ONE Gas recorded another fall in earnings in the third quarter compared to the second quarter of the year and the third quarter of 2023.
The company quarterly report released this week showed net income of $19.3 million or 34 cents a share, down from the $25.2 million and 45 cents a share in the third quarter of last year. The net income also was less than the $27.3 million and 48 cents a share in the second quarter of 2024.
Year to date, ONE Gas recorded $145.8 million and $2.56 a share, also below the $160.5 million and $2.87 from a year ago.
ONE Gas reported operating income of $59.5 million in the third quarter, compared with $57.2 million in the third quarter 2023, due primarily to an increase of $17.5 million from new rates.
The increase was partially offset by:
- an increase of $3.7 million in depreciation and amortization expense from additional capital investment;
- an increase of $6.1 million in employee-related costs, due primarily to planned investments in the Company’s workforce and ongoing in-sourcing efforts; and
- an increase of $2.0 million in outside services.
Despite the slip in earnings, Robert S. McAnnally, president and CEO said the company raised and narrowed its 2024 financial guidance while maintaining a healthy balance sheet.
“As we approach the end of the year, we are poised to deliver strong financial results, serve our customers and strategically position the company for the opportunities that lie ahead.”
- The Company raised and tightened 2024 diluted earnings per share guidance to a range of $3.85 to $3.95, from a previous range of $3.70 to $4.00;
- In October, the Company entered into agreements to increase the capacity of the ONE Gas Credit Agreement and the commercial paper program each to $1.35 billion from $1.275 billion;
- On Sept. 27, 2024, the parties to Texas Gas Service’s Central-Gulf rate case filed an uncontested settlement agreement for an increase of $19.3 million, based on a 9.7 percent return on equity and a 59.6 percent common equity ratio, subject to approval;
- In August, the Company reopened its 5.10 percent senior notes of $300 million to issue an additional $250 million at an effective rate of 4.87 percent, aggregating its senior notes due April 2029 to $550 million; and
- The board of directors declared a quarterly dividend of $0.66 per share ($2.64 annualized), payable on Dec. 4, 2024, to shareholders of record at the close of business on Nov. 19, 2024.
YEAR-TO-DATE 2024 FINANCIAL PERFORMANCE
Operating income for the nine-month 2024 period was $274.8 million, compared with $270.5 million in 2023, which primarily reflects:
- an increase of $43.3 million in revenue from new rates; and
- an increase of $5.1 million in residential sales due primarily to net customer growth in Oklahoma and Texas.
These increases were offset partially by:
- an increase of $16.5 million of employee-related costs due primarily to planned investments in the Company’s workforce and ongoing in-sourcing efforts;
- an increase of $14.0 million in depreciation and amortization expense from additional capital investment;
- an increase of $2.1 million due to ad valorem taxes;
- an increase of $1.0 million due to insurance expense;
- an increase of $1.9 million in fleet costs; and
- a decrease of $5.9 million in revenue due to lower sales volumes, largely offset by the impact of weather normalization mechanisms.
Income tax expense includes a credit for amortization of the regulatory liability associated with EDIT of $13.4 million and $15.5 million for the nine months ended Sept. 30, 2024, and 2023, respectively.
Capital expenditures and asset removal costs were $571.7 million for the nine-month 2024 period compared with $539.1 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. In August 2024, the Oklahoma Corporation Commission issued an order approving a settlement with a revenue increase of $31.4 million. New rates went into effect in June 2024.
In March 2024, Kansas Gas Service submitted an application to the Kansas Corporation Commission (KCC) requesting an increase to its base rates reflecting investments in its natural gas distribution system. On Oct. 3, 2024, the KCC issued an order approving the parties’ unanimous settlement agreement and new rates became effective on Nov. 1, 2024. Kansas Gas Service’s net base rates will increase by $35 million. Kansas Gas Service was already recovering $35 million from customers through the 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.
In March 2024, Texas Gas Service made a Gas Reliability Infrastructure Program (GRIP) filing in the West-North service area, requesting an $8.6 million increase. Two municipalities denied the requested increase, but their denials were overturned by the Texas Railroad Commission (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 new rates in July 2024.
In June 2024, Texas Gas Service filed a rate case 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. On Sept. 27, 2024, the parties filed an uncontested settlement agreement for an increase of $19.3 million based on a 9.7 percent return on equity and a 59.6 percent common equity ratio. In October 2024, the Administrative Law Judge issued a proposal for decision recommending the settlement be approved. If the settlement is approved by the RRC, new rates are expected to take effect in December 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. In August 2024, the RRC and municipalities approved an increase of $3.6 million, and new rates became effective in September 2024.
INCOME TAX UPDATE
In 2024, the Internal Revenue Service issued Revenue Procedure 2024-15, which allows for the deferral of income taxes on securitization bond proceeds received from a qualifying state financing entity. In 2022, Oklahoma Natural Gas received $1.3 billion in securitization bond proceeds and reported this amount as income on its federal income tax return for that year. Following the new revenue procedure, the Company amended its 2022 federal tax return to request a refund of $55.5 million, pending review and approval by the Internal Revenue Service. Consequently, as of Sept. 30, 2024, the Company recorded a receivable from the Internal Revenue Service to reflect the anticipated refund, along with a deferred tax liability to account for the future tax obligation. Those items do not impact current earnings. Additionally, the Company plans to file an amended Oklahoma corporate income tax return in the fourth quarter of 2024 to request a state refund of $1.5 million.
2024 FINANCIAL GUIDANCE INCREASED
The Company raised and narrowed its 2024 financial guidance, with net income expected to be in the range of $219 million to $226 million, compared with its previously announced range of $214 million to $231 million. Earnings per diluted share are expected to be approximately $3.85 to $3.95, compared with the previously announced range of $3.70 to $4.00. The midpoint of 2024 earnings per diluted share guidance increased to $3.90, compared with the previous guidance midpoint of $3.85.
Capital expenditures, including asset removal costs, are still expected to be approximately $750 million in 2024.
Source: ONE Gas release
