Q1 2024 ONE Gas Inc Earnings Call

Operator: Good day, and welcome to the ONE Gas First Quarter Earnings Conference Call-In Webcast. Today's conference is being recorded. At this time, I would like to turn the conference over to Erin Dailey. Please go ahead, Ms. Dailey.

Good day and welcome to the one gas first quarter earnings Conference call and webcast. Today's conference is being recorded at this time I would like to turn the conference over to Erin Daily. Please go ahead Ms Daily.

Erin Dailey: Thank you, Matt. Good morning, everyone.

Erin Dailey: Thank you Matt.

Erin Dailey: Everyone and thank you for joining us on our first quarter 2024 earnings conference call.

Erin Dailey: And thank you for joining us on our first quarter 2024 earnings conference call. This call is being webcast live, and a replay will be available later today. After our prepared remarks, we're happy to take your questions. Statements made during this call that might include ONE Gas expectations or predictions should be considered forward-looking statements and are covered by the safe harbor provisions of the Private Securities Litigation Reform Act of 1995, the Securities Act of 1933, and the Securities and Exchange Act of 1934, each as amended.

Erin Dailey: This call is being webcast live and a replay will be available later today.

Erin Dailey: After our prepared remarks, we're happy to take your questions.

Erin Dailey: Statements made during this call that might include one gas expectations or predictions should be considered forward looking statements and are covered by the safe Harbor provisions of the private Securities Litigation Reform Act of 1995, The Securities Act of 1933, and the Securities and Exchange Act of 1934, each as amended.

Erin Dailey: Actual results could differ materially from those projected in any forward looking statements for a discussion of factors that could cause actual results to differ please refer to our SEC filings.

Erin Dailey: Actual results could differ materially from those projected in any forward-looking statement. For discussion of factors that could cause actual results to differ, please refer to our SEC filings. Joining us on the call this morning are Sid McAnally, President and Chief Executive Officer; Chris Sighinolfi, Senior Vice President and Chief Financial Officer; and Curtis Dinan, Senior Vice President and Chief Operating Officer. Now, I'll turn the call over to Sid.

Erin Dailey: Joining us on the call. This morning are Sid Mcannally, President and Chief Executive Officer, Chris <unk>, Senior Vice President and Chief Financial Officer, and Curtis Dinan, Senior Vice President and Chief operating Officer, and now I'll turn the call over to Sid.

Robert S. McAnnally: Thanks, Erin, and good morning, everyone. We're happy to be with you this morning to discuss our first quarter performance. Based on our first quarter financial results, we're on track to achieve the midpoint of our 2024 financial guidance, despite warm winter weather in our service territory. Our success is made possible by managing O&M expenses, realizing the efficiencies of bringing functions such as line locating in-house, and the diligence of our co-workers in the execution of our strategic plan. We continue to add new meters, which enhances affordability for our customers.

Sid: Thanks, Erin and good morning, everyone.

Robert S. McAnnally: We're happy to be with you. This morning to discuss our first quarter performance.

Robert S. McAnnally: Based on our first quarter financial results were on track to achieve the midpoint of our 2024 financial guidance. Despite warm winter weather in our service territory.

Robert S. McAnnally: Our success is made possible by the management of O&M expenses, realizing the efficiencies of bringing functions such as line locating in house and the diligence of our coworkers in the execution of our strategic plan.

Robert S. McAnnally: We continue to add new meters, which enhances affordability for our customers and we are engaging in regulatory activity as planned helping us address the impact of recent economic developments as we maintain our system and fund our growing business. We remain focused on our primary mission the safe delivery of reliable natural.

Robert S. McAnnally: And we are engaging in regulatory activity as planned, helping us address the impact of recent economic developments as we maintain our system and fund our growing business. We remain focused on our primary mission, the safe delivery of reliable natural gas to our customers. We recently learned that we received the American Gas Association Safety Award for having the lowest rate of significant injuries among our peer companies for the 7th year in a row.

Robert S. McAnnally: Gas to our customers.

Robert S. McAnnally: We recently learned that we received the American Gas Association Safety award for having the lowest rate of significant injuries, among our peer companies for the seventh year in a row.

