ONE Gas, Inc. — FY 2023 Form 10-K
Reporting period: Year ended December 31, 2023; filed February 22, 2024. This is an annual report, not a standalone fourth-quarter report. ONE Gas is a regulated natural gas distribution utility serving approximately 2.3 million customers in Oklahoma, Kansas and Texas.
Financial performance
| Metric | FY 2023 | FY 2022 | Change |
|---|---|---|---|
| Total revenue | $2.372 billion | $2.578 billion | Down 8% |
| Operating income | $377.6 million | $350.0 million | Up 8% |
| Net income | $231.2 million | $221.7 million | Up 4% |
| Diluted EPS | $4.14 | $4.08 | Up 1% |
| Cash from operating activities | $939.5 million | $1.571 billion | Down $631.3 million |
| Capital expenditures | $666.6 million | $609.5 million | Up $57.1 million |
Reported operating margin was approximately 15.9% versus 13.6%; net margin was approximately 9.8% versus 8.6%. These ratios include substantial natural gas sales and pass-through gas costs; the company says it earns no profit on gas commodity costs passed to customers. Average gas cost declined to $7.08 per Mcf from $8.22.
Revenue fell mainly with lower natural gas costs and sales volumes. Total sales volumes declined about 9% to 156.6 Bcf, while transportation volumes were down about 1%. Warmer-than-normal weather contributed: heating degree days were 7%–13% below normal across the states. Rate increases, customer growth and other factors helped lift operating income despite higher operating and depreciation costs.
Cash, debt and liquidity
- Year-end cash and restricted cash totaled $39.4 million. Cash from operations less cash capital expenditures was approximately $272.9 million.
- Year-end long-term debt, including current maturities and securitized bonds, was $2.961 billion; commercial paper outstanding was $88.5 million. The balance sheet classified $773.0 million of other long-term debt as current, including $300 million due February 2024 and $473 million due March 2024.
- The $1.2 billion revolving credit facility had no borrowings at year-end and approximately $1.2 billion available, subject to $1.4 million of letters of credit. The commercial paper program also had a $1.2 billion capacity. Debt-to-capital was 52% (50% excluding non-recourse KGSS-I debt); the company reported covenant compliance.
- Moody’s rated the company A3 and S&P A-, both with stable outlooks. The annual dividend declared was $2.60 per share; in January 2024, the quarterly dividend was raised to $0.66 per share.
Material changes and notable items
- Net income increased despite higher interest expense, which rose $37.8 million year over year. Operating income benefited primarily from $61.6 million of new-rate impacts; employee-related costs and depreciation also increased.
- Operating cash flow declined from 2022, when it included substantial Oklahoma Winter Storm Uri securitization proceeds. ONE Gas received approximately $197 million of Texas securitization proceeds in March 2023, used for debt repayment and general corporate purposes.
- In December 2023, the company issued $300 million of 5.10% senior notes due 2029 and settled forward equity sales for net proceeds of $79 million. Additional forward sales could provide up to approximately $273 million under outstanding agreements by December 31, 2024.
- Capital expenditures and asset-removal costs were $728.7 million in 2023. Management expects approximately $750 million in 2024.
Outlook, risks and contingencies
Management expects operating cash flow and financing access to support planned operations and infrastructure investment, but the filing gives no specific 2024 earnings or EPS guidance. The next Oklahoma general rate case is due by June 30, 2027; Kansas and Texas use rate cases and interim infrastructure recovery mechanisms. Rate recovery is subject to regulatory approval and timing.
Key risks include regulatory disallowance or delays in recovering costs and earning authorized returns; extreme weather and climate-related system impacts; pipeline integrity and safety requirements; cyber or physical security incidents; labor availability and collective-bargaining matters; competition from electricity and other energy sources; and interest rates, capital-market access and refinancing needs. The company reported no material cybersecurity breach and believes reasonably possible losses from ordinary-course litigation are not material.
Environmental matters include remediation at 12 former manufactured-gas-plant sites in Kansas and one in Texas. The Kansas deferred remediation balance was about $32.0 million, above the existing $15.0 million recovery cap, and the recorded MGP remediation reserve was $14.3 million. Management cautions that ultimate costs and rate recovery remain uncertain. The auditor identified accounting for regulatory matters as a critical audit matter; the filing reports $363 million of regulatory assets and $567 million of regulatory liabilities at year-end.
Important facts for investors to verify
- How the $773 million of current debt maturities were refinanced or repaid after year-end, and the resulting interest cost.
- Actual 2024 capital spending versus the approximately $750 million estimate, and the extent to which investment is recovered promptly in rates.
- Whether weaker sales volumes and warmer weather persist, and how effectively weather-normalization mechanisms offset usage changes.
- Regulatory outcomes and recoverability for Kansas MGP remediation costs above the current cap and for remaining Winter Storm Uri costs.
- Cash-flow sustainability and the effect of outstanding forward equity settlements on share count, leverage and dividend coverage.