INVESTOR UPDATE - s23.q4cdn.com€¦ · 3/03/2021 · • Oklahoma City recorded its longest period below 20° F, approx. seven consecutive days, and recorded the coldest temperature

March 2021INVESTOR UPDATE

FORWARD LOOKING STATEMENTS | 2

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 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 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 or before Feb. 25, 2021, and are not being updated or affirmed by this presentation.

FEBRUARY 2021 WINTER WEATHER EVENT

FEBRUARY 2021 WINTER WEATHER EVENT | 4

Winter Weather Event - Overview

• Oklahoma City recorded its longest period below 20° F, approx. seven consecutive days, and recorded the coldest temperature since 1899; Its average low temperature in mid-February is 34° F

• Wichita, Kansas spent nine consecutive days colder than 20° F, while Kansas City spent 11 consecutive days at or below 15° F

>9,000 DAILY COLD RECORDS FROM FEB 7-20, 2021

Company Response• Deployed Pressure & Measurement technicians to critical

locations• Dispatched mobile CNG trailers and designed 18 over-land

projects capable of providing additional short-term supply to lower-pressure systems

• Collaborated with elected officials, regulatory officials, customer groups and emergency response agencies to optimize communications

• Residential customers were asked to conserve • Worked with large-volume customers to curtail usage; these

actions were meaningful in maintaining system pressures and withstanding supply constraints

During the event, ~900 customers (out of 2.2M) lost gas service, most for less than 24 hours

What Happened• Extreme record cold temperatures led to a surge in demand for

natural gas, both from residential customers and electric generation, at the same time “freeze-offs” at many gas supply wellheads cut off critical supply


Financial Impact & ResponseAdditional Liquidity Secured

* As of Feb. 23, 2021

RATING AGENCY RATING OUTLOOK

Moody’s* A3 Negative

S&P* BBB+ Negative

Impact on Natural Gas Purchases• The combination of reduced supply and increased demand led

to unforeseeable and unprecedented market pricing for natural gas in OK, TX and KS. For example, the spot price in OK rose to over $1,200/MCF on Feb. 18, versus an average industrial price of $3.54/MCF in February of last year

• ~ $2.2 billion - estimated cost of natural gas purchases for February 2021

New Term Loan• Entered into Feb. 22, 2021• $2.5 billion, 2-year• Expected use of proceeds

– Payment for February 2021 natural gas purchases• Generally due March 25

– Repayment of indebtedness

Sources of LiquidityAs of Feb. 24, 2021

• Term Loan– $2.5 billion, available and undrawn

• Revolving Credit Facilities– $700 million– $250 million, 364-day– Available capacity of $595 million, including cash on hand


Regulatory Response

KANSAS OKLAHOMA TEXASKansas Corporation Commission (KCC) Oklahoma Corporation Commission (OCC) Texas Railroad Commission (RRC)

Emergency order issued allowing state utilities who incurred extraordinary costs during the

winter weather event to defer those costs to a regulatory asset account

Oklahoma Natural Gas filed a motion to seek the authority to record a regulatory asset to account for the extraordinary costs incurred during the

winter weather event

Emergency order issued authorizing LDCs to record a regulatory asset to account for the

extraordinary costs associated with the winter weather event

The extraordinary costs will be subject to review for reasonableness and accuracy in future

regulatory proceedings; Kansas Gas Service expects to file its compliance report in Q1 2021

An administrativelaw judge (ALJ) recommended approval of the

motion; the recommendationfrom the ALJ will next be considered by the OCC

The extraordinary costs will be subject to review for reasonableness and accuracy in future

regulatory proceedings

FINANCIAL GUIDANCE

FINANCIAL GUIDANCE | 8

Five-Year Financial Outlook

Expected average annual growth rates:(2020 base year)• 7 – 8% Rate base• 6 – 8% Net income • 5 – 7% Earnings per diluted share• 6 – 8% Dividend • ~3% Operations & maintenance expenses

$3 billion in total capital investments• ~65 – 70% for system integrity & replacement projects