Robert S. McAnnally: This is a remarkable achievement and one that requires a renewed commitment each day to keep our co-workers and customers safe and to operate in a way that's environmentally responsible. I'm also pleased to announce that as of December 31, 2023, we have achieved a 50% reduction in emissions due to leaks by executing our safety-driven pipeline replacement. This progress keeps us on track to reach our stated 2035 goal of reducing emissions associated with mains and services by 55%, measured from a 2005 baseline, even as we continue to grow our system.

Robert S. McAnnally: This is a remarkable achievement and one that requires a renewed commitment each day to keep our coworkers and customers safe and to operate in a way that's environmentally responsible.

Robert S. McAnnally: I'm also pleased to announce that as of December 31, 2023, we've achieved a 50% reduction in emissions due to leaks by executing our safety driven pipeline replacement plan.

Robert S. McAnnally: This progress keeps us on track to reach our stated 2035 goal of reducing emissions associated with mains and services by 55% measured from a 2005 baseline even as we continue to grow our system.

Robert S. McAnnally: We also learned that we achieved a triple a ESG rating from MSCI due to our management of safety and climate related risks, we will continue to provide robust disclosures around our ESG policies and practices and will proactively identify and address related risks.

Robert S. McAnnally: We also learned that we achieved a AAA ESG rating from MSCI due to our management of safety and climate-related risks. We will continue to provide robust disclosures around our ESG policies and practices, and will proactively identify and address related risks. Now, I'll turn it over to Chris to discuss our financial performance for the quarter.

Robert S. McAnnally: Now I'll turn it over to Chris to discuss our financial performance for the quarter Chris.

Chris: Thanks, Ed and good morning, everyone.

Christopher Paul Sighinolfi: Thanks, Sid, and good morning, everyone. As Sid noted, we had solid financial performance this quarter despite the headwinds posed by elevated interest rates and persistent inflation. Our teams continue to do a great job managing the risks we can control. Net income for the first quarter was $99 million, or $1.75 per diluted share, compared with $103 million, or $1.84 in the same period last year. Although weather across our service territories for the first quarter was 9% warmer than normal, the impact on earnings was not material due to our effective weather normalization mechanism.

Christopher Paul Sighinolfi: Sid noted we had solid financial performance this quarter, despite the headwinds posed by elevated interest rates and persistent inflation.

Christopher Paul Sighinolfi: Our teams continue to do a great job managing the risks we can control.

Christopher Paul Sighinolfi: Net income for the first quarter was $99 million or $1 75 per diluted share.

Christopher Paul Sighinolfi: Paired with a $103 million or $1 84 in the same period 2023.

Christopher Paul Sighinolfi: Although weather across our service territories for the first quarter was 9% warmer than normal the impact on earnings with not material due to our effective weather normalization mechanisms.

Christopher Paul Sighinolfi: First quarter revenues reflect an increase of $11.2 million from new rates and $1.3 million from continued growth in our customer base. First quarter O&M expenses were approximately 5% higher than the first quarter of last year, continuing the moderating trend we experienced throughout 2023 as process efficiencies and the benefits of our insourcing efforts have borne fruit. We expect these initiatives to continue to help counterbalance inflationary pressures and, as a reminder, project operating expenses to grow by approximately 5% per year through 2028.

Christopher Paul Sighinolfi: First quarter revenues reflect an increase of $11 $2 million from new rates and $1 $3 million from continued growth in our customer base.

Christopher Paul Sighinolfi: First quarter O&M expenses were approximately 5% higher than the first quarter last year, continuing the moderating trend we experienced throughout 2023 as process efficiencies and the benefits of our in sourcing efforts have borne fruit.

Christopher Paul Sighinolfi: We expect these initiatives to continue to help counterbalance inflationary pressures and as a reminder project operating expenses to go to grow by approximately 5% per year through 2028.

Christopher Paul Sighinolfi: Other income, net, increased nearly a million dollars compared to the same period last year, primarily due to increases in the market value of investments associated with our non-qualified employee benefits. Excluding the amounts related to KGSS-1, interest expense in the first quarter was $1.2 million, or roughly 7% higher than the same period in 2023, which reflects higher rates on commercial paper balances, the issuance of $300 million of 5.1% senior notes in December, and the maturity of lower coupon notes in February and March.

