One Gas, Inc. · NYSE:OGS
One Gas — Morgan Stanley Utilities Conference 2014
34 slides from One Gas's conference presentation, Mar 3, 2014
Slide 1: Morgan Stanley Utilities Conference
New York City | March 3, 2014 Morgan Stanley Utilities 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: Overview: Key Points
Overview Key Points Overview – 100% regulated natural gas utility – Third largest publicly traded natural gas distributor Financial – Maintain conservative financial posture – Capital investments result in rate base growth Creating value for all stakeholders – Employees, customers, investors and com
Slide 4: Overview
Overview Page 4
Slide 5: Vision and Mission
Vision and Mission Our Vision To be a premier natural gas distribution company creating exceptional value for its stakeholders • Attract, select, develop and retain a diverse group of employees to support strategy execution Our Mission Becoming ONE: • ONE in Responsibility – safety, reliability and
Slide 6: Key Investment Considerations
Key Investment Considerations Summary Kansas City Topeka • Focused business strategy 69% market share – 100% regulated natural gas distribution utility Wichita – Third largest publicly traded natural gas distributor Tulsa • Constructive regulatory environment Oklahoma City 87% market share – Allowed
Slide 7: Margin Profile
Margin Profile Kansas Oklahoma Texas Total Fixed Charges- 51% 83% 70% 69% Sales customers Average Heating 4,860 3,317 1,785 - Degree Days – Normal Weather Normalization 100% 100% 62% 87% Residential Margin 68% 71% 67% 69% Gas System Reliability Surcharge Cost of Service Adjustments (COSA), Gas Perfo
Slide 8: Residential Customers
Residential Customers High Percentage Net Sales Margin Customer Count 2013 2013 1% 7% 1% 16% 83% 92% Customer Type Residential Commercial/Industrial Wholesale Page 8
Slide 9: Proximity to Natural Gas Supply
Proximity to Natural Gas Supply Location Supports Sustainability Kansas Topeka City • Close proximity to significant natural gas reserves Mississippia Wichita n Lime • Delivered natural gas costs are comprised primarily of: Granite Wash Tulsa – Cost of the commodity Oklahoma City Woodford Cana- Shal
Slide 10: Growth Strategies
Growth Strategies 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 – Continued filings f
Slide 11: Regulatory Mechanisms
Regulatory Mechanisms Highlights • Oklahoma Natural Gas – Performance-based rate structure provides annual rate reviews between rate cases to ensure achieved ROE is within the established band of 10-11 percent • Kansas Gas Service – Gas Systems Reliability Surcharge (GSRS) – for incremental safety-r
Slide 12: 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 13: Regulatory Filing Timeline
Regulatory Filing Timeline 2013-2017 Oklahoma – Energy -efficiency Oklahoma - program filing in 2013, extended to Performance-based rate filing 2014 Kansas – Rate 2014-2016 case filing in 2016 Oklahoma - Kansas – GSRS Oklahoma - General Performance-based rate filing 2014 rate review filing in 2015 f
Slide 14: Comparative Highlights
Comparative Highlights Peer Group Analysis Peer Group* ONE Gas Average Range Target Regulated Business 80% 62% - 92% 100% Key credit- rating Allowed ROE 10.3% 9.5% - 11.05% 9.9% factors Debt/Capitalization Ratio 48% 43% - 54% 40% - 45% Shareholder Dividend Payout Ratio 63% 44% - 81% 55% - 65% factor
Slide 15: Financial Overview
Financial Overview Page 15
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 – Prudent dividend policy, in line with peers –
Slide 17: 2014 Guidance
2014 Guidance • Net income: range of $95-$105 million • Operating income midpoint: $217 million • Cash flows from operations midpoint: $236 million • Dividend of 28 cents per share per quarter following the separation • Capital expenditures midpoint: $263 million Page 17
Slide 18: Five-year Financial Outlook
Five-year Financial Outlook • Expected average annual net income growth of 4-6% comparing 2014 earnings guidance with the 2018 forecast – 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 20
Slide 19: Operating Income
Operating Income Opportunity to Narrow the Gap • Goal: Minimize the gap between $220** allowed and actual returns* $216 $217 – 2014 allowed return on equity (ROE): 9.9% – 2014 ROE estimate: 7.4% ($ In Millions) – 2013 ROE achieved: 8.0% $200 – 2013 ROE allowed: 9.9% – 2012 ROE achieved: 8.3% 2011 20
Slide 20: Capital Expenditures
Capital Expenditures Capital Spending Exceeds Depreciation $280 $287 • Majority of capital expenditures for safety, $263 $243 reliability and efficiency $219 $196 – System integrity and replacements $186 $182 – New service lines and main extensions for customer $145 growth $132 $130 $127 – Efficienc
Slide 21: 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 operation
Slide 22: 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) • Targeted capital structure – Long-term debt-to-capitalization ratio of 40-45% – Long-term debt-to-EBITDA of 3.5x – EBIT-to-interest
Slide 23: Creating value for all stakeholders
Creating value for all stakeholders Page 23
Slide 24: Key Investment Considerations
Key Investment Considerations Summary Focused business strategy – 100% regulated natural gas distribution utility Constructive regulatory environment – Multiple risk- and lag-mitigation mechanisms and riders Significant scale – 2.1 million customers – 92% residential Conservative financial profile –
Slide 25: Appendix
Appendix Page 25
Slide 26: Compressed Natural Gas (CNG)
Compressed Natural Gas (CNG) Current Environment • Industry – Increased interest in CNG for transportation, particularly by fleet operators – Tax incentives further contribute to positive economics – Increased industry investments in fueling stations • ONE Gas – Currently operate 27 fueling stations
Slide 27: 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 28: 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 29: 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 30: Other Regulatory Mechanisms
Other Regulatory Mechanisms Oklahoma Natural Gas • Purchased Gas Adjustment Clause • Temperature Adjustment Clause • Energy Efficiency Programs • Compressed Natural Gas Rebate Program Page 30
Slide 31: Other Regulatory Mechanisms
Other Regulatory Mechanisms Kansas Gas Service • Cost of Gas Rider and Annual Cost Adjustment • Weather Normalization Adjustment • Ad Valorem Tax Surcharge • Pension and Other Post Retirement Benefits (OPEB) Trackers • Gas System Reliability Surcharge Page 31
Slide 32: Other Regulatory Mechanisms
Other Regulatory Mechanisms Texas Gas Service – 10 Service Areas* • Gas Reliability Infrastructure Programs (GRIP) • Cost of Service Adjustment (COSA) • Weather Normalization Adjustment (WNA) • Cost of Gas (COG) clause • Pension and OPEB Trackers • Pipeline-Integrity Testing Riders • Safety-Related
Slide 33: 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 and EBITDA and EBIT amounts that are
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