Third quarter income gains reported by ONE Gas

 

(PRNewsfoto/ONE Gas, Inc.)

 

 

The third quarter proved to be a successful one for Tulsa-based ONE Gas as it reported net income of $23.7 million or 44 cents a diluted share.

It compared with the $20.3 million or 38 cents a share in the third quarter of last year.

“Our third quarter results demonstrate consistency and our focus on execution,” said Robert S. McAnnally, president and chief executive officer. “Thanks to our employees for their on-going commitment to our customers and the communities we serve.”

Year to date income for ONE Gas was $154.7 million or $2.85 per diluted share, up from the $145.9 million or $2.72 a share in the same period last year.

During the quarter, ONE Gas executed forward sale agreements of 570,335 shares of common stock.

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ONE Gas reported operating income of $47.1 million in the third quarter 2022, compared with $41.8 million in the third quarter 2021, which primarily reflects:

  • an increase of $15.6 million from new rates;
  • an increase of $1.3 million in residential sales due to net customer growth in Oklahoma and Texas; and
  • a decrease of $1.3 million in bad debt expense.
  • The Company executed forward sale agreements for 570,335 shares of common stock under its at-the-market equity program; had these shares been settled as of Sept. 30, 2022, it would have generated net proceeds of approximately $45.9 million;
  • On Aug. 8, 2022, the Company issued $300 million of 4.25% senior notes due 2032, the proceeds of which were used to repay commercial paper and for general corporate purposes;
  • On Aug. 25, 2022, the Company received approximately $1.3 billion of proceeds from the Oklahoma Development Finance Authority (ODFA), representing Oklahoma Natural Gas’ portion of extraordinary natural gas purchase cost recovery related to Winter Storm Uri. Subsequently in September, the Company used those proceeds to settle $1.3 billion of related senior notes outstanding that were due 2023 and 2024; and
  • The board of directors declared a quarterly dividend of $0.62 per share, or $2.48 per share on an annualized basis, payable on Dec. 1, 2022, to shareholders of record at the close of business on Nov. 15, 2022.

 

Capital expenditures and asset removal costs were $174.9 million for the third quarter 2022 compared with $144.5 million in the same period last year. The increase was due primarily to expenditures for system integrity and extension of service to new areas.

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YEAR TO DATE 2022 FINANCIAL PERFORMANCE

Operating income for the nine-month 2022 period was $246.4 million, compared with $223.3 million in 2021, which primarily reflects:

  • an increase of $45.1 million from new rates;
  • an increase of $5.4 million in residential sales due to net customer growth in Oklahoma and Texas;
  • a decrease of $2.0 million in COVID-19 related expenses; and
  • a decrease of $4.2 million in bad debt expense.

These increases were offset partially by:

  • an increase of $14.4 million in outside service costs;
  • an increase of $13.1 million in depreciation expense due to additional capital expenditures being placed in service; and
  • an increase of $5.3 million in employee-related costs, due primarily to higher labor and employee benefit costs.

For the nine-month 2022 period, other expense, net, increased $5.6 million compared with the same period last year, due primarily to an $11.5 million decrease in the market value of investments associated with nonqualified employee benefit plans, offset partially by a decrease of $5.1 million in net periodic benefit cost other than service cost.

Interest expense increased $5.6 million over the nine-months ended last year, due primarily to interest on commercial paper and the issuance of $300 million of 4.25 percent senior notes in August 2022.

Income tax expense includes a credit for amortization of the regulatory liability associated with EDIT of $12.5 million and $12.2 million for the nine-month periods ended Sept. 30, 2022, and 2021, respectively.

Capital expenditures and asset removal costs were $446.9 million for the nine-month 2022 period compared with $382.9 million in the same period last year. The increase was due primarily to expenditures for system integrity and extension of service to new areas.

For the nine months ended Sept. 30, 2022, the Company executed forward sale agreements for shares of its common stock. No shares of common stock have been settled under these forward sale agreements. Had all shares settled under the forward agreements as of Sept. 30, 2022, it would have generated net proceeds of $93.9 million, as detailed below:

Maturity

Shares Available

Net Proceeds Available

(in thousands)

Forward Price

September 29, 2023

570,335

$                             45,890

$                         80.46

January 2, 2024

591,736

48,052

81.21

Total

1,162,071

$                             93,942

$                         80.84

 

At Sept. 30, 2022, $85.1 million of equity was available for issuance under the program.

REGULATORY ACTIVITIES UPDATE

Securitization

The following updates reflect recent activity in Oklahoma, Kansas and Texas related to financing of costs incurred in February 2021 associated with Winter Storm Uri through the issuance of securitization bonds.

