ONE Gas, Inc. — 2021 Form 10-K
Reporting period: Fiscal year ended December 31, 2021; this is an annual filing, not a standalone fourth-quarter report. ONE Gas is a regulated natural gas distributor serving approximately 2.2 million customers in Oklahoma, Kansas and Texas.
Financial results and position
| Metric | 2021 | 2020 | Change |
|---|---|---|---|
| Total revenue | $1.809 billion | $1.530 billion | +18% |
| Operating income | $310.3 million | $303.5 million | +2% |
| Net income | $206.4 million | $196.4 million | +5% |
| Diluted EPS | $3.85 | $3.68 | +5% |
| Operating cash flow | $(1.536) billion | $364.5 million | Down $1.900 billion |
| Capital expenditures and asset removal costs | $544.3 million | $512.2 million | +6% |
Natural gas sales revenue rose 20% to $1.662 billion, while transportation revenue increased 4% to $119.0 million. Cost of natural gas rose 44% to $775.0 million; these costs are generally passed through to customers without profit, so revenue and gas-cost movements do not directly represent earnings growth. Management attributed the $6.8 million increase in operating income chiefly to new rates, customer growth and lower bad-debt and COVID-related costs, partly offset by higher service, employee, depreciation and fleet costs. Lower interest expense contributed $2.2 million to the year-over-year net-income increase.
Liquidity and debt: At year-end, cash was $8.9 million, commercial paper outstanding was $494.0 million, and long-term debt was $3.683 billion. The $1.0 billion revolving credit facility had no borrowings and $998.8 million available after letters of credit. The debt-to-capital ratio was 64%, within the 70% covenant limit applicable after 2021. Year-end ratings were Moody’s A3 and S&P BBB+, both with negative outlooks; Moody’s changed its outlook to stable in February 2022. Operating cash flow was sharply negative because of Winter Storm Uri-related regulatory deferrals and funding needs. Financing cash flow was $2.038 billion. The company declared $2.32 per share in 2021 dividends and declared a January 2022 quarterly dividend of $0.62 per share.
Margins: Operating income was $310.3 million on $1.809 billion revenue. The filing does not present a standalone margin measure; comparisons of revenue-based margins should account for natural-gas costs passed through to customers.
Material changes and unusual items
- Winter Storm Uri: February 2021 gas purchases totaled approximately $2.1 billion. ONE Gas deferred approximately $1.964 billion of extraordinary costs at year-end, including gas, financing and operational costs. These deferrals drove the operating-cash-flow decline and substantial new borrowing. The recorded regulatory assets remain subject to regulatory review and possible adjustment.
- Cost recovery financing: Oklahoma approved a securitization financing order in January 2022, with customer recovery over 25 years. Texas issued a financing order in February 2022, allowing recovery over up to 30 years; West Texas costs are being recovered separately over three years starting in January 2022. Kansas approved a settlement in February 2022, but the company still expected to seek a financing order. ONE Gas said securitization proceeds are intended to help repay or refinance debt, including senior notes due in March 2023.
- Rates and investment: Oklahoma base rates increased by $15.3 million effective November 2021. Kansas approved a $7.6 million GSRS increase effective December 2021. Capital expenditures and asset removal costs increased amid system-integrity work and service-area expansion.
- Environmental reserve: The reserve for former manufactured-gas-plant sites increased to $22.8 million from $14.5 million. Higher contractor-cost estimates increased the reserve by $11.2 million in 2021. The company also deferred $29.9 million of related investigation and remediation costs; recoverability depends on regulatory action.
Outlook, commentary and principal risks
Management expected 2022 capital expenditures and asset removal costs of approximately $650 million. The filing provides no explicit 2022 earnings or EPS guidance. The company’s strategy emphasizes pipeline safety and reliability, infrastructure investment, affordability and evaluation of renewable natural gas and hydrogen opportunities. ONE Gas is fully regulated; earnings depend on allowed returns, timely rate recovery, customer growth, operating costs and weather-adjusted usage.
- Recovery of Uri-related costs, related financing costs and securitization proceeds remains dependent on regulatory processes; deferred amounts may change as supplier invoice discrepancies and penalties are resolved.
- Regulatory rate decisions can delay or limit recovery of infrastructure, operating, gas-purchase and extraordinary-weather costs. Customer affordability and collections are potential concerns if recovery charges are high.
- Weather and seasonal demand, natural-gas supply or transportation disruptions, competition from electricity and other energy sources, and climate-related regulation may affect demand, costs or investment needs.
- Pipeline integrity and safety requirements may raise capital and operating costs. Cybersecurity and physical-security incidents, severe weather, operational failures and labor availability also present risks.
- Environmental remediation costs may exceed current estimates or be only partly recoverable. The company said ordinary-course legal matters were not expected to have a material adverse effect.
Key facts for investors to verify
- Progress, final proceeds, timing and debt-repayment effect of the Oklahoma and Texas securitized bond issuances, and status of Kansas approval.
- Final recoverable Uri costs, supplier invoice reconciliations, penalty recoveries and any changes to the approximately $1.964 billion regulatory asset.
- Cash generation and financing needs as extraordinary-cost balances are recovered, alongside the 2023 debt maturities and the company’s credit outlook.
- Execution of the approximately $650 million 2022 capital program and the timing of rate recovery for new investment.
- Updated remediation estimates and regulatory recovery for former MGP sites, including the unresolved Texas site investigation.
The independent auditor reported that the financial statements were fairly presented in accordance with U.S. GAAP and that internal control over financial reporting was effective as of December 31, 2021.