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    OGS
    Earnings call· Jun 2026(Q2 FY26)

    ONE Gas Q2 FY26 earnings call OGS

    Aug 5, 2026 Source

    Executive summary

    ONE Gas Q2 FY26 — Strong Performance Driven by Regulatory Wins and Large Load Opportunities

    ONE Gas delivered a strong second quarter, exceeding expectations due to favorable regulatory outcomes, particularly in Texas, and successful execution on large load customer opportunities. The company raised its full-year adjusted EPS guidance to the upper half of its range, reflecting confidence in its strategy of disciplined investment in a 100% regulated business model. Management highlighted ongoing efforts to manage O&M costs through insourcing initiatives, despite current inflationary pressures.

    Highlights

    5

    • Adjusted EPS increased 52% to $0.82 in Q2 FY26, and 16% for the first half of the year, despite 25% warmer weather.

    • Full-year FY26 adjusted EPS guidance raised to the upper half of the range, $4.89-$4.95, supported by new rates and Texas legislation.

    • Three high-volume large load projects are now under contract, representing $15 million of incremental annual revenue and $175 million in associated capital.

    • Capacity release opportunities generated $2.8 million in revenue year-to-date, with an additional $1.2 million expected.

    • Oklahoma Natural Gas and Texas Gas Service secured rate increases of $28.7 million and $36.9 million respectively, with Kansas Gas Service seeking $14.3 million.

    Concerns

    2

    • O&M expenses increased 6.6% year-over-year in Q2 FY26, driven by elevated line locating tickets and increased fuel costs.

    • The company is experiencing increased fuel costs for its fleet due to geopolitical unrest, contributing to O&M increases.

    Guidance & targets

    4
    CategoryTargetConfidence
    Adjusted Net Income
    $310M-$314M
    high materiality
    High
    Adjusted EPS
    $4.89-$4.95
    high materiality
    High
    Annual O&M increases
    3% to 4%
    medium materiality
    High
    Dividend growth
    1% to 2%
    medium materiality
    High

    Operational metrics

    18
    Customer bill growth
    flatflat YoY
    YoY

    Average customer bill remained flat year-over-year despite strong performance.

    New revenue from new rates
    $16M
    Q2 FY26

    Approximately $16 million of new revenue was generated from new rates.

    Texas House Bill 4384 EPS contribution
    $0.28-$0.29
    H1 FY26

    The benefit from HB 4384 in the first half of the year, across GAAP and non-GAAP elements.

    Capacity release revenues
    $900,000
    Q2 FY26

    Recognized from capacity release opportunities in Kansas, shared 50-50 with customers.

    Capacity release revenues
    $2.8M
    YTD FY26

    Total capacity release revenues realized year-to-date.

    Remaining capacity release opportunities
    $1.2M
    Through injection season

    Incremental opportunities expected through the injection season.

    O&M expenses
    6.6%YoY increase
    Q2 FY26

    Increase in O&M expenses, moderating from Q1.

    Interest expense
    $3.8Mdecreased YoY
    Q2 FY26

    Decrease in interest expense compared to prior year, due in part to lower commercial paper rates.

    Rate increase application
    $28.7M
    Annual

    Annual performance-based rate change application.

    GRIP revenue increase
    $36.9M
    Annual

    First statewide GRIP filing reflecting expanded benefits of Texas House Bill 384.

    Gas Reliability Surcharge increase
    $14.3M
    Annual

    Reflects expanded recovery provisions under House Bill 2435.

    Kansas GRS maximum residential monthly surcharge
    $1.35increased from $0.80
    Monthly

    Increased under House Bill 2435.

    Kansas GRS review period
    90 daysshortened from 120 days
    null

    Shortened under House Bill 2435.

    Capital projects completed
    $188Min line with prior year
    Q2 FY26

    Capital projects completed during the quarter.

    New meters installed
    11,000
    YTD July FY26

    Residential growth driven by economic development.

    Line locating activity
    7%YoY increase
    Q2 FY26

    Increased activity largely related to fiber installation.

    Line locating damages
    6%YoY decline
    Q2 FY26

    Decline in damages attributed to operational benefits of in-sourcing.

    Watch and Protect function insourced
    40%
    Q2 FY26

    Progress on in-sourcing to enhance safety and system integrity.

    Industry KPIs

    4
    MetricValueDetails
    Adjusted operating EPS$0.82per diluted share
    Dividend per share growth$0.68per share
    Equity hybrid financing atm issuance$41.5MUSD
    Large load data center demand pipeline3 GW generation and 1 Bcf/day demand

    Orderbook & backlog

    2
    Contracted high-volume projects (incremental annual revenue)$15MQ2 FY26

    Represents incremental annual revenue from 3 contracted projects. Associated capital is $175M, with in-service dates spanning H2 2026 through 2028.