Christopher Paul Sighinolfi: Other income net increased nearly $1 million compared to the same period last year, primarily due to increases in the market value of investments associated with our nonqualified employee benefit plans.

Christopher Paul Sighinolfi: Excluding the amounts related to kgs S. One interest expense in the first quarter was $1 $2 million or roughly 7% higher than the same period in 2023.

Christopher Paul Sighinolfi: Which reflects higher rates on commercial paper balances the issuance of $300 million of five 1% senior notes in December and the maturity of lower coupon notes in February and March.

Christopher Paul Sighinolfi: Last fall, we expanded both our credit facility and our commercial paper program to $1.2 billion from a billion dollars. Our short-term debt at March 31st is elevated compared to year-end 2023, as we pre-funded our February maturity with a senior note issuance in December and initially absorbed our March maturity with commercial paper. We will look to issue long-term debt and exercise our equity-forward sales agreements later in the year as the construction work-in-progress becomes used and useful.

Christopher Paul Sighinolfi: Last fall, we expanded both our credit facility and commercial paper program each to $1 2 billion from $1 billion.

Christopher Paul Sighinolfi: Our short term debt at March 31 is elevated compared to year end 2023, as we pre funded our February maturity with the senior note issuance in December and initially absorbed our March maturity with commission with commercial paper.

Christopher Paul Sighinolfi: We will look to issue long term debt and exercise our equity forward sales agreements later in the year as construction work in progress becomes used and useful.

Christopher Paul Sighinolfi: Also, while our jurisdictions provide effective weather normalization mechanisms, which mitigated the earnings impact of the warm weather we experienced in the first quarter, cash flows were affected, as we did not monetize as much gas and storage as we would have under normal weather conditions. Higher initial storage balances mean we will inject less this refill season.

Christopher Paul Sighinolfi: Also while our jurisdictions provide effective weather normalization mechanisms, which mitigated the earnings impact of the warm weather we experienced in the first quarter cash flows were affected as we did not monetize as much gas in storage as we would have under normal weather conditions.

Christopher Paul Sighinolfi: Higher initial storage balances, mainly will inject less this refill season.

Christopher Paul Sighinolfi: And so we expect the storage-related cash flow impacts to be offset as we move through the next two quarters. We have forward sales agreements for approximately 3.6 million shares of our common stock with settlement by the end of 2024 at an average price of nearly $77 per share. Had all forward shares been settled at quarter end, we would have received net proceeds of approximately $274 million. We also have approximately $225 million of equity available for issuance under our At the Market Equity Program. With forward sales executed last year, we have largely satisfied our equity needs for 2024. Yesterday, the ONE Gas Board of Directors declared a dividend of $0.66 per share, unchanged from the previous quarter.

Christopher Paul Sighinolfi: So we expect the storage related cash flow impacts to be offset as we move through the next two quarters.

Christopher Paul Sighinolfi: We have forward sales agreements for approximately $3 6 million shares of our common stock with settlement by the end of 2024 at an average price of nearly $77 per share.

Christopher Paul Sighinolfi: Had all forward shares been settled at quarter end, we would have received net proceeds of approximately $274 million we.

Christopher Paul Sighinolfi: We also have approximately $225 million of equity available for issuance under our at the market equity program.

Christopher Paul Sighinolfi: With forward sales executed last year, we have largely satisfied our exiting our equity needs for 2024.

Christopher Paul Sighinolfi: Yesterday, the one gas board of directors declared a dividend of <unk> 66 per share unchanged from the previous quarter.

Christopher Paul Sighinolfi: We affirm our 2024 financial guidance, including net income of $214 million to $231 million, earnings per diluted share of $3.70 to $4, and capital investments of approximately $750 million. Finally, last quarter, I noted the market's vigorous debate about the pace, timing, and magnitude of potential interest rate cuts from the Federal Reserve, a discussion that remains very much alive today and to which the market appears highly responsive. Accordingly, I thought it was worth repeating that our 2024 financial guidance is not predicated upon any rate cuts occurring this year.

