ONE Gas Announces Fourth-quarter and Full-year 2017 Financial Results Analysts' call and webcast scheduled tomorrow, Feb. 22, at 11 a.m. EST
TULSA, Okla., Feb. 21, 2018 /PRNewswire/ -- ONE Gas, Inc. (NYSE: OGS) today announced its fourth-quarter and full-year 2017 financial results, which included diluted earnings per share of $0.89 and $3.08, respectively.
"In 2017, we continued to invest in the reliability of our systems to safely deliver natural gas, a key energy source for our more than 2 million customers," said Pierce H. Norton II, president and chief executive officer. "Now that tax reform legislation is final, we look forward to working with our regulators to ensure our customers benefit from the lower tax rate."
FOURTH-QUARTER 2017 FINANCIAL PERFORMANCE
ONE Gas reported operating income of $89.5 million in the fourth quarter 2017, compared with $78.5 million in the fourth quarter 2016.
Net margin increased by $9.0 million compared with fourth quarter 2016, which primarily reflects:
Fourth-quarter 2017 operating costs were $124.3 million, compared with $127.6 million in the fourth quarter 2016, which primarily reflects:
Fourth-quarter 2017 depreciation and amortization expense was $38.6 million, compared with $37.3 million in the fourth quarter 2016, due primarily to an increase in depreciation expense from capital investments placed in service.
Capital expenditures were $107.3 million for the fourth quarter 2017, compared with $77.7 million in the fourth quarter 2016, due primarily to increased system integrity activities and extending service to new areas.
Fourth-Quarter 2017 Key Statistics: More detailed information is listed in the tables.
FULL-YEAR 2017 FINANCIAL PERFORMANCE
Full-year 2017 operating income was $299.5 million, compared with $269.1 million in 2016.
Net margin increased by $39.7 million compared with last year, which primarily reflects:
2017 operating costs were $473.7 million, compared with $472.5 million in 2016, which primarily reflects:
Full-year 2017 depreciation and amortization expense was $151.9 million, compared with $143.8 million in 2016, due primarily to an $11.0 million increase in depreciation expense from capital investments placed in service, offset partially by a decrease in the amortization of other post-employment benefit deferrals in Kansas.
Full-year 2017 capital expenditures were $356.4 million, compared with $309.0 million in 2016, due primarily to increased expenditures for system integrity and extending service to new areas.
The company ended the fourth quarter 2017 with $14.4 million of cash and cash equivalents, $357.2 million in commercial paper, no short-term borrowings and $2.1 million in letters of credit, leaving $340.7 million of credit available under its $700 million credit facility. The total debt-to-capitalization ratio at Dec. 31, 2017, was 44 percent, and the ratio of long-term debt-to-capitalization was 38 percent.
In March 2017, Oklahoma Natural Gas filed its first annual Performance-Based Rate Change (PBRC) following the general rate case that was approved in January 2016. The filing was based on a calendar test year of 2016. The PBRC filing demonstrated that Oklahoma Natural Gas was earning within the allowed return on equity range of 9.0 to 10.0 percent. Therefore, Oklahoma Natural Gas did not seek a modification to base rates. The filing also requested an energy-efficiency program true-up and a utility incentive adjustment of approximately $1.9 million.
A joint stipulation and settlement agreement was approved by the Oklahoma Corporation Commission (OCC) in August 2017. As required, PBRC filings are made annually in March, until the next general rate case, which is currently required to be filed on or before June 30, 2021, based on a calendar test year of 2020.
In December 2017, the Oklahoma Attorney General filed a motion on behalf of customers in Oklahoma requesting that the OCC take action for an immediate reduction in rates and protection of ratepayers' interests. On January 9, 2018, the OCC approved an order directing Oklahoma Natural Gas to record a deferred liability beginning on the effective date of the order to reflect the reduced federal corporate tax rate of 21 percent and the associated savings in excess accumulated deferred income tax (ADIT) and any other tax implications of the Tax Cuts and Jobs Act of 2017 on an interim basis subject to refund until utility rates are adjusted to reflect the federal tax savings and a final order is issued in Oklahoma Natural Gas' next scheduled PBRC proceeding. The order also directs Oklahoma Natural Gas, to the extent not already accrued for in its current PBRC tariff, to accrue interest at a rate equivalent to its cost of capital as recognized in the most recent PBRC filing on the amounts of any refunds determined to be owed to customers until issuance of a final order in the upcoming PBRC proceeding.
In August 2017, Kansas Gas Service filed a request for interim rate relief under the Gas System Reliability Surcharge (GSRS) for an increase of approximately $2.9 million. In November 2017, the Kansas Corporation Commission (KCC) approved the increase, and new rates became effective December 2017.
