One Gas, Inc. · NYSE:OGS
One Gas — American Gas Association Financial Forum 2023
51 slides from One Gas's conference presentation, May 21, 2023
Slide 1: American Gas Association Financial Forum
American Gas Association Financial Forum May 2023 Delivering Reliable & Affordable Energy
Slide 2: Investor Information
Investor Information Contact Information and forward-looking statements Statements contained in this presentation that include or refer to Company expectations, our business outlook, our future plans or predictions relating to ONE Gas, Inc. any matters should be considered forward-looking statements
Slide 3: Recent Highlights
Recent Highlights Creating value for a better tomorrow Replaced 460 miles of 2023 EPS guidance of We estimate $675 transmission, Added ~27,000 new $4.02-$4.26 & 2023-27 EPS million in 2023 capital distribution mains and customer connections in growth of 4-6% investments service lines in 2022 2022, +
Slide 4: Prudent Risk Management
Prudent Risk Management Taking proactive steps to de-risk known exposures • Successfully completed securitization of extraordinary gas costs from Winter Storm Uri – All costs included in recovery request deemed recoverable – Proceeds received in all three jurisdictions, totaling nearly $1.9 billion
Slide 5: Operational Performance
Operational Performance Strategically leveraging operational capabilities • Improved efficiencies in workforce deployment – Engineering process improvements, enhanced training programs and strategic in-sourcing – Greater workforce flexibility and strong YTD capital execution • Increased storage and
Slide 6: Favorable Regional Growth Dynamics
Favorable Regional Growth Dynamics Growing Demand for Natural Gas Key drivers • I-35 Corridor fastest growing population in the • Residential and commercial U.S development, particularly in Austin and • ONE Gas positioned in KS, OK and TX with 5 of our Oklahoma City metro areas, driving main metro a
Slide 7: Our Strategy
Our Strategy G ONE Gas
Slide 8: About Us
72% market share, the largest in Kansas About Us ONE Gas, Inc. (NYSE: OGS) is a 100-percent regulated 88% market natural gas utility and is one of the largest natural gas utilities in share, the largest in Oklahoma the United States. ONE Gas provides natural gas distribution services to approximatel
Slide 9: Our Core Values Our Strategy
Our Core Values Our Strategy Safety We are committed to operating safely and in an environmentally responsible manner. Serving Customers Ethics We are accountable to the highest ethical standards and are committed to compliance. Capital Demand Growth Clean Energy Solutions Inclusion & Diversity We e
Slide 10: Sustainable Business Model
Sustainable Business Model 100% regulated natural gas distribution utility Focused Business Strategy Conservative financial profile with investment-grade credit ratings 20+ year vintage pipeline replacement program using risk-based approach Capital Investments Significant organic growth opportunitie
Slide 11: Financial Outlook
Financial Outlook G ONE Gas
Slide 12: Five-Year Financial Guidance: 2023-2027
Five-Year Financial Guidance: 2023-2027 Issued November 30, 2022 The Company’s outlook remains anchored by ongoing investments in system integrity and pipeline replacement and supported by strong customer growth and regional economic development. However, fundamental shifts in baseline economic cond
Slide 13: Constructing a Foundation for Growth and Long-term Affordability
Constructing a Foundation for Growth and Long-term Affordability Building Operational Capacity Operating investments support business expansion • Increasing operating capacities and capabilities, including additional in-sourcing • Addressing labor pressures through competitive market wage adjustment
