ONE Gas Inc. kicked off earnings season for pure-play gas utilities on a relatively positive note, keeping its earnings guidance in place and announcing a capital spending increase, even as the company faced lingering uncertainty about recovering pandemic-related costs.
The impact from COVID-19 on One Gas operations was less than expected, executives said on the company's July 28 second-quarter earnings conference call. After tempering profit guidance last quarter, the company expressed renewed confidence that it would post 2020 earnings in a range of $3.44 to $3.68 per diluted share, or $3.56 per share at the midpoint.
"Although there is still uncertainty, we believe we are on track to achieve results in line with our original guidance for 2020," One Gas Senior Vice President, CFO and Treasurer Caron Lawhorn said.
According to Lawhorn, several of the company's fears did not come to pass. The company's regulatory filings remained on track, quelling a big concern that COVID-19 would derail critical schedules.
The Tulsa, Okla.-based gas distributor has seen minimal disruptions to fieldwork, supply chains and its workforce. The pandemic's negative impact on revenues due to weaker business activity among commercial transport customers has moderated to about $50,000 per month, half of what One Gas projected in April. Project permitting did not slow down, and the economic downturn did not adversely affect interest in new gas connections, allowing growth capital plans to proceed as expected
A pace of new customer hookups in Texas and Oklahoma above the anticipated level drove One Gas's decision to increase its estimated capital expenditure budget from $475 million to a range of $500 million to $525 million for 2020. "Construction activity with our builders and developers has remained robust through the first six months of 2020, including single and multifamily construction, as well as commercial development," Senior Vice President and Chief Commercial Officer Curtis Dinan said.
One Gas's 2020 earnings guidance does not reflect the potential to recoup uncollectible payments from customers, known as bad debt, through regulatory mechanisms. All of the company's regulatory jurisdictions have adopted orders that allow utilities to defer pandemic-related expenses for accounting purposes. However, the company has not had an opportunity to file for cost treatment and is not certain what portion of expenses regulators will approve, Lawhorn said.
One Gas recorded a $3.2 million increase in bad debt expense for the quarter, bringing the year-to-date cost increase to $4 million. The company accrued $2.2 million in quarterly expenses tied to its COVID-19 response. One Gas saved $1.7 million through the quarter and $2 million year-to-date as the pandemic restricted employee travel.
One Gas reported second-quarter net income increased 3.5% from a year ago to $25.3 million. New rates in Texas and Kansas and residential customer growth offset a drop in revenues from collecting late payments and other fees. These collections were under moratorium during the quarter, but have resumed in Oklahoma and Kansas. Earnings of 48 cents per share beat the S&P Capital IQ consensus estimate for normalized EPS of 46 cents.