On Aug. 25, 2022, the ODFA completed the issuance of $1.35 billion in ratepayer-backed bonds with varying scheduled final maturities over 30 years, consistent with the Oklahoma Corporation Commission (OCC) order. The proceeds received were approximately $1.3 billion, which represents the amount of the securitization bonds sold less issuance costs. Beginning Sept. 1, 2022, Oklahoma Natural Gas is acting as a servicer, with responsibility for collecting the securitization charges from Oklahoma customers that are then submitted to the ODFA to repay the bonds. The collection and remittance of these funds are recorded in other current liabilities in the consolidated balance sheets.

On Aug. 25, 2022, the Company called $750 million of its $1.0 billion of 0.85 percent senior notes due March 2023, $150 million of its $700 million of 1.10 percent senior notes due March 2024 and the remaining $400 million outstanding of floating-rate senior notes due March 2023, using the proceeds received from the ODFA related to the securitization transaction for Oklahoma Natural Gas. Proceeds from the issuance of securitized bonds in Kansas and Texas are expected to be used to repay the outstanding senior notes due March 2023 and a portion of the remaining senior notes due March 2024.

On July 14, 2022, Kansas Gas Service, the Kansas Corporation Commission (KCC) Staff and the Citizens’ Utility Ratepayer Board reached a settlement agreement for the issuance of a financing order allowing securitized utility tariff bonds to be issued in the amount of approximately $328 million plus issuance fees. The agreement provides for the issuance of bonds with a scheduled final maturity of between 7 and 10 years. On Aug. 18, 2022, the KCC issued an order approving the agreement and also issued a financing order. As part of the settlement agreement, the Company created Kansas Gas Service Securitization I, L.L.C. (KGSS-I), a special-purpose, wholly-owned subsidiary of ONE Gas, and filed a registration statement with the Securities and Exchange Commission, for the purpose of issuing securitized bonds.

The Texas Public Finance Authority has begun the process to issue securitized bonds, which are expected to be issued in the fourth quarter of 2022. At Sept. 30, 2022, Texas Gas Service has deferred approximately $246.7 million in extraordinary costs associated with Winter Storm Uri, including $47.8 million attributable to the West Texas service area which is being recovered through a separate surcharge over a three-year period that started in January 2022.

Other Regulatory Updates

In March 2022, Oklahoma Natural Gas filed its first annual Performance-Based Rate Change (PBRC) application following the general rate case that was approved in November 2021. The filing is for a calendar 2021 test year and includes a requested base rate increase of $19.7 million, an energy efficiency program incentive of $2.3 million and an estimated $9.1 million credit associated with EDIT. The Public Utility Division (PUD) of the OCC filed responsive testimony supporting an increase of $19.6 million, and the Office of the Attorney General filed a statement supporting PUD’s position. Pursuant to its tariff, Oklahoma Natural Gas placed new rates into effect on July 13, 2022, reflecting a base rate revenue increase of $19.6 million. These rates are subject to refund until approved by the OCC. On Sept. 29, 2022, an administrative law judge recommended approval of the joint stipulation. An order is expected to be placed on the Commissioners’ signing agenda in the fourth quarter of 2022.

In August 2022, Kansas Gas Service submitted an application to the KCC requesting an increase of approximately $7.8 million related to its Gas System Reliability Surcharge (GSRS); the KCC has until late December 2022 to issue an order.

In March 2022, Texas Gas Service made Gas Reliability Infrastructure Program (GRIP) filings for all customers in the West Texas service area, requesting a $5.0 million increase to be effective in July 2022. On June 23, 2022, the city of El Paso denied the requested increase and assessed fees associated with its review of the filing. Texas Gas Service appealed the city’s action to the Texas Railroad Commission (RRC), who approved the rates in August 2022. All other municipalities approved the new rates or allowed them to take effect with no action. Texas Gas Service implemented the new rates in July 2022.

In April 2022, Texas Gas Service made its annual Cost-of-Service Adjustment filings for the incorporated area of the Rio Grande Valley service area. In July 2022, the municipalities approved an increase of $2.5 million, and new rates became effective in August 2022.

In June 2022, Texas Gas Service filed a rate case seeking to consolidate its West Texas, North Texas and Borger/Skellytown service areas into a single West-North service area and requesting a rate increase of $13.0 million. If approved, new rates are expected to take effect in early 2023.

2022 FINANCIAL GUIDANCE

ONE Gas narrowed its financial guidance issued on Jan. 18, 2022, with 2022 net income and earnings per share now expected to be in the range of $217 million to $226 million, and $4.00 to $4.16 per diluted share. Capital expenditures, including asset removal costs, are expected to be approximately $650 million for 2022.