Palm Desert, Calif. May 18, 2015 American Gas Association Financial Forum
Pierce Norton President and Chief Executive Officer Page 2
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…
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…
Competitive Strengths Page 6
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…
Significant Scale High Percentage of Fixed Charges Kansas Oklahoma Texas Total Fixed Charges Sales 53% 86% 71% 71% customers Average Annual Heating 4,860 3,317 1,788 - Degree Days Normal Weather Normalization 100% 100% 62% 89%…
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
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…
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…
Regulatory Overview Page 12
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…
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…
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…
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…
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…
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…
Financial Overview Page 19
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…
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…
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…
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…
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…
Creating Value for Stakeholders Page 25
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…
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…
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…
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…
Regulatory Information By State as of Mar. 31, 2015 Rate Base Authorized Authorized (in millions) Rate of Return Return on Equity Oklahoma Natural Gas 979 8.535% 10-11% Kansas Gas Service 808 N/A N/A Texas Gas Service 612 8.14%…
Authorized Rate Base Historical by State Oklahoma Kansas Texas 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…
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…
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…
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…
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…
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…
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
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…
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…
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