ONE Gas Announces Second Quarter 2024 Financial Results; Reaffirms 2024 Financial Guidance

TULSA, Okla., Aug. 5, 2024 /PRNewswire/ -- ONE Gas, Inc. (NYSE:OGS) today announced its second quarter financial results and reaffirmed its 2024 financial guidance.

"The first half of 2024 was in line with our expectations, with active rate cases and interim filings progressing well in all jurisdictions," said Robert S. McAnnally, president and chief executive officer. "We head into the second half of the year with positive momentum and remain focused on executing our strategic plan and safely serving our customers."

SECOND QUARTER 2024 FINANCIAL RESULTS & HIGHLIGHTS

• Second quarter 2024 net income was $27.3 million or $0.48 per diluted share, compared with $32.7 million, or $0.58 per diluted share, in the second quarter 2023;
• Year-to-date 2024 net income was $126.6 million, or $2.23 per diluted share, compared with $135.3 million, or per $2.42 diluted share, in the same period last year;
• On Aug. 2, 2024, a unanimous settlement agreement was signed by all parties to the Kansas Gas Service rate case and filed with the Kansas Corporation Commission (KCC), subject to approval; and
• A quarterly dividend of $0.66 per share ($2.64 annualized) was declared on July 15, 2024, payable on Aug. 30, 2024, to shareholders of record at the close of business on Aug. 14, 2024.

SECOND QUARTER 2024 FINANCIAL PERFORMANCE

ONE Gas reported operating income of $69.4 million in the second quarter 2024, compared with $64.0 million in the second quarter 2023, which primarily reflects:

• an increase of $14.7 million in revenue from new rates; and
• an increase of $1.6 million in residential sales due primarily to net customer growth in Oklahoma and Texas.

These increases were partially offset by:

• an increase of $5.0 million in depreciation and amortization expense from additional capital investment;
• an increase of $1.8 million in employee-related costs due primarily to planned investments in the Company's workforce and ongoing in-sourcing efforts;
• an increase of $1.8 million in outside services, mitigated in part by in-sourcing efforts; and
• a decrease of $1.3 million due to lower sales volumes, net of the impact of weather normalization mechanisms.

Excluding interest related to KGSS-I securitized bonds, net interest expense increased $10.0 million for the three months ending June 30, 2024, due primarily to the issuance of $300 million of

5.10 percent senior notes in December 2023 and the repayment of $300 million of 3.61 percent senior notes and $473 million of 1.10 percent senior notes in February and March 2024, respectively, with commercial paper.

Income tax expense includes a credit for amortization of the regulatory liability associated with excess deferred income taxes (EDIT) of $1.8 million and $3.1 million for the three months ended June 30, 2024, and 2023, respectively.

Capital expenditures and asset removal costs were $194.6 million for the second quarter 2024 compared with $190.2 million in the same period last year, primarily representing expenditures for system integrity and extension of service to new areas.

YEAR-TO-DATE 2024 FINANCIAL PERFORMANCE

Operating income for the six-month 2024 period was $215.3 million, compared with $213.3 million in 2023, which primarily reflects:

• an increase of $25.9 million from new rates; and
• an increase of $3.0 million in residential sales due primarily to net customer growth in Oklahoma and Texas.

These increases were offset partially by:

• an increase of $10.3 million of employee-related costs due primarily to planned investments in the Company's workforce and ongoing in-sourcing efforts;
• an increase of $10.3 million in depreciation and amortization expense from additional capital investment; and
• a decrease of $4.9 million due to lower sales volumes, net of the impact of weather normalization mechanisms.

Weather across the service territories for the six-month 2024 period was 13 percent warmer than normal and 6 percent warmer than the same period last year. The impact on operating income was mitigated by weather normalization mechanisms.

Excluding interest related to KGSS-I securitized bonds, net interest expense increased $11.7 million for the six months ended June 30, 2024. Interest expense was primarily impacted by the conversion of the two debt maturities in the first quarter 2024 to commercial paper with a higher weighted average interest rate and the issuance of $300 million of 5.10 percent senior notes in December 2023.

Income tax expense includes a credit for amortization of the regulatory liability associated with EDIT of $11.9 million and $13.0 million for the six months ended June 30, 2024, and 2023, respectively.

Capital expenditures and asset removal costs were $374.0 million for the six-month 2024 period compared with $354.8 million in the same period last year. The increase was due primarily to expenditures for system integrity and extension of service to new areas.

