Annual Report 2021Creating Value
Recognized for Safety Excellence
Ranks in the top quartile for similar-sized local distribution companies for all three personal safety metrics as recognized by the AGA
Opened State-of-the-Art Training Center
17,000 sq feet of hands-on simulation training
Supporting Energy Choice
Supported "Energy Choice" legislation in Kansas, Oklahoma and Texas which passed in all three states.
Renewable Natural Gas (RNG)
22 active projects in various stages of development
Renewable Natural Gas (RNG)
Authorized to spend $5 million annually in Oklahoma to purchase RNG as part of our supply portfolio.
Supporting Our Communities
Contributed $3.26 million in ONE Gas Foundation grants and community giving
Giving for Greenwood
Funded initiatives that observed the 1921 Tulsa Race Massacre Centennial
Expanded Focus on Sustanability
Established the ONE Gas Environmental, Social and Governance (ESG) Steering Committee
For A BETTER Tomorrow
To Our Fellow Shareholders:
In 2021, ONE Gas continued to execute on its mission to deliver natural gas for a better tomorrow. Our mission is forward-looking and future-focused, building on our legacy of safely delivering reliable and affordable natural gas to our 2.2 million customers.
Planning for our future includes anticipating opportunities and building on our strengths. Those strengths include a dedicated workforce of 3,600 talented individuals and a reliable and resilient energy system serving a vibrant, growing service territory.
Our business strategy as a 100% regulated natural gas distribution company guides our decisions and focuses on creating value for our stakeholders. To that end, we’re pleased to present the results of our work in this year’s annual report.
2021 Financial Performance at a Glance
New revenues from investments in system integrity and expansion of services to meet customer growth contributed to our healthy financial position. In 2021, net income increased to $206 million compared with $196 million in 2020. Diluted earnings per share increased approximately 5% to $3.85 compared to $3.68 per diluted share last year. Paid dividends rose 7.4% in 2021 versus the prior year and we increased our quarterly payout by an additional 6.9% in the first quarter 2022.
During Winter Storm Uri, the strength of our balance sheet allowed us to raise over $2.5 billion of interim debt financing to pay for increased purchased gas costs as a result of higher market pricing and higher usage due to extreme cold. Thanks to the hard work of our employees and collaboration with legislators and regulators, securitization will allow us to mitigate the financial impact of the storm on our customers. Excluding the interim storm financing, we finished the year with an equity capitalization of approximately 60%.
Well-Defined Capital Investment Plan
System modernization remains a pivotal way we enhance our pipeline safety and reliability. This requires ongoing capital investments and a portfolio of regulatory mechanisms that support continuous improvements to our systems and recovery of those investments. Ninety percent of our capital investments are included in annual regulatory filings.
In 2021, we invested $544 million in capital projects, a 6% increase over 2020. In addition to system integrity and replacements, this investment allows us to capitalize on the significant organic growth opportunities in our service territory, which includes some of the fastest-growing cities in the U.S.
The critical importance of these integrity investments in maintaining the reliability of our distribution systems was proven in February 2021 when Winter Storm Uri caused unprecedented strain on energy resources across our service area, which included the coldest day recorded in over a century. Despite the challenges brought on by the storm, our systems continued to provide natural gas to our residential customers and critical care facilities in the communities we serve, keeping them safe and warm.
Focused on the Future
Since day one, creating value has been our commitment. How we create that value in new ways is our opportunity. For 2022, we’ve refined our strategy with a focus on growth and a clear vision for our role in a cleaner energy future.
Our strategy includes an increase in capital spending driven by continued investments in system integrity and reliability and to support new levels of customer growth. This investment also improves the emissions profile of our systems.
In 2022 and the years to come, we will measure the value we create with five key strategic areas of focus.
Safe and Reliable Energy
Safety remains our primary focus — the safety of our employees, customers, communities, systems and operations is woven into everything we do. We also are committed to continuous improvement. We will continue to refine our training, processes and procedures to achieve our goal of zero harm.
System modernization also is pivotal to enhancing pipeline safety and reliability and reducing our environmental impact. New initiatives to reduce ourthird-party damages, which can create safety issuesand disrupt planned work and customer service, also are underway. We will strengthen and expand our cybersecurity defense and response capabilities through state-of-the-art security solutions and frequent staff training.
Capital Demand Growth
We are expanding our core business by capitalizing on the significant organic growth opportunities in our service territory. Total capital spending for the next five years is anticipated to be $3.5 billion, an increase of 19%, or $500 million, from the previous five-year plan. Investments in system integrity represent about half of the increase in spending expected in 2022. The other half of the increase is for growth as we continue to execute on opportunities to expand our systems to reach new customers.
On average, we expect to see approximately 1.2% annual customer growth across our entire service territory over the five-year period, with the most growth in Texas, where we expect customer growth to approach 2%. The growth capital we plan to spend in 2022 and 2023 includes mainline extensions to build out additional infrastructure that supports several new master planned communities near Austin, Texas, the fastest-growing major metro in the U.S.
Energy Transition Solutions
Our transition to a clean energy future is another addition to our strategic plan. Over the past year, we’ve been intentional and transparent about our approach to setting climate-related goals. We announced a goal to achieve a 55% reduction in emissions due to leaks from distribution pipelines by 2035 from a 2005 baseline, a goal that includes projected future growth of our assets.