For the five years ending Dec. 31, 2025


** Represents midpoint of guidance range as of Jan. 19, 2021

* For definition of average rate base, see Appendix

2021 Guidance Summary

• Net income range of $198 ‒ $210 million

• EPS range of $3.68 ‒ $3.92 per diluted share

• Estimated average rate base* of $4.23 billion

– Includes $540 million in capital investments

• Assumes diluted shares outstanding of 53.7 million

Initiated Jan. 19, 2021

(Millions)

$3.08

$3.25

$3.51

$3.68$3.80**

$163 $172

$187 $196

$204**

2017 2018 2019 2020 2021G

DILUTED EPS & NET INCOME

Diluted EPS Net Income


Growing DividendsBuilding Shareholder Value

$1.68 $1.84 $2.00 $2.16 $2.32*

2017 2018 2019 2020 2021G

DIVIDENDS & PAYOUT RATIO

55%57% 57%

59%

* Subject to board approval

7.4% increase over 2020

61%**

** Represents midpoint of guidance range as of Jan. 19, 2021

Quarterly Dividend*

• 58 cents per share in 2021

Target annual payout ratio

• 55 – 65% of net income


Financing RequirementsBefore Impact of February 2021 Winter Weather Event

* Before changes in working capital. See non-GAAP information in Appendix.** Based on midpoint of 2021 capital guidance range.

Financing requirements

$174

2021 Sources 2021 Uses

(MIL

LION

S)

Dividends$125

Capital expenditures and

asset removal costs$540**Cash flow from

operations*$455

$665 $665

Financing requirements

$210

Dividends and capital investments primarily funded by cash flow from

operations

~$1 billion net financing needs through 2025

• ~30% expected to be equity– ATM program established February 2020


Return on EquityBefore Impact of February 2021 Winter Weather Event

7.9% 8.1% 8.3% 8.6%8.1%*

2017 2018 2019 2020 2021G* Reflects the midpoint of earnings guidance and estimated average rate base

Earned ROEContinue to minimize the gap between allowed and actual returns

Authorized ROE by state:• Oklahoma ‒ 9% to 10% band, with a 9.5%

midpoint• Texas ‒ ~ 9.5% weighted average• Kansas ‒ Not stated due to black box

settlement; KGS estimates ROE embedded in GSRS pre-tax carrying charge is ~ 9.3%

CAPITAL INVESTMENTS & RATE BASE

CAPITAL INVESTMENTS & RATE BASE | 14

$306 $317 $339 $360 $370$80 $99$110

$135 $151$32

$26$21

$20$19

$151 $158 $178 $191 $201

2017 2018 2019 2020 2021G

CAPITAL INVESTMENTS (MILLIONS)

System Integrity Customer Growth Other/IT Depreciation

$418 $442 $470$515 ~$540

Well-Defined Capital Investment Plan

Note: Capital investments include capital expenditures and asset removal costs. Total amounts include accruals. 2020 depreciation includes $3 million of unallocated expenses

Kansas$135

Oklahoma$204

Texas$201

2021G CAPITAL INVESTMENTS BY STATE(MILLIONS)

Investing ~70% of capital in system integrity and replacement projects; ~90% subject to an annual filing


Capital Expenditures with Asset Removal Costs

$123 $126 $123 $129 $135

$50 $52 $64 $68 $72

2017 2018 2019 2020 2021G

KANSAS2021: 1.9X DEPRECIATION

$173 $180

$191 $198 $204

$67 $69 $74 $76 $81

2017 2018 2019 2020 2021G

OKLAHOMA

Depreciation

2021: 2.5X DEPRECIATION

$122 $136

$156

$188 $201

$34 $37 $40 $44 $48

2017 2018 2019 2020 2021G

TEXAS2021: 4.2X DEPRECIATION

(MIL

LION

S)

Note: Capital expenditures include accruals


$1.16 billion

$1.75 billion

$1.32 billion

2021 ESTIMATED AVERAGE RATE BASE*TOTAL: $4.23 BILLION

Kansas Oklahoma Texas

Rate Base Growth

$3.18 $3.36 $3.62$3.91

$4.23

2017 2018 2019 2020 2021G

AVERAGE RATE BASE*(BILLIONS)

