Q3 2020 ONE Gas Inc Earnings Call
Good day and welcome to the one gas third quarter earnings Conference call. Today's conference is being recorded and at this time I would like to turn the conference over to Mr. Mr. Brad didn't Lucy. Please go ahead Sir.
Good morning, and thank you for joining us on our third quarter 2012 earnings Conference call. This call is being webcast live and a replay will be made available later today.
After our prepared remarks, we'll be happy to take your questions.
These statements made during this call that might include one gas expectations or predictions should be considered forward looking statements and are covered under the safe Harbor provisions of the security back somebody 33 34.
Actual results could differ materially from those projected in any forward looking statements include among others statements about the Lakers severity.
Pandemic or other health crisis, such as the outbreak of go with Nike.
For discussion of factors that could cause actual results to differ.
Please refer to our FCC filings dry.
Joining us on the call. This morning are Pierce Norton, President and Chief Executive Officer Guard, Lahore, Senior Vice President and Chief Financial Officer Kurt.
<unk> Senior Vice President and Chief Commercial Officer, and stood Mcanally Senior Vice President and Chief operating Officer, and now I'll turn the call over to Karen.
[laughter].
Brandon Good morning, everyone.
Today, we announced that we updated our 2020 financial guidance net income and earnings per diluted share are expected to be near the upper end of the ranges.
Our $186 million to $198 million for net income and $3.44 to $3.68 earnings per share.
Capital expenditures.
<unk> like I, just wanted to $25 million for the year.
Turning to our actual results net income for the third quarter was $21.1 million or 39 cents per diluted share compared with $17.5 million or 33 cents per diluted share in the same period 20 my team.
Our third quarter results reflect an increase in net margin of $5.2 million over the same period last year, primarily due to $3.7 million from the rate of $2.7 million in residential sales the net positive customer growth.
Operating costs for the third quarter World point $8 million higher compared to the same period last year.
The increase of 1.8 million <unk> expenses related to all this fall to the cabin lighting tend to make 1.5 million increase in employee related costs.
Offsetting a portion of those cost increases as a reduction in expenses.
Collars for travel and employee training cost that had been impacted by the pandemic.
You have not recorded any regulatory assets financial accounting purposes pursuant to get county was received and poultry.
Well I will just froze for regulatory purposes, certain that increases in expenses and lost revenue due to covered my team.
We continue to evaluate whether it now looks like it to be the proposal under these accounting that's measurable and couple other cavalry.
Record such amounts for financial accounting purposes from we need that hurdle.
Guidance for 2020 does not have to record any regulatory assets by the end of the year.
Our capital expenditures.
Costs decreased this quarter compared with the third quarter last year simply due to timing.
Yesterday, the one gas board of directors declared the dividend of 54 cents per share.
[laughter].
Authorized rate base, reflecting our recent regulatory activity is approximately $3.71 billion outlets the transit authority.
The watch right. They just decided to rate base reflected it completed regulatory proceedings, including full rate cases and interim rate filings.
We project, that's a 2020 or estimated average rate, which.
But you have to find its authorized rate Dave what additional investments in our system and other changes in the departure of our rate base that are not yet reflected in a punch regulatory filings.
The approximate $3.91 billion with 42% of that hold up 29% of Kansas and sort of understand the Texas.
We ended the quarter with adequate liquidity, which includes approximately $391 million of capacity in our commercial paper program and all the capacity under our $250 million 364 day credit facility.
Additionally, other September Thirtyth 20.
Issued approximately $13 million of equity under the $250 million at the market equity program put in place earlier. This year, we have now.
Revenue for the remainder of 2020.
Now I'll turn it up occurs for regulatory and commercial.
Thank you Karen and good morning, everyone first I'll provide an overview of recent regulatory activity.
[laughter].
[noise], Kansas Gas service filed I guess system reliability surcharge.
Yes for us seeks to increase in rate.
$25 million.
[noise] capital expenditures incurred during the period every July [noise].
