One Gas, Inc. · NYSE:OGS
One Gas — Bank of America Merrill Lynch Power & Gas Leaders Conference 2014
39 slides from One Gas's conference presentation, Sep 17, 2014
Slide 1: Bank of America Merrill Lynch Power & Gas Leaders Conference 2014
Boston, Mass. | September 17, 2014 Bank of America Merrill Lynch Power & Gas Leaders Conference 2014
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: 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 4: Competitive Strengths
Competitive Strengths Page 4
Slide 5: Competitive Strengths
Competitive Strengths Sustainable Business Kansas City Topeka 69% market share • Focused business strategy Wichita – 100% regulated natural gas distribution utility Tulsa Oklahoma City – Third largest publicly traded natural gas distributor 87% market share • Significant scale – 2.1 million customer
Slide 6: Significant Scale
Significant Scale High Percentage of Residential Customers Net Sales Margin* Customer Count 2013 2013 1% 7% 1% 16% 83% Customer Type 92% Residential Commercial/Industrial Other * Excludes transportation margin 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 51% 83% 70% 69% customers¹ Average Heating 4,860 3,316 1,785 - Degree Days – Normal Weather Normalization 100% 100% 62% 87% Kansas Corporation Commission Oklahoma Corporation Commission “Home Rule” w
Slide 8: 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 9: Regulatory Overview
Regulatory Overview Page 9
Slide 10: 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-mandated
Slide 11: Regulatory Filing Overview
Regulatory Filing Overview Oklahoma & Kansas New performance-based rates Pending outcome of rate case, performance-based approved and effective August 2014 rates change filing anticipated March 2017 2014 2015 2016 2017 2018 ONG General rate case application filing in August 2015, with new rates effe
Slide 12: Regulatory Update
Regulatory Update Recent Activity • Oklahoma – March 2014: Filed a Performance-Based Rate Change application requesting an increase in base rates – 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 utili
Slide 13: 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 14: Opportunity to Narrow the Gap
Opportunity to Narrow the Gap Return on Equity • Goal: Minimize the gap between allowed and actual returns* – 2014 ROE estimate: 7.4% – 2013 ROE achieved: 8.0% – 2012 ROE achieved: 8.3% *ROE calculations are consistent with utility ratemaking in each jurisdiction Page 14
Slide 15: Financial Overview
Financial Overview G ONE Gas
Slide 16: 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 17: 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 18: 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 19: 2014 Guidance
2014 Guidance Financial • Net income: range of $95-$105 Operating Income million $220* • Cash flows from operations $216 $217 (in millions) midpoint: $236 million • Capital expenditures expected at $200 high end of $240-$285 million range 2011 2012 2013 2014G *Includes $10.2 million charge related t
Slide 20: 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 21: 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 22: Creating value for stakeholders
Creating value for stakeholders Page 22
Slide 23: 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 24: 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 35 • One vehicle is equivalent to one home private CNG stations • One pickup truck is equivalent to t
Slide 25: 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
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Slide 27: Appendix
Appendix G ONE Gas
Slide 28: 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 29: Regulatory Information
Regulatory Information By State as of June 30, 2014 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 $579 8.55% 10.4% ¹ The rate base, authorized rate of return and authorized re
Slide 30: 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 31: Capital Expenditures
Capital Expenditures By State Oklahoma Kansas Texas $126 $123 $114 $100 $86 $90 $74 $75 $75 (in millions) $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 31
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 Ben
Slide 33: Heating Degree Days
Heating Degree Days Second Quarter 2014 Three months ended June 30, Variance to Variance to Normal 2014 2013 Normal (%) Last Year (%) Oklahoma Natural Gas 195 228 381 16.9 (40.2) Kansas Gas Service 411 409 586 (0.5) (30.2) Texas Gas Service 58 63 85 8.6 (25.9) Total 664 700 1,052 5.4 (33.5) Page 33
Slide 34: Heating Degree Days
Heating Degree Days YTD 2014 Six months ended June 30, Variance to Variance to Normal 2014 2013 Normal (%) Last Year (%) Oklahoma Natural Gas 1,998 2,370 2,282 18.6 3.9 Kansas Gas Service 2,913 3,288 3,156 12.9 4.2 Texas Gas Service 1,037 1,041 1,110 0.4 (6.2) Total 5,948 6,699 6,548 12.6 2.3 Page 3
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
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