Slide 14: Five-Year Financial Highlights
Five-Year Financial Highlights 2023 through 2027 Capital Investments & Rate Base Average Annual Growth Rates • Capital investments of • Net income growth of 7 – 9% approximately $3.6 billion In addition to capital investment, key drivers include: – $2.5 billion investment in system integrity • Regul
Slide 15: Five-year Financing Requirements
Five-year Financing Requirements Retaining Balance Sheet Strength $820 $820 • Dividends and capital investments primarily funded by cash flow from operations of Financing approximately $500 - $550 million* requirements $290 Capital – Expected 2023 short- and long-term financing need of (MILLIONS) $2
Slide 16: 2023 Guidance Summary
2023 Guidance Summary Issued Nov. 30, 2022 • Net income range of $224 ‒ $238 Net Income and Diluted EPS million $231** • EPS range of $4.02 ‒ $4.26 per $222 $206 diluted share $187 $196 • Estimated average rate base* $4.08 $4.14** of $5.15 billion $3.85 $3.68 $3.51 – Includes $675 million in capital
Slide 17: Growing Dividends
Growing Dividends Building Shareholder Value • Quarterly Dividend DIVIDENDS & PAYOUT RATIO – $0.65 per share in 2023* $2.48 $2.60* $2.32 $2.16 $2.00 • Target annual payout ratio – 55% to 65% of net income 63%** 60% 61% 57% 59% 2019 2020 2021 2022 2023G ~5% increase over 2022 * Subject to board appro
Slide 18: Strong Balance Sheet & Capital Structure
Strong Balance Sheet & Capital Structure Supports Investment Grade Credit Ratings Sources of Liquidity as of March 31, 2023 • Revolving Credit Facility – $1 billion limit – Expires March 2028 • $720 million available under commercial paper program RATING AGENCY RATING OUTLOOK As of May 19, 2023 Mood
Slide 19: Long-term Debt Profile
Long-term Debt Profile 4.658% 3.610% 2.000% 4.250% 4.500% *Excluding long-term debt associated with Winter Storm Uri FINANCIAL OUTLOOK | 19
Slide 20: Capital Investments
Capital Investments
Slide 21: Well-Defined Capital Investment Plan
Well-Defined Capital Investment Plan Investments ~ 3x Depreciation CAPITAL INVESTMENTS 2023G CAPITAL INVESTMENTS BY STATE (MILLIONS) (MILLIONS) $675 $657 $25 $32 $542 $515 $185 $470 $20 $21 $197 Kansas $21 $138 $176 $135 $465 $110 $427 Texas $383 $257 $339 $360 $216 $232 $191 $202 $178 Oklahoma $242
Slide 22: Vintage Pipeline Replacement Program
Vintage Pipeline Replacement Program Investment Runway of more than 20 years PIPELINE REPLACEMENT ACCELERATED (MILES) CAST IRON Average Annual Est. 370 REPLACEMENT 2023-2027 100 30 240 PROGRAM COMPLETED IN 2022 100 58 2 300 460 2019 2021 100 35 5 290 430 2020 130 44 7 289 470 2019 4 113 78 2 233 430
Slide 23: Rate Base
Rate Base AVERAGE RATE BASE* 2023G AVERAGE RATE BASE* (BILLIONS) BY STATE TOTAL: $5.15 BILLION $5.15 $4.69 $4.25 $3.91 $1.65 billion $1.34 billion $3.62 $2.16 billion 2019 2020 2021 2022 2023G Kansas Oklahoma Texas * See Appendix for definition ~10% growth from 2022 to 2023 CAPITAL INVESTMENTS | 23
Slide 24: Regulatory Update
Regulatory Update
Slide 25: Comprehensive Regulatory Mechanisms
Comprehensive Regulatory Mechanisms KEY MECHANISMS: KANSAS OKLAHOMA TEXAS Appointed Elected Elected Staggered Term Length 4 years 6 years 6 years Interim capital recovery GSRS PBRC GRIP,COSA Weather normalization ✓ ✓ ✓ Purchased gas riders (including gas cost portion of bad debts) ✓ ✓ ✓ Pension and
Slide 26: Oklahoma Natural Gas
Oklahoma Natural Gas PBRC filed March 2023. Hearing set for June 2023 Performance-based rate change (PBRC) interim filing for annual rate reviews between full rate cases 2023 PBRC– ESTIMATED EFFECTIVE DATE DEC. 2023 File PBRC annually in March, rate case filing as needed. Next rate case Incremental