Oh I see.
[noise] order from the KCC is expected in December 2026, new rates going into effect.
[noise], Texas gas service filed a rate case or December 29th Street, all production percentage.
[noise] service areas.
Speaking of rate increase request the holidays to surface.
[noise] Oh, Yes, the Railroad Commission approved.
$43 million.
As well as consolidation as a central scratched the surface area.
Surface area.
Total surface area.
This is a continuation of our strategy to consolidate jurisdictions, such as like benefits the customers due primarily to pay for it if it.
Roster.
With this latest consolidation, we now have five jurisdictions, Texas absence, yeah.
Yeah, that's the type of spin off 2014.
Moving on to our commercial activities.
During our second quarter analyst call I discussed the return to normal business levels for a couple of our large transport customers that it separately.
Operations at the start of the fans.
And that we were not seeing any other significant disruptions with our transport customers.
For the third quarter 2020, our transport revenues and volumes were above the same period 20 Nike.
On a year to date comparison between years, our transport revenues have embraced the second quarter 2020 in fact and are now flat year over year.
We continue to see strong interest in natural gas for builders and developers.
Capital spending to exit extend our service to reach new customers is the primary driver behind our increased capital expenditures guidance for 2020, as we described last quarter.
Despite the pandemic, we're seeing positive economic signs across our footprint, particularly in Texas and Oklahoma.
As an example in the Austin area there have been over 100, new business relocations for expansion announced thus far is 2020.
Which are expected to provide over 14000 additional new jobs.
This increase in economic activity across our territories. That's resulted from continued growth in our customer base.
Year to date, we have averaged approximately 24004 sales customers than the same period last year.
This increase includes the connection of 18600 new customers.
Compared with 14600, new customers in the same period last year or a 27% increase over last year's pace.
As I described during our last two quarterly analyst calls the impact through the month moratoriums on disconnects for nonpayment fire customers, which expired and they cannot.
In Oklahoma and Kansas in early October and some areas of Texas. That's also impacted our average customer counts.
And now I'll turn it over to Seth for an update on operations.
Thanks, Curtis our team in the field continues to adapt well to the current environment, we made nuts and compliance work on or ahead of schedule.
Our supply chain remains uninterrupted and we see no forward constraints to our planned work thanks to steady performance by our resource management team related to materials and contractor resources.
As Karen mentioned, while our capital spend was lower this quarter than the third quarter of last year. The issue is timing rather than performance. We've been pleased with the cadence of capital execution year to date with more consistent capital spend quarter to quarter than last year due to favorable weather and improved planning by our asset management.
Engineering and field operations teams.
We remain on track to meet our capital expenditure guidance as discussed earlier and.
Now I will turn it over to peers.
Thank you Karen Stardust and.
Sure.
The pandemic just change many things for many people.
Our homes have become the place, where we spend more and more time.
Our customers take comfort in the walk the bar that our product provides especially as we head into colder weather.
As we near the end of the year, it's natural to reflect on how we how far we've come for.
For me three things stand out our resiliency adaptability and commitment to safety.
Formats. This year demonstrates the resiliency of our business model.
And the continued value of natural gas as a preferred energy source for homes and businesses.
Last year, we were able to grow our customer base, it pretty system integrity and established a remote workforce amidst great adversity.
Despite the challenges brought on by the pandemic car industry is a custom to frontline response across our organization, we quickly implemented additional safety protocols and new processes designed to keep our employees and our customers safe your independent Mike.
Thanks to the adaptability and diligence that each employee if continue providing service to our customers with minimal disruptions.
Finally in closing I'd like to recognize the one gas employees and get each of them a special. Thank you for their continued professionalism under stress. It was all when there's no clear end in sight.
Poised in the face of uncertainty.
We'll get through this pandemic are relying on the values that we anchor our company too.
As we address the challenges that face our business.
Thank you all for joining us this morning, operator, we're now ready for questions.
