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American Gas Association Financial ForumOrlando, Fla. | May 22, 2017
Pierce NortonPresident and Chief Executive Officer
Page 3
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 important to note that the actual results could differ materially from those projected in such forward-looking statements.
For additional information that could cause actual results to differ materially from such forward-looking statements, refer to ONE Gas’ Securities and Exchange Commission filings.
All future cash dividends (declared or paid) discussed in this presentation are subject to the approval of the ONE Gas board of directors.
All references in this presentation to guidance are based on news releases issued on Jan. 17, 2017, Feb. 22, 2017 and May 1, 2017 and are not being updated or affirmed by this presentation.
Forward-Looking Statements
Page 4
• Company Overview
• Value Creation Strategy
• Financial Objectives
• Regulatory Update
• Q&A
What We’ll Cover
Page 5
• One of the largest publicly traded natural gas distribution companies
– 2.2 million customers
• 42,700 miles of distribution and transmission pipeline
• Estimated 2017 average rate base: $3.1 billion*
– 41% in Oklahoma– 32% in Kansas– 27% in Texas
• ~3,400 employees
Company Overview
Key Statistics
* Calculation consistent with utility ratemaking in each jurisdiction
72% market share
88% market share
13% market share
Value Creation Strategy
Page 7
Focused business strategy• Well-defined capital investment plan• 100% regulated natural gas distribution utility• One of the largest publicly traded natural gas distributors
Significant scale• High percentage of residential customers and fixed charges• 2.2 million customers• More than 70% of customers in metropolitan areas
Proximity to natural gas supply • Location to shale plays provides accessibility to affordable long-term reserves
Regulatory diversity • Three states; one with six jurisdictions• Average approximately 700,000 customers per state
Conservative financial profile • Commitment to “A-level” investment-grade credit ratings
Value Creation StrategySustainable Business
Page 8
73% 21%
6%
System Integrity Customer Growth Other/IT
Focused Business Strategy
Well-defined Capital Investment Plan
$ millions 2017 Guidance$ 255 System Integrity
$ 72 Customer Growth
$ 23 Other/IT
$ 350 Total Capital Expenditures
Page 9
Significant Scale
High Percentage of Residential Customers
*Based on 2016 annual results
* *
Page 10
Significant Scale
High Percentage of Fixed Charges
Kansas Oklahoma Texas Total
Fixed Charges – Sales customers* 55% 88% 70% 74%
Average Annual HeatingDegree Days – Normal 4,860 3,264 1,785 -
Weather Normalization 100% 100% 100% 100%
GovernanceKansas Corporation Commission (three commissioners appointed
by the governor to four-year staggered terms)
Oklahoma Corporation Commission (three
commissioners elected to six-year staggered terms)
“Home Rule” with 6**jurisdictions (Texas RailroadCommission has appellate
authority)
Note: Based on 2016 annual results* Fixed percentage of total net margin on natural gas sales** In 2016, Galveston and Port Arthur; El Paso, Dell City and Permian; Central and South Texas service areas were consolidated
Page 11
• Close proximity to significant natural gas reserves – 118 active rigs in Oklahoma*– 451 active rigs in Texas* – 64% of all rigs in U.S. operating in ONE Gas territories
• Leads to competitive natural gas delivered costs:– Cost of the commodity– Transportation costs– Storage fees
Proximity to Natural Gas Supply
Location Supports Sustainability
Topeka
ONE Gas Natural Gas Distribution AreasNatural Gas BasinsNatural Gas Shale Plays
* Source: Baker Hughes, as of May 15, 2017
Page 12
Natural Gas vs. Electricity
3-to-1 Average Advantage Continues in ONE Gas Territories
(1) Source: United States Energy Information Agency, www.eia.gov, for the twelve-months period ended December 31, 2016.(2) Represents the average delivered cost of natural gas to a residential customer, including the cost of the natural gas supplied, fixed customer charge, delivery charges and charges for riders, surcharges and other regulatory mechanisms associated with the services we provide, for the year ended December 31, 2016.(3) Calculated as the ratio of the natural gas price equivalent per dekatherm of the average retail price of electricity per kilowatt hour to the ONE Gas delivered average cost of natural gas per dekatherm.