Slide 27: Kansas Gas Service
Kansas Gas Service GSRS filed and effected December 2022 Gas System Reliability Surcharge (GSRS) for investments in safety- related projects (includes physical and cyber security) and government-mandated relocations made between rate cases File GSRS Annually in 2022 GSRS – EFFECTIVE DECEMBER 2022 Au
Slide 28: Texas Gas Service
Texas Gas Service Central-Gulf filed GRIP in February 2023 Gas Reliability Infrastructure Program (GRIP) for capital investments made between rate cases CENTRAL-GULF 2023 GRIP FILING File GRIP Annually in Incremental Surcharge Revenue $11.5 million annual revenue request February, rate case filing a
Slide 29: Texas Gas Service
Texas Gas Service West-North filed GRIP in March 2023 Gas Reliability Infrastructure Program (GRIP) for capital investments made between rate cases WEST-NORTH 2023 GRIP FILING File GRIP Annually in February, rate case filing as Incremental Surcharge Revenue $7.4 million annual revenue request needed
Slide 30: Cash Flow Stability
Cash Flow Stability G ONE Gas
Slide 31: 2.5-to-1 Average Advantage in ONE Gas Territories
2.5-to-1 Average Advantage in ONE Gas Territories 3 Natural Gas Price Advantage Over Electricity KWH EQUIVALENT ELECTRICITY VS. NATURAL GAS 14.20¢ 13.46¢ 12.70¢ 2.2x advantage3 2.5x advantage3 2.9x advantage3 6.22¢ 5.04¢ 4.86¢ Texas Oklahoma Kansas ¹ Avg. retail price of electricity/kWh ² ONE Gas de
Slide 32: Average Annual Residential Customer Bill
Average Annual Residential Customer Bill AVERAGE MONTHLY Cash Flow Stability RESIDENTIAL CUSTOMER BILL • ~93% of customers are residential $81 • ~70% of revenue is fixed charges $74 * $60 $58 $55 $54 $43 $50 $51 $50 $34 $46 Gas Prices Better Than Initial ’23 Plan $23 $32 $19 $22 $21 $22 $17 $17 • As
Slide 33: Clean Energy Solutions
Clean Energy Solutions G ONE Gas
Slide 34: Clean Energy Solutions
Clean Energy Solutions CLEAN ENERGY is achieved through: 1) Reducing Scope 1 emissions 2) Advancing energy efficiency 3) Developing RNG as an alternative energy source 4) Developing green tariffs 5) Participating in alternative fuels research and application - Partnering with: H2@Scale, Clean Hydrog
Slide 35: Emissions Reduction Pay Metric
Emissions Reduction Pay Metric New incentive program tied to emissions goal • Newly updated short-term incentive (STI) metrics include one financial metric and four operational metrics focused on safety. • New STI metric is tied to our emissions reduction goal, which is driven by our pipeline replac
Slide 36: ESG Ratings & Company Recognition
ESG Ratings & Company Recognition • Enhanced disclosures in full RATING ORGANIZATION 2023 2022 alignment with SASB and following MSCI AA AA TCFD recommendations Sustainalytics 28.6 30.9 • EEO-1 report published in 2022 ISS Corporate Rating C+/Prime C- • Statement on Human Rights published in 2023 Ra
Slide 37: Emissions Reduction Beyond Pipeline Replacement
Emissions Reduction Beyond Pipeline Replacement Continued reductions in Scope 1 emissions achieved through: • Third-party pipeline damage prevention • Advanced leak detection technology • Reduction of vented or flared methane releases from pipeline maintenance • Use of CNG for fleet vehicles Support
Slide 38: Renewable Natural Gas Strategy
Renewable Natural Gas Strategy Uniquely Positioned to Optimize Assets • Strong market potential – Access to ~175 Bcf of annual production feedstock within service territory and increasing developer engagement • Competitive interconnection operating costs – Interconnects to OGS allow for lower develo
Slide 39: Appendix
Appendix G ONE Gas
Slide 40: Corporate Structure and State Figures
