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One Gas to remain focused on system integrity despite expected lower cash flow

One Gas Inc. plans to continue concentrating on system improvements and pipeline safety investments, despite lower expected cash flow stemming from changes to the corporate tax code, executives said during a Feb. 22 earnings call.

"The results of tax reform will reduce our cash flows, but this will not change our business strategy or capital investment plans," said Pierce Norton, One Gas' president and CEO. "We will continue to focus on being a premier natural gas company by investing in our systems to safely deliver natural gas to our more than 2.2 million customers."

As a regulated utility, One Gas does not expect the tax changes to negatively impact its long-term growth profile but the company's customers will see lower bills, said Curtis Dinan, One Gas' senior vice president, treasurer and CFO. One Gas expects to return about $400 million to customers over the next 25 to 30 years due to income taxes cuts that factor into the cost of service consumers pay.

The lower gas bills will cut into cash flows, increasing the company's estimated financing needs by about $150 million to $200 million through 2022, executives said. One Gas may turn to equity issuance to address some of those financing needs, Dinan said.

The utility plans to work with its regulators to account for the effects of the tax code changes and bolster the company's rate of return. In the long-term, the company sees tax reform leading to faster rate base growth, executives said.

New rates contributed to an increase in 2017 earnings, but the Oklahoma-based utility expects the rate increases to have a more muted impact on earnings in 2018 compared to previous years, largely because of outstanding regulatory lag on capital investment cost recovery.

One Gas forecasts 2018 CapEx at $375 million, compared to $356.4 million in 2017, consistently allocating over 70% for system integrity and pipe replacement projects. CapEx for 2017 was higher than the $309 million spent in 2016 due to increased spending on system integrity and service extensions to new areas. The utility expects to maintain CapEx of between $375 million and $415 million through 2022.

One Gas reported an increase in net income both in the fourth quarter and full year 2017 due to new rates in Kansas and Texas, higher volumes from customers in Kansas and Oklahoma, and residential customer growth in Oklahoma and Texas, according to a Feb. 21 earnings release. Fourth-quarter net income rose to $47.1 million, or 89 cents per share, compared to $42.3 million, or 80 cents per share, in the year-ago quarter. Net income in 2017 also grew to $163 million, or $3.08 per share, up from $140.1 million, or $2.65 per share, in 2016.