All right. If you would like to ask a question you may signal by pressing star one on your telephone keypad. If you are using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment.
Hi, Matt its star one to ask a question and we'll pause for just a moment to allow everyone an opportunity to signal.
All right and the first question is from Richard Tse really with Bank of America.
Hey, Good morning can you hear me okay.
We can good morning, Richard.
Hey, Thanks for taking my question.
Just curious how you guys are thinking about.
Oh, they didnt into peak winter heating season here and I realize Oh, yes has a higher proportion of residential oversee unite transport customers, but how are you thinking.
Thinking about factoring the lingering impact, especially with the resurgence of cases as you begin to look out your 2021 outlook in the end the moving pieces and maybe just also comment on the equity needs.
Next year as well.
Richard It's yeah, let me start and so the Curtis for the commercial part of that question and then Karen can come on and in terms of the financing question Oh, we have been preparing for whatever since March we understood that there was a high probability that we would see a second wave.
And that we would see some co mingling of cold and flu. So our medical protocols were built with that in mind.
We have not seen constraints in our service territories and our employees have done a remarkable job of proactively participating in our medical program to make sure that we can provide them with the best medical advice to keep them and their families and our customer safe, but also to allow us to tail down anyway.
Widespread.
The ability of employees in any of our service territories. So we feel like we're well prepared we don't say that spike in the ball on the 50, we recognize that there is a challenging time ahead of us, but we think were as well prepared as we can be so let me talk to Curtis to respond to commercial questions.
That's a richer dawn on the commercial side of things as you know we have a very high for Seth as our customer base being residential.
And then about 12% that's our transport customers one of the things that are.
I noted in my comments is that we're really not seeing an impact at this point for my friends for customers. So we seem to have returns.
Normal level of operations that have actually close the gap with the activity. We saw in the third quarter closing the gap from what we saw during the second quarter of this year.
I'm on the residential side of things I think we're well prepared and our customer call centers to handle the call volume that we typically run into this time of the year one of the good things about the moratoriums being lifted when they work together.
You had to pay for Oklahoma.
A little bit later, Texas just said.
While those moratoriums replaces operations team were able to divert those resources to handle a lot of our other normal activity. That's a good set of those things get ahead of those activities.
So that when the moratorium lifted we were able to focus more of our resources on the disconnects process, which helps with our collections through that period. So.
Several factors that we had to to remain agile to handle during the year, but cooperate.
Cooperation of the work between our commercial operations team itself is working through that part of it to be ready when we could again resume disconnects and that's helped our overall profit.
Last piece I would say is I'm talking about we do have.
The regulatory accounting orders at each of our jurisdictions.
Continue to monitor the activities for increased expenses as well as areas, where we've been able to decrease expenses. So.
So that and continue to accumulate those until we are able to.
Go through the regulatory process to begin recovery of those.
I'll pick up on the financing question, we have not updated our longer term guidance or financing, which currently is that we anticipate $850 million to $900 million.
[noise] work with about a quarter of that being equity I.
Hi, when we issue our guidance for 2021, which we expect to do probably something up its first year worldwide a closer look on what 2021 looks like.
Okay got it that's a that's very helpful. Appreciate all the color there and maybe just switching gears here, obviously with a election, but on top of mind, just curious how you're thinking about de carbonization gold and just given really some of the potential for electrification and building some of that but.
Client cost constraints on the R&D side, I mean is that really that solution or or is the green hydrogen potentially more likely candidate just as maybe curious if you can provide some thoughts overall on timing and when we can see more formal adoption of these technologies.
That's another good question Richard This is Curtis again, so on the on the commercial side I've talked before about efforts we've had around the global natural gas. There are several different projects developers that were talking to Bob.
So already capture our energy and use it for alternative uses.
What we may be able to bring to the table is the opportunity [noise].
The commercial economics of that capture gas so.
By bringing it into our system.
Getting it tracks through to be used as.
Replacement for diesel for other products through compressed natural gas and so.