REGULATORY ACTIVITIES UPDATE

In February 2024, Oklahoma Natural Gas filed its annual Performance-Based Rate Change application for the test year ended December 2023. The filing included a requested $31.8 million base rate revenue increase. On May 31, 2024, a settlement was filed with a proposed revenue increase of $31.4 million. On July 15, 2024, the administrative law judge issued a report to the Oklahoma Corporation Commission (OCC) recommending approval of the settlement agreement. New rates went into effect on June 28, 2024, subject to refund until the OCC issues an order. An order is expected in the third quarter of 2024.

In March 2024, Kansas Gas Service submitted an application to the KCC requesting an increase to its base rates reflecting investments in its natural gas distribution system, implementation of a performance-based ratemaking mechanism and residential rate design options that align with customer usage. On Aug. 2, 2024, a unanimous settlement agreement was signed by all parties to the rate case and filed with the KCC. A hearing on the unanimous settlement agreement is scheduled for the week of Aug. 12, 2024.

If the unanimous settlement agreement is approved by the KCC as filed, Kansas Gas Service's net base rates would increase $35 million. Kansas Gas Service was already recovering $35 million from customers through Gas System Reliability Surcharge (GSRS) filings; therefore, this settlement represents a total base rate increase of $70 million. The unanimous settlement agreement stipulates a GSRS pre-tax carrying charge of 8.97 percent for subsequent GSRS filings. According to the Order Setting Procedural Schedule, the KCC will issue an order by Oct. 25, 2024.

In March 2024, Texas Gas Service made a Gas Reliability Infrastructure Program (GRIP) filing for all customers in the West-North service area, requesting a $8.6 million increase to be effective in July 2024. In June 2024, two municipalities denied the requested increase, which Texas Gas Service appealed to the Railroad Commission of Texas (RRC). All other municipalities, and the RRC, approved an increase of $8.5 million or allowed it to take effect with no action. Texas Gas

Service implemented the new rates in July 2024, subject to adjustment depending upon the outcome of the appeal.

In February 2024, Texas Gas Service made a GRIP filing for all customers in the Central- Gulf service area, requesting a $12.3 million increase. In May 2024, the RRC and the municipalities approved an increase of $12.2 million, and new rates became effective in June 2024.

In June 2024, Texas Gas Service filed a rate case for all customers in the Central-Gulf service area, requesting a $25.8 million increase. Texas Gas Service has invested approximately $355 million in its Central-Gulf service area natural gas distribution system since its last Central-Gulf service area rate case was finalized in August 2020. A portion of this investment, approximately

$342 million, is currently recovered through GRIP. The current filing is based on a 10.25 percent return on equity and a 59.6 percent common equity ratio. New rates are expected to take effect in late 2024.

In May, Texas Gas Service made a GRIP filing for all customers in the Rio Grande Valley service area, requesting a $3.7 million increase to be effective in August 2024.

2024 FINANCIAL GUIDANCE

ONE Gas reaffirmed the financial guidance it issued on Nov. 29, 2023, with 2024 net income expected to be in the range of $214 million to $231 million, or $3.70 to $4.00 per diluted share.

Capital expenditures, including asset removal costs, are expected to be approximately $750 million in 2024.

EARNINGS CONFERENCE CALL AND WEBCAST

The ONE Gas executive management team will host a conference call on Tuesday, Aug. 6, 2024, at 11 a.m. Eastern Daylight Time (10 a.m. Central Daylight Time). The call also will be carried live on the ONE Gas website.

To participate in the telephone conference call, dial 833-470-1428, passcode 221538, or log on to www.onegas.com/investors and select Events and Presentations.

If you are unable to participate in the conference call or the webcast, a replay will be available on the ONE Gas website, www.onegas.com, for 30 days. A recording will be available by phone for seven days. The playback call may be accessed at 866-813-9403, passcode 629830.

ONE Gas, Inc. (NYSE:OGS) is a 100% regulated natural gas utility, and trades on the New York Stock Exchange under the symbol "OGS." ONE Gas is included in the S&P MidCap 400 Index and is one of the largest natural gas utilities in the United States.