Christopher Paul Sighinolfi: We affirm our 2024 financial guidance, including net income of 214 million to $231 million earnings per diluted share of $3 70 to $4 and capital investments of approximately $750 million.

Christopher Paul Sighinolfi: Finally last quarter I've noted the market's vigorous debate about the pace timing and magnitude of potential interest rates cuts from the federal reserve.

Christopher Paul Sighinolfi: A discussion, which remains very much alive today and to which the market appears highly responsive occur.

Christopher Paul Sighinolfi: Accordingly, I thought it worth repeating that our 2024 financial guidance is not predicated upon any rate cuts occurring this year, we did not assume that that would happen.

Christopher Paul Sighinolfi: We did not assume that that would happen. Moreover, given heightened market volatility and consensus interest rate forecasts that continue to fluctuate, we outline the modeling assumptions which underpin our five-year guidance in our investor presentation, and I'd point your attention back to them for a sense of our multi-year expectations. Now, I'll turn it over to Curtis.

Christopher Paul Sighinolfi: Moreover, given heightened market volatility and consensus interest rate forecast, which continued to fluctuate we outlined the modeling assumptions, which underpinned our five year guidance in our investor presentations and I'd point your attention back to them for a sense of our multiyear expectations.

Christopher Paul Sighinolfi: And now I'll turn it over to Curtis.

Curtis L. Dinan: Thank you, Chris, and good morning everyone. I'll start with a brief update on the storm activity that moved through Oklahoma and Kansas last night. While there was widespread damage in Barnesdall and Bartlesville, Oklahoma, we did not experience any significant system damage and did not have any reported injuries to any of our co-workers.

Curtis: Thank you, Chris and good morning, everyone I'll start with a brief update on the storm activity that moved through Oklahoma and Kansas last night.

Curtis L. Dinan: While there was widespread damage and bar install and Bartlesville, Oklahoma, we did not experience any significant system damage. It did not have any reported injuries to any of our co workers.

Curtis L. Dinan: Turning to our regulatory activities the Kansas gas service rate case was filed in March.

Curtis L. Dinan: Turning to our regulatory activities, the Kansas Gas Service Rate Case was filed in March. We are requesting a $58.1 million net revenue increase based on a 10.25% requested return on equity and an equity ratio of 59.6%, reflecting our actual capital structure.

Curtis L. Dinan: Each 25 basis point change in the requested ROE results in a revenue change of approximately $2.6 million, and each 1% change in the requested equity ratio results in an approximate $1.2 million revenue change. We also ask the Kansas Corporation Commission to allow a dual rate structure for high and low usage customers and an annual performance-based rate adjuster. We expect new rates to go into effect in November. Texas Gas Service made a Gas Reliability Infrastructure Program filing for all customers in the Central Gulf region in February, seeking a $12.3 million adjustment with rates to be effective in June.

Curtis L. Dinan: We are requesting a $58 $1 million net revenue increase based on a 10.25% requested return on equity.

Curtis L. Dinan: And an equity ratio of 59, 6%, reflecting our actual capital structure.

Curtis L. Dinan: Each 25 basis point change in the requested ROE.

Curtis L. Dinan: Results in our revenue change of approximately $2 $6 million.

Curtis L. Dinan: At each 1% change in the requested equity ratio resulted in an approximate $1 $2 million revenue change.

Curtis L. Dinan: We also asked the Kansas Corporation Commission to allow a dual rate structure for high and low usage customers.

Curtis L. Dinan: And in annual performance based rate adjustment.

Curtis L. Dinan: We expect new rates to go into effect in November.

Curtis L. Dinan: Texas gas service made a gas reliability infrastructure program filing for all customers in the central Gulf region in February.

Curtis L. Dinan: Seeking a $12 $3 million adjustment with rates to be effective in June.

Curtis L. Dinan: We plan to file a full rate case for the Central Gulf Territory in early June. In March, Texas Gas Service made GRIP filings for all customers in the West-North Service Area requesting an $8.6 million increase to be effective in July. Finally, Oklahoma Natural Gas filed its annual, performance-based, rate change application in February, seeking a $31.8 million adjustment with rates expected to go into effect in late June.