$32.30 $29.51
$37.95
$10.97 $9.25 $10.07
2.9x 3.2x
3.8x
-
1.0
2.0
3.0
4.0
$-
$10
$20
$30
$40
$50
Texas Oklahoma Kansas
Natural gas price equivalent of electricity/Dth (1) OGS delivered cost of natural gas/Dth (2)
Natural gas advantage ratio (3)
Financial Objectives
Page 14
• Net income: range of $152-$162 million
• EPS: range of $2.87 - $3.07 • Rate base expected to grow an
average of approximately 5.0-5.5% per year between 2016-2021
• Expected average annual EPS growth of 5-7% between 2016 and 2021
2017 Guidance Announced January 17, 2017
$2.07 $2.24
$2.65
$2.97
$1.50
$2.00
$2.50
$3.00
$3.50
2014 2015 2016 2017G* 2018-2021
Diluted EPS
* Represents midpoint of guidance range
Page 15
• Dividend increased 20% for 2017• Quarterly dividend of 42 cents per
share, resulting in an annualized dividend of $1.68 per share*
• Target dividend payout ratio of 55-65% of net income
• Expected average annual dividend growth of 8-10% between 2016 and 2021
Growing Dividends
Building Shareholder Value
$0.84$1.20
$1.40 $1.68
2014** 2015 2016 2017G* 2018-2021
Dividends Declared
*Subject to quarterly board approval**In 2014, we paid dividends totaling $0.84 per share ($0.28 per share in each of our 2nd, 3rd and 4th quarters)
Page 16
• Majority of capital expenditures for safety, reliability and efficiency– System integrity and replacement– Efficiency
• Automated meter reading
• Operational efficiency efforts
– Government relocations– Fleet and facilities
• New service lines and main extensions for customer growth
• Information technology
$119 $131 $140 $154
2014 2015 2016 2017G 2018 - 2021
(in m
illion
s)
Depreciation
$350-$380/year
Capital Investment Drives Rate Base Growth
Capital Spending Exceeds Depreciation
$294 $302
Note: Capital expenditures include accruals and any adjustments in the year
$307$350
Page 17
352
245
259
123
180
131
2014
2015
2016
Pipeline Replacement
¹ Vintage Replacement Program ² Risk-Mitigation and Government Relocations
390
425
475
Investment Horizon
Long-Term Commitment to System Modernization
Pipeline replacement due to changes in state or federal regulations is not projected in this 5-year replacement estimate. Replacement mileage includes service lines, distribution mains and transmission pipelines. 1 The vintage asset replacement program includes: cast iron, wrought iron, unprotected bare steel, protected bare steel, vintage plastic. 2 Risk-mitigation pipeline replacement is due to asset operational performance, efficiency and government relocation projects.