    Contracted high-volume projects (associated capital)$175MQ2 FY26

    Associated capital for 3 contracted projects, with in-service dates spanning H2 2026 through 2028. Includes Western Farmers gas-fired generation, El Paso advanced manufacturing, and an Oklahoma data center.

    Deals & partnerships

    3
    Western FarmersGas supply for new generation facility

    Includes construction of a 43-mile 24-inch pipeline in Southern Oklahoma. Construction expected to begin early 2027.

    Advanced manufacturing facilityGas service for new manufacturing facility

    Located in El Paso, expected to be placed in service this quarter.

    Data centerGas service for new data center

    Located in Oklahoma, expected to be placed in service this quarter. Leverages existing pipeline network.

    Capital programs

    1
    Western Farmers gas-fired generation projectunderway
    Start: early 2027 (construction)

    Benefit: 43-mile 24-inch pipeline

    Project in Southern Oklahoma, construction contract bidding underway, remains on track for Q3 2028 in-service date.

    Risks & headwinds

    3
    Warmer weatherH1 FY26

    25% warmer

    Mitigation: Offset by capacity release revenues and cost discipline.

    Elevated O&M expensesQ2 FY26

    increased 6.6% YoY in Q2 FY26

    Mitigation: Expect sequential growth to move meaningfully lower over H2 FY26 due to in-sourcing benefits and cost discipline.

    Increased fuel costs for fleetQ2 FY26

    Approximately 15% of $9M additional O&M expense in Q2 FY26

    Mitigation: Baked into full-year expectations; closely monitoring refined product inventories.

    What to watch in Q3 FY26

    5

    O&M expense trajectory

    H2 FY26
    Current6.6% YoY increase in Q2 FY26
    TargetMeaningfully lower sequential growth

    Why it matters

    Management expects significant moderation in O&M growth in the second half, crucial for achieving full-year EPS guidance.

    Your expectation should be meaningfully below that in the third and fourth quarters.

    Q&A highlights

    8

    Does improved regulatory contracts lead to a CapEx shift or pull-forward, and how does it affect the 5-7% long-term growth?

    Management stated that capital focus is primarily on system integrity (60-70% of budget), which is regulatory-agnostic. Growth capital is driven by customer needs, with Texas offering greater opportunities due to beneficial legislation. They expressed confidence in execution and will provide 2027 guidance later this year.

    “So where there is the opportunity the greater opportunities are or in Texas. That, again, is driven a lot by what the customer needs are and being able to respond to what's in the marketplace.”

    asked by Unknown Analyst · answered by Curtis Dinan

    2 min read5 chapters

    Detailed Narrative

    01

    Regulatory Framework and Growth Strategy

    ONE Gas operates as a 100% regulated company, focusing on strengthening its delivery system and growing the business through disciplined investment. This strategy is supported by constructive legislative and regulatory frameworks in Kansas, Oklahoma, and Texas, which attract investment and economic development. The company aims to keep long-term customer bill growth in line with inflation while delivering durable and sustainable growth.

    02

    Large Load Customer Opportunities

    The company is experiencing a broadening opportunity to serve large load customers, driven by ongoing electric load growth and the demand for reliable, dispatchable energy. Interest from gas-fired generation, data centers, and advanced manufacturing has grown significantly, creating additional avenues for long-term growth across all three service territories. Management highlighted leveraging existing pipeline networks to quickly meet customer needs for these projects.

    03

    Texas House Bill 4384 Impact

    Texas House Bill 4384 has provided significant benefits, allowing natural gas utilities to defer depreciation expense and ad valorem taxes, and accrue carrying costs on capital expenditures between project in-service and inclusion in rates. This legislation is expected to contribute approximately $0.42 to full-year EPS, with the second quarter typically representing a larger share of the annual benefit due to the cadence of annual GRIP filings.

    04

    O&M Management and In-sourcing Initiatives

    The company is actively managing O&M expenses through in-sourcing initiatives, particularly for line locating and Watch and Protect functions. These efforts have demonstrated improved quality and cost efficiency compared to external services. While Q2 O&M expenses increased year-over-year due to elevated line locating tickets and fuel costs, management expects sequential growth to moderate significantly in the second half of the year, aligning with their long-term O&M growth target of 3% to 4%.

    05

    Dividend Policy and Capital Structure

    ONE Gas maintains a credit-supportive dividend policy, with a 1% to 2% annual growth target through 2030. This strategy is designed to pivot the funding structure towards greater self-funding of capital investments, aiming to achieve the fastest EPS growth rates. The implied GAAP payout ratio has decreased to 57% this year from 68% a couple of years ago, reflecting this shift towards internal funding.

    AI-generated summary of the company’s earnings call. Not investment advice.