ONE Gas Reports Slight Increase in 3Q20 Results

Tulsa’s ONE Gas, Inc. announced its third quarter 2020 financial results on Monday showing a slight increase in net income and year to year income and declaring a quarterly dividend.

Third quarter 2020 net income was $21.1 million, or $0.39 per diluted share, compared with $17.5 million, or $0.33 per diluted share, in the third quarter 2019. Year to date 2020 net income was $138.1 million, or $2.59 per diluted share, compared with $135.6 million, or $2.55 per diluted share, in the same period last year. The board of directors declared a quarterly dividend of $0.54 per share, or $2.16 per share on an annualized basis, payable on December 1, 2020, to shareholders of record at the close of business on November 16, 2020.

The company updated its 2020 financial guidance, with net income and earnings per diluted share now expected to be near the upper end of the ranges of $186 million to $198 million for net income and $3.44 to $3.68 for earnings per share. Capital expenditures, including asset removal costs, are still expected to be in the range of $500 million to $525 million for 2020.

“New rates and residential customer growth contributed to our third quarter results,” said Pierce H. Norton II, president and chief executive officer of ONE Gas. “Our employees continue to show their resilience in these unprecedented times while remaining focused on safety. Protecting our workforce, customers and assets remains our top priority as we execute on our proven strategy of modernizing our infrastructure to provide clean, reliable natural gas to customers.”

ONE Gas reported operating income of $40.7 million in the third quarter 2020, compared with $38.8 million in the third quarter 2019.

Net margin, which is comprised of total revenues less cost of natural gas, increased by $5.2 million compared with third quarter 2019, which primarily reflects a $3.7 million increase from new rates primarily in Oklahoma and Kansas; a $2.7 million increase attributed primarily to net residential customer growth; and a $1.3 million increase due to the beneficial impact of a retroactive compressed natural gas federal excise tax credit; offset partially by a $0.9 million decrease due to lower fees associated with collection activities and late payments primarily related to the moratoriums on disconnects for nonpayment in response to the COVID-19 pandemic in each of the company’s rate jurisdictions.

Third quarter 2020 operating costs were $115.4 million, compared with $114.6 million in the third quarter 2019, which primarily reflects a $1.8 million increase in expenses related to the company’s response to the COVID-19 pandemic; and a $1.5 million increase in employee-related costs; offset partially by a $1.6 million decrease in expenses for travel and employee training costs that have been impacted by the COVID-19 pandemic.

Depreciation and amortization expense for the third quarter 2020 was $48.0 million, compared with $45.5 million in the third quarter 2019, due primarily to an increase in depreciation expense from capital investments placed in service and an increase in the amortization of the ad-valorem surcharge rider in Kansas.

For the third quarter 2020, other income (expense), net, increased $1.6 million compared with the same period last year, due to a $1.6 million increase in the value of investments associated with nonqualified employee benefit plans.

Income tax expense includes a credit for amortization of the regulatory liability related to excess accumulated deferred income taxes (EDIT) of $2.2 million and $1.4 million for the three-month periods ended Sept. 30, 2020, and 2019, respectively.

Capital expenditures and asset removal costs were $123.9 million for the third quarter 2020 compared with $135.3 million in the same period last year. The $11.4 million decrease was due primarily to differences in the timing of capital projects between the two periods.

Operating income for the nine-month 2020 period was $218.5 million, compared with $213.3 million for the same period last year.

Net margin increased by $14.2 million compared with the same period last year, which primarily reflects a $15.0 million increase from new rates; a $7.2 million increase attributed primarily to net residential customer growth; a $1.5 million increase in rider and surcharge recoveries due to a higher ad-valorem surcharge in Kansas, which is offset by higher regulatory amortization expense; and a $1.3 million increase due to the beneficial impact of a retroactive compressed natural gas federal excise tax credit; offset partially by a $4.6 million decrease due to lower sales volumes, net of weather normalization, primarily in Kansas and Oklahoma from warmer weather in 2020 compared with the same period in 2019. For the nine months ended Sept. 30, 2020, heating degree days in Kansas and Oklahoma were 12% and 14% lower, respectively, compared with the same period in 2019; a $3.7 million decrease due to lower fees associated with collection activities and late payments primarily related to the moratoriums on disconnects for nonpayment in response to the COVID-19 pandemic in each of the company’s rate jurisdictions; and a $2.1 million decrease due to lower transportation volumes primarily in Kansas.