We also will pursue new opportunities to lower net methane emissions, like transporting renewable natural gas (RNG) on our systems. Our service territory is in an area of the country with abundant supplies of feedstock that can be converted into RNG, and our assets are well-positioned to support the use of RNG.
We begin 2022 with a total of 22 active RNG projects. Many of these projects originate from approximately 175 Bcf of potential RNG feedstock that has been identified across our territories through our partnership with Vanguard Renewables. We expect the momentum and demand for RNG to continue as many of our customers, including residential, commercial and industrial transport customers, look to reduce their emissions.
Affordability is a key differentiator for natural gas in the energy transition underway. Natural gas is also in demand. The American Gas Association estimates one new residential customer signs up for natural gas service every minute, and approximately 60 businesses begin new natural gas service everyday. ONE Gas plays a critical role in meeting the peak energy needs of our customers and does soat a competitive price – natural gas maintains a competitive price advantage of approximately 3.3-to-1 compared with electricity in our service areas.
We’re working to expand our energy efficiency programs to new customers and new markets. These programs, including rebates and water conservation kits, help customers make smarter, cost-saving energy choices that benefit them and the environment. We’re also working to expand our low-income programs to help customers with financial hardships.
We firmly believe that every employee makes a difference and contributes to our success. We’ve seen firsthand how an inclusive work culture, where all viewpoints are welcome, creates an engaged and high-performing workforce and an environment where top talent wants to work.
We continue enhancing our programs and policies to attract diverse talent, provide professional development opportunities and offer benefits that support our employees’ physical, social, emotional and financial health.
Our safety metrics and annual employee engagement survey, which focuses on company values, provide insight into the effectiveness of these efforts.
Our 2021 performance positions us well to build on our legacy of safely delivering reliable and affordable natural gas to our customers while protecting our planet for a better tomorrow.
Our focus on growth while reducing emissions leverages the unique opportunities presented by our assets to meet our customers’ demand for affordable, reliable and renewable energy, now and into the future. See our environmental, social and governance milestones at esg.onegas.com.
We remain confident that natural gas and our vast utility infrastructure will play a critical role as the U.S. moves toward achieving emissions reduction goals and increasing the use of renewable energy sources while supplying reliable and affordable energy.
Every day, groups across our company explore new ways our systems can play a role in a sustainable energy future. Their innovation will allow us to make even more headway to reduce our emissions and the emissions of our customers. We look forward to showing you our progress along the way.
Thank you for your support and interest in ONE Gas.
John W. Gibson
ONE Gas, Inc.
Robert S. McAnnally
President and CEO
ONE Gas, Inc.
We reported 2021 net income of $206 million, or $3.85 per diluted share, compared with $196 million, or $3.68 per diluted share, in 2020; and 2021 capital expenditures and asset removal costs of $544 million, compared with $512 million in 2020. Our 2021 operating income increased $6.8 million compared with last year, which primarily is reflective of new rates along with higher revenues due to an increase in our average residential customer count in our service territories.
In 2022, our diluted earnings per share performance is expected to be within a range of $3.96 to $4.20 per
share. Our 2022 capital expenditures and asset removal costs are expected to be approximately $650 million.
On Jan. 18, 2022, the ONE Gas Board of Directors increased the quarterly dividend by 4 cents per shareto 62 cents per share, effective for first-quarter 2022, resulting in an annualized dividend of $2.48 per share.
Our average annual dividend growth rate is expected to increase 6% to 8% through 2026 with a targeted dividend payout ratio of 55% to 65% of net income, all subject to board approval.
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Serving Over 2 Million Customers
ONE Gas, Inc. is a 100% regulated natural gas utility and trades on the New York Stock Exchange under the symbol “OGS.” ONE Gas is included in the S&P MidCap 400 Index and is one of the largest natural gas utilities in the United States.
We provide natural gas distribution services to approximately 2.2 million customers in Kansas, Oklahoma and Texas. We are headquartered in Tulsa, Oklahoma.
72% market share, the largest in Kansas.
Mission, Vision & Strategy
To deliver natural gas for a better tomorrow.
To be a premier natural gas distribution company, creating exceptional value for our stakeholders.
Safe and reliable energy | High-performing workforce | Capital demand growth | Energy transition solutions | Customer affordability.
Our Core Values
We are committed to operating safely and in an environmentally responsible manner.
We are accountable to the highest ethical standards and are committed to compliance. Honesty, trust and integrity matter.
Inclusion & Diversity
We embrace an inclusive and diverse culture that encourages collaboration. Every employee makes a difference and contributes to our success.
We provide exceptional service and make continuous improvements in our pursuit of excellence.
We create value for all stakeholders, including our customers, employees, investors and communities.
Our Team of
Executivesas of April 1, 2022
Robert S. McAnnally, 58President and Chief Executive Officer
Curtis L. Dinan, 54Senior Vice President and Chief Operating Officer
W. Kent Shortridge, 55Senior Vice President, Operations and Customer Service
Caron A. Lawhorn, 61Senior Vice President and Chief Financial Officer
Joseph L. McCormick, 62Senior Vice President, General Counsel and Assistant Secretary
Mark. A. Bender, 57Senior Vice President, Administration and Chief Information Officer
Julie A. White, 51Vice President, Communications, and Inclusion & Diversity
Our Board of