One Gas (OGS) Q1 2026: Storage Expansion Saves $98M Amid Warmest Winter in Decades
One Gas delivered resilient earnings growth despite a 25 percent warmer winter, leveraging expanded storage capacity and regulatory flexibility to offset weather-driven demand volatility. The company’s operational discipline and regulatory strategy enabled it to affirm guidance, while ongoing cost initiatives and large-load customer wins signal a pragmatic approach to long-term growth. Investors should watch for further capital-light project wins and evolving rate recovery mechanisms as the utility navigates an unpredictable demand environment.
Summary
- Storage Strategy Shields Results: Expanded gas storage capacity mitigated extreme weather volatility and protected margins.
- Operational Discipline Offsets Headwinds: Ongoing cost initiatives and regulatory mechanisms supported earnings resilience.
- Large-Load Growth Pipeline Expands: New data center and industrial projects could drive incremental demand and future upside.
Business Overview
One Gas is a regulated natural gas utility serving residential, commercial, and industrial customers across Kansas, Oklahoma, and Texas. The company generates revenue through gas distribution, with its major segments including Oklahoma Natural Gas, Texas Gas Service, and Kansas Gas Service. Earnings are primarily driven by regulated rates, customer growth, and infrastructure investments, while regulatory mechanisms such as weather normalization and infrastructure surcharges help stabilize results.
Performance Analysis
Despite one of the warmest winters on record—25 percent warmer than the prior year—One Gas posted year-over-year adjusted EPS growth, demonstrating the strength of its regulatory model and operational flexibility. The quarter saw new rate implementations and the benefit of Texas House Bill 4384, which together contributed $27 million in incremental revenue. Storage optimization was a standout, with the company’s 20 percent increase in storage capacity since winter storm URI saving $98 million versus spot gas purchases during January’s brief cold snap.
Operating and maintenance (O&M) expenses increased 8.6 percent year over year, largely from higher employee costs and a surge in line locating activity tied to fiber installations. Depreciation and interest expenses both declined, aided by regulatory changes and lower rates. While cash flows were impacted by lower winter demand and higher storage balances, management expects normalization over the remainder of the year. Key regulatory filings in Oklahoma and Texas, and an upcoming Kansas surcharge expansion, underpin future rate recovery and capital deployment.
- Regulatory Revenue Levers: New rate filings and legislative changes are driving incremental revenue, offsetting weather-driven volume declines.
- O&M Cost Pressures: Employee-related costs and increased line locating activity are pressuring O&M, but insourcing and automation initiatives are providing partial offsets.
- Capital Deployment in Focus: $170 million of capital projects were completed, with larger projects like the Western Farmers pipeline on track for future service.
With no major rate cases planned until 2027, near-term performance will depend on execution of cost controls, regulatory recovery, and the pace of new customer additions, especially from large-load projects.
Executive Commentary
"Our 20 percent increase in storage capacity since winter storm URI allowed us to shield customers from price volatility and save $98 million relative to purchasing gas at spot prices. Ultimately, this performance reflects the same focus that guides our business every day. Safe, reliable, and affordable service to our customers and long-term value creation for our investors."
Sid McAnally, Chief Executive Officer
"First quarter revenues reflect an increase of approximately $27 million from new rates. Depreciation and amortization expense was down 6 percent year over year, and interest expense was down 9 percent... We continue to be opportunistic about issuing equity as we meet our remaining needs. Our balance sheet remains strong."
Chris Signolfi, Senior Vice President and Chief Financial Officer
Strategic Positioning
1. Storage and Weather Normalization as Competitive Moat
Expanded storage capacity and effective weather normalization mechanisms have proven critical in managing extreme demand volatility. The company’s ability to monetize excess capacity and shield customers from price shocks supports both regulatory goodwill and earnings stability.
2. Regulatory Agility and Rate Recovery
One Gas is leveraging performance-based rate changes, infrastructure surcharges, and legislative changes to drive recurring revenue growth. The Kansas GSRS amendment, for example, expands eligible investments and increases recovery caps, providing future rate base expansion and cost recovery flexibility.
3. Capital-Light Growth from Large-Load Customers
Recent wins such as the 20 million cubic feet per day data center agreement in Oklahoma highlight the company’s ability to add incremental load with minimal capital outlay. Six late-stage projects, including manufacturing and utility generation, could further diversify demand and enhance system utilization.