We're continuing to see.
Floor and hopefully we'll be in a position that we have some of those projects.
So thats.
Oh, we prove that Oh that first show ability of those projects and establish the gas standards and everything needs to do.
Brought a bunch more systems, we continue to make progress.
We're also.
H two at scale project with the University of Texas and other parties.
Yeah, we got to run some different scale projects of converting what producing hydrogen both from renewable power as well as from landfill gas.
Using that that hydrogen much produce to run a computer center at the University of Texas as well as provide fuel for hydrogen fuel cell vehicles. So I would.
Continuing to that project just started earlier in the mid Florida actually 2020 so.
So it's about a three year project.
Promising results to come out of that.
I'm going to turn it to said if he can talk a little bit more about what we're doing and what we're seeing on the operations side.
Uh huh.
Yeah, Richard Thank you for the question as you know there is a commercial component to this and R&D component as you point out but there are also some practical implications there.
That companies need to consider as as a merger opportunities like hydrogen starts to be developed a we got two working groups in place currently want it's looking at technical issues, including the engineering applications. You know there will be policies and procedures around the hybrid and tiger can use and there.
Also since system integrity applications to make sure that you can introduce hydrogen at the proper blending rate and handle that safely in terms of continuing to focus on safety of our system.
The second is a really interesting working group, it's looking at the gas supply implications. The hydrogen is a different material to compress and transport and said the location of manufacturing facilities comes into play we're scoping all of that right now and excited about continuing the conversation.
All right. Thanks, very much for all the color there that's flat.
Oh right. Once again that is star one to ask a question. If you find your question has been answered you may remove yourself from the queue by pressing star too.
The next question is from.
And I apologize if I say this incorrectly.
Okay, I mean Gordon said.
Yes.
Good morning.
One thing I got <unk> yeah.
Give us an update on bad debt and how is it trending this year as we head into winter.
Sure Good morning, I guess Karen.
So we're still pretty surprising about collections activity, that's still I still at play so.
Well not out of the because they had a impact certainly by a long stretch. You currently are 8.8 million a bad debt expenses through the nine months that compares to $4.6 million last year, so up about 4 million year over year.
And again working to monitor the situation we <unk>.
There are still more trends in place in some of the service areas and so until we get completely back to normal collections activities for an extended period of time, it's going to be difficult to really determine what the impact of that.
Right and how that changing times after related to eliminating state income taxes from rates could impact a wind assets cash flow going forward.
The expected to have a material impact and its scheme of things, it's not a lot of large in our overall tax picture the elimination of the state income tax is not a large event.
Okay and last question for me to follow up on Richard's question on Decarbonization.
Is there a regulatory framework in place to embed an R&D across your your actions we have targets established to potentially very sound additional costs related to investments in R&D and a card.
Right I guess this is Curtis RMG is actually contemplated in the tariffs in Texas or it is a a recoverable gas cost. There. So that that was that has previously been contemplated as part of the gas supply picture you know.
Oklahoma There was legislation introduced in the last session.
To compel the commission to study our energy and to look at ways to.
To bring our energy into the Oklahoma gas supply.
The pandemic starting that was not a bill that was considered all the way through session.
But outside of that the Oklahoma Corporation Commission has opened up a notice of inquiry looking at several different energy questions. One of which is renewable natural gas and this and the way that the stage and the commission should deal with that product. So.
There are efforts underway at the at the state levels also I'm not as much at this point in Kansas.
But the other two states are a little bit further along in that regard.
Thank you for the color I think Craig.
Yeah.
Thank you Eric.
Oh right and once again that is star one to ask a question.
And it appears there are no further questions at this time Mr. Lowe CE I'd like to turn it back to you for any additional or closing remarks.
Thank you all again for your interest in one gas our quiet period for the fourth quarter starts when we close our books in early January and extends until we release earnings in February will provide details on the conference call later day have a great day.
This concludes today's call. Thank you for your participation you may now disconnect.
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