(in m
iles) 750
1,100
2017-2021 Estimate
Page 18
• Leveraging technology to control expenses by:
– Increasing efficiency and optimizing processes
– Enhancing value for customers by more user-friendly and efficient websites, and applications
– Data-driven decision making
Focused on O&M expensesBuilding a Foundation for Long-term Affordability
$421 $414 $417 $419
2014* 2015 2016 2017G
(in m
illion
s)
O&M Expense
*In 2014, approximately $7 million incurred as a result of our separation from ONEOK
Page 19
• Dividends and capital expenditures primarily funded by cash flow from operations
• $700 million revolving credit facility
Asset removal costs$54
Sources Uses
(in m
illion
s)
Dividends$89
Capital expenditures
$350
Cash flow from operations*
$396
$493 $493
$97
2017 Cash Flow
Sources and Uses
* Before changes in working capital
Short-term debt and working capital changes
Page 20
• Strong liquidity position will support capital expenditure and working capital needs
– Stable operating cash flows
– $700 million revolving credit facility
– Commercial paper program
• Strong investment-grade credit ratings
Investment Grade
Commitment to Investment-Grade Ratings
Equity60%
Total Debt40%
Capital StructureAs of March 31, 2017
Rating Agency Rating Outlook
Moody’s A2 StableS&P A- Positive
Regulatory Update
Page 22
• Oklahoma Natural Gas– Performance-based rate structure (PBR) with a targeted ROE band of 9-10 percent that provides for annual
rate reviews between rate cases
• Kansas Gas Service– Gas System Reliability Surcharge (GSRS) – for incremental safety-related and government-mandated capital
investments made between rate cases
• Texas Gas Service– Gas Reliability Infrastructure Program (GRIP) for capital investments made between rate cases– Cost-of-service adjustments for capital investments and certain changes in operating expenses– Pipeline Integrity Testing (PIT) rider for related expenses– Rate cases as needed or required
Regulatory Mechanisms
Overview
Page 23
• Goal: Minimize the gap between allowed and actual returns
– 2017 ROE estimate: 8.1%– 2016 ROE achieved: 7.7%– 2015 ROE achieved: 7.4%– 2014 ROE achieved: 7.6%
Return on Equity
Minimize the Gap
7.6% 7.4% 7.7% 8.1%
2014 2015 2016 2017G
Page 24
2016
Regulatory Filing Timeline
Oklahoma & Kansas
2015 2016 2017 2018 2022
Filed general rate case application in July 2015, new rates approved and effective January 2016
Performance-based rate filings in March 2018, 2019 and 2020
ONG
Filed general rate case application May 2016, new rates approved and effective January 2017
KGS
GSRS filing annually in August, with new rates effective in January of the following yearRate cases as needed
2019 2020 2021
2015 2017 2018 20222019 2020 2021
General rate case application filing in June 2021, with new rates effective early 2022, if applicable
Performance-based rates change filing March 2017, no modification to base rates
Page 25
Jurisdiction Filing Highlights Status Increase in Base Rates
Rates Effective
Central Texas • GRIP for both incorporated and environs areas Filed March 3, 2017 $4.9 million TBD
West Texas • GRIP for both incorporated and environs areas• PIT filing for expenses incurred in the prior year
Filed March 15, 2017Filed February 21, 2017
$4.5 million$0.5 million
TBD
Gulf Coast • Rate case to adjust base rates• Consolidate Galveston and South Jefferson County
service areas
Approved $2.3 million May 2016
North Texas • Annual COSA filing to adjust base rates for incorporated cities
Approved $1.3 million July 2016
Regulatory Filing Timeline
Texas
Note: Consolidated jurisdictions in 2016 to six from 10 jurisdictions in Texas
Page 26
41%
32%
27%
2017 Estimated Rate BaseTotal: $3.1 billion*
Oklahoma Kansas Texas
Rate Base
Capital Investment Drives Rate Base Growth
* Estimated average rate base; calculation consistent with utility ratemaking in each jurisdiction
$2.3 $2.4$2.9 $3.1
2014 2015 2016 2017G
(in bi
llions
)
Rate Base
Page 27
• Well-defined capital investment plan with 70% targeted toward system integrity– Rate base expected to grow an average of 5.0-5.5% per year between 2016-2021
• Focus on controlling operating expenses• Minimize gap between actual and allowed returns
