Miami, Fla. May 19, 2014 American Gas Association Financial Forum
Pierce Norton President and Chief Executive Officer Page 2
Key Points What Well Cover Competitive Strengths 100% regulated natural gas utility focus Third largest publicly traded natural gas distributor Regulatory Overview Mechanisms and timelines Financial Maintain conservative financial…
Competitive Strengths Page 5
Competitive Strengths Sustainable Business Kansas City Topeka 69% market share Focused business strategy Wichita Tulsa 100% regulated natural gas distribution utility Oklahoma City 87% market share Third largest publicly traded…
Significant Scale High Percentage of Residential Customers Net Sales Margin Customer Count 2013 2013 1% 7% 1% 16% 83% 92% Customer Type Residential Commercial/Industrial Other Page 7
Significant Scale High Percentage of Fixed Charges Kansas Oklahoma Texas Total Fixed Charges Sales 51% 83% 70% 69% customers Average Heating 4,860 3,316 1,785 - Degree Days Normal Weather Normalization 100% 100% 62% 87%…
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…
Regulatory Overview Page 10
Regulatory Mechanisms Overview 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…
Regulatory Filing Timeline Oklahoma & Kansas Performance-based rates change filing March 2014, Pending outcome of rate case, performance-based with new rates effective July 2014, if applicable rates change filing anticipated March…
Regulatory Filing Timeline Texas El Paso Service Area El Paso Annual Rate Review (EPARR) filing annually beginning in April 2014, with new rates effective each August, if applicable Gas Reliability Infrastructure Program (GRIP)…
Regulatory Information By State Rate Base Authorized Authorized (in millions) Rate of Return Return on Equity Oklahoma Natural Gas 896 8.535% 10-11% Kansas Gas Service 770 N/A N/A Texas Gas Service 504 8.55% 10.4% The 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…
Financial Overview Page 16
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…
Balance Sheet Commitment to Strong Investment-Grade Ratings Strong investment-grade credit ratings, consistent with peers Moodys: A2 (Stable) S&P: A- (Stable) Capital structure Long-term debt-to-capitalization ratio of 40% Long-term…
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…
Operating Income Opportunity to Narrow the Gap Goal: Minimize the gap between 220** allowed and actual returns* 216 217 2014 ROE estimate: 7.4% 2013 ROE achieved: 8.0% (in millions) 2012 ROE achieved: 8.3% 200 2011 2012…
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 Capital expenditures expected at higher end of…
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…
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…
Creating value for stakeholders Page 24
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…
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 31 One vehicle is equivalent to one home…
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…
Questions
Appendix Page 29
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…
Authorized Rate Base Historical by State Oklahoma Kansas Texas 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 Rate bases presented in…
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…
Heating Degree Days First Quarter 2014 Three months ended March 31, Variance to Variance to Normal 2014 2013 Normal (%) Last Year (%) Oklahoma Natural Gas 1,803 2,142 1,901 18.8 12.7 Kansas Gas Service 2,502 2,879 2,570 15.1 12.0…
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…
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 (%)…
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…
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…
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