Curtis L. Dinan: We plan to file a full rate case for the central Gulf territory in early June.

Curtis L. Dinan: In March Texas gas service made grip filings for all customers in the West North service area requesting an $8 6 million increase to be effective in July.

Curtis L. Dinan: Finally, Oklahoma natural gas filed its annual performance based rate change application in February seeking.

Curtis L. Dinan: Seeking a $31 $8 million adjustment with rates expected to go into effect in late June.

Curtis L. Dinan: Turning to our commercial and operating activities our capital execution continues to be strong with our investments for the first quarter running ahead of the same period last year.

Curtis L. Dinan: Turning to our commercial and operating activities, our capital execution continues to be strong with our investments for the first quarter running ahead of the same period last year. Looking at growth, while the first quarter saw a slight deceleration in the pace of new meter sets as elevated mortgage rates impact the immediate term decisions of homebuilders and potential buyers, we have set over 7,000 new meters year-to-date through April. 1900 new meters were set in April alone, making this the most active April since 2020.

Curtis L. Dinan: Looking at growth, while the first quarter saw a slight deceleration in the pace of new meter sets.

Curtis L. Dinan: Elevated mortgage rates impact the immediate term decisions of homebuilders and potential buyers.

Curtis L. Dinan: We have set over 7000, new meters year to date through April <unk>.

Curtis L. Dinan: <unk> hundred new meters were set in April alone, making this the most active April since 2020.

Curtis L. Dinan: As we have discussed previously, our region continues to enjoy strong economic growth, with new employers moving into our territories, bringing jobs, people, and an ongoing need for housing. Our planning and capital execution position us to serve the growing customer base arising from that economic development. Now, I'll turn it over to Sid for closing remarks.

Curtis L. Dinan: As we have discussed previously our region continues to enjoy strong economic growth with new employers moving into our territories, bringing jobs people and an ongoing need for housing.

Sid: Our planning and capital execution position us to serve the growing customer base arising from that economic development.

Sid: I'll now turn it over to <unk> for closing remarks.

Sid: Thank you both.

Robert S. McAnnally: Our success is made possible by the commitment of our co-workers to one another and to our mission. A positive indicator was reflected in the results of our annual Gallup Employee Engagement Survey, which looked at the way our coworkers experience work at ONE Gas. While our engagement score has increased for the eighth consecutive year, we're already working on improvements, reflecting our commitment to provide both industry-leading safety results and the best workplace and customer experience possible while creating long-term value for our shareholders. As Curtis mentioned, last night a series of storm systems moved through our service territory.

Sid: Our success is made possible by the commitment of our coworkers to one another and to our mission.

Robert S. McAnnally: A positive indicator was reflected in the results of our annual Gallup employee engagement survey, which looked at the way our coworkers experience work at one gas.

Robert S. McAnnally: While our engagement scores increased for the eighth consecutive year, we are already working on improvements, reflecting our commitment to provide both industry, leading safety results and the best workplace in customer experience possible, while creating long term value for our shareholders.

Robert S. McAnnally: As Curtis mentioned last night, a series of storm systems moved through our service territory and we recognize our teams who responded ensuring that our customers and systems were safe we are grateful to each and every person who took part in our response effort.

Robert S. McAnnally: And we recognize our teams who responded, ensuring that our customers and systems were safe. We're grateful to each and every person who took part in our response. And I'm grateful to each of our 3,900 co-workers for their dedication to safe operations and excellent service to our 2.3 million customers. Thank you all for joining us this morning. Operator, we're now ready for questions.

Robert S. McAnnally: And I am grateful to each of our 3900 coworkers for their dedication to safe operations and excellent service to our $2 3 million customers. Thank you all for joining US. This morning, operator, we're now ready for questions.

Operator: Thank you. If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, press star one to ask a question. We'll pause for a moment to allow everyone an opportunity to signal for questions. The first question is from the line of David Arcaro with Morgan Stanley. Your line is now open.