In April 2017, Kansas Gas Service filed an application with the KCC seeking approval of an Accounting Authority Order (AAO) associated with the costs incurred at and nearby 12 former manufactured gas plant (MGP) sites. Kansas Gas Service either owns or retains responsibility for certain environmental conditions at the MGP sites. In October 2017, Kansas Gas Service, the KCC staff and the Citizens' Utility Ratepayer Board (CURB) filed a unanimous settlement agreement with the KCC allowing Kansas Gas Service to defer and seek recovery of former MGP costs (costs that are necessary for investigation and remediation at the 12 former MGP sites) incurred after January 1, 2017, up to a cap of $15.0 million, net of any related insurance recoveries. Costs approved in a future rate proceeding would then be amortized over a 15-year period. The unamortized amounts will not be included in rate base or accumulate carrying charges. At the time future investigation and remediation work, net of any related insurance recoveries, is expected to exceed $15.0 million, Kansas Gas Service will be required to file an application with the KCC for approval to increase the $15.0 million cap. The KCC issued an order approving the settlement agreement in November 2017. A regulatory asset of approximately $5.9 million was recorded for estimated costs that were accrued at January 1, 2017.
On January 18, 2018, the KCC opened a general investigation for the purposes of examining the financial impact of the Tax Cuts and Jobs Act of 2017 on regulated public utilities operating in Kansas. The KCC also granted a KCC Staff recommendation: (1) to issue an AAO requiring utilities to track and accumulate, in a deferred revenue account, the portion of their revenue that results from the use of a 35 percent federal corporate tax rate for their last KCC- approved revenue determination instead of the new lower federal corporate tax rate; (2) that the deferrals commence on the effective date of the new federal corporate tax rate; (3) that the KCC express its intent to capture excess ADIT in a manner consistent with the tax normalization rules; and (4) that the portion of current rates affected by federal tax reform should be considered interim and subject to refund with interest compounded monthly at the rate for customer deposits, until the KCC has an opportunity to evaluate the reasonableness of those rates with new lower federal tax rates.
Rio Grande Valley Service Area:
In January 2018, Texas Gas Service reached a settlement with the Texas Railroad Commission (RRC) staff in the unincorporated areas of the Rio Grande Valley service area. This settlement, if approved by the RRC, will result in an increase in revenues of $0.5 million with new rates expected to be effective by April 2018. The underlying revenue requirement reflects a corporate income tax rate of 21 percent and requires Texas Gas Service to calculate, defer and begin refunding to customers the rate reductions resulting from federal tax reform that would have occurred between January 1, 2018, and the effective date of the new rates.
In June 2017, Texas Gas Service filed a rate case for customers in the incorporated areas of its Rio Grande Valley service area. Texas Gas Service and the cities in the Rio Grande Valley service area agreed to an increase of $3.6 million, and new rates became effective in October 2017.
West Texas Service Area:
In March 2017, Texas Gas Service made filings under the Gas Reliability Infrastructure Program (GRIP) for all customers in the West Texas service area. The RRC and the cities approved an increase of $4.3 million, and new rates went into effect in July 2017.
Central Texas Service Area:
In March 2017, Texas Gas Service made filings under the GRIP for all customers in the consolidated Central Texas service area. The RRC and cities approved an increase of $4.9 million, and new rates became effective in June 2017.
Other Service Areas:
In the normal course of business, Texas Gas Service has received approval for increases totaling $1.4 million in 2017 for rate relief under the GRIP and cost-of-service adjustments in other Texas jurisdictions to address investments in rate base and changes in expenses.
On January 23, 2018, the RRC directed Commission staff to analyze the impact of the Tax Cuts and Jobs Act of 2017 on current gas utility rates and to develop recommendations to ensure that, beginning January 1, 2018, all gas utility customers in Texas receive the full benefit of federal tax reform.
2018 FINANCIAL GUIDANCE
On Jan. 16, 2018, ONE Gas announced that its 2018 net income is expected to be in the range of $156 million to $168 million, or $2.96 to $3.20 per diluted share.
Capital expenditures are expected to be $375 million in 2018, with 70 percent of these expenditures targeted for system integrity and replacement projects.
Rate base in 2018 is expected to average $3.4 billion, with 42 percent in Oklahoma, 30 percent in Kansas and 28 percent in Texas. ONE Gas expects to achieve a 7.3 percent return on equity in 2018, which is calculated consistent with utility ratemaking in each jurisdiction.
EARNINGS CONFERENCE CALL AND WEBCAST
The ONE Gas executive management team will conduct a conference call on Thurs., Feb. 22, 2018, at 11 a.m. Eastern Standard Time (10 a.m. Central Standard Time). The call also will be carried live on the ONE Gas website.
To participate in the telephone conference call, dial 888-503-8177, pass code 3532413, or log on to www.onegas.com.
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 888-203-1112, pass code 3532413.
LINK TO EARNINGS TABLES
ONE Gas, Inc. (NYSE: OGS) is a stand-alone, 100-percent 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.
ONE Gas provides natural gas distribution services to more than 2 million customers in Oklahoma, Kansas and Texas.
ONE Gas is headquartered in Tulsa, Okla., and its divisions include Oklahoma Natural Gas, the largest natural gas distributor in Oklahoma; Kansas Gas Service, the largest in Kansas, and Texas Gas Service, the third largest in Texas, in terms of customers.
Its largest natural gas distribution markets by customer count are Oklahoma City and Tulsa, Okla.; Kansas City, Wichita and Topeka, Kan.; and Austin and El Paso, Texas. ONE Gas serves residential, commercial, industrial, transportation and wholesale customers in all three states.
For more information, visit the website at http://www.ONEGas.com.
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," 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:
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 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.
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SOURCE ONE Gas, Inc.