– Annual filings for rate adjustments between rate cases– File rate cases as warranted– Incremental regulated revenue
• Committed to stable and conservative financial profile– Expected average annual dividend growth of 8-10% between 2016 and 2021– Target dividend payout ratio of 55-65% of net income
Key Takeaways
Focused Strategy
Questions
Appendix
Page 30
Customer and Asset Mix
Key Statistics as of Dec. 31, 2016
Kansas Gas Service Oklahoma Natural Gas Texas Gas Service Total
Average Number of Customers 636,625 865,548 650,017 2,152,190
Average Number of Employees 1,000 1,200 800 3,400*
Distribution – Miles 11,600 18,500 10,100 40,200
Transmission – Miles 1,500 700 300 2,500
High-Density Cities Kansas City, Topeka, Wichita Oklahoma City, Tulsa Austin, El Paso 7 cities make up the
majority of customers
Percentage of Customers in Metropolitan Areas 58% 82% 76% 73%
Market Share - Customers Served 72% 88% 13%
* Includes corporate employees
Page 31
Capital Expenditures
By State
$136 $132 $134
$154
$57 $63 $64 $68
2014 2015 2016 2017G
(in m
illion
s)
Oklahoma
$82 $81 $85 $96
$41 $44 $47 $51
2014 2015 2016 2017G
Kansas
Depreciation
$76 $89 $88
$100
$21 $24 $29 $35
2014 2015 2016 2017G
Texas
Note: Capital expenditures include accruals and any adjustments in the year
2017: 2.3x depreciation 2017: 1.9x depreciation 2017: 2.9x depreciation
Page 32
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 Benefits Trackers X** X X
Cost of Service Adjustment X** X
Regulatory Constructs
By State
* Six jurisdictions in Texas; not all mechanisms apply to each jurisdiction** Incorporated in performance-based rates
Page 33
Regulatory Information
By State as of January 2017 - Authorized
Rate Base(in millions)
Rate Base per Customer
AuthorizedRate of Return
Authorized Return on
Equity
Oklahoma Natural Gas¹ $1,202 $1,396 7.31% 9-10%Kansas Gas Service² $925 $1,457 N/A N/ATexas Gas Service¹ $760 $1,177 7.5% 9.6%
¹ The rate base, authorized rate of return and authorized return on equity presented in this table are those from the last approved rate filings for each jurisdiction. These amounts are not necessarily indicative of current or future rate bases, rates of return or returns on equity.
² The most recent rate case was settled without a determination of rate base, return on equity or rate of return; rate base reflects Kansas Gas Service’s estimate of rate base contained within the settlement.
Page 34
Authorized Rate BaseHistorical by State at Year End
$938 $979
$1,202
2014 2015 2016
(in m
illion
s)
Oklahoma¹
$781 $826 $925
2014 2015 2016
Kansas²
$542 $639
$760
2014 2015 2016
Texas¹
¹ Rate bases presented in this table are those from the last approved rate filings for each jurisdiction. These amounts are not necessarily indicative of current or future rate bases. ² Last rate case was settled without a determination of rate base and includes the amounts included in the company’s filings; these amounts are not necessarily indicative of current or future rate base. 2014, 2015 and 2016 rate base reflects GSRS approvals.
Page 35
Highlights
Amount $29.995 million
Customer impact $2.96 per month increase for typical residential customer
Rate base $1.2 billion
Return on equity 9.5% (midpoint of allowed band)
Common equity ratio* 60.5%
Debt costs 3.95%
Other • Continuation of Performance Based Rate Change (PBR) plan• Regulatory asset for $2.4 million of separation costs
Oklahoma Natural Gas Rate Case
New Rates Effective January 2016
* The initial common equity ratio will be 60.5 percent, unchanged from the original filed request. For each future PBRC filing, the maximum allowed common equity ratio will decrease by 1 percent beginning with a 59 percent common equity ratio in the 2017 PBRC review of calendar year 2016, and ending with a 56 percent common equity ratio in the 2020 PBRC review of calendar year 2019.
Page 36
Highlights*Increase in base rates $15.5 million total increase, $8.1 million net increase (already recovering $7.4 million through GSRS)
Operating income impact Approximately $9.1 million in 2017
Other New rates effective January 1, 2017
Kansas Gas Service Rate Case
New Rates Effective November 2016
* Rate case settlement agreement is a “black box settlement,” meaning the parties agreed to a specific revenue number but no specific return on equity.