Speaker Change: Thank you if you would like to ask a question. Please signal by pressing star one on your telephone keypad, if you're using a speaker phone. Please make sure. Your mute function is turned off to allow your signal to reach our equipment again press star one to ask a question, we'll pause for a moment to allow everyone an opportunity to signal for questions.

Operator: The first question is from the line of David Arcaro with Morgan Stanley. Your line is now open.

David Arcaro: Oh, hey, good morning. Thanks so much for taking my question. Good morning, David. Good morning.

David Keith Arcaro: Hey, good morning, Thanks, so much for taking my question.

David Keith Arcaro: Yeah, Good morning, David.

David Arcaro: Is it fair to say then that even with the, I guess you've got some debt issuance and refinancing coming up later this year, but just based on where yields are in the market, maybe could you just talk through how that is lining up against your financial plan right now? You hadn't really been assuming the downtick in terms of yield. So, on track so far in terms of what, you know, the market is looking like in terms of price.

David Keith Arcaro: Good morning is it fair to say then that even with the I guess, you've got some debt issuance refinancing coming up later this year, but just based on where yields are in the market.

David Arcaro: Maybe could you just talk through how that is lining up against your financial plan right. Now you hadn't been assuming really a downtick in terms of yields so on track so far in terms of what.

David Arcaro: The market is looking like in terms of pricing.

Christopher Paul Sighinolfi: Yeah, good morning, David. This is Chris.

David Arcaro: Yeah. Good morning, David This is Chris.

Chris: I think that's a fair characterization there is two parts of it to look at it it's not only what treasuries are doing it's what corporate credit spreads are doing relative to them and we have seen those.

Christopher Paul Sighinolfi: I think that's a fair characterization. You know, there are two parts to look at. It's not only what treasuries are doing, it's what corporate credit spreads are doing relative to them. And we have seen those gyrate around this year. They have tightened relative to where they were last fall.

Christopher Paul Sighinolfi: Gyrate around this year.

Christopher Paul Sighinolfi: They have tightened.

Christopher Paul Sighinolfi: Relative to where they were last fall and so thats a benefit. We also had explained in the fall and it continues to be true that our maturity schedule. As you look out does afford us some flexibility to consider various tenor.

Christopher Paul Sighinolfi: And so that's a benefit. We also explained in the fall, and it continues to be true, that our maturity schedule, as you look out, does afford us some flexibility to consider various tenors. So, you know, presently, and this has been true since the spin, we have had 5-year notes, 10-year notes, and 30-year notes. And so we continue to look at what that maturity schedule affords us, what treasuries are doing, and what our spreads net to those treasuries result in. But where you started is, I think, a fair characterization of our expectations versus current market realities.

Christopher Paul Sighinolfi: Tenors so.

Christopher Paul Sighinolfi: Gently and this has been true since the spin we have had five year notes 10 year notes and 30 year notes.

Christopher Paul Sighinolfi: And so we continue to look at what that maturity schedule affords us what treasuries are doing and what our spreads net to those treasuries, resulting but where you started I think is it fair characterization of our expectations versus current market reality.

Curtis L. Dinan: Okay, great. Understood. And then, with the Kansas rape case, I was wondering if you could speak to just your thoughts on the potential to settle that case and what the timing would look like for when we should watch for that.

Speaker Change: Okay great.

Christopher Paul Sighinolfi: <unk>.

Curtis L. Dinan: And then with the Kansas rate case I was wondering if you could speak to just your thoughts on the potential to settle.

Curtis L. Dinan: That case and what the timing would look like for when we should watch for that.

Curtis: David This is Curtis.

Curtis L. Dinan: David, this is Curtis. That case typically runs for 240 days, which is the statutory period for rate cases in Kansas. We have typically, in the past, been able to settle those with the Commission and with the intervenors and have not had to go through full litigation. You know, I really won't have any specific comments on the case itself until we get closer to the end of that time frame.

Curtis L. Dinan: That that case runs typically 240 days, which is the statutory period for rate cases in Kansas.

Curtis L. Dinan: We have typically in the past been able to settle those with the commission and with the intervenors.

Curtis L. Dinan: And have not had to go through a full litigation so.

Curtis L. Dinan: Yes, it really won't have any specific comments on the case itself until we get.