Headquartered in Tulsa, Oklahoma, ONE Gas provides a reliable and affordable energy choice to more than 2.3 million customers in Kansas, Oklahoma and Texas. Its divisions include Kansas Gas Service, the largest natural gas distributor in Kansas; Oklahoma Natural Gas, the largest in Oklahoma; and Texas Gas Service, the third largest in Texas, in terms of customers.

For more information and the latest news about ONE Gas, visit onegas.com and follow its social channels: @ONEGas, Facebook, LinkedIn and YouTube.

Some of the statements contained and incorporated in this news release are forward-looking statements within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act. The forward-looking statements relate to our anticipated financial performance, liquidity, management's plans and objectives for our future operations, our business prospects, the outcome of regulatory and legal proceedings, market conditions and other matters. We make these forward-looking statements in reliance on the safe harbor protections provided under the Private Securities Litigation Reform Act of 1995. The following discussion is intended to identify important factors that could cause future outcomes to differ materially from those set forth in the forward-looking statements.

Forward-looking statements include the items identified in the preceding paragraph, the information concerning possible or assumed future results of our operations and other statements contained or incorporated in this news release identified by words such as "anticipate," "estimate," "expect," "project," "intend," "plan," "believe," "should," "goal," "forecast," "guidance," "could," "may," "continue," "might," "potential," "scheduled," "likely," and other words and terms of similar meaning.

One should not place undue reliance on forward-looking statements, which are applicable only as of the date of this news release. Known and unknown risks, uncertainties and other factors may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by forward-looking statements. Those factors may affect our operations, markets, products, services and prices. In addition to any assumptions and other factors referred to specifically in connection with the forward-looking statements, factors that could cause our actual results to differ materially from those contemplated in any forward-looking statement include, among others, the following:

• our ability to recover costs, income taxes and amounts equivalent to the cost of property, plant and equipment, regulatory assets and our allowed rate of return in our regulated rates or other recovery mechanisms;
• cyber-attacks, which, according to experts, continue to increase in volume and sophistication, or breaches of technology systems that could disrupt our operations or result in the loss or exposure of confidential or sensitive customer, employee, vendor or Company information; further, increased remote working arrangements have required enhancements and modifications to our information technology infrastructure (e.g. Internet, Virtual Private Network, remote collaboration systems, etc.), and any failures of the technologies, including third-party service providers, that facilitate working remotely could limit our ability to conduct ordinary operations or expose us to increased risk or effect of an attack;
• our ability to manage our operations and maintenance costs;
• the concentration of our operations in Oklahoma, Kansas and Texas;
• changes in regulation of natural gas distribution services, particularly those in Oklahoma, Kansas and Texas;
• the economic climate and, particularly, its effect on the natural gas requirements of our residential and commercial customers;
• the length and severity of a pandemic or other health crisis which could significantly disrupt or prevent us from operating our business in the ordinary course for an extended period;
• competition from alternative forms of energy, including, but not limited to, electricity, solar power, wind power, geothermal energy and biofuels;
• adverse weather conditions and variations in weather, including seasonal effects on demand and/or supply, the occurrence of severe storms in the territories in which we operate, and climate change, and the related effects on supply, demand, and costs;
• indebtedness could make us more vulnerable to general adverse economic and industry conditions, limit our ability to borrow additional funds and/or place us at competitive disadvantage compared with competitors;
• our ability to secure reliable, competitively priced and flexible natural gas transportation and supply, including decisions by natural gas producers to reduce production or shut-in producing natural gas wells and expiration of existing supply and transportation and storage arrangements that are not replaced with contracts with similar terms and pricing;
• our ability to complete necessary or desirable expansion or infrastructure development projects, which may delay or prevent us from serving our customers or expanding our business;
• operational and mechanical hazards or interruptions;
• adverse labor relations;
• the effectiveness of our strategies to reduce earnings lag, revenue protection strategies and risk mitigation strategies, which may be affected by risks beyond our control such as commodity price volatility, counterparty performance or creditworthiness and interest rate risk;
• the capital-intensive nature of our business, and the availability of and access to, in general, funds to meet our debt obligations prior to or when they become due and to fund our operations and capital expenditures, either
• through (i) cash on hand, (ii) operating cash flow, or (iii) access to the capital markets and other sources of liquidity;
• our ability to obtain capital on commercially reasonable terms, or on terms acceptable to us, or at all;
• limitations on our operating flexibility, earnings and cash flows due to restrictions in our financing arrangements;
• cross-default provisions in our borrowing arrangements, which may lead to our inability to satisfy all of our outstanding obligations in the event of a default on our part;
• changes in the financial markets during the periods covered by the forward-looking statements, particularly those affecting the availability of capital and our ability to refinance existing debt and fund investments and acquisitions to execute our business strategy;
• actions of rating agencies, including the ratings of debt, general corporate ratings and changes in the rating agencies' ratings criteria;
• changes in inflation and interest rates;
• our ability to recover the costs of natural gas purchased for our customers and any related financing required to support our purchase of natural gas supply;
• impact of potential impairment charges;
• volatility and changes in markets for natural gas and our ability to secure additional and sufficient liquidity on reasonable commercial terms to cover costs associated with such volatility;
• possible loss of local distribution company franchises or other adverse effects caused by the actions of municipalities;
• payment and performance by counterparties and customers as contracted and when due, including our counterparties maintaining ordinary course terms of supply and payments;
• changes in existing or the addition of new environmental, safety, tax and other laws to which we and our subsidiaries are subject, including those that may require significant expenditures, significant increases in operating costs or, in the case of noncompliance, substantial fines or penalties;
• the effectiveness of our risk-management policies and procedures, and employees violating our risk- management policies;
• the uncertainty of estimates, including accruals and costs of environmental remediation;
• advances in technology, including technologies that increase efficiency or that improve electricity's competitive position relative to natural gas;
• population growth rates and changes in the demographic patterns of the markets we serve, and economic conditions in these areas' housing markets;
• acts of nature and naturally occurring disasters;
• political unrest and the potential effects of threatened or actual terrorism and war;
• the sufficiency of insurance coverage to cover losses;
• the effects of our strategies to reduce tax payments;
• changes in accounting standards;
• changes in corporate governance standards;
• existence of material weaknesses in our internal controls;
• our ability to comply with all covenants in our indentures and the ONE Gas Credit Agreement, a violation of which, if not cured in a timely manner, could trigger a default of our obligations;
• our ability to attract and retain talented employees, management and directors, and shortage of skilled-labor;
• unexpected increases in the costs of providing health care benefits, along with pension and postemployment health care benefits, as well as declines in the discount rates on, declines in the market value of the debt and equity securities of, and increases in funding requirements for, our defined benefit plans; and
• our ability to successfully complete merger, acquisition or divestiture plans, regulatory or other limitations imposed as a result of a merger, acquisition or divestiture, and the success of the business following a merger, acquisition or divestiture.

