of: El Woodford Barnett Sha
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 12.21¢ $35.79 $9.97 3.6x Ok
Slide 12: Regulatory Overview
Regulatory Overview Page 12
Slide 13: 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 (GSRS) – for incremental safety-related and government-
Slide 14: 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 15: Regulatory Filing Timeline: Texas
Regulatory Filing Timeline Texas • El Paso Service Area – EPARR filing annually, with new rates effective each August, if applicable • Other cities in service area adopted EPARR – GRIP filings in environs • Central Texas Service Area (includes Austin) – Annual GRIP filings – Rate case required by 20
Slide 16: 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 appro
Slide 17: 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 18: 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 18
Slide 19: Financial Overview
Financial Overview Page 19
Slide 20: 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 21: Capital Expenditures
Capital Expenditures Capital Spending Exceeds Depreciation $294 $300 $280 $287 • Majority of capital expenditures for safety, $243 reliability and efficiency $180 $213 $219 $195 (in millions) – System integrity and replacements 71% $182 – Efficiency $132 • Automated meter reading (70% coverage) $112
Slide 22: 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 23: 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 24: 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, 2015 – Stable operating cash flows – $700 million revolving credit facility – Commercial paper program Long-term debt • Str
Slide 25: Creating Value for Stakeholders
Creating Value for Stakeholders Page 25
Slide 26: Creating Value for Stakeholders: Strategic Focus
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 27: 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 49 retail and 39 private CNG stations • Increased CNG volumes 42% between Q1 2014 and Q1 2015 • Supporting industry efforts to
Slide 28: Summary: Key Investment Considerations
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 29: Appendix
Appendix Page 29
Slide 30: Capital Expenditures by State
Capital Expenditures By State Oklahoma Kansas Texas $136 $133 $126 $123 $100 $86 $90 $82 $85 $82 $74 $75 $76 (in millions) $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 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
Slide 32: 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 33: 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 34: Safety and Environment
Safety and Environment Operating Safely and Environmentally Responsibly • Ongoing effort to replace aging assets – Retired or replaced approximately 475 miles of distribution and transmission facilities in 2014 • Currently ranked in the top quartile of American Gas Association member companies for s
Slide 35: Benefits of CNG
Benefits of CNG Incremental Revenue • 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 12 homes – One transit bus is equivalent to 25 homes – Incremental margins from CNG demand could mitigate resident
Slide 36: 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* Service Lines – Miles 8,100 5,000 5,200 18,300 Distribution – Miles 12,000 18,200 9,600 39,800 Transmission –
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: 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 39: 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 39
Slide 40: 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 41: 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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