* For definition of average rate base, see Appendix

Expected 8% growth from 2020 to 2021

REGULATORY TIMELINE

REGULATORY TIMELINE | 18

2020 2021 2022 2023 2025

PBRC filing approved July 2020, $9.7 million increase; new rates

effective June 2020

GSRS filing annually in August; rate cases as needed

2024

General rate case application filing on or before June 30, 2021, with new rates effective early 2022, if applicable

Filing TimelineOklahoma & Kansas

2020 2021 2022 2023 20252024

PBRC filing in March 2024

$7.5 million GSRS approved, with new rates effective

December 2020

PBRC filing in March 2023

REGULATORY TIMELINE | 19

Texas – 2021

West Texas Service Area• GRIP expected to be filed March 2021

Central-Gulf Service Area• $10.7 million GRIP filed in February 2021; new rates

expected to be effective in the third quarter 2021

Remainder of Texas• Annual COSA or GRIP filings• Rate cases as needed

West Texas (El Paso)

Central-Gulf (Austin)

North Texas

Borger / Skellytown

Rio Grande Valley

Central-Gulf

APPENDIX

APPENDIX | 21

EMPLOYEES• COVID-19 related employee absences have not

significantly impacted operations• Cross-functional task force supporting COVID-19

response• ~50% of employees working remotely• Following established safety protocols using

guidelines from CDC, OSHA and third-party subject matter experts

CUSTOMERS• Currently, customer disconnections temporarily

suspended in OK, KS and TX• In 2020, ONE Gas experienced higher bad debt

expense, as well as reduced revenues from lower late payment, reconnect and collection fees

• ONE Gas Foundation made $428,000 in donations to organizations providing relief to communities

COVID-19 Update

REGULATORY• Accounting orders received for deferral of

COVID-19 related expenses, including bad debts and certain lost revenues

• No regulatory assets recorded as of Dec. 31, 2020 or assumed in 2021

INCREMENTAL EXPENSES• In 2020, experienced an increase in expenses

related to pandemic response, offset partially by reduced travel and employee training expenses

APPENDIX | 22

Authorized Rate Base

$1,202 $1,257 $1,407 3

$1,475 $1,616

2016 2017 2018 2019 2020

OKLAHOMA2

1 KGS’ most recent rate case, approved in February 2019, was settled without a determination of rate base and reflects Kansas Gas Service’s estimate of rate base contained within the settlement; these amounts are not necessarily indicative of current or future rate base.2 Reflects authorized rate base as of Dec. 31, 2020. These amounts are not necessarily indicative of current or future rate bases. 3 Reflects the 2018 PBRC filing, approved in January 2019.

(MIL

LION

S)

$925 $947 $1,033 $1,068

$1,133

2016 2017 2018 2019 2020

KANSAS1

$745 $822 $895

$986 $1,047

2016 2017 2018 2019 2020

TEXAS2

APPENDIX | 23

Rate Base Definition

Authorized Rate Base $3.80 billion (as of Dec. 31, 2020)

• Includes capital investments authorized in most recent rate cases and interim filings

• Excludes any capital investments since last approved rate cases or filings

2021 Estimated Average Rate Base $4.23 billion

• Average of rate base per book at beginning and end of year

• Includes capital investments and other changes in rate base not yet approved for recovery

APPENDIX | 24

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 operations before changes in working capital is defined as net income adjusted for depreciation and amortization, deferred income taxes, and certain other noncash items. This non-GAAP financial measure is useful to investors as an indicator of financial performance of the company to generate cash flows sufficient to support our capital investment 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 to the most directly comparable GAAP measure is included in this presentation.

APPENDIX | 25

(MILLIONS) 2021 GUIDANCE*

Net Income $ 204Depreciation and amortization 206Deferred taxes 35Other 10

Cash flow from operations before changes in working capital $ 455

* Amounts shown are estimated midpoints as contemplated in 2021 guidance issued on Jan. 19, 2021

Non-GAAP ReconciliationCash Flow From Operations Before Changes in Working Capital

Documents

INVESTOR UPDATE - s23.q4cdn.com€¦ · 3/03/2021 · • Oklahoma City recorded its longest period below 20° F, approx. seven consecutive days, and recorded the coldest temperature