OGS
#Thanks, <UNK>.
Good morning everyone, and thank you for joining us today.
Yesterday the ONE Gas Board of Directors declared a dividend of $0.35 per share unchanged from the previous quarter and we increased it to $0.35 from $0.30 per share.
This dividend is consistent with the company's guidance for 2016 and its expected 55% to 65% dividend payout ratio.
As we indicated in our most recent guidance we expect the average annual dividend increase to be 8% to 10% between 2015 and 2020.
Now on to the first quarter results.
Net income for the first quarter 2016 was $64.7 million or $1.22 per diluted share compared with $60.4 million or $1.13 per diluted share for the same period last year.
New rates in Oklahoma and Texas positively impacted results.
This includes the approved rate case in Oklahoma this past January and approvals for GRIP and cost of service filings in Texas.
Residential customer growth in Oklahoma and Texas also contributed to our results but were offset by lower volumes due to warmer weather in our service territories.
Weather was 18% warmer than the same period last year, with total residential gas sales volumes down 14%.
Total volumes delivered were down 9% but our high percentage of fixed charges and weather normalization mechanisms mitigated the impact, with the warmer weather having less than a 2% impact to net margins.
Operating costs for the first quarter were slightly lower compared with the same period last year.
Outside services, IT expenses and fleet-related costs decreased but were mostly offset by higher employee related costs.
Capital expenditures for the first quarter were approximately $75 million compared with $55 million for the same period last year.
With the warmer and drier weather this first quarter, we were able to compete more system integrity and construction projects.
We still expect capital expenditures to be approximately $305 million in 2016, with more than 70% targeted towards system integrity and replacement projects.
We ended the first quarter with a total debt to capitalization ratio of 39% and do not anticipate any equity needs in our five year financial plan.
ONE Gas generated operating cash flow, before changes in working capital, of $121 million in the first quarter and ended the quarter with approximately $53 million of cash and cash equivalence and no borrowings under our $700 million credit facility.
In the press release we reaffirmed our net income range of $127 million to $137 million or approximately $2.40 to $2.60 per diluted share.
At March 31, 2016 our current authorized rate base, defined as the rate base established in our latest regulatory proceedings including full rate cases and interim rate filings is approximately $2.7 billion.
Considering additional investments in our system and other changes in the components of our rate base that have occurred since those regulatory filings, we project that our rate base in 2016 will average approximately $2.9 billion with 43% of that being a rate base in Oklahoma, 31% in Kansas, and 21% in Texas.
And now I will turn it over to <UNK> <UNK>, ONE Gas President and Chief Executive Officer.
<UNK>.
Thanks, <UNK> and good morning everyone.
ONE Gas is solely focused on leading the industry as a safe dependable provider of natural gas to our customers, an important component of our strategy and why we reinvest in systems and facilities.
As you know may have noticed in our press releases, we have quite a bit of regulatory activity to highlight on this call.
So let me get started with Kansas.
Yesterday afternoon Kansas Gas Service filed a request with the Kansas Corporation Commission or KCC for a total increase in base rates of $35.4 million reflecting system investments and operating cost necessary to maintain the safety and reliability of its natural gas system.
After considering recoveries from GSRS filings and other adjustments, the impact to 2017 operating income as filed will be approximately $30 million.
Since the last general rate Kansas Gas Service has invested $230 million in its systems and its facilities.
This request would increase the average residential customer's natural gas bill of $4.34 per month.
The filing is based on a 10% return on equity and a 55% common equity ratio.
For every 25 basis point change to our requested ROE it would result in a change of approximately $2.1 million.
The filing represents a rate base of $903 million compared with $826 million included in the existing base rates plus previously approved GSRS eligible investments.
The company's filing also includes a proposal of a cost of service adjustment, or COSA, mechanism that would reset rates annually based on a review of the previous year's financial results.
The proposed rate mechanism is intended to reduce the need to file four rate cases thereby saving cost associated with these traditional rate cases.
Since the KCC has 240 days to consider Kansas Gas Service's filing, new rates will be in effect in January 2017.
Now on to Texas, Texas Gas Service reached a unanimous settlement agreement for its Galveston and south Jefferson County service areas for an increase in revenues of $2.3 million.
This following included a request to consolidate these two service areas into a new Gulf Coast service area.
Final approval was received this morning and new rates will become effective tomorrow.
On March 30, 2016 we filed a rate case requesting an increase in revenues of 12.8 million for the El Paso, Dell City and Permian service areas.
The filing also included a request to consolidate these three service areas into a new West Texas Service area.
If approved new rates are expected to be effective October, 2016.
We plan to file a rate case in the Central Texas jurisdiction which includes the City of Austin on or before June 30, 2016.
This filing is also expected to include a proposal to consolidate the South Texas service area with the Central Texas service area.
In the Texas filings I just mentioned they include the request of consolidation of certain service areas.
The intent of consolidation is the service areas is to gain an administrative efficiencies that will benefit our regulators, the company, and our customers, who will benefit from the lower expenses involved in rate case filings.
Finally I would like to close by thanking our employees for what they do every day in delivering natural gas to our customers.
The foundation of our company's strategy is having a high performing workforce, and I appreciate their hard work.
Operator, we're now ready for questions.
Hey, good morning <UNK>.
We're just fine.
That's right.
<UNK>, if you remember we have ten jurisdictions down there right now.
And the one that just got approved that consolidated too, so we would be down to nine.
And so our strategy is that as we roll through and do rate cases, we continue to look for opportunities to consolidate the different jurisdictions.
So it effectively spreads the operational expenses over a wider area as opposed to just one single jurisdiction the way we have it now.
So the plan is to take a look at our opportunities as we have rate filings.
No, it does not.
It still follows the same regulatory structure where we have COSAs and GRIPs and then by the rules under those different mechanisms, you come back after certain periods of time to actually file a full blown rate case.
So the cadence is going to be just the thing.
Certainly, <UNK> ---+ this is <UNK>.
Certainly on the fleet aspect of it, it is lower fuel cost year-over-year.
So some of our fleet rungs on CNG and we have seen the decrease in gas prices for CNG as well, that's the primary part behind the fleet.
Some of the other cost-savings candidly while the weather was warmer and so we didn't move as many volumes, that also then frees up our labor force to do other projects that we might otherwise have to outsource to third parties at different points in time.
So while it took away some revenues and also saved us some expenses through the quarter.
Yes, we would expect that to be the case.
That's correct.
You're exactly on the right track of thinking that nine new dollar highs in the quarter.
Yes, you should use the price on the day that it hit the new dollar high.
Thanks <UNK>.
Hi.
Really there is kind of two pieces of that <UNK>, and the first part was as we spun out the company we stood up all of our IT operations, so all of that stuff basically got done the first year in 2014.
Then we turned the efforts of our IT resources group over to implementing field enablement type projects what we call tough bucks in our trucks for our system guys and so that's what we have maintained our assets with.
So that all got rolled out last year and that has been all in schedule.
And like you said, I don't have a quantification number for you but all of that is going toward making us more efficient operating company and that will continue.
Well, we feel like it is time to introduce that concept in Kansas, <UNK>.
As you know we have those same type of mechanisms.
They are called something a little bit differently in Oklahoma, and we actually do call it a COSA in Texas.
We think it's time to talk to the regulators again about the benefits of that because it gets you into systematic filings which are normally lower in ask, so you have less rate shock to the customers.
You also get the benefits of a smaller expense around those filings.
And so we know that that's something that has been done in other states and some states don't have it still but we felt like it's time for it in Kansas.
Same here, <UNK>.