4. Operational Efficiency Through Insourcing and Automation
Ongoing insourcing of line locating and the Watch and Protect function, combined with AI-driven process improvements, are delivering tangible labor savings and risk reduction. These initiatives are expected to support O&M containment and enhance system integrity over time.
5. Disciplined Capital Allocation and Balance Sheet Strength
Opportunistic equity issuance, stable dividend policy, and prudent capital deployment underpin a solid credit profile and preserve financial flexibility for future growth investments.
Key Considerations
This quarter underscores One Gas’s ability to balance short-term weather-driven volatility with long-term strategic execution. The interplay between regulatory mechanisms, operational discipline, and capital-light growth opportunities will define the company’s ability to deliver on its guidance and growth ambitions.
Key Considerations:
- Weather Volatility Management: Expanded storage and weather normalization mechanisms are essential for offsetting unpredictable demand swings.
- Regulatory Tailwinds: Recent and pending rate filings, legislative changes, and surcharges will drive revenue stability and enable continued infrastructure investment.
- O&M Cost Containment: Insourcing and automation are counterbalancing wage and activity-driven O&M pressures, but sustained discipline is needed as labor and activity levels rise.
- Large-Load Project Pipeline: New data center and manufacturing load wins offer upside, though timing and capital requirements remain variable.
- Capital Allocation Flexibility: Opportunistic equity issuance and disciplined project deferral provide management with levers to manage through macro and regulatory uncertainty.
Risks
Persistent weather volatility and a slower pace of residential housing starts could dampen near-term volumetric growth, while rising O&M costs may pressure margins if not offset by efficiency gains. Regulatory lag, particularly in the absence of major rate cases until 2027, could constrain earnings momentum if cost pressures outpace allowed recovery. Execution risk around large-load customer projects and potential regulatory changes to weather normalization mechanisms remain key watchpoints.
Forward Outlook
For Q2 2026, One Gas guided to:
- Continued earnings momentum supported by new rate implementations and storage optimization
- O&M expense growth in line with the company’s 3 to 4 percent five-year CAGR target
For full-year 2026, management affirmed guidance:
- Adjusted net income of $306 million to $314 million
- Adjusted EPS of $4.83 to $4.95
Management highlighted several factors that will shape results:
- Normalization of storage-related cash flow impacts as the year progresses
- Potential upside from late-stage large-load customer projects as contracts are finalized
Takeaways
One Gas’s Q1 results reinforce its ability to deliver steady earnings even in the face of extreme weather volatility, by leveraging regulatory tools, storage assets, and operational discipline. The company’s evolving large-load customer pipeline and cost management initiatives offer potential for incremental upside, but execution and regulatory timing will be critical as the year unfolds.
- Storage and rate recovery mechanisms are proving essential to earnings resilience, as evidenced by $98 million in avoided spot gas costs and incremental revenue from new rates.
- Cost containment remains a strategic priority, with insourcing and automation partially offsetting O&M headwinds from labor and activity spikes.
- Investors should monitor the timing and magnitude of large-load project wins, as well as the pace of regulatory approvals and cost recovery, to gauge future earnings potential.
Conclusion
One Gas’s disciplined execution and regulatory agility allowed it to deliver earnings growth and affirm guidance despite historic weather headwinds. The company’s focus on storage optimization, operational efficiency, and capital-light growth opportunities positions it well for continued stability and selective upside, but investors should remain attentive to evolving cost pressures and regulatory developments as the year progresses.
Industry Read-Through
One Gas’s ability to offset weather-driven demand volatility through storage expansion and regulatory flexibility highlights a key competitive advantage for regulated gas utilities facing climate unpredictability. The successful use of weather normalization and capacity release mechanisms may serve as a model for peers navigating similar demand swings. Additionally, the trend toward capital-light load growth from data centers and industrial customers is likely to accelerate across the utility sector, providing incremental demand without outsized capital risk. As automation and insourcing gain traction, O&M containment will become an increasingly important differentiator among utilities facing rising labor and infrastructure costs. The regulatory environment remains fluid, and companies with proactive rate strategies and flexible capital allocation will be best positioned to manage both near-term shocks and long-term transition risks.