Page 37
Highlights
Increase in base rates $6.8 million; $3.4 million impact to operating income
Return on equity 9.5%
Common equity ratio 60.1%
Other • Approved consolidation of the South Texas service area with the Central Texas service area• November 2016: New rates effective for customers of incorporated cities of the former Central Texas service area and the
unincorporated areas of the new Central Texas consolidated area• January 2017: New rates effective for customers in incorporated areas of the new Central Texas consolidated service area
Texas Gas Service
Central Texas Service Area – New Rates Effective November 2016
Page 38
HighlightsIncrease in base rates $8.8 million; $7.6 million impact to operating income
Return on equity 9.5%
Common equity ratio 60.1%
Other • September 2016: Approved consolidation of the El Paso, Dell City and Permian service areas into a new West Texas service area
• October 2016: New rates went into effect except for the incorporated cities of the former Permian service area• December 2016: New rates went into effect for the incorporated cities in the former Permian service area
Texas Gas Service West Texas Service Area – New Rates Effective October 2016
Page 39
• Ongoing effort to replace aging assets– Replaced approximately 390 miles of distribution and transmission facilities in 2016
• Replaced approximately 22 miles of cast iron pipe in 2016
– Remaining 48 miles of cast iron pipe expected to be replaced by year end 2019
• Reduction in employee injuries of 30% in 2016 compared with 2015• Utilize peer-review safety process and employee training to promote consistent,
steady improvement in workplace safety
Safety and Environment
Operating Safely and Environmentally Responsibly
Page 40
2012 2013 2014 2015 2016
Customer Growth
Average Customer Count
2,114
(in th
ousa
nds)
2,1272,140
2,101
2,152
Page 41
200,000
400,000
600,000
800,000
1,000,000
1,200,000
1,400,000
1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016
ONE Gas Major Metro U.S. Census County Population
Travis County, TX
El Paso County, TXOklahoma County, OK
Tulsa County, OKJohnson County, KS
Sedgwick County, KS
Service Territory Population Growth
1.45% CAGR (2000-2016)
* Source: U.S. Census Bureau, updated May 15, 2017
County 2000 Population 2016 Population % GrowthTravis, TX 811,776 1,199,323 48%El Paso, TX 679,568 837,918 23%Oklahoma, OK 660,581 782,970 19%Tulsa, OK 563,475 642,940 14%Johnson, KS 451,541 584,451 29%Sedgwick, KS 452,901 511,995 13%Total 3,619,842 4,559,597 26%
Page 42
Compressed Natural Gas (CNG)
Current Outlook
• Currently operate 26 fueling stations accessible to the public, 4 private stations
• Currently transporting supply to 66 retail and 49 private CNG stations
• Rebate program in Oklahoma; Austin, Texas• Industry
– Continued interest in CNG for transportation, particularly by fleet operators
– Tax incentives and rebates further contribute to positive economics
1.4 2.0 2.3 2.5
2013 2014 2015 2016
CNG Volume Dth – in millions
143 stations supplied129 stations supplied
115 stations supplied
100 stations supplied
Note: Updated as of March 31, 2017
Page 43
• 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 and hedging costs are included in cost of gas
• No direct commodity risk to ONE Gas divisions• Lease 50 Bcf of natural gas storage
Cost of Gas
Passed Through to Customers
Page 44
Cash Flow From Operations
Before Changes In Working Capital*
(Millions of dollars) 2017 Guidance 2016 Change
Net Income $ 153 $ 140 $ 13
Depreciation and amortization 155 144 11
Deferred taxes 73 87 (14)
Other 15 16 (1)
Cash flow from operations before changes in working capital $ 396 $ 387 $ 9
* Amounts shown are midpoints of ranges provided.
Page 45
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 operations before changes in working capital is defined as net income adjusted for depreciation and amortization, deferred income taxes, and certain other noncash items.
The non-GAAP financial measure described above is useful to investors as an indicator of financial performance of the company's investments to generate cash flows sufficient to support our capital expenditure programs and pay dividends to our investors. ONE Gas cash flow from operations before changes in working capital should not be considered in isolation or as a substitute for net income or any other measure of financial performance presented in accordance with GAAP.
This non-GAAP financial measure excludes some, but not all, items that affect net income. Additionally, this calculation may not be comparable with similarly titled measures of other companies. A reconciliation of cash flow from operations before changes in working capital is included in this presentation.
Non-GAAP Information