Corporate Structure and State Figures INCORPORATED ENTITY 100% regulated natural gas distribution No levered holding company; all debt issued by ONE Gas, Inc.* Division capital structures match Corporate capital structure KEY FIGURES: Average Number of Customers 656,000 924,000 700,000 Distribution
Slide 41: Capital Investments
Capital Investments KANSAS OKLAHOMA TEXAS 2022: 2.1X DEPRECIATION 2022: 4.7X DEPRECIATION 2022: 2.9X DEPRECIATION $257 $257 $242 $242 $176 $215 $159 $191 $198 $188 $188 $139 $129 $156 $123 (MILLIONS) $88 $94 $74 $76 $82 $53 $59 $40 $44 $48 $72 $75 $79 $64 $68 2019 2020 2021 2022 2023G 2019 2020 2021
Slide 42: Authorized Rate Base
Authorized Rate Base KANSAS1,2 OKLAHOMA2 TEXAS2 $1,854 $1,726 $1,616 $1,475 $1,407 $1,366 $1,261 $1,239 $1,133 $1,197 $1,068 $1,047 $1,033 $986 $895 (MILLIONS) 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 2018 2019 2020 2021 2022 1 Kansas Gas Service’s most recent rate case, approved in Februar
Slide 43: Rate Base Definition
Rate Base Definition Authorized Rate Base $4.48 billion (as of March 31, 2023) • Includes capital investments authorized in most recent rate cases and interim filings • Excludes any capital investments since last approved rate cases or filings 2023 Estimated Average Rate Base $5.15 billion • Average
Slide 44: Approved Regulatory Filings
Approved Regulatory Filings Annual Filings Approximately 90% of capital expenditures are subject to annual rate filings EFFECTIVE DATE PRE-TAX RATE BASE EQUITY RETURN ON DIVISION JURISDICTION OF LAST RATE OF (MILLIONS) RATIO EQUITY ACTION1 RETURN Oklahoma Natural Gas2 Oklahoma July 2022 $1,854 8.95%
Slide 45: Regulatory Construct
Regulatory Construct Governance KANSAS OKLAHOMA TEXAS “Home Rule” with three jurisdictions; Texas Kansas Corporation Commission Oklahoma Corporation Commission Railroad Commission has appellate authority Appointed by the governor to four-year staggered Railroad Commission elected to six-year Elected
Slide 46: ESG Highlights
ESG Highlights Environmental Vintage Pipe Renewable Natural Innovation & End-Use Conservation Replacement Gas Technology • Reduce emissions through • Provide CNG fueling • Expand energy • Facilitate customer access to • Engage and evaluate new Strategy vintage pipeline replacement for fleet and tran
Slide 47: ESG Highlights
ESG Highlights Social & Governance Community Governance Employee Engagement Customer Care Investment Practices • Support employees through physical, • Improve customer experience through • ONE Gas Foundation and • Maintain best practices in social emotional and financial programs innovation and tech
Slide 48: Hydrogen Technology and Innovation
Hydrogen Technology and Innovation Progress in Motion • Stakeholder in H2@Scale • An internal group focused on exploring technical – Department of Energy initiative that matters and analyzing gas supply implications of brings stakeholders hydrogen and RNG together to advance affordable hydrogen • Wo
Slide 49: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Key Statistics • 43% of OGS’ light-duty fleet consists of CNG-capable CNG VOLUME (DTH – MILLIONS) vehicles 151 stations 150 stations 145 stations 147 stations • Operating 27 fueling stations accessible to the public, supplied supplied 151 stations supplied supplied 9 pri
Slide 50: Non-GAAP Reconciliation
Non-GAAP Reconciliation Cash Flow From Operations Before Changes in Working Capital 2023 (MILLIONS) GUIDANCE* Net income $ 231 Depreciation and amortization 242 Deferred taxes 36 Other 21 Cash flow from operations before changes in working capital $ 530 * Amounts shown are estimated midpoints as con
Slide 51: 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
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