These factors are not necessarily all of the important factors that could cause actual results to differ materially from those expressed in any of our forward-looking statements. Other factors could also have material adverse effects on our future results. These and other risks are described in greater detail in Part 1, Item 1A, Risk Factors, in our Annual Report. All forward-looking statements attributable to us or persons acting on our behalf are expressly qualified in their entirety by these factors. Other than as required under securities laws, we undertake no obligation to update publicly any forward- looking statement whether as a result of new information, subsequent events or change in circumstances, expectations or otherwise.

APPENDIX

 

 

 

 

ONE Gas, Inc.

KGSS-I SECURITIZATION

In November 2022, Kansas Gas Service Securitization I, L.L.C. (KGSS-I) issued $336 million of securitized utility tariff bonds. KGSS-I used the proceeds from the issuance to purchase the Securitized Utility Tariff Property from Kansas Gas Service, pay for debt issuance costs, and reimburse Kansas Gas Service for upfront securitization costs paid on behalf of KGSS-I.

Revenues for the three months ended June 30, 2024, include $11.5 million associated with KGSS- I, which is offset by $7.4 million in operating and amortization expense and $4.2 million in net interest expense. Revenues decreased $0.3 million compared to the same period last year, which was offset by the net change of a $0.1 million increase in operating and amortization expense and a $0.3 million decrease in net interest expense.

Revenues for the six months ended June 30, 2024, include $23.2 million associated with KGSS-I, which is offset by $14.9 million in operating and amortization expense and $8.3 in net interest expense. Compared to the same six month period last year, revenues decreased $0.5 million, which was offset by the net change of a $0.4 million increase in amortization and operating expense and a $1.0 million decrease in net interest expense.

The following table summarizes the impact of KGSS-I on the consolidated balance sheets, for the periods indicated:

 

 

The following table summarizes the impact of KGSS-I on the consolidated statements of income, for the periods indicated:

 

 

 

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SOURCE ONE Gas, Inc.