Curtis Dinan - Senior Vice President, Chief Financial Officer and Treasurer Pierce Norton - President, Chief Executive Officer

Good day, everyone. And welcome to the ONE Gas fourth quarter year-end earnings conference call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Curtis Dinan. Please go ahead, sir.

Good morning, and thank you for joining us on our fourth quarter and year-end 2017 earnings conference call. This call is being webcast live and a replay will be made available. After our prepared remarks, we would be happy to take your questions. A reminder that 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 provision of the Securities Acts of [Audio Gap].

Good morning everyone. The natural gas industry spends billions of dollars each year toward the integrity and safety of our systems. In the case of ONE Gas, we have invested $1.3 billion since we became a publically traded company in 2014 and more than 70% of these capital expenditures were spent to improve our asset safety and reliability. We are pleased that there was an acknowledgment by the authors of the Tax Cuts and Job Act of 2017 that two business models exist in the U.S., one being a non-regulated model and the other being a regulated model. This recognition created a targeted solution of tax reform that allows a utility to continue investing in critical infrastructure while at the same time passing the benefit of lower cost to the customer through the reduction of federal taxes collected. Now that the tax reform legislation is final, we look forward to working with our regulators to ensure our customers' benefits from the lower tax rate and we’ll continue to stay the course with our 20 plus year asset replacement plans. We realize tax reform has generated questions and Curtis will elaborate on the impact to ONE Gas in his remarks. Curtis, I'll turn it back over to you for the review of our financials and to discuss tax reform.

Thanks Pierce. Beginning with our financial results, in the fourth quarter, net income was $47.1 million or $0.89 per diluted share compared with $42.3 million or $0.80 per diluted share for the same period last year. Results are positively impacted by new rates, which include the effect of our recent rate filings in Kansas and Texas and higher volumes from transportation customers in Kansas and Oklahoma. Operating cost for the fourth quarter decreased $3.3 million compared with the same period last year, and capital expenditures increased $30 million compared with the same period last year. For full year 2017, net income was $163 million or $3.08 per diluted share compared with $140 million or $2.65 per diluted share for 2016. Excluding the one-time items related to adoption of the share based compensation accounting standard, accounting authority order in Kansas and tax reform that we quantified in our earnings release, our 2017 diluted earnings per share would have been $2.95 or $0.13 lower than our reported results. Our full year results benefited from new rates in Texas and Kansas; the impact of weather normalization mechanisms, which offset warmer than normal weather this year; higher volumes from transportation customers in Kansas and Oklahoma; and residential customer growth in Oklahoma and Texas, we averaged 14,000 more customers in 2017, which is an increase of approximately 0.7% compared with 2016 and is comparable with the growth we have experienced over the past 10 years. In 2017, our capital spending remained predominantly focused on maintaining the safety and reliability of our systems and capital expenditures increased $47.4 million compared with 2016. We also continued to spend capital to support customer growth and make investments in technology to improve efficiencies and manage cost. Last month ONE Gas Board of Directors declared a dividend of $0.46 per…

Thanks Curtis. I'd like to give you a brief regulatory update followed by a summary on tax reform from a regulatory standpoint, so starting with Oklahoma. In mid-March we plan to file the second annual performance base rate change application, since the general rate case that was approved in January of 2016. As with the prior annual filings, we will update our cost of service and rate base amounts. The performance based rate mechanism will also allow us to incorporate the impact of tax reform in our rates. We anticipate that process to be completed later this summer. Now onto Kansas. In November, the Kansas Corporation Commission approved Kansas Gas Services’ request for interim rate relief under the Gas System Reliability Surcharge rider for $2.9 million. Rates became effective in December. Also, in November, the Kansas Corporation Commission approved a settlement agreement regarding KGS's application seeking approval of an accounting authority order associated with the cost incurred at its 12 former manufactured gas plant sites. We are expecting to file our next general rate case in Kansas by July 2018, based on a 2017 test year. The impacts of tax reform will be reflected through our file cost of service. Turning to Kansas legislation matters. On February 8th, an amended version of Senate Bill 279 regarding the Gas System Reliability Surcharge mechanism passed out of the Kansas Senate Utilities Committee and is expected to be heard by the full senate today. The amendments to the bill were drafted by Kansas Gas Utilities in response to feedback from the Kansas Corporation Commission staff. In its current form, Senate Bill 279 proposes to expand the scope of safety related capital investments that qualify under the GRS statute. In addition, the cap on the surcharge would be increased to $0.80 per residential customer…

Thank you for joining us this morning. Our quiet period for the first quarter starts when we close our books in early April and extends until we release earnings in early May. We'll provide details on the conference call at a later date. Have a great rest of your day.

Ladies and gentlemen, that does conclude today's presentation. We do thank everyone for your participation. And you may now disconnect.