Curtis L. Dinan: Closer to the end of that timeframe.

David Arcaro: Okay, sure. Got it. Thanks for taking my question.

David Keith Arcaro: Okay sure got it.

Speaker Change: Thanks for taking my question.

Speaker Change: Thank you David.

Speaker Change: Thank you for your question.

Operator: The next question is from the line of Christopher Jeffrey with Misey Hill. Your line is now open.

David Arcaro: Next question is from the line of Christopher Jeffrey with Mizuho. Your line is now open.

Christopher Jeffrey: Hi, good morning, everyone. Maybe just touching on the OPEX inflation that was more decelerated, I think, than from last year's. Just kind of wondering if there's anything specific to this quarter and whether that shaping of the OPEX, you know, more front loaded still holds true through the 28 plan.

Christopher Jeffrey: Hi, good morning, everyone.

Christopher Jeffrey: Maybe just touching on the.

Christopher Jeffrey: Opex inflation that was more decelerated I think then.

Christopher Jeffrey: And from last year's just kind of wondering if there's anything specific to this quarter and whether that shaping of the opex more frontloaded still holds true through the 28 plants.

Curtis L. Dinan: Yeah, Chris, this is Curtis, and I'll take the first part of that. And we'll turn it over to Chris to talk longer term about your question. But in the near term, or in this quarter, specifically, we were seeing the benefits of the effort we made to insource several functions starting late in 22 and continuing through 2023. We're certainly seeing the benefits of having those additional folks join our company and providing us the flexibility that we need to operate through the period.

Christopher Jeffrey: Yeah, Chris This is Curtis so I'll take the first part of that.

Curtis L. Dinan: I'll turn it to Chris to talk longer term to your question, but.

Curtis L. Dinan: In the near term or in this quarter, specifically, we were seeing the benefits of the effort we made to in source several functions starting late in 'twenty, two and continuing through 2023.

Curtis L. Dinan: We're certainly seeing the benefits of having those additional folks with joining our company and providing us the flexibility that we need to operate through the through the period.

Curtis L. Dinan: The other thing I would point out is Chris mentioned in his comments the warmer than normal weather we experienced during the first quarter. A period like that, when it's in the first quarter, we typically will have less overtime and less pull on our resources, so we also pick up some O&M savings in that type of an environment. So it's really a combination of those two things primarily, and I'll turn it to Chris to talk a little bit longer term about the rest of your question.

Curtis L. Dinan: The other thing I would point out as Chris mentioned in his comments the warmer than normal weather, we experienced during the first quarter.

Curtis L. Dinan: A period like that when it's in the first quarter, we typically will have less over time and less pull on our resources. So we also pick up some O&M savings.

Curtis L. Dinan: And that type of an environment. So it's really a combination of those two things primarily that I'll turn it to Chris to talk a little bit longer term to the rest of your question.

Christopher Paul Sighinolfi: Thanks Curtis. Yeah, hey Chris, good morning.

Curtis L. Dinan: Thanks, Curtis Hey, Chris Good morning.

Chris: Curtis This point, we did have some FX in the first quarter I think as you look out.

Christopher Paul Sighinolfi: To Curtis's point, we did have some effects on the first quarter. I think as you look out, you know, we had details in our guidance presentation back in the fall that arguably the biggest driver over a multi-year period is just going to be what happens with the labor market in our territories and wage inflation generally. And so there's, you know, the Fed talked at its most recent meeting last week about paying attention to the labor market and any weakening in the labor market.

Christopher Paul Sighinolfi: We had detailed in our guidance presentation back in the fall.

Christopher Paul Sighinolfi: Arguably the biggest driver over a multiyear period is just going to what is going to be what happens when the labor market in our territories and wage inflation generally and so there is.

Christopher Paul Sighinolfi: The fed has talked in its most recent meeting last week about paying attention to the labor market in any weakening in labor market, but thats something thats going to be.

Christopher Paul Sighinolfi: But that's something that's going to be the primary driver of what happens to our O&M inflation going forward. I think the capacity building that Curtis' group did around initial phases and subsequent phases of insourcing have largely been completed, although we continue to look at opportunities to continue to move the needle on that front. So I think the capacity building side of that is largely behind us, and now it's just efficiency gains and then riding the tide of what happens with labor market inflation in our territory.