Operating costs for the nine-month 2020 period were $355.6 million, compared with $355.2 million for the same period last year, which primarily reflects a $4.2 million increase in bad debt expense; a $4.0 million increase in expenses related to the company’s response to the COVID-19 pandemic; and a $1.6 million increase in ad-valorem taxes; offset partially by a $3.6 million decrease in expenses for travel and employee training costs that have been impacted by the COVID-19 pandemic; a $2.3 million decrease in legal-related expenses; a $1.3 million decrease in materials for pipeline repair and maintenance activities; and a $1.2 million decrease in employee-related costs, which reflects a $4.2 million decrease in expense associated with the change in the value of the liabilities for nonqualified employee benefit plans offset partially by a $2.7 million increase in labor and benefit costs.

Depreciation and amortization expense for the nine-month 2020 period was $142.9 million, compared with $134.3 million for the same period last year, due primarily to an increase in depreciation expense from capital investments placed in service and an increase in the amortization of the ad-valorem surcharge rider in Kansas.

For the nine-month 2020 period, other income (expense), net, decreased $1.4 million compared with the same period last year, due primarily to a $2.2 million decrease in the value of investments associated with nonqualified employee benefit plans.

Income tax expense includes a credit for amortization of EDIT of $11.6 million and $10.3 million for the nine-month periods ended Sept. 30, 2020, and 2019, respectively.

Capital expenditures and asset removal costs for the nine-month period ended Sept. 30, 2020, were $377.9 million, compared with $343.9 million in the same period last year. The $34.0 million increase was due primarily to system integrity activities, extension of service to new areas and government relocation projects.

Accounting orders have been received in each of our jurisdictions authorizing us to accumulate and defer for regulatory purposes certain incremental costs incurred, including bad debt expenses, and certain lost revenues, net of offsetting expense reductions associated with COVID-19. Pursuant to these orders, the recovery of any deferred net incremental costs and lost revenue will be determined in future rate cases or alternative rate recovery filings in each jurisdiction. For financial reporting purposes, any amounts deferred as a regulatory asset for future recovery under these accounting orders must be probable of recovery. At September 30, 2020, no regulatory assets have been recorded.

Kansas

In August 2020, Kansas Gas Service submitted an application to the Kansas Corporation Commission (KCC) requesting an increase of approximately $7.8 million related to its Gas System Reliability Surcharge (GSRS). In September 2020, Kansas Gas Service submitted an errata to the application, which modified the requested increase to approximately $7.5 million. An order from the KCC is expected in December 2020, with new rates going into effect on January 1, 2021.

In May 2020, a bill amending the Kansas state income tax code was signed into law that exempts public utilities regulated by the KCC from paying Kansas state income taxes beginning January 1, 2021, and authorizes the KCC to adjust utility rates for the elimination of Kansas state income tax beginning January 1, 2021. As a regulated entity, the reduction in accumulated deferred income taxes (ADIT) of $81.5 million was recorded as an EDIT regulatory liability and will be refunded to customers. This adjustment had no material impact on income tax expense and no impact on cash flows for the three and nine months ended September 30, 2020. The bill stipulates, if requested by the utility, this EDIT will be returned to Kansas customers over a period of no less than 30 years, with the exact timing to be determined in Kansas Gas Service’s next general rate proceeding. In August 2020, Kansas Gas Service submitted an application to the KCC to reduce its base rates to reflect the elimination of Kansas state income taxes by approximately $4.9 million. An order from the KCC is expected in December 2020, with new rates going into effect on January 1, 2021.

Texas

Central-Gulf Service Area

In 2019, Texas Gas Service filed a rate case for all customers in the Central Texas and Gulf Coast service areas. In August 2020, the Railroad Commission of Texas (RRC) approved all terms of a $10.3 million settlement, as well as consolidation of the Central Texas service area and the Gulf Coast service area into a new Central-Gulf service area. The RRC also approved an $8.5 million credit to customers associated with EDIT. The settlement included a 9.5% return on equity and a 59% equity ratio. New rates became effective in August 2020.

 

Source: ONE Gas Press Release

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