Christopher Paul Sighinolfi: The primary driver of what happens to our O&M inflation going forward I think the capacity building that Curtis as group did around initial phases in subsequent phases in sourcing have largely been completed and although we continue to look at opportunities to continue to move the needle on that front. So I think the capacity building side of that is largely behind us and now it's just a.

Christopher Paul Sighinolfi: Patiency gains.

Christopher Paul Sighinolfi: And then riding the tide of what happens with labor market inflation in our territories.

Christopher Paul Sighinolfi: Chris, I'd only add that I think the outsourcing that Curtis mentioned is an example of being opportunistic. When opportunities present themselves, we're always looking for the chance to be both more efficient and more effective. And so the outsourcing is a good example of a project that started a few years ago as we saw the opportunity to be more efficient. And then, through COVID, as we saw some contractor prices starting to increase, we looked at our entire menu to see if there were places that we thought we could add financial efficiencies as well. So you can expect to see more of that from us when the opportunity presents itself. Thank you for the question.

Speaker Change: Chris I'd only add that.

Christopher Paul Sighinolfi: I think the in sourcing that Curtis mentioned is.

Christopher Paul Sighinolfi: An example of being opportunistic when the opportunities present, we're always looking for the chance to be both more efficient and more effective and so the in sourcing is a good example of a project that started a few years ago.

Christopher Paul Sighinolfi: We saw the opportunity to be more efficient and then through Covid as we saw some contractor prices starting to increase we looked at our entire menu to see are there places that we thought we might could add financial efficiencies as well. So you can expect to see more of that from us when the opportunity presents itself. Thank you for the question.

Christopher Jeffrey: Yeah, thank you, everyone. Very helpful.

Speaker Change: Yes. Thank you everyone very helpful.

Christopher Jeffrey: And then maybe as I understood from the prepared remarks, we should expect a rate case filing for the central Gulf in Texas, just kind of any initial thoughts on that.

Christopher Jeffrey: And then maybe, as I understood from the prepared remarks, we should expect a rate case filing for the Central Gulf in Texas. Just kind of any initial thoughts on that. And maybe as it pertains to the financing outlook for, you know, 2425, any possible kind of implications around that case.

Christopher Jeffrey: And maybe as it pertains to the financing outlook for 'twenty four 'twenty five any.

Christopher Jeffrey: Kind of implications around to that case.

Curtis L. Dinan: I'll take the first part of that, Chris, and then pass it to Chris for the second half of your question again. But we're still in preparation for that rate case right now, as I indicated in my comments. We expect to file that in the early part of June. And until we do that, we won't have any other comments or be able to provide any details, but we'll be happy to discuss it once we get past that point.

Speaker Change: I'll take the first part of that Chris and then pass it to Chris for the second half of your question again, but.

Curtis L. Dinan: We're still in prep for that rate case, right now as I indicated in my comments, we expect to file that in the early part of June.

Chris: And until we do that we won't have any other comments or be able to provide any details, but happy to discuss it once we get past that point.

Christopher Paul Sighinolfi: And then, Chris, there's really not been a change in any of our financial plans. Obviously, we talked in the fall and have continued to talk about our regulatory calendar and our regulatory recovery process, and all of that is baked into the financial plan that we outlined in the fall.

Curtis L. Dinan: And then Chris there's really not a change in any of our financial plans.

Christopher Paul Sighinolfi: Obviously, we had talked in the fall and have continued to talk about our regulatory calendar in a regulatory recovery profit and all of that is baked into the financial plan that we that we outlined in the call.

Christopher Jeffrey: Great. Thank you all. Have a great morning.

Speaker Change: Great. Thank you all have a great morning.

Speaker Change: Thank you for your question.

Operator: This concludes the ONE Gas First Quarter Earnings Conference Call-In Webcast. You may now disconnect.

Speaker Change: This concludes the one gas first quarter earnings conference call and webcast you may now disconnect.

Operator: Okay.

Operator: Yes.